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This is the author’s version of a work that was submitted/accepted for publication in the following source: Corones, Stephen G. (2014) Misleading conduct arising from public statements : establishing the knowledge base of the target audience. Melbourne University Law Review, 38(1), pp. 281-315. This file was downloaded from: http://eprints.qut.edu.au/77514/

c Copyright 2014 Melbourne University Law Review Association

Inc.

Notice: Changes introduced as a result of publishing processes such as copy-editing and formatting may not be reflected in this document. For a definitive version of this work, please refer to the published source:

Misleading conduct arising from public knowledge base of the target audience

statements:

establishing

the

Stephen Corones* [ Despite the very substantial body of primary sources and secondary literature on Australia’s muchlitigated statutory provisions proscribing misleading or deceptive conduct, the courts have provided little in the way of assistance about how to establish the knowledge base of the target audience at whom the public statement was directed. The purpose of this case note is to compare and contrast two recent decisions of the High Court of Australia that highlight the difficulties faced by applicants in attempting to establish a contravention of the relevant legislation where conduct is directed at a segment of the public or the public as a whole.]

I Introduction Section 52 of the Trade Practices Act 1974 (Cth) (TPA) contained a prohibition of conduct in trade or commerce that was “misleading or deceptive or likely to mislead or deceive”. It provided the basis for a statutory cause of action for damages. It has been replaced by s18 of the Australian Consumer Law (ACL). The ACL is located in Sch 2 of the Competition and Consumer Act, 2010 (Cth). The legislative transition from the TPA to the ACL came about as a result of a desire to bring together in one place the consumer protection provisions of the former TPA and to have a single national generic consumer 1 law that applies uniformly in all jurisdictions – Commonwealth, States and Territories. The catalyst for the ACL reforms was the two studies completed by the Productivity Commission (PC): the 2006 2 report, Review of the Australian Consumer Product Safety System, and the 2008 report, Consumer 3 Policy Review of Australia's Framework.

* Stephen Corones is a Professor at the Faculty of Law, Queensland University of Technology and a Member of the Commonwealth Consumer Affairs Advisory Council.

1

The first stage of the ACL reforms, the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) was passed on 17 March 2010. The second stage of the ACL reforms, the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) was passed on 24 June 2010. For a consideration of the background and context of the reforms see Malbon J and Nottage L (eds), Consumer Law & Policy (Federation Press, Sydney, 2013), Ch 1,

2

Productivity Commission Review of the Australian Consumer Product Safety System: Research Report (7 February 2006) . The PC's report is available at http://www.pc.gov.au/projects/study/productsafety/docs/finalreport. 3

Productivity Commission, Review of Australia's Consumer Policy Framework, Final Report (2008 Canberra). The PC's report is available at http://www.pc.gov.au/projects/inquiry/consumer/docs/finalreport. 1

4

Section 52 of the TPA was the model for s 1041H of the Corporations Act 2001 (Cth). To determine whether conduct is misleading for the purposes of s 1041H, the Courts apply the same principles that were applied in relation to s 52 of the TPA, and now apply in relation to s 18 of the ACL. Section 52 of the TPA was also the model for s 12DA of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) which prohibits misleading or deceptive conduct in relation to financial services or financial products. Parliament did not define the term “misleading conduct” in s 52 of the TPA, and it is not defined for the purposes of s 18 of the ACL or s 1041H of the Corporations Act or s 12DA of the ASIC Act. In the absence of a statutory definition the scope of the concept and the level of protection it affords is left to the judiciary. In 1993, Lockhart and Gummow JJ in Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd observed: … the evident purpose and policy underlying Pt V, which includes s 52, recommends a broad construction of its constituent provisions, the legislation being of a remedial character so that it should be construed so as to give the fullest relief which the fair meaning of its language will allow. 5 There are limits to the scope of the protection available. In 1982 the High Court determined that s 52 did not protect the unusually stupid or obtuse, or those who did not take reasonable steps to protect their own interests. These principles were established in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd. In that case, Gibbs CJ held: Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the gullible as well as the astute, the section must in my opinion by regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens, which the section creates, cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests. 6 These principles were subsequently confirmed by the High Court in Campomar Sociedad Limitada v Nike International Ltd: It is in these cases of representations to the public… that there enter the “ordinary” or “reasonable” members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the “ordinary” or “reasonable” members of that class, 7 there is an objective attribution of certain characteristics. The High Court then stated: Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to 8 isolate by some criterion a representative member of that class.

4

Forrest v Australian Securities and Investment Commission; Fortescue Metals Group Ltd v Australian Securities and Investment Commission [2012] HCA 39 at [103] (Heydon J).

5

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470 at 503.

6

(1982) 149 CLR 191 at 199. See also Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Ltd (2010) 241 CLR 357 at 371 [22] per French CJ and Kiefel J.

7

8

(2000) 202 CLR 45 at [102]. (2000) 202 CLR 45 at [103].

2

According to this approach it is necessary to consider the message that was conveyed by the public statement to a reasonable member of the target audience. The test is a highly flexible one. The ordinary or reasonable consumer does not exist in the abstract, but depends on the specific context in which the public statement was made. It is open to widely differing views about the relevant target audience, and the level of knowledge to be imputed to a reasonable member of that target audience. The level of knowledge to be imputed to a reasonable member of the pleaded target audience will be crucial for the obvious reason that the more sophisticated and knowledgeable the audience, the more difficult it will be to prove that a reasonable member of that audience would be likely to be misled by the statement at issue. Despite the very substantial body of primary sources and secondary literature on Australia’s muchlitigated statutory provisions proscribing misleading or deceptive conduct, the courts have provided little in the way of assistance about how to establish the knowledge base of the target audience at whom the public statement was directed. The purpose of this case note is to compare and contrast two recent decisions of the High Court of Australia that highlight the difficulties faced by applicants in attempting to establish a contravention of the relevant legislation where conduct is directed at a segment of the public or the public as a whole. In Australian Competition and Consumer Commission v TPG Internet Pty Ltd, the ACCC was successful in the Federal Court at first instance with the primary judge finding that an ordinary or reasonable member of the target audience would not have assumed that ADSL2+ services were bundled when this was not immediately apparent, and that the “dominant message” of the 9 advertisements was that the entire cost of the service was only $29.99 per month. The ACCC lost an 10 appeal by TPG to the Full Federal Court. The Full Federal Court held that a reasonable consumer would have read the advertisement in its entirety, not just the “dominant message”, and that the bundling condition could not have been missed except on a “perfunctory” viewing or listening. The High Court majority upheld the ACCC’s appeal and agreed with the primary judge that TPG’s 11 advertising stratagems were misleading. 12

In the second case, Forrest v Australian Securities and Investment Commission, the issue was whether Fortescue Metals Group Ltd (FMG) and its chief executive, Mr Forrest, had contravened s1041H of the Corporations Act 2001 (Cth), by announcing to investors and potential investors in FMG shares in emphatic, unequivocal and unqualified terms that FMG had entered into “binding contracts” with Chinese State-owned entities, when, in fact, the contracts were not legally binding. At 13 first instance, Forrest and FMG were successful in the Federal Court, but lost an appeal by ASIC to 14 the Full Federal Court, which unanimously upheld the appeal. On a further appeal, the High Court

9

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2011] FCA 254 (4 November 2011) (Murphy J). 10

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 (20 December 2012) (Jacobson, Bennett and Gilmour JJ). 11

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 (12 December 2013) (French CJ, Crennan, Bell,and Keane JJ, Gagler J dissenting) 12

Forrest v Australian Securities and Investment Commission; Fortescue Metals Group Ltd v Australian Securities and Investment Commission [2012] HCA 39. 13

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 (Gilmour J). 14

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 (Keane CJ, with whom Emmett and Finkelstein JJ agreed).

