Commerce Commission v Vodafone New Zealand Limited
[2023] NZHC 2149
•11 August 2023
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CRI-2022-404-000157
[2023] NZHC 2149
BETWEEN COMMERCE COMMISSION
Appellant
AND
VODAFONE NEW ZEALAND LIMITED
Respondent
CRI-2022-404-000162
BETWEEN
VODAFONE NEW ZEALAND LIMITED
AppellantAND
COMMERCE COMMISSION
Respondent
Hearing: 13 to 15 March 2023 Appearances:
Nick Flanagan, Ben Hamlin and Chloe Fleming for the Appellant/Respondent
Fletcher Pilditch KC, Allison Ferguson and Karl van der Plas for the Respondent/Appellant
Judgment:
11 August 2023
JUDGMENT OF MOORE J
[Appeal against conviction and sentence]
This judgment was delivered by me on 11 August 2023 at 3:00 pm pursuant to Rule 11.5 of the High Court Rules.
Registrar/ Deputy Registrar Date:
COMMERCE COMMISSION v VODAFONE NEW ZEALAND LIMITED [2023] NZHC 2149 [11 August 2023]
Contents
Paragraph Number
INTRODUCTION................................................................................................... [1]
FACTUAL BACKGROUND
Overview of broadband network....................................................................... [6]
Government’s FTTH network......................................................................... [15]
Vodafone’s HFC network................................................................................. [19]
Branding and marketing of FibreX................................................................ [25]
Availability checker tool................................................................................... [28]
Wider reporting on FibreX.............................................................................. [30]
The Commission’s investigation....................................................................... [36]
The charges........................................................................................................ [43]
PROCEDURAL BACKGROUND...................................................................... [51]
CONVICTION APPEAL
District Court decision...................................................................................... [56]
Legal principles on conviction appeals........................................................... [73]
Grounds of appeal............................................................................................. [76]
Ground 1.1(e): Failure to address the relevant consumer group[78]
Ground 1.1(f): The Judge erred by disregarding other aspects of
Vodafone’s advertising conduct and in applying the relevant law.............. [100]
Ground 1.1(b): Erroneous finding that consumers had been conditioned
to ascribe FTTH as a secondary meaning to the word “fibre”.................. [120]
(a)What “fibre” meant to the consumer?............................................. [133]
(b)Whether “FibreX” was liable to mislead the consumer.................. [152]
Ground 1.1(c): Failure to address admissibility of consumer complaints
table............................................................................................................. [157]
Ground 1.1(a): Erroneous finding as to characteristic of service................ [169]
Ground 1.1(d): Reversal of burden and standard of proof........................... [177]
Ground 1.1(g): Failure to properly consider and weigh all admissible
evidence....................................................................................................... [186]
Conclusion on conviction appeal................................................................... [197]
SENTENCE APPEAL........................................................................................ [198]
District Court decision.................................................................................... [199]
Legal principles on sentence appeals............................................................. [212]
Application of s 40(2) of the FTA.................................................................. [214]
Commission’s sentence appeal....................................................................... [224]
Ground (a)(i): Error as to Vodafone’s state of mind[226]
Ground (a)(ii): Error as to significance of commercial gain[244]
Ground (a)(iii): Error as to assessment of harm to consumers[256]
Ground (a)(iv): Failure to follow approach in Steel v Tube[272]
Ground (b): Manifestly inadequate uplift..................................................... [282]
Ground (c): Departure from accepted sentencing methodology[291]
Conclusion on Commission’s sentence appeal............................................. [295]
Vodafone’s sentence appeal............................................................................ [300]
Departure from accepted sentencing methodology[303]
Errors relating to adjustments for personal culpability factors[306]
(a)Improperly penalising Vodafone for offending that occurred at
the same time as the present offending[307]
(b)Uplift for previous convictions[310]
(c)Discount for co-operation[313]
(d)Discount for reducing trial time[315]
Means adjustment......................................................................................... [320]
Manifestly excessive starting point.............................................................. [324]
Conclusion on Vodafone’s sentence appeal.................................................. [329]
RESULT............................................................................................................... [330]
INTRODUCTION
[1] On 16 November 2018, Vodafone New Zealand Ltd (“Vodafone”) pleaded guilty to nine representative charges of misleading conduct in relation to services pursuant to s 11 of the Fair Trading Act 1986 (“FTA”). These charges related to representations on its website as to the availability of fibre-to-the-home broadband services (“the availability charges”).
[2] On 23 April 2021, following a Judge-alone trial, Vodafone was convicted of nine further representative charges of misleading conduct under s 11 of the FTA.1 These related to the branding and advertising of its Hybrid Fibre Coaxial network (“the branding charges”).
[3] On 14 April 2022, Judge A A Sinclair in the District Court at Auckland imposed a fine of $2,250,000 on all charges.2
[4] Vodafone appeals its convictions on the branding charges and the sentence imposed on all charges.
[5] The Commerce Commission (“the Commission”) opposes Vodafone’s conviction appeal and cross-appeals the sentence on the basis of manifest inadequacy.
FACTUAL BACKGROUND
Overview of broadband network
[6] This case is about the provision of broadband services. As such it is important to first set out, as briefly as reasonably possible, the network architecture and technology.
1 Commerce Commission v Vodafone NZ Limited [2021] NZDC 7381 [Conviction decision].
2 Commerce Commission v Vodafone NZ Limited [2022] NZDC 6695 [Sentencing decision].
[7] The network by which broadband reaches the end-point consumer consists of two main parts:
(a)The “core network”, which provides connectivity between major cities and between countries.
(b)“Access networks”, which connect to the core network and link customers with broadband service providers.
[8] Whereas the core network in New Zealand is made entirely of fibre optic cable, access networks can take a number of different forms. These can be physical (i.e., wired) or wireless.
[9] This case is concerned only with “wired access broadband networks”. Broadly speaking, there are three different types of wired access broadband networks in New Zealand:
(a)Digital Subscriber Line (“DSL”), a general term which encompasses Asymmetric Digital Subscriber Line (“ADSL”) and Very-High-Bit- Rate Digital Subscriber Line (“VDSL”).
(b)Hybrid Fibre Coaxial (“HFC”).
(c)Fibre-to-the-home (“FTTH”).
[10] DSL uses twisted pair copper cable, sometimes simply referred to as “copper”, from the home to the nearest exchange of the network provider. This is New Zealand’s original broadband network that utilises conventional telephone lines.
[11] HFC consists of fibre optic cabling to the “node” (typically a roadside cabinet), and coaxial copper cabling from the node to the home.
