Nationwide News Pty Ltd v Australian Competition and Consumer Commission

[1996] FCA 1120

CATCHWORDS

TRADE PRACTICES - contravention of s 53 (g) of Trade Practices Act 1974 - making a "misleading representation concerning the ... effect of any condition" - advertisement in newspaper, on television and over radio of mobile telephone as "free" - prosecution by former Trade Practices Commission - requirement that person enter into contract to outlay substantial monies - whether statement that "conditions apply" sufficient to overcome effect of word "free".

TRADE PRACTICES - penalty for contraventions - advertisement of mobile telephone as "free" in newspaper, on television and over radio - making of "misleading representation concerning the ... effect of any condition" in contravention of s 53 (g) of Trade Practices Act 1974 - six contraventions of substantially similar nature occurring at about the same time - imposition of identical penalty of $20,000 in respect of each of the six contraventions, arrived at as being one sixth of $120,000 intended to be imposed overall - whether judicial discretion properly exercised, having regard to the different facts of the six contraventions, and in particular, the different propensities of the respective advertisements to mislead.

WORDS AND PHRASES - offer of "free" goods or services in commercial advertising.

Trade Practices Act 1974 ss 53 (g), 79 (2)

FTC v Standard Education Society 302 US 112 (1937)
In re Samuel Stores Inc (1938) 27 FTC 882
Progress Tailoring Co v FTC 153 F 2d 103 (1946)
Book-of-the-Month Club Inc v FTC 202 F 2d 486 (1953)
Fraser v NRMA Holdings Ltd (1994) 52 FCR 1 (Gummow J)
Fraser v NRMA Holdings Ltd (1995) 55 FCR 452 (FC)
Trade Practices Commission v Optus Communications Pty Ltd (1996) 34 IPR 176 (FCA/Tamberlin J)

NATIONWIDE NEWS PTY LIMITED v AUSTRALIAN COMPETITION & CONSUMER COMMISSION

No NG 758 of 1996

Spender, Lindgren, Lehane JJ
Sydney
20 December 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )        No NG 758 of 1996
GENERAL DIVISION                 )

On appeal from a Judge of the Federal Court of Australia

BETWEEN:

NATIONWIDE NEWS PTY LIMITED
  Appellant

AND:

AUSTRALIAN COMPETITION & CONSUMER COMMISSION
  Respondent

CORAM:Spender, Lindgren, Lehane JJ

PLACE:Sydney

DATE:20 December 1996

MINUTE OF ORDERS

THE COURT ORDERS:

1. THAT the appeal be dismissed.

1. THAT the appellant pay the respondent's costs.

NOTE:     Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )        No NG 758 of 1996
GENERAL DIVISION                 )

On appeal from a Judge of the Federal Court of Australia

BETWEEN:

NATIONWIDE NEWS PTY LIMITED
  Appellant

AND:

AUSTRALIAN COMPETITION & CONSUMER COMMISSION
  Respondent

CORAM:Spender, Lindgren, Lehane JJ

PLACE:Sydney

DATE:20 December 1996

REASONS FOR JUDGMENT
SPENDER J:
         I have read the reasons for judgment of Lindgren J.  I agree with them.

I certify that this page is a true copy of the reasons for judgment herein of the Honourable Justice Spender.

Associate

Date:   20 December 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )        No NG 758 of 1996
GENERAL DIVISION                 )

On appeal from a Judge of the Federal Court of Australia

BETWEEN:

NATIONWIDE NEWS PTY LIMITED
  Appellant

AND:

AUSTRALIAN COMPETITION & CONSUMER COMMISSION
  Respondent

CORAM:Spender, Lindgren, Lehane JJ

PLACE:Sydney

DATE:20 December 1996

REASONS FOR JUDGMENT
LINDGREN J:
The appellant ("Nationwide") appeals from part of a judgment of a Judge of the Court given on 30 August 1996.  The trial Judge found that Nationwide had contravened para 53 (g) of the Trade Practices Act (1974) ("the TP Act") in the respects identified in six Informations.  His Honour ordered, in respect of each contravention, that there be a conviction, and that Nationwide pay a fine of $20,000 (a total of $120,000) and the costs of the prosecutor (the Trade Practices Commission, "the TPC", which was the predecessor of the present respondent) including reserved costs. 

The proceeding at first instance arose out of a "promotion" by Nationwide in newspapers published by it and also in advertisements on television and radio authorised by it.  The promotion concerned an offer to readers of what was referred to as a "free" mobile telephone. 

The TPC prosecuted Nationwide in respect of alleged contraventions of paras 53 (e) and (g) and s 54 of the TP Act (it also prosecuted Smartcom Telecommunications Pty Limited for aiding and abetting contraventions of para 53 (e) and s 54 by Nationwide).  In all, there were 23 Informations.  They alleged four groups of contraventions.  The trial Judge concluded that the charges other than the six alleged contraventions of para 53 (g) in respect of which the present appeal is brought, were not made out.  I need say nothing further of those other charges.