3

unanimously found that FMG and Forrest had not engaged in misleading conduct.

15

In comparing and contrasting these two cases attention will focus on: • • •

first, how the relevant target audience was defined and the evidence relied upon in defining it; secondly, the level of knowledge imputed to a reasonable member of the target audience, and the evidence relied upon in imputing that level of knowledge; and thirdly, the message that was conveyed to a reasonable member of the target audience and the evidence relied upon to determine this.

ACCC v TPG Internet and Forrest v ASIC provided the High Court with the opportunity to give some assistance about how to isolate the representative member of the class which is the essence of the Campomar test. The only guidance provided is limited to general statements that it is a matter of drawing inferences from the facts and evidence, but it is not always clear which facts and evidence were relied upon in reaching its conclusions.

II General principles The applicable principles are well settled. The approach adopted in cases involving statements 16 directed at members of the public is first to identify the relevant audience. Then a determination must be made about what the statement conveyed to a hypothetical reasonable member of that target 17 audience. Ordinary or reasonable members of the target audience must be led into error, or likely to 18 be led into error; it is not sufficient that the particular conduct causes, or is likely to cause, confusion. 19 This is a question of fact to be decided in the particular circumstances of each case. The information may be directed at the public as a whole, or a segment of the public. Statements directed at a smaller, professional target audience arose for consideration in Astrazeneca Pty Ltd v 20 GlaxoSmithKline Australia Pty Ltd. The advertisements and flyers were placed in Australian Doctor, a professional publication directed at general medical practitioners by Glaxo to promote the prescription by general practitioners of Glaxo's drug, “Seretide”. Glaxo claimed that virtually all or a majority of asthma patients would achieve total control of their symptoms if Seretide was prescribed. The flyers and the advertisements were headed, “Seretide TOTAL CONTROL*”. The asterisk, referred to the findings of “The Gaining Optimal Asthma Control Study” (GOAL study), according to which, only 41% of patients achieved total control and 71% achieved substantial relief from using 15

Forrest v Australian Securities and Investment Commission [2012] HCA 39 (French CJ, Gummow, Hayne and Kiefel JJ; Heydon J wrote a separate opinion). 16

Weitmann v Katies Ltd (1977) 29 FLR 336 per Franki J at 339-340, cited with approval by Bowen CJ and Franki J in Brock v Terrace Times Pty Ltd (1982) 40 ALR 97 at 99; (1982) ATPR ¶40-267 at 43,412.

17

Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [101]-[103] per Gleeson CJ,

Gaudrin, McHugh, Gummow, Kirby Hayne and Callinan JJ; Parkdale Custom Built Furniture Pty Ltd v Puxu

Pty Ltd (1982) 149 CLR 199 per Gibbs CJ at 199 and per Mason J at 210-211. 18

Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [106]; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 199 per Gibbs CJ at 199 and per Mason J at 210-211. 19

20

Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459 per Gyles J at [49].

Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106.

4

Seretide. The appellant, another pharmaceutical company, took exception to the representations made in the advertisements. The primary judge dismissed the appellant's application. The appellant argued that the references to the GOAL study were deficient in that they failed to point out that the GOAL study did not include patients with significant concomitant diseases, smokers and patients below 12 years of age. The Full Court held that the representations contained in the advertisements and flyers were not 21 made to identified individuals, nor were they made to the public at large. The section of the community towards whom the conduct had been directed was the community of general practitioners throughout Australia: The task of the Court is to determine whether any misconceptions or deceptions alleged to arise or to be likely to arise from the conduct complained of are properly to be attributed to the ordinary or reasonable members of the section of the community towards whom the conduct has been directed. The Court may disregard assumptions drawn by persons to whom the 22 conduct is directed, where those assumptions or their reactions are extreme or fanciful …

“Seretide TOTAL CONTROL” was nothing more than an alternative brand name and the elucidator was effective to clarify the extent of the control that was achievable using Seretide. After carefully considering each of advertisements and flyers in their entirety, the Full Court agreed with the primary judge that they were not misleading. None of the advertisements or flyers represented that the GOAL study patients were representative of the community at large; the footnotes clearly indicated that the 23 study was based on the observations of “3,416 patients with uncontrolled asthma” and no more. The use of an elucidator to clarify a bold headline statement in an advertisement was also at issue in 24 George Weston Foods Limited v Goodman Fielder Ltd. Bread packaging declared in large typeface: “Now Twice the Fibre*”. As regards the target audience, Moore J concluded: … the broadest description of the class is consumers of bread. However, in my opinion, the relevant class can more appropriately be described as consumers of bread who have some 25 interest in the fibre content of bread.

Moore J held that an asterisk can be sufficient to draw the attention of a consumer to a qualification of a representation. Moore J observed that: … the asterisk is prominent and would be taken to signify some qualification or explanation of the words used. One could expect a consumer interested in the fibre content to seek out the qualification or explanation. Not only is the explanation within 2 cm of the words used on the 26 package (albeit in much smaller type) but it is repeated elsewhere on the packaging.

21

Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [35] (Wilcox, Bennett and Graham JJ). 22 Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [37]. 23

24

25 26

Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [48].

(2000) 49 IPR 553. George Weston Foods Limited v Goodman Fielder Ltd (2000) 49 IPR 553 at [37]. George Weston Foods Limited v Goodman Fielder Ltd (2000) 49 IPR 553 at [46].

5

The effectiveness of elucidators to clarify a bold, headline statement in an advertisement may depend on the medium used to convey the advertisement, and whether it allows a reasonable member of the target the opportunity to carefully consider the advertisement in its entirety. In relation to the facts and evidence that can be relied upon to prove that the provision of incomplete information is likely to mislead ordinary or reasonable members of the target audience, the Full Federal Court observed in Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd: For s 52 of the Act to be enlivened it is sufficient that the conduct complained of, in all the circumstances, answers the statutory description, that is to say, that it is misleading or deceptive or is likely to mislead or deceive. It is unnecessary to go further and establish that any actual or potential consumer has taken or is likely to take any positive step in consequence of the misleading or deception. That is not to say that evidence of actual misleading or deception and of steps taken in consequence thereof is not likely to be both relevant and important on the question of whether the relevant conduct in fact answers the statutory description and as to the 27 relief, if any, which should be granted.

In misleading conduct cases involving a statement directed towards a specific individual, the court may be assisted by receiving evidence pertaining to this issue from that person. Similarly, where the statement was directed towards a target audience of prospective purchasers, evidence of this nature may be given by members of that audience. 28

For example, in National Exchange Pty Ltd v Australian Securities & Investments Commission, ASIC led evidence concerning the reactions of shareholders to the two dollar offers, two of whom 29 were confused or misled at least temporarily. As regards this evidence, Dowsett J stated:

There is evidence that both Mr Locke and Ms Normoyle were at least temporarily misled by the offer. It is not clear whether this was as a result of the impact upon them of the format of the offer or as a result of their not giving sufficient attention to the payment provision. It would be wrong to place great weight on their having been misled. Further, there is no evidence of any substantial number of people having been misled.