[12]FTTH, as the name suggests, uses fibre optic cables all the way into the home.
[13] The main difference between these networks is the physical material used for the so-called “last mile”. In other words, the “journey” of any given piece of data across the wired access broadband network is on fibre optic cable until the final stage of its journey into a consumer’s house, at which point it diverges depending on the wired access broadband network the consumer’s address is connected to.
[14] The different material properties of FTTH and HFC, in particular, are central to the case before the Court.
Government’s FTTH network
[15] In or about 2009, the Government embarked upon a $1.7 billion ultra-fast broadband (“UFB”) initiative aimed at upgrading the whole of New Zealand’s broadband infrastructure. The first phase of the project involved building a new, purpose-built FTTH network across 33 of the nation’s most populous areas, covering 75 per cent of the national population.
[16] To implement the roll out, the Government engaged four local fibre companies (“LFCs”), including, relevant to this case, Chorus New Zealand Ltd (“Chorus”) and Enable Networks Ltd (“Enable”). Chorus is contracted for the Wellington and Kāpiti regions, while Enable covers Christchurch.
[17] In addition to laying the fibre optic cables, the LFCs act as wholesalers in order to sell access to the FTTH network to internet service providers (“ISPs”), such as Vodafone. The LFCs invested several million dollars in marketing to encourage the uptake of FTTH.
[18] The first phase of the Government’s UFB initiative was completed in December 2019. A second phase, extending the coverage of FTTH to 87 per cent of the national population, was completed in December 2022.
Vodafone’s HFC network
[19] Vodafone is a telecommunications company providing a number of services, including broadband.
[20] In 2012, Vodafone purchased Telstra-Clear and acquired its HFC network. This network covers Wellington, Kāpiti and Christchurch, utilising the existing infrastructure of coaxial cables associated with cable television networks built in the late 1990s.
[21] In November 2015, Vodafone upgraded its HFC network to the latest standard, DOCSIS3.1 (“DOCSIS”), which had been released in October 2013.
[22] Following this, on 5 October 2016, Vodafone announced that it would be marketing its UFB service on the upgraded HFC network under the brand name “FibreX”.
[23] A further announcement on 20 October 2016 set out some basic information about FibreX, including that the underlying technology was DOCSIS, that the network was Vodafone-owned, and that a three-day installation promise would apply to customers with an existing HFC connection.
[24] The media picked up and reported on these announcements. FibreX became available to customers from 26 October 2016.
Branding and marketing of FibreX
[25] Vodafone’s advertising of FibreX was geographically limited to the areas where HFC was available, namely Wellington, Kāpiti and Christchurch. The campaign involved a wide range of media and media strategies, including:
(a)advertisements in the local press;
(b)geo-targeted digital media using banners on high traffic media websites including the NZ Herald, Dominion Post, and The Press (as online banners);3
(c)sponsored posts on regionally targeted social media;
3 Geotargeting can be used to limit online advertisements to only appear in certain locations, as was the case here.
(d)radio advertising on MediaWorks and NZME networks, including ZM, The Hits, Flava, Mai FM, More FM, The Rock, The Edge, the Breeze, The Sound, Radio Tarana, and Radio Live stations;
(e)outdoor billboards in Wellington and Christchurch;
(f)direct mail sent to selected households;
(g)90 Adshel advertisements (large posters in bus shelters); and
(h)in-store advertisements in Vodafone’s retail stores and on Vodafone’s website.
[26] To promote its upgraded network, Vodafone selected the headlines “FibreX is here” and “FibreX has arrived”, together with what it describes as an image of a “night sky filled with shooting stars”.
[27] Vodafone’s broader campaign focused on the key metrics of speed, price and availability/installation time.
Availability checker tool
[28] Vodafone also used a broadband availability checker tool on its website in order to promote FibreX. When customers within the FibreX coverage areas inputted their address into the checker, they would be advised that no other broadband services apart from FibreX were available to them.
[29] In addition, when consumers using the availability checker navigated to the FTTH page on Vodafone’s website, they were advised that FTTH was not available at their address.4
4 The Commission accepted that this was not intentional but rather the result of a technical error.
Wider reporting on FibreX
[30] In March and April 2017, TrueNet released reports which suggested FibreX’s performance suffered from congestion.5
[31] On 2 May 2017, Consumer New Zealand (“Consumer NZ”) published an article on its website which relied on and repeated the claims made in the TrueNet reports regarding FibreX. It also stated that “many users on the FibreX service have complained that speeds drop to sub-ADSL levels”.
[32] On 1 June 2017, Consumer NZ published a further article entitled, “Vodafone’s FibreX risks misleading consumers”. The last sentence of the article read:
“The Commerce Commission is investigating Vodafone’s FibreX service and wants to hear from people with complaints. If you’ve experienced problems, you can email the commission at [email protected].”
[33] At this time the Commission’s investigation had not yet been made public. The Consumer NZ article was picked up by other media outlets such as the National Business Review.
[34] On 2 June 2017, Vodafone wrote to TrueNet in relation to its reporting. It claimed that the results were inaccurate due to flaws in TrueNet’s testing methodology and asked for the content to be taken down.
[35] TrueNet responded on 9 June 2017 with an acknowledgment that its headline may have had the potential to mislead readers as to the cause or scale of Vodafone’s performance against other networks.
The Commission’s investigation
[36] The publishing of TrueNet’s reports coincided with the Commission’s investigation into Vodafone’s branding and marketing of FibreX, which commenced in March 2017.
5 TrueNet is an independent organisation dedicated to the measurement and reporting of broadband performance in New Zealand.
[37] The Commission had received complaints about the marketing of FibreX in the months following its October 2016 launch. Consideration of those complaints prompted the Commission to launch its investigation.
[38] As is standard procedure, the Commission approached Vodafone and asked for information regarding its position on the Commission’s concerns.
[39] In late 2017, Vodafone made changes to its FibreX advertising campaign in response to some of these concerns. In particular, it endeavoured to communicate more clearly to consumers that FibreX utilised the Vodafone-owned HFC network.
[40] It also made changes to the availability checker tool on its website, so that when consumers within the FibreX coverage areas inputted their address, they received a message that Vodafone broadband was available at their address but that ADSL and VDSL “might not” be. FTTH was still not presented as an option even where it was available.
[41] In February 2018, Vodafone ceased all advertising of FibreX in third-party media but continued to advertise the services on its website, in-store, and via door-to- door sales/direct marketing.