RELEVANT LEGISLATION
Paragraph 53 (g) of the TP Act is as follows:

"A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services -

(a)... -  (f)  ...; or

(g)make a ... misleading representation concerning the ... effect of any condition, ..."

Section 53 occurs in Part V of the TP Act. Sub-section 79 (1), which occurs in Part VI of that Act, provides, relevantly, that a person who contravenes a provision of Part V, except for certain sections not presently relevant, is guilty of an offence punishable on conviction, in the case of a body corporate, by a fine not exceeding $200,000. Sub-section 79 (2), which the trial Judge held applied in the circumstances of the case, is as follows:

"(2)Where a person is convicted of two or more offences constituted by, or relating to, contraventions of the same provision of Part V, being contraventions that appear to the Court to have been of the same nature or a substantially similar nature and to have occurred at or about the same time (whether or not the person is also convicted of an offence or offences constituted by, or relating to, another contravention or other contraventions of that provision that were of a different nature or occurred at a different time), the Court shall not, in respect of the first-mentioned offences, impose on the person fines that, in the aggregate, exceed the maximum fine that would be applicable in respect of one offence by that person against that provision."

Nationwide does not dispute that sub-s 79 (2) applies, but it submits that nonetheless the trial Judge erred in his approach to the question of penalty.

FACTS:
Nationwide publishes the "Daily Telegraph Mirror" newspaper and the "Sunday Telegraph" newspaper, both in Sydney. Informations 8, 11, 20 and 23 related to advertisements of the offer which appeared variously in those newspapers, while Information 14 related to a television advertisement of the offer and Information 17 related to a radio advertisement of it.

The six Informations and the allegations in them can be summarised as follows:

Information 8 

According to para 3 of Information 8, there appeared on page 7 of the late final edition of the "Daily Telegraph Mirror" of Friday, 29 July 1994, the following:

"Free mobile phone for every reader. *Conditions apply. Don't miss Monday's Telegraph Mirror."

As in the case of all the Informations, the mere text of the words does not convey the impact of what appeared.  The following does so more effectively:

"  Free
  mobile
  phone

[There appeared here
               a diagrammatic representation
  of a mobile phone]

for
  every
  reader
  *Conditions apply
  Don't miss Monday's
  Telegraph Mirror                   "

Two allegations are common to all six Informations.  I will note them in the context of Information 8 but it must be remembered that they are also contained in the other five Informations.

First, para 4 of Information 8 alleges that the advertisement the subject of the Information was likely to be understood by readers as:

"a representation that a mobile phone would be supplied without charge or payment to every reader of the Daily Telegraph Mirror who complied with conditions other than conditions relating to charges or payments."

This allegation ("the Representation") is replicated in para 4 of Information 11, para 6 of Information 14, para 5 of Information 17, para 4 of Information 20, and para 4 of Information 23.  In Informations 20 and 23, instead of the words "every reader", there appear the words "all Sydney readers".

Similarly, para 5 of Information 8 is as follows:

"5.The defendant was, at all material times, aware that mobile phones would only be supplied to a maximum of 5000 readers who, in each case, entered into an agreement (known as Smartplan 130) with Smartcom Telecommunications Pty Ltd pursuant to which the reader would become liable to pay the following amounts:

·a connection fee of $65,

·a delivery charge of $19.90,

·a security deposit of $260 said to be refundable after 15 months if certain conditions were met, and

·an amount of $130 per month in advance for a minimum of 15 months in respect of access to the Vodafone Mobile Digital Network (which was said to include the first $120 of calls per month)."

This allegation is mirrored in para 5 of Information 11, para 7 of Information 14, para 6 of Information 17, para 5 of Information 20, and para 5 of Information 23.  In Informations 11 and 17 the word "Sydney" appears between "5,000" and "readers", and in Information 14 the expression "a maximum of 5000" is omitted. 

Accordingly, the allegation is that a reader would have to pay $344.90 initially and undertake to pay $1,950 over 15 months - a total of $2,294.90.  It has not been in dispute that as a condition of receiving a mobile phone, a reader was required to enter into a contract called "Smartplan 130" which involved the expenditures referred to.

Nationwide submits that the words "Conditions apply" and the accompanying asterisk qualify the "freeness" aspect of the offer. 

Information 11
Paragraph 3 of Information 11 alleges that the Representation was made by the following material which appeared on p 157 of the "Sunday Telegraph" dated Sunday 31 July 1994:

"Don't miss your Telegraph Mirror tomorrow.  Free* mobile phone from Smartcom Telecommunications Vodafone mobile digital. *Conditions apply.  For Telegraph Mirror readers."