30

`

If evidence is led that members of the target audience have actually been misled by the public statement the task of the Court is to ascertain whether they were ‘reasonable’ members of the target audience, or whether they were misled because they made assumptions that were extreme or 31 fanciful. As regards the message conveyed to a reasonable member of the target audience, the High Court held in Campomar that where there is an intention to deceive the court may more readily infer that 32 the intention has been or in all probability will be, effective. 27 28 29 30

Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [33]. National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) ATPR ¶42-000. National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) ATPR ¶42-000 at [7]. National Securities & Investments Commission (2004) ATPR ¶42-000 at [41].

31

Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [37]. See Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [104]-[105].

32 Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45 at [33] per Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ. This principle has been applied in subsequent cases. See, eg, ACCC v Singtel Optus Pty Ltd (No 3) (2010) 276 ALR 102 where Perram J inferred that Optus intended its

6

III ACCC v TPG The advertising stratagem deployed by TPG was to adopt a bold headline statement that is very attractive in terms of price and hooks prospective consumers, but which is qualified by small print. In such circumstances the courts adopt a two-stage approach. The first stage is to identify what representations are made by the advertisement in its dominant message to the intended audience since a consumer may take in only the advertisement’s general thrust. The second stage is to determine whether the corrective information was sufficiently prominent to dispel the false dominant message. There was considerable support for this two-stage approach in cases decided prior to the 33 TPG case. 34

In Australian Competition and Consumer Commission v TPG Internet Pty Ltd, Murphy J had to consider whether TPG Internet had misled consumers in advertisements for its Unlimited ADSL2+ broadband internet service. TPG was an internet service provider which made available a range of internet products to residential customers across Australia, including the Unlimited ADSL2+ service. The ADSL2+ service was available from TPG or its competitors in a variety of different forms. It was available as part of a “bundled” package with a home telephone, or on a “stand alone” basis which means that it was provided using a telephone line rented from another provider. The ACCC alleged that TPG’s advertising campaign across various media was misleading because it represented that the Unlimited ADSL2+ service could be acquired at a cost of $29.99 per month without obligation to acquire an additional home telephone service, and without obligation to pay any set-up charges. The ACCC’s case concerned two phases in TPG’s advertising campaign, the initial advertisements before the ACCC’s intervention which made no reference to the bundling condition to rent a home telephone line from TPG at a cost of $30 per month, and the revised advertisements which were revised by TPG after receiving complaints from the ACCC to include a reference to the bundling condition.

A Reasons of the primary judge TPG’s advertisements were directed at the broad class of Australian consumers around mainland 35 capitals who were users or potential users of broadband internet services. The members of this

misleading advertising campaign to have a substantial impact in the broadband market, based on the amount of money which Optus spent on the campaign, and concluded that the effect of the campaign was substantial (at [16]-[17]). 33

See ACCC v Signature Security Group Pty Ltd (2003) ATPR ¶41-908 at [26]- [27] per Stone J; Medical Benefits Fund of Australia Limited v Cassidy (2004) 205 ALR 402 at [35]- [38] per Stone J with whom Mansfield J agreed, at [17], which is authority for the principle that the qualifying material must be sufficiently prominent or conspicuous to prevent the headline statement from being misleading ; ACCC v Telstra Corporation Ltd (2004) 208 ALR 459; ACCC v Singtel Optus Pty Ltd (No 1) [2010] FCA 1177; and National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) ATPR ¶42-000 at [48]-[59] per Jacobson and Bennett JJ.See also ACCC v Panasonic Australia Pty Ltd (2010) ATPR ¶42-323 where Mansfield J held that it was misleading to publish promotional material informing the purchasers of television sets that they would receive a “Bonus Wii” , but failed to convey the fact that matters outside the control of the purchaser (such as the delivery time for televisions paid for at a retail store) could disqualify the purchaser from receiving the Bonus Wii. 34

35

[2011] FCA 1254 (4 November 2011). [2011] FCA 1254 at [23].

7

36

target audience had a certain degree of background knowledge about basic internet usage. They knew that ADSL2+ was a broadband internet service. The class did not include people who knew little 37 or nothing about such services. They included first-time as well as more experienced users since some first-time users were likely to purchase Unlimited ADSL2+ even if unsure as to how much 38 download capacity they needed. The parties made various submissions as to the knowledge of the target audience with regard to broadband internet services. TPG’s Marketing and Sales Manager, Mr Levy, gave evidence concerning what members of the target audience knew about available broadband internet services. However, while Mr Levy was knowledgeable about the offerings of TPG’s competitors, he did not conduct surveys or market research about the level of knowledge consumers had about available broadband internet services. Accordingly, Murphy J did not accord his views much weight in relation 39 to the knowledge of the target audience about broadband internet services. Murphy J, stated “[t]he degree of knowledge to be imputed to the class, and thus to the ordinary or 40 Based on the available reasonable consumer, is a matter of inference from the evidence”. evidence, Murphy J found that the level of knowledge to be imputed to the target audience included knowledge that ADSL2+ was a faster and more desirable form of service than ADSL1 or dial-up 41 internet, but this did not impute a high level of knowledge about broadband internet. TPG contended that the ordinary or reasonable consumer would have a starting assumption that the advertisements referred to a bundled service. Murphy J did not accept the hypothetical reasonable consumer would have made this assumption. His Honour held: In my view, whilst bundling is one available option, the array of available internet options is such that the ordinary or reasonable consumer would not have a starting assumption about the service. He or she can be expected to simply rely on the advertisement for relevant information as to the type of service 42 offered.

Murphy J adopted the two-stage approach to determine how a reasonable member of the target audience would have understood the advertisements. First, Murphy J sought to establish whether each advertisement in the different media had the same dominant message; and secondly, to determine whether this corrective information was sufficiently prominent to dispel the false dominant message. As regards the first stage his Honour stated: “Identifying the dominant message is an important first step in determining what representations are made by an advertisement, as a 43 consumer may take in only this general thrust”. In relation to TPG’s initial television advertisement, Murphy J found that “they [television advertisements] are transient, and consumers frequently pay

36

[2011] FCA 1254 at [30].

37

[2011] FCA 1254 at [27].

38

[2011] FCA 1254 at [29].

39 40

[2011] FCA 1254 at [26]. [2011] FCA 1254 at [25].

41

[2011] FCA 1254 at [28].

42

[2011] FCA 1254 at [31].

43

[2011] FCA 1254 at [44].

8

them low attention”. which stated:

44

The advertisement consisted of a voiceover by an excited young female voice

TPG gives you Unlimited ADSL2+ for $29.99 a month. Yep, unlimited ADSL2+ for $29.99 a month

The voiceover, which was the most important part of the advertisement, did not mention at all the requirement to bundle Unlimited ADSL2+ with a home telephone line rental from TPG at an additional cost of $30 per month and to pay a set-up fee. TPG contended that the voice over was accompanied by the following qualifying information on-screen: When bundled with TPG home phone line rental ($30 per month)

The second stage in Murphy J’s analysis was to determine whether this corrective information was sufficiently prominent to dispel the false dominant message in the voiceover. Murphy J stated: Any purported corrective or qualifying information must be sufficiently clear and sufficiently prominent if 45 it is to prevent an inaccurate primary message from being misleading or likely to mislead.