[42] By 28 March 2018, Vodafone had amended its website to remove the availability checker and direct consumers to call to check whether FibreX was available at their address. However, the advertising checker inadvertently remained on Vodafone’s help page under the heading, “Can I get Vodafone fibre?”. When consumers within the coverage area inputted their address, it again showed FibreX as the only available option.
The charges
[43] On 30 April 2018, as a result of its investigation, the Commission laid a total of 28 representative charges being the nine availability charges to which Vodafone later pleaded guilty, and 18 branding charges. The branding charges comprised two tranches of nine charges; nine alleging misleading conduct under s 11 and, in the
alternative, nine alleging false and misleading representations under s 13(b) of the FTA.
[44] Each tranche of nine charges covered conduct said to have been captured in three six monthly periods covering the 17 month period between:
(a)26 October 2016 to 26 April 2017;
(b)27 April 2017 to 27 October 2017; and
(c)28 October 2017 to 28 March 2018.
[45] At the hearing in the District Court, it was explained by Mr Flanagan, for the Commission, that the selected periods were arbitrary in the sense that although the alleged unlawful conduct occurred across the entire period, it was divided into three equal date ranges for reasons of management and practicality. No objection was taken to this process by Mr Pilditch KC, for Vodafone. Each of these periods was then further divided into the three geographical zones referred to earlier, being Wellington, Kāpiti, and Christchurch, that is the three regions where FibreX was offered.
[46]The chart below assists:
Branding charges
Wellington
Kāpiti
Christchurch
26 Oct 2016 – 26 Apr 2017
Charge 1
Charge 2
Charge 3
27 Apr 2017 – 27 Oct 2017
Charge 4
Charge 5
Charge 6
28 Oct 2017 – 28 Mar 2018
Charge 7
Charge 8
Charge 9
Availability charges
Wellington
Kāpiti
Christchurch
1 Nov 2016 – 19 May 2017
Charge 10
Charge 11
Charge 12
20 May 2017 – 31 Oct 2017
Charge 13
Charge 14
Charge 15
1 Nov 2017 – 28 Mar 2018
Charge 16
Charge 17
Charge 18
[47] I shall first consider the branding charges found proved by the Judge, namely those laid under s 11. That section relevantly provides:
“11 Misleading conduct in relation to services
No person shall, in trade, engage in conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose, or quantity of services.”
[48]As for these charges, the particulars alleged were that:
“By the naming of the service and Vodafone’s promotion of it in billboard, radio, in-store, direct marketing and internet advertisements in the [named] region stating “FibreX is here” or “FibreX has arrived” and using travelling beams of light as a background to the (non-radio) advertisements, Vodafone was liable to mislead the public into thinking that its broadband service delivered over its HFC network named “FibreX” is a FTTH broadband service, when it is not.”
[49]The alternative charges were laid under s 13(b), which relevantly provides:
“13 False or misleading representations
No person shall, in trade, in connection with the supply or possible supply of goods or services or with the promotion by any means of the supply or use of goods or services,
…
(b)make a false or misleading representation that services are of a particular kind, standard, quality, or quantity, or that they are supplied by any particular person or by any person of a particular trade, qualification, or skill, or by a person who has other particular characteristics;”
[50]As for these charges, the particulars alleged were that:
“Vodafone's website was liable to mislead the public in the [named] region as to the options of broadband services (including FTTH broadband) available at their address, or at their address supplied by Vodafone.”
PROCEDURAL BACKGROUND
[51] On 16 November 2018, Vodafone pleaded guilty to the availability charges leaving the 18 branding charges for determination.
[52] The Judge-alone trial on these charges took place between 2 and 17 November 2020.
[53] On 23 April 2021, Judge Sinclair gave her reasons and entered convictions on the nine s 11 branding charges.6 The charges under s 13(b) were dismissed. Sentence was passed on 14 April 2022, being the fine of $2,250,000.7
[54] The Commission filed an appeal against sentence. Vodafone subsequently applied for leave to appeal against both conviction and sentence. The reason leave to appeal was required was because the notice was filed one day out of time. Unsurprisingly the Commission consented to leave being granted. There is no prejudice to the Commission. The delay, such as it is, is minimal. Leave to appeal out of time is granted.
[55] I heard the appeals concurrently between 13 and 15 March 2023 and reserved my decision. This judgment sets out my reasons on all appeals. I propose to first deal with Vodafone’s conviction appeal.
CONVICTION APPEAL
District Court decision
[56] The Judge began by noting that for the Court to convict Vodafone under s 11 of the FTA, the Commission needed to prove beyond reasonable doubt that:8
(a)Vodafone was a person within the meaning in s 2 of the FTA;
(b)Vodafone was in trade within the meaning in s 2 of the FTA;
(c)Vodafone’s conduct was liable to mislead the public; and
(d)that conduct was in relation to the characteristics of its services.
6 Conviction decision, above n 1, at [148].
7 Sentencing decision, above n 2.
8 Conviction decision, above n 1, at [10].
[57]She recorded that elements (a) and (b) were not in dispute.
[58] As for (c), in order to determine whether Vodafone’s conduct was liable to mislead the public, the Judge said she had to first define the relevant consumer group.9
[59] She cited the following passage from Godfrey Hirst NZ Limited v Cavalier Bremworth Limited [Godfrey Hirst], in which the Court of Appeal held that where headliners and qualifiers in advertising target a large group of consumers, the “consumer” comprises all consumers in the class except the “outliers”.10
[60] The Judge determined on the evidence that the relevant consumer group comprised the 250,000 “households passed” on Vodafone’s HFC network during the charge periods, meaning those in Wellington, Kāpiti and Christchurch within distance of running a coaxial cable to connect the home.11
[61] The Judge then went on to consider the meaning that consumers would have taken from the word “fibre”. She considered it plain on the evidence before her12 that broadband networks are known by the technology used for the last mile, and that the LFCs had invested heavily in promotional material that sought to establish “fibre” in the minds of consumers as FTTH.13
[62] The Judge was also satisfied that by October 2016, a significant number of consumers in the relevant consumer group would have seen the LFCs’ promotional material and understood “fibre” to mean FTTH.14 The rollout of FTTH was “well advanced” in Christchurch and over halfway through in Wellington and Kāpiti at this time.15
9 At the appeal hearing, Mr Pilditch explained that the sub-elements to (c) as set out in the judgment and discussed here were drawn from a list of factual issues identified by Vodafone akin to a fact- based question trail. The Judge adopted them in determining what was required to be proved relative to (c).
10 Godfrey Hirst NZ Limited v Cavalier Bremworth Limited [2014] NZCA 418, [2014] 3 NZLR 611 at [20] [Godfrey Hirst].
11 At [60].
12 This consisted primarily of evidence from professionals in the telecommunications industry, as well as expert evidence from a professor in marketing.