Again, this bare text does little to convey the force of the advertisement.  The following goes further towards doing so:

"Don't miss your Telegraph Mirror tomorrow

[There appeared here a                  FREE*
photograph of a woman                   Mobile
holding a mobile telephone]            phone
  from
  SMARTCOM
  TELECOMMUNICATIONS
  VODAFONE
  Mobiledigital

*CONDITIONS APPLY     

For Telegraph Mirror readers          "

Nationwide's submissions draw attention to the asterisk which, in this case, accompanies both the word "FREE" and the words "Conditions apply".

Information 14
Information 14 relates to a television advertisement authorised by Nationwide which was broadcast on various Sydney television channels on Sunday 31 July 1994.  Paragraph 4 of Information 14 alleges that the "voice-over accompanying the advertisement which showed a ringing phone", contained the following:

"In tomorrow's Daily Telegraph Mirror.  Free mobile phones for Telegraph Mirror readers.  But you must get tomorrow's Telegraph Mirror for details.  A mobile phone free for readers.  Also new tomorrow, Prime Time, the Ultimate TV guide to the very best viewing all week and there are 20 Queensland holidays to win.  Don't forget a free mobile phone for readers.  Only in tomorrow's Daily Telegraph Mirror."

Paragraph 5 of Information 14 alleges that the picture on the screen depicted a rolled-up newspaper displaying the Daily Telegraph Mirror banner and a mobile phone; that during the course of the advertisement various words appeared on the screen; that the words "Free mobile phone" appeared three times; and that the words "5000 free mobile phones for Sydney readers.  Conditions apply" also appeared three times.  On the hearing of the appeal, the video of the advertisement was screened.

Information 14 claims that the Representation arose from the overall presentation comprising the words referred to in para 4 and the pictures referred to in para 5.

Nationwide's submissions draw attention to the words "Conditions apply" and to the fact that they were spoken immediately after the words "5,000 free mobile phones for Sydney  readers."

Information 17
Information 17 relates to a radio advertisement which was broadcast on various Sydney radio stations on Monday 1 August 1994.  Paragraph 3 of Information 17 alleges, and it has not been in dispute, that Nationwide authorised the broadcast of the advertisement.  The words in the broadcast relied on as giving rise to the Representation are, according to para 4 of the Information, as follows:

"In today's Daily Telegraph Mirror.  Free mobile phone for Telegraph Mirror readers.  But you must get today's Daily Telegraph Mirror for details and conditions.  A mobile phone free for readers.  Also, new today, Prime Time: the ultimate TV guide to the very best viewing all week and there are 20 Queensland holidays to win.  Don't forget, a free mobile phone for readers.  Only in today's Daily Telegraph Mirror."

Nationwide draws attention to the several references to "to-day's Telegraph Mirror" and submits that there is no special reason to think that the "details and conditions" necessarily exclude any "conditions relating to charges and payments".

Information 20
Paragraph 3 of Information 20 alleges that the Representation was made in the following words which appeared on page 1 of the "Daily Telegraph Mirror" dated Monday, 1 August 1994:

"Free *mobile phone for Sydney Telegraph Mirror readers *conditions apply.  From Smartcom Telecommunications Vodafone mobile digital.  Details page 16."

The advertisement appeared prominently just below the "banner" title of the newspaper at the top of the front page, in approximately the following format:

"  FREE*    Mobile phone

For Sydney         *Conditions apply  [There appeared here
  a photograph of a
     Telegraph Mirror     from SMARTCOM      woman holding a
   Telecommunications        mobile telephone]
        readers            VODAFONE
  Mobiledigital

Details Page 16  "

Again, Nationwide relies on the proximity of the asterisk to the word "FREE" and the expression "Conditions apply".

Page 16 contained two items which, in format, appeared to be ordinary news items, one headed "Get mobile with our phone offer", and the other, "Calling all suburbs while on the move"; an "application form" headed "DIGITAL MOBILE PHONE FOR Telegraph Mirror READERS FREE* Conditions apply"; and a "token" numbered "1".  Under the heading "Get mobile with our phone offer" appeared the following:

"SYDNEY readers of The Daily Telegraph Mirror can own their own digital mobile phone - FREE.

We have teamed with SMARTCOM TELECOMMUNICATIONS and VODAFONE to offer an Ericsson GH 198 digital mobile phone and accessories with a recommended retail price of over $1000.

The phone will operate on the Vodafone Mobile Digital network.

The limited offer is subject to taking up a 15-month subscription to Smartplan 130 and is open to Sydney readers over 18 years of age with existing credit cards and credit approval.

The Smartplan 130 costs a minimum of $130 a month and includes $120 worth of free calls each month.

Additional charges are listed in the Terms and Conditions in the Public Notices section of the Teleclassifieds each day this week and next week.

The phone offer is likely to appeal especially to existing mobile phone users who depend on them for business reasons.

Tradesmen, removalists, couriers, drivers and salespeople who make a high volume of mobile phone calls to run their operations are the kinds of people the offer could benefit most.

In Sydney, the Vodafone mobile digital network is available in the suburbs listed on this page.

To get your phone, all you need is five differently numbered tokens from The Daily Telegraph Mirror.