Murphy J concluded that both the voiceover and the main on-screen words and graphics stated the 46 dominant message with a prominence that far outweighed the corrective information. As regards, TPG’s revised television advertisement, the voiceover and the main on-screen words and graphics were essentially the same as the initial one except that the corrective information was in a larger font that made it more noticeable. Nevertheless, Murphy J found that the voiceover did not mention the bundling condition and although the corrective information was in larger font it was still 47 not clear enough or prominent enough to correct the false impression left by the dominant message. Similarly, TPG’s radio, newspaper and internet advertisements for its Unlimited ADSL2+ broadband internet service used between September 2010 and November 2011 were found to be misleading because they conveyed the impression that the service could be acquired at a cost of $29.99 a month when, in fact, that price was only available as a bundled service including a home telephone line for 48 an additional charge of $30 per month. His Honour concluded: I am satisfied that the choice TPG made in its advertisements – particularly its decision to strongly emphasise the component price of $29.99 and to de-emphasise the actual price of $59.99 and the requirement to also rent a home telephone line – is an unfair trade practice. It is an unfair trade practice to require consumers to find their way through to the truth past advertising stratagems which have the 49 effect of misleading or being likely to mislead them.

B Reasons of the Full Court 44

[2011] FCA 1254 at [65] citing Telstra Corporation v Optus Communications Pty Ltd (1996) 36 IPR 515 at 523524.

45

[2011] FCA 1254 at [58] citing Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [37] and National Exchange Pty Ltd v ASIC (2004) ATPR ¶42-000 at [51].

46 47

[2011] FCA 1254 at [67]. [2011] FCA 1254 at [73].

48

[2011] FCA 1254 at [117].

49

[2011] FCA 1254 at [116].

9

The Full Court, (Jacobson, Bennett and Gilmour JJ), rejected the primary judge’s two-stage approach of first identifying the dominant message and then examining whether the corrective information was effective to dispel the false dominant message. In their joint reasons, their Honours stated that there was only one question, and that was “...whether...the ordinary or reasonable consumer would be led 50 into error by the advertisements, read or viewed as a whole, in their full context”. The Full Court overturned the primary judge’s finding that an ordinary or reasonable consumer would not have a starting assumption that the service was offered for sale as a bundle. According to the Full Federal Court consumers to whom the advertisements were directed must be taken to some familiarity with the market for broadband services and to know that services such as ADSL2+ may be 51 offered for sale as bundled services. It held that the primary judge’s emphasis on the “dominant message” led him into error: .... to approach the question as one based solely upon the “dominant message” does not take into account the need to have regard to the attributes of the hypothetical reader or viewer. As we have said, these attributes include knowledge of the “bundling” method of sale commonly employed with this type of service, as well as knowledge that setup charges are often applied. This is the prism through which the critical question of the overall impact of the commercials on the ordinary and reasonable consumer must be considered. It produces a different answer to that reached by the primary judge in almost all of the advertisements because the consumer must be taken to have read or viewed the advertisements with knowledge of the commercial practices of bundling and setup 52 charges.

The Full Court held that as regards the initial television advertisement, Murphy J had erred by not paying sufficient attention to the attributes of the hypothetical reader or viewer which included knowledge of the “bundling” method of sale commonly employed with this type of service, as well as knowledge that set-up charges are often applied. The Full Court concluded: Once the attributes of the hypothetical ordinary or reasonable viewer are taken into account, we doubt that such a person would be misled. As we have said, that person is taken to know that the service may be offered as bundled with another and that some form of connection is required to receive the service. He or she is also taken to know that setup charges are often made. Nevertheless, we accept that the matter may be one of fact and degree, so that in considering the fleeting nature of the advertisement, and giving appropriate respect and weight to the primary judge’s finding of fact, we are not convinced he was wrong in coming to the view that the advertisement was 53 misleading.

However, having regard to this more sophisticated hypothetical “ordinary” viewer, the revised television advertisement was not misleading. The larger font in which the bundling condition and the minimum charge were depicted could not be missed. Nor were the advertisements in the other media. An “ordinary” or “reasonable” consumer would have known that these services are commonly bundled and that set-up charges are often applied. The Full Federal Court observed that in assessing the impact of an advertisement on a reasonable member of the target audience a “degree of robustness is required” and that “the legislation does not operate for the benefit of those who fail to take care of 54 their own interests”. The bundling condition could not be missed except by “perfunctory” viewing or 50

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [100] and [103]. 51

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [98].

52

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [104]-[106].

53

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [111]-[112].

54

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [110].

10

listening. Alternatively an ordinary or reasonable viewer or listener would know that ADSL2+ services 55 may be offered as a bundle.

C Reasons of the High Court majority The High Court held that the Full Court erred in two respects: first, the Full Court erred in holding that the primary judge was wrong to place importance on the “dominant message” of the advertisements; and secondly, the Full Court erred in considering that the tendency of TPG’s advertisements to mislead was neutralised by the Full Court’s attribution of a higher level of knowledge to members of 56 the target audience that ADSL2+ services may be offered as a bundle. The High Court emphasised the importance of the context in the advertisements were broadcast and contrasted it with the context in which the alleged misleading conduct arose in Puxu: …TPG’s target audience did not consist of potential purchasers focused on the subject matter of their purchase in the calm of the showroom to which they had come with a substantial purchase in mind. Here, the advertisements were an unbidden intrusion of the consciousness of the target audience…while the attention of the audience might have been arrested, it cannot 57 be expected to pay close attention to the advertisement…

The High Court concluded that even with this attributed level of knowledge of the “bundling” method of sale, TPG’s advertisements still had a tendency to mislead because the target audience was left only with the general thrust or dominant message. 58 The High Court accepted that viewers cannot realistically be expected to absorb and digest the small print in cases involving bold headlines statements of attractive prices, especially in television advertisements where the opportunity to do so is fleeting. The High Court majority observed: As the primary judge said, the vice of TPG’s advertisements was that they required ‘consumers to find their way through to the truth past advertising stratagems which have the effect of 59 misleading or being likely to mislead them’.

The High Court held that TPG intended to emphasise the most attractive component of its offer and to downplay the less attractive components, rather than give equal prominence to each component of the package. In such circumstances it may properly be inferred that the advertisement had the effect of leaving the target audience with the general thrust or dominant message. The High Court stated: It has long been recognised that, where a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect. Such an inference may be drawn more readily where the

55

56 57 58 59

TPG Internet Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 190 at [113]-[114].

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [45]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [47]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [53]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [54].

11

business of the representor is to make such representations and where the representor’s business benefits form creating such an impression… It cannot be denied that the terms of the message and the manner in which it was conveyed were such that the impression TPG intended to create was distinctly not that which would have been produced by an advertisement which gave equal prominence to all the elements of the package it was offering to the public. In this regard, it is significant that, as the primary judge noted, TPG considered deploying just such an advertisement and chose not to adopt it, 60 evidently opting to continue with its headline strategy.

D Dissenting judgment of Gageler J The ACCC argued that the Full court in exercising its appellate function, had no basis to overturn a finding of fact by the trial judge that the fine print was not sufficient to dispel the “dominant message” conveyed by the headline in the advertisements.The High Court majority held that it was not open to the Full Court, in the proper exercise of its appellate function to hold that TPG’s advertisements were 61 not misleading, Gageler J, in his dissenting reasons for judgment, stated that the question whether the TPG advertisements were likely to lead the ordinary or reasonable member of the target audience into error was a question of fact, and that the Full Court did not err in the exercise of its appellate function, 62 in making a finding of fact. The question of fact as framed by the Full Court was not whether the fine print was sufficient to dispel the “dominant message” of the headline statement, but whether the ordinary or reasonable consumer of broadband internet services looking at the whole of the advertisement, would be likely to have formed the impression that what was being advertised was a stand-alone DSL broadband internet service for a stand-alone price of $29.99. His Honour stated: …the essential difference between the Full Court and the primary judge concerned the level of sophistication each attributed to the ordinary and reasonable consumer or potential consumer of broadband internet services during the period of TPG's advertising campaign in 2010 and 2011. The Full Court considered that an ordinary consumer of broadband internet services who was sufficiently aware of DSL broadband internet services potentially to be misled by those advertisements would also be aware that DSL broadband internet services were often bundled with home telephone line rental and commonly had a setup fee. The consumer would not form an impression, merely from a headline reference to "Unlimited ADSL2+ $29.99 per month", that what was being advertised was a stand-alone DSL service for a stand-alone price of $29.99 63 per month. The consumer would look to the whole of the advertisement in the first place.