13 At [70].
14 At [71].
15 At [68].
[63] The Judge then turned her mind to whether the addition of the “X” was sufficient to differentiate Vodafone’s HFC service from a FTTH service. She accepted Professor Gendall’s expert opinion on this point, to the effect that consumers would take the X to mean “exceptional or the X factor”, likely related to speed or capacity, such that consumers would think FibreX was an enhanced version of fibre.16
[64] The Judge further considered that the headlines (“FibreX is here” or “FibreX has arrived”), together with the background image of shooting beams of light, operated to reinforce this interpretation.17
[65] In conclusion on element (c), the Judge was satisfied (on the basis of expert evidence and “as a matter of common sense”) that a substantial number of consumers in the relevant consumer group, upon viewing Vodafone’s advertisements, would have been liable to be misled into believing that FibreX was a FTTH product.18
[66] The Judge went on to state that this conclusion was unaffected by the fact that a consumer, upon making further enquiry, may have subsequently found out that FibreX was Vodafone’s HFC network.19 This is because, by that stage, the consumer had already been lured into the “marketing web” by the erroneous belief created by the advertisement.20
[67] Having been satisfied that the Commission had proved element (c), her Honour went on to consider the final element (d), namely whether Vodafone’s conduct was in relation to the characteristics of its services.
[68] The Judge rejected Vodafone’s submissions that its service was limited to the provision of rights of access to the internet, and that the characteristics of its service were limited to how the consumer experiences the right of access (factors such as download speeds).21 Rather, the Judge was satisfied that the medium of delivery – in
16 At [74]. Professor Gendall, Professor of Marketing, was called by the Commission to give evidence of what, in his opinion, consumers would have understood the term “fibre” to mean in the context of UFB.
17 At [75]-[76].
18 At [80] and [86].
19 At [81].
20 Godfrey Hirst, above n 10, at [84].
21 At [97]-[98].
particular the architecture in the last mile of the HFC network – is a characteristic of Vodafone’s broadband service.22
[69]The Judge added:23
“… this technology is important to consumers. The evidence of Ms Nisha and Ms Horton was to the effect that consumers cared about the medium of delivery of their broadband service and in particular, whether it was by cable or by fibre. This was because cable was seen by consumers as being slow, outdated and aging technology.”
[70] Furthermore, Vodafone’s advertising referred specifically to the network.24 It followed that the Judge was satisfied beyond reasonable doubt that Vodafone’s conduct in the branding and promotion of its service as FibreX was in relation to this characteristic.
[71] The elements under s 11 of the FTA were therefore satisfied. The Judge accordingly found Vodafone guilty on each of the nine branding charges, and dismissed the alternative charges under s 13(b).25
[72] Although not elements of the offence under s 11, the Judge went on to consider what the Commission referred to as “inherent limitations” in the HFC network that differentiate it from a FTTH network. These related to variability, likelihood of congestion, speed, reliability, latency, upgrade pathways, and ability to change provider. The Judge found each to be made out on the evidence and to be matters which some consumers would want to know about.26
Legal principles on conviction appeals
[73] This Court must allow the appeal if satisfied that the Judge erred in her assessment of the evidence to such an extent that a miscarriage of justice has occurred,27 or a miscarriage of justice has occurred for any reason.28
22 At [102].
23 At [101].
24 At [99].
25 At [148].
26 At [145].
27 Criminal Procedure Act 2011, s 232(2)(b).
28 Section 232(2)(c).
[74] A miscarriage of justice is defined as any error, irregularity, or occurrence in or in relation to or affecting the trial that:29
(a)has created a real risk that the outcome of the trial was affected; or
(b)has resulted in an unfair trial or a trial that was a nullity.
[75] The appellant is entitled to this Court’s assessment of the evidence.30 If it reaches a different view on the evidence, the trial Judge will necessarily have erred and the appeal must be allowed.31 However, the appellant bears the onus of showing that an error has been made. In assessing whether there has been an error, this Court must take into account any advantages the trial judge may have had.32
Grounds of appeal
[76] Vodafone advances seven grounds in support of its appeal against conviction. It contends that the Judge erred by:
(a)finding that the physical makeup of the network, that is hybrid fibre coaxial cable, was the service or a characteristic of the service;
(b)finding that consumers had been conditioned to ascribe FTTH as a particular and secondary meaning to the word “fibre” when it appeared in broadcasting content;
(c)related to (b), failing to address the admissibility of the consumer complaints table;
(d)reversing the standard and burden of proof;
(e)failing to address the composition and characteristics of the relevant consumer group;
29 Section 232(4).
30 Austin, Nichols & Co Inc v Stichting Lodestar [2007] NZSC 103, [2008] 2 NZLR 141 at [16].
31 Sena v Police [2019] NZSC 55, [2019] 1 NZLR 575 at [38].
32 Snowden v Police [2021] NZHC 3491 at [36], citing Sena v Police, above n 31, at [38].
(f)disregarding other aspects of Vodafone’s advertising conduct; and
(g)failing to properly consider and weigh all admissible evidence.
[77] The seven points listed above were not addressed in that order in oral argument before me. Instead, counsel sensibly and logically addressed the issues as they were treated by the Judge at first instance. I propose to discuss these points in that same order.
Ground 1.1(e): Failure to address the relevant consumer group
[78]This ground is more fully particularised in Vodafone’s points on appeal as:
“When determining whether the relevant consumer group was liable to be misled, the learned Judge erred by failing to consider and address (with the exception of size and location) the composition and characteristics of the relevant consumer group in the context of the information available to the market, in particular:
(i)what that consumer group was likely to have known and understood about broadband services and networks, in particular HFC;
(ii)how and when consumers obtained information about broadband services and how they typically engaged with that information:
(iii)their level of interest in the technological details by which a broadband service might be delivered; and
(iv)that they could be expected to exercise reasonable care and diligence.”
[78] The essence of Mr Pilditch’s criticism of the Judge’s approach under this head is that it was simplistic in that she treated the relevant consumer group as the general public at large, with the exception of size and location, rather than undertaking a more discriminating and fine grained analysis in order to construct and identify the notional consumer group.33
[79] The Judge’s discussion of the relevant consumer group is succinct. Whether it is “simplistic” to the point that it can be described as wrong is a different issue as is discussed later.
33 Australian Competition and Consumer Commission v TPG Internet Pty Limited [2013] HCA 54, (2013) 250 CLR 64 at 646 [TPG].