A token appears each day from Monday.

Cut the tokens out and attach them to the application coupon which will be published in The Daily Telegraph Mirror today and Tuesday.

The Daily Telegraph Mirror cannot accept responsibility for readers entering into a legally binding agreement and recommends you seek independent legal advice if unsure of the terms.

*Five thousand phones only are available, so be early."

The application form included the following:

"Sydney readers* of The Daily Telegraph Mirror can get a Digital Mobile Phone with one battery and a rapid desk top charger worth over $1,000...... FREE.  The Daily Telegraph Mirror has teamed up with VODAFONE and SMARTCOM TELECOMMUNICATIONS to bring you this exclusive offer.  Complete this application form and attach your 5 differently numbered tokens appearing in The Daily Telegraph Mirror this week.  Then send it to: SmartCom, PO Box 174, Seaford, Victoria 3198."

The asterisks in the application form directed attention to the following:

"*Make sure you read the full Terms and Conditions appearing in Teleclassifieds each day as The Daily Telegraph Mirror cannot accept responsibility for readers entering into a legally binding agreement and recommend you seek independent legal advice if you are unsure of the terms."

Beginning on page 51 of the newspaper were advertisements and notices under the heading on page 51 "Teleclassifieds". On page 65, under the heading "PUBLIC NOTICES", appeared an entry headed "FREE MOBILE DIGITAL PHONE FOR SYDNEY READERS TERMS AND CONDITIONS OF OFFER".  This read as follows:

"1.Readers must be connected to the Vodafone Mobile Digital Network via Smartcom Telecommunications P/L ACN 058-226-556, for a minimum of 12 months.  Subject to 90 day termination after 12 months.

2.Monthly accounts must be paid by credit or charge card mandate only for the complete duration of the Smartcom Telecommunications P/L Network Services Agreement.

3.The offer is subject to status, product availability, network geographic coverage and the unconditional acceptance of the Smartcom Telecommunications P/L Network Services Agreement terms and conditions included with your free phone.

4.A security deposit of $260 for the Smart Plan 130 must be paid on application by credit or charge card only.  This deposit is refundable in full after the minimum contractual period subject to a satisfactory payment history.

5.There is a minimum fee of $130 per month for the contract period.  An initial $65 one-off connection fee will be charged.  Monthly access fees are charged monthly in advance and additional calls monthly in arrears.

6.Smartcom Telecommunications reserves the right to amend their tariff, due to network tariff changes and to change the model of telephone supplied without notification.

7.The offer is subject to a delivery charge of $19.95 to be paid on application by credit or charge card.  Please allow up to 28 days for delivery.

8.The offer is open to any reader aged 18 and over.

9.This offer is valid until 1/10/94 and is restricted to the first 5,000 qualifying respondents.

Agreement/Privacy Act
  Acknowledgement

The applicant/customer hereby applies for the supply of a digital mobile telecommunications service and agrees to abide by the Smartcom Network Services terms and conditions (copy available on request) and hereby consents to Smartcom providing the information herein to a credit agency for the purposes of obtaining a credit report and further authorises Smartcom to access and use the credit agencies (consumer and commercial credit) information in relation to the applicant for the purpose of assessing this application.  The applicant/customer warrants the information in this application to be true and correct and that no relevant information regarding the business of the applicant/customer and/or its credit worthiness has been withheld from Smartcom."

Information 23
Paragraph 3 of Information alleges that the Representation was made in the following words which appeared on page 1 of the "Daily Telegraph Mirror" dated Tuesday, 2 August 1994:

"FREE* mobile phone for Sydney Telegraph Mirror readers *conditions apply.  From Smartcom Telecommunications Vodafone mobile digital.  Details page 16."

Again, the advertisement appeared prominently on the front page of the newspaper, just below its "banner" title, approximately as follows:

"  New token today
[There appeared here Mobile phone    FREE*
a photograph of a
woman holding a          For Sydney
mobile telephone]     Telegraph Mirror            from SMARTCOM
  readers                  Telecommunications

*Conditions apply      Details Page 16        Vodafone

Mobiledigital"

Nationwide again draws attention to the fact that an asterisk adjoins both the word "Free" and the expression "Conditions apply."

On page 16 appeared further "news format" material describing the offer, and the words "Coupon, token, conditions: Page 28".  The former was headed "Get mobile with our great phone offer" and included the following:

"SYDNEY readers of The Daily Telegraph Mirror can own their own digital mobile phone - FREE.

We have teamed with SMARTCOM TELECOMMUNICATIONS and VODAFONE to offer an Ericsson GH 198 digital mobile phone and accessories with a recommended retail price of over $1000.

The phone will operate on the Vodafone Mobile Digital network.

The limited offer is subject to taking up a 15-month subscription to Smartplan 130 and is open to Sydney readers over 18 years of age with existing credit cards and credit approval.