IV Forrest v ASIC

60 61 62 63

Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [55] and [57]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [58]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [73] and [78]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [75]-[76].

12

The Corporations Act is aimed at investor protection rather than consumer protection. Section 1041H of the Corporations Act deals with misleading or deceptive conduct in connection with any dealings in securities by a person. Section 1041H(1) of the Corporations Act provides: A person must not, in this jurisdiction, engage in conduct, in relation to a financial product or a financial service that is misleading or deceptive or is likely to mislead or deceive.

Listed disclosing entities are required to provide information to the ASX pursuant to their continuous disclosure obligations contained in s 674(2) of the Corporations Act, namely information that a reasonable person would expect, if it were generally available, to have a material effect on the price of the entity’s securities. ASIC closely scrutinises announcements to the market to ensure that they are not misleading. 64

Forrest v Australian Securities and Investment Commission, concerned representations by FMG and Forrest made in announcements to the ASX and media releases to investors and potential investors about the content of documents signed by FMG. FMG had rights to mine iron ore in the Pilbara region of Western Australia. It developed a plan to build a railway to transport the ore to Port Headland and build a port facility there. In 2004 FMG entered into three agreements with three Chinese state-owned entities, China Railway Engineering Corporation (CREC), China Harbour Engineering Company (CHEC), and China Metallurgical Construction Corporation (CMCC). Each bore the heading “Framework Agreement”. On 23 August 2004, the ASX received a letter from FMG’s Chief Financial Officer, under the heading “China Signs to Build Railway”. The key passage in the letter stated: Fortescue Metals Group Ltd (FMG) is pleased to announce that it has entered into a binding contract with China Railway Engineering Corporation (CREC) to build and finance the railway component of the 65 Pilbara Iron Ore and Infrastructure Project (the CREC announcement).

FMG also published a longer summary in a media release on its website entitled, “China Signs to Build Fortescue Metal’s Multi-User Iron Ore Railway in the Pilbara” which stated that FMG had entered into a “binding agreement” with CREC to build and finance the railway component of the Pilbara Iron Ore and Infrastructure Project (the media release). It also stated: “Under the terms of the 66 contract, CREC will take full risk under a fixed price agreement on the rail project”. The information provided to actual and potential investors in FMG shares was incomplete. The actual terms of the CREC Framework Agreement were not disclosed to the public since it was claimed that they were confidential. ASIC drew attention to the statement that the “terms of contract” included a 67 “fixed price” and required CREC to take the “full risk”. The agreement contained no such terms. On 23 August 2004, at a Press Conference, Mr Forrest stated that the “fixed price agreement” relating to 68 the railway line and rolling stock was “confidential” but “competitive”.

64

Forrest v Australian Securities and Investment Commission; Fortescue Metals Group Ltd v Australian Securities and Investment Commission [2012] HCA 39. 65

The letter is set out in the judgment of Keane CJ in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [23].

66

The media release is set out in the judgment of Keane CJ in Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [25]. 67

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [26].

68

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [87].

13

A ASIC’s pleadings ASIC’s first principal allegation was that FMG had engaged in misleading or deceptive conduct contrary to s1041H of the Corporations Act. First, it alleged that FMG had falsely represented the content of the CREC Framework Agreement. FMG represented that it had entered into a contract with CREC “to build and finance” a railway, when the CREC Framework Agreement did not state that CREC would do those things. ASIC submitted that under the CREC Framework Agreement:



CREC was not obliged to actually build, finance or transfer the railway to FMG;



there was no agreed price in the agreement nor any mechanism to achieve or confirm a price;



there was no definition of the scope of the works to be performed;



there was no provision for choice of contractors or the selection of materials;



there was no definition of “practical completion”; and



there were no specifications for any of the design elements.

69

ASIC’s second principal allegation was that FMG had falsely represented that the CREC Framework Agreement was a legally “binding contract”. While ASIC was not required to prove that FMG intended to engage in misleading conduct to establish a contravention of s 1041H, ASIC pleaded that FMG and Forrest had intended to mislead 70 investors and potential investors in FMG shares. The information in FMG’s announcements to the ASX were intended to encourage reasonable investors to invest in FMG. They were “emphatic, 71 unequivocal and unqualified”. The information provided by FMG was incomplete, and FMG’s partial disclosures were misleading by reference to “a reasonable member of the relevant class, namely 72 common investors”. In relation to the CREC announcement, ASIC alleged that FMG “did not have a genuine and/or reasonable basis” for making the statement that the CREC Framework Agreement was a binding contract. ASIC justified the inclusion of this plea on the basis that it anticipated Fortescue would allege that the impugned statements were expressions of opinion rather fact. If they were expressions of opinion they would be misleading if they were not genuinely held, or if genuinely held that there was no reasonable basis for them.

B Reasons of the primary judge The approach adopted by the primary judge, Gilmour J, was to recognise, and give effect to the 73 fact/opinion distinction in the pre-existing case law. The impugned statement that the CREC 69

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [281]. 70

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [670]. 71

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [669]. 72

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [670]. 73

Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88.

14

Framework Agreement was a binding contract to build and finance the railway line was held to be a statement of opinion. The disclosures made by FMG and Forrest constituted “mixed fact and law”, and that the assertion as to the meaning and legal effect of the agreement was an opinion. Having identified the impugned statement as an opinion, Gilmour J then inquired into the mental state of the maker of the statement to determine whether the opinion was honestly held, and also whether it was reasonable for the maker of the statement to hold that opinion. His Honour stated: However the disclosures are characterised, a question as to the reasonableness of the underlying 74 opinion and, in this case, whether or not it is honestly held, arises.

His Honour concluded that “...it was reasonable, objectively, for FMG by Forrest and other members of FMG's Board to hold the opinion, which they honestly held, that the framework agreements were binding upon each of the Chinese Contractors to build, finance and transfer the Project 75 infrastructure”. Mr Forrest chose not to give evidence. Accordingly, he could not be examined as to whether he honestly believed that the framework agreements were binding. However, ASIC submitted that an email dated 27 October 2004 from Forrest to Heyting (FMG’s Project Manager for Infrastructure) and Huston (FMG’s legal advisor) regarding further negotiations for the execution of a more detailed agreement with CREC (Advanced Framework Agreement) was evidence that Forrest did not believe 76 that the original CREC Framework Agreement was a binding agreement. Counsel for ASIC submitted that Forrest knew that without agreement on these additional matters, including a fixed price and performance specifications, there was no binding agreement. Gilmour J did not explain what he made of this email.