[80] As earlier noted, after quoting relevant extracts from Godfrey Hirst, the Judge set out what she considered was the relevant consumer group.34 Her treatment of this question is reproduced below in full:35
“[58] As Vodafone’s HFC network operates only in Wellington, Kāpiti and Christchurch, the target consumer group was limited to those regions. Vodafone’s advertisements stated that FibreX was not available everywhere and were plainly directed to those able to turn on or be connected to the FibreX network. By way of example, the three day install offer was at ‘eligible addresses only’ being those in a FibreX area with a pre-cabled house.
[59] It was Ms Nisha’s evidence that in the charge periods there were 250,000 ‘households passed’ on Vodafone’s HFC network meaning that those households were within distance of running a coaxial cable to connect the home. Ms Nisha was not sure of the split of these households between regions.
[60] I am satisfied on the evidence to the requisite standard that the relevant consumer group in this case consisted of the 250,000 ‘households passed’.”
[81] In developing his submission that the Judge treated the relevant consumer group as the general public at large, Mr Pilditch noted that the Commission had led no evidence of the relevant consumer group and in particular their characteristics and the degree of reasonable care expected of them. In the absence of such evidence, it was not open to the Court to simply treat them as the general public at large. As a consequence, he submitted the Court erred in its assessment of the evidence.
[82] Having failed to address the characteristics of the consumer group, it is also claimed by the appellant that the Court erred when it concluded that the relevant consumers would be lured into the marketing web. This is because there was no evidence that consumers approached their purchasing decision on the basis of the brand name only and that they disregarded other aspects of the service offered. Vodafone adduced evidence that the relevant consumer group had a heightened degree of knowledge and would exercise a correspondingly heightened degree of care, or so it could be expected. The Judge was thus required to address whether the Court could dismiss the reasonable possibility that consumers would not approach their purchasing decision in such a simplistic way.
34 Godfrey Hirst, above n 10.
35 The figure of 250,000 households was also the figure cited by Vodafone in its 22 March 2022 letter to the Commission in which Ms Horton advised that 250,000 addresses had access to the FibreX network. Of these, 128,907 were “eligible addresses”, that is addresses already connected to Vodafone’s HFC network and thus eligible for a $100 credit and 3-day install.
[83] Put simply, the essence of Mr Pilditch’s submission is that there was “a distinct lack of analysis at the macro-level”. The question which should have been asked, but was not, is how would the notional consumer group have approached the advertising? Furthermore, and relatedly, what standard of care would reasonably be expected of the notional consumer in purchasing a contract for UFB services as compared to carpet, bread, baked beans or any other sort of consumer goods?
[84] Mr Pilditch submitted that the consumer cohort in question was likely to be more sophisticated and discerning than simply the occupants of the 250,000 homes passed. They could be expected to be less vulnerable to branding. The consumer group was comprised of users or potential users of UFB services either because they were signing up for such services or were considering changing services. Additionally, Mr Pilditch submitted that many in the consumer group would not be expected to have high levels of technical knowledge about the network architecture or how internet services are supplied, nor would they have much interest in those details. Their interest in what was being offered would focus on information about how they would experience the service and at what cost, rather than the means or mechanism by which they receive the data. He thus submitted that excluding the outliers, that is the “extremely stupid… fanciful or perhaps gullible”,36 the relevant consumer cohort would consist of a sliding scale of interest in the underlying technology. This, in turn, would inform the extent of reasonable enquiry expected of them.
[85] Against that backdrop, Mr Pilditch described the Judge’s finding that consumers would enter the marketing web solely as a consequence of the brand name as “speculative” and without evidential foundation.
[86] When assessing conduct which is allegedly liable to mislead or deceive, the Court must identify those who have been or are likely to be misled or deceived.37 As Mr Pilditch put it, the questions are:
(a)Who or what is the relevant audience against which the objective assessment of whether they are liable to be misled is made?
36 Godfrey Hirst, above n 10, at [53].
37 Unilever New Zealand Ltd v Cerebos Greggs Ltd (1994) 6 TCLR 187 (CA).
(b)What are the characteristics of that consumer group?
[87]It is to those questions I now turn.
[88] As her Honour noted, the leading New Zealand case is the Court of Appeal’s decision in Godfrey Hirst.38 This involved headline representations in relation to carpet warranties. The Court addressed these questions in the face of a submission that the appropriate approach is to ask whether a sufficient number of people are likely to be misled by the statement. The Court expressly rejected that approach when it observed:39
“… for reasons we will explain, we do not agree with the concept of a “sufficient” or “significant” group of consumers being misled. Where, as in this case, headlines and qualifiers in advertising target a large group of consumers, “the consumer” comprises all the consumers in the class targeted except the outliers. The “outliers’” encompass consumers who are unusually stupid or ill-equipped, or those whose reactions are extreme or fanciful.”
[89]And then:
“[47] That the protection of ss 9 and 13 of the Act is restricted to reasonable consumers is confirmed by the several cases which exclude from the protection consumers who are ‘quite unusually stupid’ and ‘perhaps the gullible’. Other cases exclude the extremes or consumers ‘whose reactions are extreme or fanciful’. Those are the consumers we have termed outliers and excluded in our formulation in [20].
[48] If you take all the ‘average’ or ‘ordinary’ or ‘reasonable’ (or, as we prefer, all the typical) members of the public generally, or of any targeted class of the public, you will end up with all the consumers in the class targeted except the outliers, which is our formulation in [20] above, reiterated in [50] below. …
[49] We summarise. We have endorsed, but at the same time attempted to clarify, the test this Court laid down in Adair because we consider it is consistent with the corresponding tests adopted in the cases we have reviewed. And consistency with the Australian cases is important because the legislation in the two countries is substantially the same and because of the trans-Tasman trade ties. We endorse the Adair test also because we consider it is the easiest to apply. We agree with the Adair Court that it is not appropriate – and we do not think it necessary – to apply ss 9 and 13(i) of the Act to an ‘hypothetical individual. It is best and easiest to apply the two sections to the actual consumers in the target class excepting the outliers.
38 Above n 10.
39 At [20].
[50] We reiterate our response to the question ‘who is the consumer?’. ‘The consumer’ encompasses all the consumers in the class targeted by the allegedly misleading representations, except the outliers as we have explained them in [20] above. Or, if the representations are made to the public at large, it is all the public except the outliers.”
[Footnotes omitted]
[90] More recently, Gault J in this Court in Du Val Capital Partners Ltd v Financial Markets Authority considered whether the promotion of a mortgage fund was likely to mislead or deceive potential investors.40 He observed that the correct application of Godfrey Hirst required the Court to ask two questions:
(a)Who is the consumer or consumer group? and
(b)What is the standard of care expected of the consumer/s?