The Smartplan 130 costs a minimum of $130 per month and includes $120 worth of free calls each month.  Additional charges are listed in the Terms and Conditions in the Public Notices section of the Teleclassifieds each day this week and next week."

On page 28 appeared a token numbered "2" and the application form.  In this issue of the newspaper, the "terms and conditions of offer" did not appear as part of the "Teleclassifieds" but appeared on page 28 itself.

REASONING OF THE TRIAL JUDGE AND OUTLINE OF PARTIES' SUBMISSIONS
In Reasons for Judgment delivered on 8 August 1996, the learned trial Judge took the view that in the case of all six advertisements, the reader, viewer or listener did not have the opportunity to examine the terms and conditions.  This view applied as well to the issues of the "Daily Telegraph Mirror" on Monday, 1 August and Tuesday, 2 August, because it could be safely inferred that many, if not most, buyers of those newspapers would have looked at the prominent coloured advertisement on page 1 before buying the newspaper, and would not, prior to buying it, have looked at the later pages, let alone have digested the contents of what appeared on them.  In an important passage which encapsulates his reasoning, his Honour said this:

"The heavy emphasis on the phones being `free' would convey the impression that, whatever the conditions were, they would not be inconsistent with that basic promise or, as the particulars state, would not be conditions relating to charges or payments.  But in truth the conditions meant that a person would have to part with a substantial sum of money (albeit not as a `price') before he or she could get a phone.  The true effect of the conditions were thus misrepresented." (Reasons for Judgment, p 16)

His Honour's words, "albeit not as a `price'", take particular significance from the fact that he had dismissed charges that Nationwide had contravened para 53 (e) of the TP Act by making misleading representations "with respect to the price" of the mobile phone, and from the ground on which he had dismissed them.  That ground was that the word "price" in para 53 (e) bore the same meaning as it did in sub-s 6 (1) of the Sale of Goods Act 1923 (NSW), namely, the money consideration for which a seller transfers or agrees to transfer the property in goods to a buyer.

In separate Reasons for Judgment delivered on 30 August 1996, his Honour dealt with the questions of penalty and costs.  He took the view that sub-s 79 (2) of the TP Act applied because the six contraventions were of a substantially similar nature and occurred at about the same time.  He thought that "[o]n a spectrum of culpability ... this was more than halfway towards the maximum".  It is clear that it was on this basis that his Honour determined that an appropriate overall penalty was that Nationwide should have to pay fines totalling $120,000, that is to say, a little more than half of the maximum permissible penalty of $200,000.  He "allocated" this sum of $120,000 between the six convictions equally, imposing a fine of $20,000 in respect of each.

On the appeal, Nationwide makes the following written submission in relation to conviction:

"The expression `conditions apply' in a promotion being conducted by a newspaper which offered a `free' mobile telephone would convey that the `conditions' were likely to include some relating to the cost of connecting to the service provider and operating the mobile telephone, but that the device (i.e. the mobile telephone) itself would be provided at no cost.  This is particularly so when the matter conveying the representation expressly refers to and identifies two service providers, namely, `Smartcom Telecommunications' and `Vodafone mobile digital', and when the advertisements made it clear that the term `conditions apply' was a qualification to the term `free'."

In relation to penalty, Nationwide submits that the trial Judge erred by failing to distinguish between the different forms of matter published, and the separate capacity of each to convey the Representation.  It submits that to impose the same penalty in relation to all of the six charges was not to exercise the judicial discretion vested in the trial Judge in accordance with the particular circumstances of the six respective cases.

REASONING
Conviction
The word "free" is rich and diverse in meaning, and "there is no dictionary meaning of the word `free' which can be applied in all cases" (Adelaide Company of Jehovah's Witnesses Inc v The Commonwealth (1943) 67 CLR 116 at 127 (Latham CJ)). Of the many definitions of the word which will be found in any dictionary, the following ones are pertinent to offers of "free" goods or services in commercial advertising:

"provided without, or not subject to, a charge or payment": The Macquarie Dictionary, 2nd Revised Edition, definition (26)

"Given or provided without charge or payment, gratuitous.": The New Shorter Oxford English Dictionary, 1993, definition (13)

Offers of free goods or services have been much used in advertising, no doubt because of their capacity to attract business.  Advertisers have not infrequently been charged, by whatever means and in whatever terms, with having failed to provide goods or services which were "truly free" as advertised. 

In the United States of America, the starting point has often been a "cease and desist" order of the Federal Trade Commission under the Federal Trade Commission Act §5 15 USCA §45. 

A source of potential difficulty is that it is common knowledge that the ultimate purpose of commercial advertising is to confer financial benefit on the offeror of the "free" goods or services, often by persuading the offeree to purchase other goods or services from it.  It may be worthwhile for a seller to make "genuine gifts" while not increasing its prices, in the interests of an increase in the volume of sales and of the overall profit generated by that increase.