C Reasons of the Full Court Keane CJ, who delivered the principal judgment in the Full Court, was critical of the approach adopted by the trial judge. His Honour stated that an approach which distinguishes between statements of opinion and fact, “artificially limits the protection afforded to the investing public” by the Corporations Act because “a statement presented as a statement of historical fact could be avoided by the representor on the basis of reservations not apparent to the persons to whom the statement was 77 published”. All three justices of the Full Court held that the “real question” in a misleading or deceptive conduct case is not the “mental state” of the maker of the statement, but the effect of a statement upon its audience whether the statement is apt to mislead those to whom it is published. Keane CJ stated: ...the issue which arises under s 1041H of the Act and s 52 of the TPA is what ordinary and reasonable members of the investing public would have understood from FMG’s announcements. It is the effect of

74

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [684].

75

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [686]. 76

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [455]-[456]. 77

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [116].

15

a statement upon the persons to whom it is published, rather than the mental state of the publisher, 78 which determines whether the statement is misleading or deceptive, or likely to mislead or deceive.

Keane CJ concluded that the CREC announcement was not expressed to be an opinion, but as a statement as to the legally binding effect of the agreement. Accordingly, it was likely to be construed 79 as a statement of historical fact. His Honour treated the statements that the parties to each framework agreement had made a “binding contract” as conveying to the intended audience more than the message that the parties intended that the agreements would be binding upon them. It treated the statements as conveying to the intended audience that the parties had made what an 80 Australian court would decide to be “binding contracts” in the event of a dispute between the parties. Keane CJ also drew attention to the representations that a “fixed price” had been agreed and that the Chinese had accepted the “full risk” of the construction of the project in the event of any price 81 increase. Keane CJ defined the intended audience as “ordinary and reasonable investors,” and 82 “ordinary and reasonable members of the investing public”. Emmett J also defined the target 83 audience as ordinary and reasonable members of the investing public. Keane CJ relied upon the email dated 27 October 2004 from Forrest to Heyting (Project Manager for Infrastructure) and Huston (FMG’s legal advisor) regarding the execution of a more detailed agreement with CREC (Advanced Framework Agreement), and the terms of the draft Advance Framework Agreement, in finding that the representations as to “full risk” and “fixed price” were misleading. Keane CJ observed: The Chinese rejected provisions that would have allocated to them the full risk of the construction of the Project. The differences also show that price is left at large for further negotiation and that the parties still had competing conceptions of what constituted the “value of the works”. These differences also show that there was no reasonable basis for the claim in the ASX letters and associated media releases that the initial framework agreements contained a “fixed price” under which CREC had assumed “100 per cent of the risk”. As is apparent, these issues were still very much a subject of negotiation as 84 between the parties.

Keane CJ held on the basis of this email that Forrest did not regard the contracts as legally binding: Forrest’s own document, his email of 27 October 2004 ... shows that he knew that further steps were necessary to reach agreement on the scope, financing, subject matter and price of the Project. This email shows that Forrest knew that FMG was still involved in a bargaining process with the Chinese. At the time when this email was written, Forrest plainly did not entertain, and it may be inferred had never 78

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [106]. 79

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [112]-[113]. 80

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [117]. 81

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [118]. 82

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [119]. 83

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [215]. 84

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [150].

16

entertained, reasonably or at all, the opinion that the terms of the framework agreements were effective 85 as binding agreements to build, finance, and transfer the infrastructure involved.

Emmett J held: I agree with the detailed analysis of the Railway Engineering framework agreement in the reasons of the Chief Justice. An ordinary and reasonable member of the investing public would not understand the announcements as stating the subjective opinion of Fortescue or its directors. An ordinary and reasonable reader of the announcements would understand them to say that a binding agreement has been entered into between Fortescue and Railway Engineering and that that agreement imposed upon Railway Engineering a binding obligation, enforceable by Fortescue, to construct and transfer to Fortescue a railway adequate to serve Fortescue’s Pilbara iron ore project. The Railway Engineering framework agreement did not have that effect. Accordingly, the announcements were, at least, likely to mislead or deceive an ordinary and reasonable member of the investing public who read the 86 announcements.

Finkelstein J agreed with the reasons of Keane CJ.

87

D Reasons of the High Court majority The High Court majority, (French CJ, Gummow, Hayne and Kiefel JJ), in their joint reasons did not endorse the approach of the trial judge which gave effect to the fact/opinion distinction. The High Court majority did not think that it was helpful or necessary first to characterise statements about the content of documents as statements of “fact” or statements of “opinion”: ...it is ultimately unprofitable to attempt to classify the statement according to some taxonomy, no matter whether that taxonomy adopts as its relevant classes fact and opinion, fact and law, or some mixture of these classes. It is necessary instead to examine more closely and identify more precisely what it is that 88 the impugned statements conveyed to their audience.

The majority’s approach is contained in two general propositions. According to the first general proposition: What message is conveyed to the ordinary or reasonable member of the intended audience cannot be determined without a close and careful analysis of the facts. In this, as in so many other areas, the facts 89 of and evidence in the particular case are all important.

In other words, whether conduct is misleading is always going to be context-specific. According to the second general proposition: ... for the purposes of a claim of misleading or deceptive conduct, if a person seeks to characterise a public statement as a representation about the content of a document, the critical question will be what the statement conveyed to its intended audience, not what the party concerned says that it was intended

85

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [194]. 86

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [215]. 87

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [219]. 88

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [33].

89

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [69].

17

to convey. Concerns about dishonesty provide no reason to distort settled understandings about 90 misleading or deceptive conduct.

The High Court majority rejected ASIC’s first principal allegation that the CREC Framework 91 Agreement was not one “to build and finance” the railway. The majority held that the expression was used by the parties in the recitals and in Clause 1 of the agreement, and was “an accurate general 92 description of the agreement they had then made”. The High Court majority then focused on whether the impugned statement that the parties to the CREC Framework Agreement had made a “binding contract” was misleading. This turned on what the impugned statement conveyed to the intended audience. The High Court majority identified the target audience in very broad terms as “...investors (both present and possible future investors) and, 93 perhaps, as some wider section of the commercial or business community”. As regards the effect of the effect of the statements on a reasonable member of the target audience the majority observed: It is, however, necessary to bear firmly in mind that the impugned statements were made to the business and commercial community. What would that audience make of the statement that FMG had 94 made a binding contract with an entity owned and controlled by the People’s Republic of China?

The High Court majority concluded: The impugned statements conveyed to their intended audience what the parties to the framework agreements said they had done — make agreements that they said were binding — and no more. ASIC did not demonstrate that members of the intended audience for the impugned statements would have taken what was said as directed in any way to what the parties to the agreements could do if the parties were later to disagree about performance. ASIC did not demonstrate that the impugned statements conveyed to that audience that such a disagreement could and would be determined by Australian law. And given that the impugned statements did accurately convey what the parties to the framework agreements had said in those agreements, it would be extreme or fanciful for the audience to understand the impugned statements as directing their attention to any question of enforcement by an Australian court if the parties later disagreed. Such an extreme or fanciful understanding should not be 95 attributed to the ordinary or reasonable member of the audience receiving the impugned statements.

The essential difference between the joint reasons of the High Court majority and the Full Federal Court is that the Full Federal Court considered that the impugned statement would have conveyed to the intended audience a representation about the legal enforceability of the CREC Framework 96 Agreement in the Australian courts. The High Court majority held that the intended audience would not regard them as statements about the legal effect of the agreements under Australian law or any other law. They were statements about what the parties understood they had done, and intended 97 would happen in the future.

90

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [70].

91

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [14]- [17].

92

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [16].

93

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [36].

94

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [48].

95

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [50].

96

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [35].