[91] As for the first question, the Court is required to identify the target of the representations; namely whether it is the public at large or a particular class or cohort of consumers, because in assessing whether the representations made are likely to mislead or deceive, the characteristics of the members of the class must be identified.41
[92]I do not agree that the Judge erred in the ways advanced. My reasons follow.
[93] First, it is plain not only from the extracts of Godfrey Hirst which her Honour quoted, but also her treatment of the principles, that the Judge understood and correctly applied the relevant law. That she may have done so in an economical fashion does not detract from the correctness of her approach or mean her application of the law was wrong.
[94] Secondly, the context and nature of Vodafone’s marketing campaign places what follows in context. Mr Flanagan described the marketing of FibreX as a “multimedia blitz”. That is no hyperbole. The list of advertising media and strategies set out at [25] above amply justifies that label. Logically, the nature and extent of the advertising informs the identification of the advertiser’s target group. The broader the
40 Du Val Capital Partners Ltd v Financial Markets Authority [2022] NZHC 1529 [Du Val].
41 Du Val, above n 40, at [33] and [37].
advertising campaign, the wider the consumer group being targeted. Vodafone’s campaign targeted the general public in the relevant areas; that is users or potential users of UFB in Kāpiti, Wellington and Christchurch. Given the ubiquity of the internet and the inescapable truism that there are few facets of modern life where UFB might be regarded as anything other than an essential tool for functioning members of society, attempts to constrain the consumer cohort by contrasting the product with more prosaic household commodities such as baked beans, are inapt. In fact, on one view the consumer cohort for carpet, as was the case in Godfrey Hirst, might rightly be considered narrower and more discriminating than that for UFB services in the modern paradigm.
[95] Thirdly, despite Vodafone’s evidence on the point, I cannot accept that those in the targeted areas necessarily had an enhanced understanding of UFB because of their familiarity with the services Vodafone had been operating for some years. Self- evidently some would have. Others would not have. It is simply not possible to quantify the proportional split or refine the consumer cohort with any greater precision other than to make the general and common sense observation the Judge essentially did; that those being targeted by Vodafone included those in the market for UFB. Indeed, the Judge dealt with this in the following way:
“[83] Vodafone submits that consumers in Wellington, Kapiti and Christchurch would have been more knowledgeable than normal about the network because the HFC network had been available there since 1999. On the evidence, the most that Vodafone is able to say is that there may have been some in the relevant consumer group who had that knowledge although it is unclear on the evidence why those consumers would conclude that it was the HFC network (as opposed to fibre) that was being used in 2016. Furthermore, it does not lessen the impact of the advertising on other consumers in the relevant consumer group.
[84] In this regard, I have already found that by October 2016 a significant number of consumers in the relevant consumer group in each of the three regions would have understood ‘fibre’ to mean a FTTH product. I am further satisfied to the requisite standard that a substantial number of those particular consumers on viewing the Vodafone advertisements, would have been liable to be misled into believing that ‘FibreX’ was such a product.”
[96] In any event, the Judge did examine what the consumer group knew and understood about UFB. She did so in her extensive analysis of what the consumer took the word “fibre” to mean.42
[97] Relatedly, neither do I accept that the Judge was required to undertake some form of enquiry into what consumers knew or that this exercise, had it been undertaken, would have shown that consumers would have investigated what lay behind the headline and assessed what Vodafone was actually offering in terms of speed, cost, installation and so on. There is some logical force in Mr Flanagan’s submission that if, as Vodafone says, such consumers may have had a background knowledge of UFB, that would only serve to make it more likely they cared about what they were getting. As will be discussed later, I am satisfied the headline banner conveyed the message consumers would be getting fibre, not cable.
[98] To put it more directly, it was unnecessary for the Judge to identify or define the relevant consumer group with any more precision than she did. Indeed, the consumer group might simply have been identified as those who are able to buy HFC. That is what the Judge effectively did when she concluded that the relevant consumer group was the 250,000 households passed.
[99] For these reasons I am satisfied there was no error on the part of the Judge and this aspect of the appeal must fail.
Ground 1.1(f): The Judge erred by disregarding other aspects of Vodafone’s advertising conduct and in applying the relevant law
[100] Mr Pilditch submitted that in light of the “service” and relevant market group it was offered to, the Judge was required to consider the totality of Vodafone’s conduct and representations. This is because the brand name “FibreX” was just one component in a suite of marketing materials to which the consumer group was exposed. Had the Judge undertaken that task, Mr Pilditch submitted that she could not have been sure that the FibreX brand was liable to mislead.
42 At [62]–[71].
[101] In this context, Mr Pilditch pointed out that nowhere in the advertising materials did Vodafone ever claim that what it was offering was a FTTH product. Instead, it was offering improved UFB services at highly competitive prices and with a three day install, the latter being a particularly attractive feature given the delays ISP competitors were struggling to overcome at the time.
[102] Unsurprisingly, it was common ground that it was impracticable for any ISP to headline the detail of the technology being used to deliver UFB services in its advertising materials. In fact, efforts to convey a comprehensible message in this field went back to early communications by the LFCs. For example, Mr Fuller, Enable’s Chief Executive Officer, said that customers struggled to understand the actual differences in technology which is why that company focused on simple marketing messages in its promotions, emphasising “fibre to the door”. It was for the same reason that Ms Horton, Vodafone’s senior in-house counsel, explained that Vodafone headlined the key messages of speed, price and availability because that was what was believed to be important to consumers. She described the process of communicating with the potential customer base as requiring a “layered approach”. This layered approach, Mr Pilditch submitted, may be seen in the evolution of Vodafone’s marketing programme starting with press releases picked up by media outlets announcing that Vodafone was upgrading its existing HFC network which would be known as FibreX. That was followed by billboard advertising headlining speed, price and availability. Web-based information explained the services as well the technology. Consumers had options to select UFB on “fibre” or on “cable”.
[103] Additionally, Vodafone instructed its frontline sales agents in their October 2016 training on the eve of the FibreX launch that FibreX should not be confused with the Government’s fibre UFB rollout; that FibreX uses DOCSIS technology. The instructions also recorded that agents should not use the word “cable” when describing FibreX because Vodafone’s own market research had suggested that customers associated the word “cable” with slow, outdated and aging technology. Instead, the following technical description should be used:
“Hybrid-Fibre coaxial HFC, fibre to the node, and then coaxial cable to the home. Fibre uses fibre all the way to the home.”