It has sometimes been suggested that the effect of the "common knowledge" to which I have referred is that the offer of free goods or services is not rendered misleading, no matter what the conditions to be satisfied are.  In its extreme form, the proposition is that since everyone knows that there will be some "catch" to the use of the word "free", its use cannot be misleading no matter how disadvantageous the "catch" may be.  But this approach has not found favour.  In FTC v Standard Education Society 302 US 112 (1937), salesmen represented to potential customers that they had been selected to receive a set of books free of cost for advertising purposes. Having gained an audience, they revealed that a customer was required to pay $69.50 to the company. However, they represented that the regular price of a loose-leaf supplement to the set of books alone was $69.50 and that the usual price of the set and supplement far exceeded that amount. In reality, however, the set of books and supplement together regularly sold for $69.50.

The Circuit Court of Appeals for the Second Circuit said:

"We cannot take too seriously the suggestion that a man who is buying a set of books and a ten years' `extension service,' will be fatuous enough to be misled by the mere statement that the first are given away, and that he is paying only for the second. ... Such trivial niceties are too impalpable for practical affairs, they are will-o'-the-wisps, which divert attention from substantial evils." (at 116)

But the Supreme Court of the United States rejected this approach, observing as follows:

"To fail to prohibit such evil practices would be to elevate deception in business and to give to it the standing and dignity of truth.  It was clearly the practice of respondents through their agents, in accordance with a well matured plan, to mislead customers into the belief that they were given an encyclopedia, and that they paid only for the loose leaf supplement." (at 116-117)

In In re Samuel Stores Inc (1938) 27 FTC 882 the respondent offered "Free" and without cost, the "Choice of a $6.95 dress or men's shoes", a "Ladies' or men's all-weather sport coat" or other merchandise, to every purchaser of $25 of its merchandise.  The Federal Trade Commission charged the respondent with the use of unfair methods of competition.  The evidence showed that the cost of the articles given away was charged to the respondent's advertising budget and became part of the general overhead of the business.  In its opinion, the Commission observed:

"Where the merchant, for the purpose of attracting new customers, sacrifices, for a limited period of time, a portion of his normal profit on his entire line, he may receive no immediate direct profit from the transaction.  In fact, the merchandise required to be purchased must bear not only its own cost and its own share of the general operating overhead, but also the cost of the `free goods' and its share of the overhead.  Under such circumstances, the `free goods' offer is hardly deceptive, for the purchaser actually does obtain the specified `free goods' at no additional cost over the ordinary and regular price of the merchandise required to be purchased.  As far as the purchaser is concerned, therefore, he actually receives the `free goods' without cost.  In reality the practice in such a case is a convenient and impelling method of calling attention of the public to price reductions in the goods which must be purchased.

There are, however, many conditional `free goods' offers which result in deception of the purchaser.  In some instances, the merchant will increase the advertised price of the article required to be purchased over the ordinary and customary selling price in an amount sufficient to offset, in whole or in part, the cost of the `free goods.'  In other cases, the merchant will substitute inferior merchandise for that ordinarily and customarily sold at the designated price involved in the transaction, thus recovering, in whole or in part, the cost of the `free goods.'  In cases of this type the purchaser has a right to believe that the merchant will not directly and immediately recover, in whole or in part, the cost of the `free goods' by the marking up of the price of an article which must be purchased or substitution of inferior merchandise.  If a merchant recovers any portion of the cost of the `free goods' directly from the immediate transaction through the use of such methods, there is necessarily a deception of the purchaser, for the so-called `free goods' are not in any sense free.  The recent decision of the Supreme Court in the Standard Education Society case (802 U.S. 112, 116) indicates no sympathy whatever for such practices:

The practice of promising free books where no free books were intended to be given, and the practice of deceiving unwary purchasers into the false belief that loose-leaf supplements alone sell for $69.50, when in reality both books and supplement regularly sell for $69.50, are practices contrary to decent business standards.  To fail to prohibit such evil would be to elevate deception in business and to give to it the standing and dignity of truth. (Italics supplied.)

Other offers of `free goods' conditioned upon the purchase of other merchandise or upon the performance of a service sometimes appear, at first impression, to be unconditional offers of `free goods.'  This is brought about by prominently featuring the `free goods' offer in such a way as to obscure or minimize the condition attached thereto, with a resulting deception of the purchaser, at least in the initial or `contact advertising' stages.  It is not sufficient that the purchaser be made fully aware of any conditions before the transaction is finally consummated.  He should be fully apprised of all of the terms and conditions of the offer at its very inception, in order for there to be an assurance that no deception is involved in the transaction.  Any deception of the purchaser, whether occurring during the initial stages of the transaction, that is, in the advertisement first attracting the customer's attention to the `free goods' offer, or at any other stage of the transaction, is sufficient to render unlawful any so-called `free goods' offer, even though all terms and conditions may be later fully explained.
Standard Education Society v. F.T.C., 302 U.S. 112, 115-116; Holland Furnace Co. v. New Holland Machine Co., 24 F. (2d), 751, 753; Fairyfoot Products Co. v F.T.C., 80 F. (2d), 684, 687." (at 887-888)

In Progress Tailoring Co v FTC 153 F 2d 103 (1946), corporations advertised that they gave a suit of clothes "free" to salesmen who accepted employment with them, but only subsequently explained to inquirers that a salesman received a suit only after selling a specified number of garments. The corporations made a profit on the entire transaction after taking into account the cost of the suit. The corporations' petition for review of the Federal Trade Commission's cease and desist order was unsuccessful.