97

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [43].

18

As regards the significance of Forrest and FMG conducting further negotiations with CREC, their Honours held that a binding commercial agreement between parties does not prevent the same parties from trying to strike a better deal: When commercial enterprises make an agreement which records that it is intended to be a binding contract, those parties can be assumed, unless fraud is proved, to expect and to intend that the agreement will be performed. But it by no means follows that the parties will thereafter refrain from any attempt to strike a better bargain. And the fact that one or both of the parties tries to strike a better bargain does not, without more, show that the parties are not bound to the bargain that has been made. 98 Nor does it show that the parties did not intend to be bound to that bargain.

Their Honours concluded: The letter which Fortescue sent to the ASX about having made the framework agreement with CREC was not misleading or deceptive and was not likely to mislead or deceive. That letter accurately recorded what the framework agreement provided. The letter did not convey to its intended audience any message about whether an Australian court would conclude that the agreement could be enforced. It conveyed to its intended audience that the framework agreement between Fortescue and CREC was 99 what those parties had described (and a commercial audience would describe) as a "binding contract".

Given the High Court majority’s finding as to the effect of the impugned statement on a reasonable member of the intended audience, it was irrelevant that the framework agreement did not fix the work to be done or the price for the work to be done, or that the contract may not have been legally enforceable in Australia if it were governed by Australian law and the matter came before an Australian court.

E Approach of Heydon J Heydon J reached the same conclusion as the majority that FMG’s statements were not misleading or deceptive, but his approach differed from that of the High Court majority. His Honour adopted the fact/opinion distinction. As regards ASIC’s first principal allegation, Heydon J held that FMG’s announcement to the stock exchange and its media release that it had entered into a binding contract with CREC, were accurate summaries of the CREC agreement. Independently of whether it was contractually binding, all of the parties intended to be bound. It compelled the parties to conduct further negotiations and was 100 “calculated to ensure” that CREC built and financed a railway. Heydon J did not find it necessary to decide whether the agreement was a contractually binding contract to build a railway in the sense that all of the essential terms had been agreed and it was enforceable in a court of law, because to 101 describe a contract as binding was a statement of opinion rather than fact. In relation to ASIC’s second principal allegation, the announcement that FMG had entered into a binding contract with CREC was a statement of opinion. For ASIC to succeed it needed to prove either that FMG knew that it was not a binding contract to build a railway, or if FMG believed it was a 102 binding contract to prove that there was no reasonable basis for such a belief. His Honour held that “...so far as Fortescue had represented that there was a ‘binding contract’ to build the railway, the 98

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [56].

99

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [58].

100

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [85] and [90].

101

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [93].

102

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [95].

19

statement was one of opinion, and only fell within s 1041H if ASIC established that Fortescue did not hold that opinion, or, if it did, that it had no reasonable basis for stating it. ASIC did not establish either 103 proposition”. Heydon J held that the evidence, including the board minutes and other contemporary internal communications, supported the view that Fortescue genuinely believed that the agreement 104 was binding to build a railway. Accordingly, this part of ASIC’s allegation was not proved. As regards the second part of ASIC’s case, Heydon J considered that the existence of a reasonable grounds to support an opinion had come to be expected in the pre-existing case law. Heydon J observed: It is also often said that to state an opinion which one does hold implies that one has reasonable grounds for holding it. In some circumstances that may be so, but why should it be so in all? Assume that two people are asked: "In your opinion, is that document a contract?", one answers "Yes", and the other answers "Yes, and I have reasonable grounds for that view." The two answers are different. The first answer does not imply the second, unless there are special circumstances indicating that it 105 should.

Heydon J cast doubt on the existence of a requirement that there be any grounds or reasonable grounds for an opinion: As noted above, the case which originated the fact/opinion distinction in this field [ Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88] offered no support for the requirement that there be grounds, let alone reasonable grounds, for an opinion if it were not to be misleading. ...The 106 matter calls for examination on some future occasion.

Heydon J held that the question whether Fortescue had reasonable grounds for saying what it did depends on what it said. What it should be taken to have said depended on “...what its audience 107 must have understood it to have said”. In order to test this Heydon J first had to define the intended audience. Heydon J found: Fortescue's remarks were not directed to the public as a whole. They were directed to a section of the public. It comprised superannuation funds, other large institutions, other wealthy investors, stock brokers and other financial advisers, specialised financial journalists, as well as smaller investors reliant on advice. This was not a naive audience. ...The audience was sufficiently tough, shrewd and sceptical 108 to know something of the difficulties of "forcing" a builder to build and finance anything.

As regards the likely effect of the representation on this narrower segment of the general investing public, Heydon J held: ...the target audience probably took the representation to be that there was a binding contract containing machinery capable of procuring the result that CREC would voluntarily design, build, transfer and finance the railway even if it was impossible to force it to do so. The agreement was a binding contract 109 containing that machinery – duties to conduct future negotiations leading to future agreements.

103

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [85].

104

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [99].

105

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [102].

106

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [102].

107

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [104].

108

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [105].

109

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [107].

20

For this reason Heydon J concluded there were reasonable grounds for Fortescue’s representation.

110

V Comparing and Contrasting The Two Decisions What do the two decisions have in common and what is different about them? First, and most obviously, what the two cases have in common is that in each the orthodox approach to establish whether a public statement is misleading or deceptive adopted by the High Court in 111 Campomar Sociedad Limitada v Nike International Ltd, was applied. In ACCC v TPG Internet Pty Ltd, there was a difference of views as to the knowledge base to be attributed to a reasonable member of the target audience. There was also a difference of views as to whether the impugned conduct viewed as a whole in the context of the case had a tendency to lead members of the target audience into error. The High Court acknowledged: It may be accepted that if the hypothetical reasonable consumer is taken to know that ADSL2+ services may be sold as part of a bundle with telephony services, then, if he or she brings that knowledge to bear in a conscious scrutiny of the terms of TPG’s offer, he or she might be less likely to form the impression that the offer was of an ADSL2+ service available without a 112 requirement to take and pay for an additional service from TPG.

Nevertheless, even with this heightened level of knowledge, the advertisements still had a tendency to lead viewers into error. It is unclear what facts and evidence the High Court relied upon in assuming this heightened level of knowledge. A similar difference of views as to the knowledge base to be attributed to the ordinary or reasonable investor arose in ASIC v Forrest. ASIC submitted that the question whether FMG’s disclosures were 113 misleading was to be judged by reference to ‘common investors’. The High Court majority defined the target audience as ‘...investors (both present and possible future investors) and, perhaps, as 114 some wider section of the commercial or business community’. Such a disparate class embraced a rich diversity of the investing community from the most astute and well-informed bank or institutional investor at one end of the spectrum, to less well-informed investors who may have been vulnerable because of their age, investing experience or educational attainment at the other end of the spectrum. According to Heydon J the statements were directed at a narrow subset of investors and advisors 115 who were ‘tough, shrewd and sceptical’. A second feature the two cases have in common relates to the failure of the regulators in each case to call evidence that some actual members of the target audience had been misled by the conduct at issue. The High Court majority in ASIC v Forrest noted that no evidence had been led by ASIC which would demonstrate that the intended audience would understand “binding contracts” to mean contracts enforceable in a court. The majority stated:

110 111

112

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [107]. (2000) 202 CLR 45 at [97]-[107]. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [53].

113

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (No 5) (2009) 264 ALR 201 at [674]. 114

115

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [36]. Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [105].