[104] According to Ms Horton this message was repeated in “refresher training” in June 2016 after the Commission had commenced its investigation.
[105] Furthermore, all consumers considering UFB services were provided with Offer Summaries consistent with the Telecommunications Forum Code. These disclosed the HFC technology. The offer summary is the industry accepted method for product disclosure, regarded as acceptable to the Commission.
[106] As a result of complaints received by the Commission from members of the public about Vodafone’s branding of its HFC network as FibreX, the Commission initiated its investigation in March 2017. This led to a voluntary interview on 11 August 2017. Vodafone’s answers to the questions posed by the Commission were contained in Ms Horton’s letter of 22 March 2022.
[107] It would appear that consequential changes were made to Vodafone’s description of FibreX from mid-August 2017 in which FibreX was described as:
“… a fantastic new way to connect ultrafast broadband to your home over Vodafone’s hybrid fibre coaxial copper network which is being upgraded using world-leading DOCSIS3.1 technology.”
[108] Mr Pilditch’s submission was that through these communications, Vodafone was explicit with consumers about the FibreX brand of UFB services being delivered on an HFC network, that the relevant consumer group would have had a heightened knowledge of HFC and that they can be expected to have exercised a greater degree of care. He submitted that if consumers wanted more detail on matters such as reliability, congestion, latency, these were available. He said that such consumers shopping for UFB services would not be lured into the marketing web by a brand name alone and that the Judge erred in so finding.
[109] Relatedly, Mr Pilditch submitted that the Judge erred by disregarding aspects of Vodafone’s advertising other than the brand name, including from October 2017 when a description of the network architecture was given in conjunction with the use of the headline, FibreX. It was necessary to consider the “consumer’s journey” which involved informing potential consumers of the nature of the access network and how it was made up. Mr Pilditch criticised the Judge’s approach; that is adopting the
Commission’s submission that this was a case where an initial deceit lured the consumer into the marketing web to negotiate. Instead, the Judge was required to critically assess the totality of the conduct both in terms of the characteristics of the consumer group as well as whether Vodafone’s representations, viewed in context, amounted to a misrepresentation.
[110] This principle was recognised by the Court in Godfrey Hirst when it observed the importance of considering the advertisement’s “overall impression” and “dominant message”.43 What Vodafone submitted distinguishes Godfrey Hirst and the other cases cited by the Commission from the present facts, is that “FibreX” made no claims about the essential nature and quality of the service offered that is speed, cost and installation times. Those were attributes which sat independently of the brand name.
[111] This final point links closely to the next ground of appeal advanced by Vodafone, which is concerned with what consumers took from “FibreX”. For present purposes, however, I do not accept that the Judge disregarded Vodafone’s conduct in the ways set out above. She expressly referred to and dealt with Ms Horton’s evidence.44 She referred to Ms Horton’s description concerning the strategic marketing decision to avoid the use of the word “cable” in its advertising because research had revealed that customers associated it with outdated technology. In launching the new technology, a brand name was chosen which Ms Horton said differentiated the services from others in the market and, in Vodafone’s view, reflected the quality of the services consumers could expect to receive.
[112] I agree with Mr Flanagan that the adoption of the so-called “layered” approach and the availability of summaries which could be downloaded from Vodafone’s website do not distinguish Vodafone’s conduct from that discussed in Godfrey Hirst and Australian Competition and Consumer Commission v TPG Internet Pty Limited [TPG].45 Any corrective material, such that it was, was less prominent and less proximate to the headline.
43 Above n 10, at [70] and [84].
44 At [39]–[48].
45 Godfrey Hirst, above n 10; and TPG, above n 33.
[113] I also agree with Mr Flanagan that the Court addressed this issue directly. Examples follow.
[114] The Judge referred to Vodafone’s evidence on the press releases at the launch of the network:
“[77] … Ms Horton stated that these were available on Vodafone’s website. I do not accept it can reasonably be contended that consumers would have seen these. It was Ms Horton’s evidence that articles were subsequently published in nine media outlets. Three of these articles were produced. There is no evidence as to how widely these articles were circulated. Professor Gendall was shown two of the articles and noted that one had been published in the business section. (The third article was published in NBR and would no doubt have also been met with the same comment from Professor Gendall). In Professor Gendall’s opinion, these articles would not have had a great effect in terms of the general public. I accept his evidence. In the circumstances, the Court cannot be satisfied that consumers in Wellington, Kāpiti and Christchurch will have seen these articles when they were published and/or that they would have made any difference to consumers’ understanding of the FibreX service when they subsequently viewed Vodafone’s advertising.”
[115] Her Honour made similar observations after she determined that consumers viewing Vodafone’s advertisements would be liable to have been misled by the branding and promotion of FibreX into believing that FibreX was, indeed, an FTTH product. She said:
“[81] Having already formed this view on the basis of Vodafone’s advertisements, it is unlikely that any consumer would have considered it necessary to make further enquiry about the network access type by going to Vodafone’s website. Furthermore, the fact that a consumer may subsequently find out on a careful reading of the offer summary on Vodafone’s website that the access network was Vodafone’s HFC network does not overcome these misleading advertisements. As the Court of Appeal stated in [Godfrey Hirst] where a consumer is enticed into the ‘marketing web’ by an advertisement on an erroneous belief, this will be misleading even if the consumer may learn of the true nature of the service before the transaction is concluded. This is because the initial misleading advertising is seen as contributing to any subsequent sale.”
[116] While it is correct that when assessing conduct claimed to be misleading or deceptive, the conduct must be viewed as a whole,46 it is no answer to misleading advertising to claim that if any such wrong impression was conveyed, it would be
46 Geddes v New Zealand Dairy Board CA180/03, 20 June 2005 at [80]; and Parkdale Custom Built Furniture Ltd v Puxu Pty Ltd [1982] HCA 44, (1982) 149 CLR 191 at 199.
corrected before the consumer committed themself by entering into a contract with Vodafone. On that point the comments of the High Court of Australia in TPG are particularly instructive.47
[117] As with the present case, TPG involved the promotion of broadband internet services. The company engaged in a multimedia advertising campaign. The headline advertised broadband services at an attractive flat monthly rate but also displayed, much less prominently, information to the effect that the offer was available only when bundled with a landline telephone service for a similar amount per month, a minimum commitment of six months, a setup fee and a deposit for telephone charges. TPG argued that the advertisements were published in a market where reasonable consumers were alive to the possibility that a telephone line was required for the internet broadband service. The qualifier contradicted the dominant message, leading readers to go back to the dominant message to enquire what it really meant. The first instance Judge attributed to the target audience a fair measure of knowledge and experience of the internet. In rejecting that submission, the High Court said:48
“… the Full Court did not recognise that the tendency of the advertisements to mislead was to be determined, not by asking whether they were apt to induce consumers to enter into contracts with TPG, but by asking whether they were apt to bring them into negotiation with TPG rather than one of its competitors on the basis of an erroneous belief engendered by the general thrust of TPG’s message.