The facts of Book-of-the-Month Club Inc v FTC 202 F 2d 486 (1953) bear some similarity to those of the present case. The Book-of-the-Month Club published an advertisement which stated in large print at the top "Free ... to new members of the Book-of-the-Month Club" a copy of some designated book. The advertisement contained, at the foot and in much smaller print, a coupon which, when signed and sent to the Club, constituted a contract between it and its new "member" which stated that he or she was to "receive free" the designated book, and agreed "to purchase at least four books-of-the-month a year from the Club". If the member failed to buy four books of the month within a year after joining the Club, the Club demanded and expected to collect from the "member" the retail price of the book, although sometimes it would relinquish this demand provided the book was returned to it. The United States Court of Appeals for the Second Circuit held, albeit with apparent reluctance, that it was bound by the Supreme Court decision in FTC v Standard Education Society, to accept the Commission's submission that the Club's use of the term "free" was misleading and deceptive.

In this Court, an offer of "free shares" fell for consideration by Gummow J in Fraser v NRMA Holdings Ltd (1994) 52 FCR 1, and by the Full Court on appeal in Fraser v NRMA Holdings Ltd (1995) 55 FCR 452. The expression was used in a prospectus relating to the issue of shares in NRMA Holdings Limited ("Holdings"). The offer was to members of NRMA Limited ("Association") and of NRMA Insurance Limited ("Insurance"). A member of Association or Insurance who wished to accept the offer of shares in Holdings had to relinquish the existing membership and associated significant legal rights. Gummow J held that it was likely to mislead or deceive, repeatedly to describe in the prospectus the offer by Holdings as an offer of "Free Shares". While, in some places, the expression "Free Shares" appeared in conjunction with references to the "Sale Offer" and in some instances an asterisk directed attention to information relating to what such a member would have to give up, in other places the expression "Free Shares" appeared in isolation. His Honour said that:

" ... the effect of the persistent reiteration of the phrase `Free Shares' is to engender in the reader the notion that the shares may be acquired without any significant loss or outgoing to the offeree who accepts them." (at 28B)

On appeal, the Full Court agreed.

Finally, in Trade Practices Commission v Optus Communications Pty Ltd (1996) 34 IPR 176, Tamberlin J had to address an advertisement by suppliers of mobile telephone services equipment of a "Freestyle Plan" featuring an offer of "free and weekend local calls" up to $52 per month, where in truth, only calls from a mobile phone to a fixed line phone were free, and calls from one mobile phone to another were not free. The respondents relied upon the facts that the advertisement included a disclaimer that "some exclusions apply"; that references to the exclusion of "mobile to mobile calls" appeared in the packaging, brochures and other advertising materials that were available at the respondents' outlets; that clarification was provided by the respondents' sales representatives to customers making oral inquiries about the offer; and that the exclusion of mobile to mobile calls was stated in the customer contract which had to be signed at the time of purchase. His Honour held, however, that the offer of "free weekend local calls" was misleading, noting that the word "free" has a particularly strong attraction and that unless adequately qualified where necessary, it can readily produce a wrong understanding (his Honour referred to Fraser v NRMA Holdings Ltd (1994) 52 FCR 1 at 27-28).

While each case turns on its own facts, the cases to which I have referred demonstrate judicial recognition of the propensity of the word "free" in advertising to mislead or deceive.  An advertiser relies on common understandings at its peril.  Any respect in which goods or services offered as "free" may not be free should be prominently and clearly spelled out so that the magnetism of the word "free" is appropriately qualified.  In my opinion, this did not occur in the present case.

An offer to a newspaper reader of a "free" mobile phone without any reference to conditions is, in my view, an offer to cause the reader to become the owner of such a phone without his or her first having to outlay money or to undertake to do so.  The addition of the words "Conditions apply" in the present case do not detract from that position: rather, they indicate that upon or after satisfying conditions, the reader will be entitled to become the owner of a mobile telephone, still without his or her having had to outlay money or to undertake to do so.  In the present case, a reader, viewer or hearer of the advertisement might reasonably have expected that there would be, for example, a limit on the number of free mobile phones on offer, a prescribed mode of and time for acceptance of the offer, and perhaps even an obligation to buy a small number of newspapers at their standard price, or to send a number of coupons from the newspaper.  Conditions of such kinds would not be understood to detract from the "freeness" of the mobile phone.  No doubt

a reader, viewer or hearer would have expected to incur expense on deciding to use the phone, possibly by way of an initial charge for connection, possibly by way of periodical fees and certainly by way of charges for calls made.  But he or she would not have expected the conditions referred to in the advertisement to compel him or her to enter into a contract of a particular kind with a particular service provider requiring outlays such as those payable under "Smartplan 130".  In this respect, the use of the word "free" misrepresented the effect of "the conditions".  A reader, viewer or hearer of the advertisement who thought about the matter would not have arrived at a different conclusion.  He or she would have understood the commercial benefit to Nationwide or the supplier of the mobile phones or both, to reside in the general promotion of sales of newspapers or of mobile phones or of both, and, perhaps, in some transaction between Nationwide and the phone supplier, but certainly not in the particular transaction with him or her.