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There was no evidence led at trial to show that investors or other members of the business or commercial community (whether in Australia or elsewhere) would have understood the references in the impugned statements to a "binding contract" as conveying not only that the parties had agreed upon what they said was a bargain intended to be binding, but also that a court (whether in Australia or elsewhere) would grant relief of some kind or another to one of the parties if, in the future, the opposite 116 party would not carry out its part of the bargain.

It is unclear why ASIC did not lead evidence that investor and potential investors in FMG had actually been misled by FMG’s announcements and media releases, as it did in National Exchange Pty Ltd v 117 Australian Securities & Investments Commission. Similarly, in ACCC v TPG Internet Pty Ltd, Gageler J, appears to have drawn an inference from the absence of any evidence that actual members of the target audience had been misled: His Honour stated:

Telling also in favour of the Full Court's conclusion that the hypothetical ordinary and reasonable consumer would not be likely to have been misled (although obviously not determinative of that conclusion) was the dearth of evidence of any actual consumer being misled by any advertisement, even to the point of doing no more than contacting TPG to make an inquiry, despite TPG's 118 advertisements having run nationally for a period of some 13 months.

The most striking difference between the two cases is the greater willingness on the part of the High Court majority to protect the relevant class of prospective purchasers in the TPG case. Mass advertising programs are now a common feature of the complex consumer society in which we live. Advertisements sometimes contain small print footnotes or disclosures that attempt to limit or modify attractive or favourable claims made in headline statements in the advertisement. In assessing whether a public statement misleads by omitting or concealing information the courts have regard to the effect of the public statement in its entirety, including the manner of its presentation, on an 119 ordinary or reasonable member of the target audience at whom it was directed. The High Court noted in ACCC v TPG Internet Pty Ltd, that the ordinary or reasonable consumer cannot be expected to “find their way through to the truth” where information is presented in a way that is ambiguous or unclear or incomplete. Such disclosures can be effective if the qualifying information is located in a 120 place and is sufficiently prominent that consumers will read it. However, accurate information in a footnote is unlikely to remedy a false headline statement in circumstances where a reasonable member of the target audience may glance only at the headline. The High Court’s reasons for judgment in the TPG case will be welcomed by those seeking to promote consumer protection. There is now a substantial body of literature that questions the ability of 121 consumers to absorb and assess disclosed information and to act rationally upon it. It is unrealistic 116

117 118

Forrest v Australian Securities and Investment Commission [2012] HCA 39 at [39]. National Exchange Pty Ltd v Australian Securities & Investments Commission (2004) ATPR ¶42-000. Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54 at [81].

119

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 199 per Gibbs CJ at 199 and per Mason J at 210-211.

120

See Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR ¶42-106 at [48] and George Weston Foods Limited v Goodman Fielder Ltd (2000) 49 IPR 553 at [46].

121

Hanson and Kysar, “Taking Behavioralism Seriously” (1999) 112 Harvard Law Review 1420; and Sunstein (ed), Behavioural Law and Economics (Cambridge University Press, Cambridge, 2000). On 8 22

to take the view, as the Full Court in TPG did, that the ordinary or reasonable consumer will not be misled by a bold and attractive headline statement because the relevant information is all there in the small print if they look hard enough to find it. The High Court was less protective of the ordinary or reasonable investor in ASIC v Forrest. FMG and Forrest were economical with the truth about the content of the documents signed with CREC. FMG claimed that it withheld relevant information in its announcements to the ASX and in its media releases, because the information contained in the contracts was confidential. However, it is well settled that a listed entity must comply with its disclosure obligations under ASX Listing Rule 3.1 and s 674 of the Corporations Act even where it is party to a confidentiality agreement unless it can bring itself within the scope of one of the carve-outs from disclosure in ASX Listing Rule 3.1A, none of which applied in the case of the FMG announcements on 24 August 2004. In the absence of a duty of confidentiality, why was there not a “reasonable expectation of disclosure” that the CREC agreements were not legally binding since this was material to the decision of 122 investors and potential investors as to whether to hold or buy FMG shares? FMG’s share price rose over the period covered by the announcements from a price of 59 cents on 23 August 2004, prior to the letter from FMG’s Chief Financial Officer being received by the ASX, to a price of $1.93 at the 123 close of trading on 9 November 2004. Subsequently, FMG’s share price fell in March 2005, following the publication of an article in the Australian Financial Review in which it was asserted that the framework agreements did not impose legally binding obligations on the Chinese state-owned 124 entities. This suggests that a considerable number of investors may have construed the FMG’s announcement to the ASX to mean that legally binding obligations had been entered into with CREC, and that since the agreements were not legally binding the shares were not as valuable as they had been led to believe by the incomplete information released by FMG and Forrest.

VI Conclusion Establishing the knowledge base of the target audience in misleading conduct cases involving public statements is a question of fact for the court, and involves the drawing of inferences from the and 9 August 2007, the Productivity Commission convened a roundtable on the topic “Behavioural Economics and Public Policy” in Melbourne. Behavioural economics is a relatively new field that applies insights from psychology to economic issues and analysis. Participants at the Roundtable discussed the contribution that behavioural economics can make to a broader understanding of people's motivation and behaviour in markets and the implications for policy and regulatory approaches. The Productivity Commission acknowledged that behavioural economics has particular relevance to consumer policy, and that the insights gained through the Roundtable made a useful contribution to the Commission's inquiry on Australia's consumer policy framework. See especially the papers by Mulholland, “Behavioural Economics and the Federal Trade Commission”; Shafir, “A Behavioural Background for Economic Policy” and Field, “Having One's Cake and Eating it too – an Analysis of Behavioural Economics from a Consumer Policy Perspective”. The conference proceedings are available at www.pc.gov.au/research/confproc/behaviouraleconomics. 122

See Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31 at 32 (Black CJ) and Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) 241 CLR 357 at [19]-[20] (French CJ and Kiefel J). The courts have held that there is no reasonable expectation of disclosure where one party is under a duty of confidentiality. See Ibrahim v Phan [2007] NSWCA 215; Kabwand v National Australia Bank (1989) ATPR 40950 and Finding v Commonwealth Bank of Australia [2001] 1 Qd R 168. 123 124

Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [7]. Australian Securities and Investments Commission v Fortescue Metals Group Ltd (2011) 190 FCR 364 at [8].

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evidence led by the parties. That knowledge base will be critical in determining whether the impugned statement has a tendency to lead a reasonable member of the target audience into error. Gyles J observed in Australian Competition and Consumer Commission v Telstra: Reading the numerous cases in this field makes it perfectly apparent that individual judges vary considerably in their assessments of the effect of advertising. Some take a robust view and credit consumers with a fair amount of cynicism about advertisements and a fair amount of ability to make their own judgments. Others are convinced of the power of advertisements and are protective of the 125 consumer. Neither side is right or wrong — it is a matter of opinion.

In relation to s 18 of the ACL and its predecessor s 52 of the TPA, courts have generally taken the view that ordinary or reasonable consumers are able to take care of themselves and are able to digest and act upon information provided to them. It is apparent that the High Court in Forrest v ASIC credited the “reasonable” investor with a greater ability to comprehend the FMG’s media releases than ASIC did. There is always a risk that if a court sets the “reasonable investor” or the “reasonable consumer” test too high it will disregard the reality of consumer behaviour. The courts should be prepared to recognise the limitations of consumers and investors to act rationally in their best interests and to read public statements closely and critically.

125

ACCC v Telstra Corporation Ltd (2004) 208 ALR 459 at 475-6.

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