TMG Asia Pacific rolls over in Federal Court

In an earlier post, we reported on Federal Court action by ACCC against TMG Asia Pacific Pty Ltd ACN 119 828 698.  ACCC alleged that the company had engaged in false, misleading and deceptive conduct in contravention of the Trade Practices Act 1974.

According to the ACCC, advertisements for three premium-SMS based competitions run by TMG failed to adequately disclose:

• that to be eligible for the prize, participants were required to pay a $5 joining fee and respond to a maximum of 10 quiz questions at $5 each
• participating in the quiz also resulted in the consumer signing up to a subscription quiz consisting of six SMS messages per month at the cost of $5 each, and
• that prizes could not be awarded to residents of the ACT, Victoria and Queensland even though they would be charged for the service.

On 1 October 2008, the case settled in the Federal Court.  TMG rolled over and gave the ACCC what it wanted.

We explain the outcome, and how companies can deliver cost effective trade practices compliance programs.

What the court found

The Court declared that:

• TMG had caused advertisements to be broadcast in Western Australia, New South Wales, Victoria, Queensland, South Australia, Tasmania, the Northern Territory and the Australian Capital Territory, between November 2007 and August 2008.
• The advertisements represented that:
  • a consumer responding to the advertisements was entering a one-off competition
  • a consumer would be charged the price of one text message for entering the competition in response to the advertisements
  • the total price that a consumer would be charged in order to become eligible to be awarded a prize would be the price of one text message
  • any consumer responding to the advertisements would be eligible to be awarded a prize in respect of the competition irrespective of the State or Territory in which the consumer normally resided.
• They failed to tell people that:
  • a consumer responding to the advertisements was entering both a competition consisting of a maximum of 10 questions and a subscription service consisting of 6 messages per month
  • the consumer could receive a further message requesting the consumer’s address and up to 2 messages with details about the knock-out final of the competition
  • by entering the competition, the consumer would be charged a one-off joining fee of $5, and at least an additional $5 for receiving a message
  • for a consumer to become eligible to win a prize, the consumer would be charged a one-off joining fee of $5, and all messages received by the consumer thereafter in order to qualify for the prize would be charged at $5 each, with each message sent by the consumer charged at $0.25 each
  • a consumer was not eligible to be awarded a prize in respect of the competition if the consumer normally resided in Victoria, Queensland or the Australian Capital Territory, but would still incur the costs associated with entering the service.
• As a result, TMG:
  • engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act
  • in connexion with the supply or possible supply of, or the promotion of the supply of services, made false or misleading representations with respect to the price of services in contravention of s 53(e) of the Act
  • in connexion with the supply or possible supply of, or with the promotion of the supply of services, made false or misleading representations with respect to the existence of a right of the consumer against the Respondent in contravention of s 53(g) of the Act.

What the court ordered

The court ordered that:

• TMG be restrained for years from supplying, or offering to supply a premium mobile telephone content service by way of subscription without disclosing:
  • that the content service being provided is a subscription service; and
  • what the person will receive from the subscription service.
• TMG be restrained for 3 years from supplying, or offering to supply a premium mobile telephone content service without disclosing the actual charges to be incurred for acquiring the content service.
• TMG be restrained for 3 years from making representations as to the price of the content service without disclosing all conditions which apply to the price of the content service.
• TMG be restrained for 3 years from making representations as to eligibility for being awarded a prize in a competition without disclosing all conditions which apply to such eligibility.
• TMG be restrained for 3 years from supplying, or offering to supply, to any person, a premium mobile telephone content service involving a prize, without disclosing to the person the charges to be incurred in order for the person to be eligible to win the prize.
• TMG cause to be broadcast nationally a corrective advertisement that the Court has:
  • declared that, by causing each of the advertisements to be broadcast, TMG has engaged in conduct in contravention of sections 52 and 53 of the Act; and
  • made an order preventing TMG from engaging in such conduct in the future.
• TMG:
  • within 3 months establish and maintain for 3 years a trade practices compliance program for directors, employees or other persons involved in its business which is designed to ensure an awareness of the consumer protection provisions under sections 52 and 53 of the Act
  • subject to the compliance program being tailored to TMG’s circumstances, make reasonable endeavours to ensure it is consistent with the Australian Standard on Compliance Programs AS3806
  • within 1 month appoint a person with experience in trade practices law to advise TMG as to the content of the compliance program
  • within 3 months provide a written report to the ACCC on the content of the compliance program and provide a further report to the ACCC on the implementation and administration of the compliance program at the conclusion of each period of twelve months during which the compliance program is being implemented and administered.

• TMG pay the ACCC’s costs in the agreed amount of $15,000.

Our take on it

As far as we could tell ‘from a distance’ the ACCC had a very strong case from the start.

TMG’s lawyers have done a good job in helping the company face up to the facts and bail out of the case at an early date.  It wouldn’t have been a pretty sight if it had gone to a hearing.

The orders are fairly standard but include a couple of potential traps:

• We never like court orders or undertakings that reference an Australian Standard as any kind of benchmark. The Standards can be long, complex and vague – increasing the risk that the ACCC’s view of what’s required is different from the trader’s. You don’t want differences of opinion over court orders or what constitutes compliance with them.
• The reference to ‘a trade practices compliance program for directors, employees or other persons involved in its business’ is also too vague. It may imply that such persons must actually undertake the program (as opposed to a program simply being developed and available for them, if they wish to undertake it). If that’s so, who are the ‘other persons involved’ ? It seems uncertain. Again, uncertainty regarding court order compliance isn’t good.

The 3 year restraints expose TMG to contempt and other ‘heavy’ enforcement actions if they step over the lines that have been drawn.  In a sense, it’s ‘double or nothing’.  TMG hasn’t been fined on this occasion, but future breaches will be at much greater risk.

What has the episode cost TMG all-up ?

Of course, we can’t be sure.  We don’t know how their lawyers charge or how much they’ll end up spending on a compliance program or the corrective advertisement.

But we’d guesstimate that the all-up costs will end up between $50,000 and $100,000.

Running an efficient compliance program

In an earlier post, we explained how a smart multimedia and online approach can deliver an efficient, cost effective compliance program.