It will be clear from what I have said above, that I agree with the construction of the advertisement adopted by the learned trial Judge quoted earlier.  With respect, I do not think that the conjunction of the asterisk and its reference to the expression "Conditions apply" with the word "FREE" distinguishes some advertisements from others.  To my mind, what is important is the dominance of the word "FREE" and, consistently with this, the limited nature of the conditions to be expected.

Penalty
In the context of a discussion relating to sub-s 79 (2) of the TP Act, the following exchange took place between the learned trial Judge and senior counsel who appeared for Nationwide on the trial:

"HIS HONOUR:   ... How many offences are there?

MR DOWNES:     Six.

HIS HONOUR:    I could impose a penalty of X dollars in relation to 6 offences, but 6 times X could not exceed $200,000.  It seems to me a bit artificial to do that, because it was the one campaign.

MR DOWNES:     What your Honour is doing under that is dealing with it as if it was one offence, even though there is one publication, so we would accept the approach your Honour foreshadows is the correct approach." (T 59.12-.20)

The circumstances of no two of the six cases were identical.  If the facts of the respective contraventions had been considered in isolation from each other, the trial Judge may well not have arrived at the penalty of $20,000 for each contravention.  But it would have been within his discretion to add up the amounts at which he arrived and to adjust them upwards or downwards to reflect his assessment of the "overall criminality" involved in the facts constituting all six contraventions.  Nationwide does not submit that it was not within his Honour's discretion to take the view that the overall criminality warranted the imposition of fines totalling $120,000.
In  my view, it was also open to his Honour first to fix the overall amount and then to allocate it as between the six contraventions.  One might still expect the six amounts, while totalling $120,000, not to be identical.  But I am of the view that Nationwide's attack on the imposition of penalties on the ground advanced fails for two reasons.  First, the exchange quoted above reflects an invitation or acquiescence by Nationwide which entitled the learned trial Judge to take a "broad brush" approach and to impose the same penalty in respect of the six contraventions.  At least in a case such as this, where the differences in criminality of the respective offences is not great, it was open to his Honour to act on what was said.  What occurred may be compared with a joint submission on an appropriate level of penalty which has been countenanced in cases under Part IV of the TP Act, such as Trade Practices Commission v Allied Mills Industries Pty Ltd (1982) 60 FLR 38, and Trade Practices Commission v Hymix Industries Pty Ltd (1995) ATPR 41-369.

Secondly, it is not submitted that in any particular case, $20,000 was so excessive a penalty as to lie outside the range of discretion available to his Honour.  Nationwide has submitted that the contraventions the subject of Informations 20 and 23 may have been less serious than, say, the contravention the subject of Information 8, because in the case of the former two, but not the latter, an asterisk accompanied the word "FREE" and the terms and conditions appeared in the newspaper in which the advertisement appeared. But it was not submitted, and I do not think, that a penalty of $20,000 was so excessive, even in respect of Information 20 or 23, as to suggest an erroneous approach on the part of his Honour.

CONCLUSION
The appeal should be dismissed with costs.

I certify that this and the preceding 28 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated:20 December 1996

IN THE FEDERAL COURT OF AUSTRALIA  )
NEW SOUTH WALES DISTRICT REGISTRY  )
GENERAL DIVISION                 )       No. NG 758 of 1996

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

BETWEEN:NATIONWIDE NEWS PTY LIMITED

Appellant

AND:AUSTRALIAN COMPETITION & CONSUMER COMMISSION

Respondent

CORAM:Spender, Lindgren and Lehane JJ

PLACE:Sydney

DATE:20 December 1996

REASONS FOR JUDGMENT

LEHANE J:  I have read the reasons for judgment of Lindgren J.  I agree with them.

I certify that this page is a true copy of the Reasons for Judgment of the Honourable Justice Lehane.

Associate:

Dated:  20 December 1996

Heard:              28 November 1996

Place:              Sydney

Decision:              20 December 1996

Appearances:         Mr D F Jackson QC with Mr J S Wheelhouse of counsel instructed by Gallagher de Reszke appeared for the appellant.

Mr P W Neil SC with Ms S McNaughton of counsel instructed by the Director of Public Prosecutions appeared for the respondent.