It might be said, as TPG did, that consumers, acting reasonably in their own interest, could be expected to obtain a clear understanding of their rights and obligations before signing up with TPG; but to say that is to confuse the question whether the consumer has suffered loss with the anterior question as to whether the advertised viewed as a whole, has a tendency to lead a consumer into error. …
It has long been recognised that a contravention of s 52 of the TPA may occur, not only when a contract has been concluded under the influence of a misleading advertisement, but also at a point where members of the target audience have been enticed into “the marketing web” by an erroneous belief engendered by an advertiser, even if the consumer may come to appreciate the true position before a transaction is concluded. That those consumers who signed up for TPG’s package of services could be expected to understand fully the nature of their obligations to TPG by the time they actually became its customers is no answer to the question whether the advertisements were misleading.”
47 Above n 33.
48 At 654–655.
[118] Contravention of the statute occurs not only when a contract is concluded but also, often much earlier, at the point when members of the target audience are lured into the marketing web by an erroneous belief promulgated by the advertiser, even if they appreciate the true position by the time they contract for the services. The rationale behind that principle is that such an outcome is intrinsically anti-competitive because industry competitors are denied that commercial advantage. That is the case here. The brand name was front and centre of the advertising graphics and collateral.49 It was inextricably connected to other messages Vodafone sought to attract customers with, such as speed, cost and availability. If the brand name conveyed a misleading dominant message or conveyed an erroneous and deceptive overall impression, namely that the underlying technology to the home was fibre rather than coaxial cable (even if DOCSIS enhanced), the fact that consumers might later understand that they were signing up for cable and not fibre, does not affect liability under s 11.
[119]It follows I do not accept the Judge erred in relation to this ground.
Ground 1.1(b): Erroneous finding that consumers had been conditioned to ascribe FTTH as a secondary meaning to the word “fibre”
[120]It was common ground on the appeal that this is the “core issue” to be resolved.
[121] Vodafone claimed that it was not proved the word “fibre” was commonly understood by consumers to mean the Government’s FTTH network and, as a consequence, questioned whether consumers were liable to be misled when Vodafone used that word in its FibreX branding.
[122] Mr Pilditch submitted that in the absence of admissible direct evidence establishing that consumers had this particular understanding or any admissible evidence from which a proper and lawful inference could be drawn, it was not possible for the Commission to prove this element beyond a reasonable doubt and that the Judge erred in so finding. Relatedly, Mr Pilditch submitted that the Court erred in dismissing Vodafone’s evidence about what FibreX meant and the reasonable doubt which this raised.
49 Collateral is a term used in the marketing industry to mean advertising and promotional materials.
[123] In support of this submission, Mr Pilditch drew on the law relating to misrepresentation,50 confusion,51 and passing off.
[124] From those cases, the following principles emerge. First, the prohibition on misleading and deceptive conduct self-evidently requires some misrepresentation by the defendant. Conduct cannot be described as misleading or deceptive (or likely to be so) unless it involves a misrepresentation.52 Secondly, conduct which produces or contributes to confusion or uncertainty may or may not be misleading or deceptive. Ordinarily, a tendency to cause confusion or uncertainty will not suffice to establish that conduct is of the type proscribed by s 11.53 It is not enough that the conduct may cause a state of wonderment or doubt.54 Mr Pilditch submitted that this principle is particularly important here given the Commission’s allegation that the language used by Vodafone was liable to suggest to consumers that the service being offered was in fact some other service with which consumers were familiar.
[125] Against this background, Mr Pilditch referred to a line of authority dealing with generic or descriptive trading names.55 The principle running through these cases may be summarised by the observations of Venning J in Ballance Agri-Nutrients Limited v Quin Environmentals (NZ) Ltd:56
“The starting point is that the Courts will generally be reluctant to grant a monopoly over a descriptive or general term. …
The law does, however, acknowledge that words with a generic or primary descriptive meaning may acquire a secondary meaning which indicates they originate from a particular vendor or have a particular characteristic.
Lockhart on The Law of Misleading Conduct suggests that reputational secondary meaning is nothing more than customer familiarity with a marketing symbol or a name as a means of identifying a particular product.”
50 Bonz Group (Pty) Ltd v Cooke [1994] 3 NZLR 216 (HC); Neumegen v Neumegen [1998] 3 NZLR 310 (CA); Premium Real Estate Ltd v Stevens [2009] 1 NZLR 148 (CA) at [51]; and Property Brokers Ltd v Hastings McLeod Real Estate Ltd [2020] NZHC 271 at [37].
51 Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; and Taylor Brothers Ltd v Taylor Brothers Group [1988] 2 NZLR 1 (HC) at [28].
52 Bonz Group (Pty) Ltd v Cooke, above n 50, at [229].
53 Taco Company of Australia Inc v Taco Bell Pty Ltd, above n 51.
54 Taylor Brothers Ltd v Taylor Brothers Group, above n 51, at [39].
55 Co-Operative Bank Ltd v Anderson [2014] NZHC 2686 at [37]; National Mini Storage Ltd v National Storage Limited [2018] NZCA 45; Healthy Food Media Ltd v Healthy Options Ltd HC Auckland CIV-2005-404-6484, 16 November 2005 at [18]; and Ballance Agri-Nutrients Limited v Quin Environmentals (NZ) Ltd [2020] NZHC 1885.
56 At [73]–[75].
[126] Applying these principles to the facts of the present case, Mr Pilditch submits that at the heart of the Commission’s case was the proposition that the word “fibre” could only be used in connection with a “pure fibre” or “fibre to the home” broadband service, as that is what the term “fibre” meant to the relevant consumer group. The Commission equated the brand name, which includes “fibre”, to a particular meaning which it alleged the word “fibre” carried over the charge period. More particularly, Mr Pilditch submitted that there was no consumer evidence to support the Commission’s contention. Rather it sought to establish this by tendering marketing material from the LFCs, Chorus and Enable, who were marketing FTTH and tendering “expert” evidence on what consumers would have made of this material and Vodafone’s brand name FibreX. As a consequence, the Court had to draw an inference that consumers understood this secondary meaning and there had to be sufficient evidence on which to establish this inference beyond reasonable doubt.
[127]Mr Pilditch submitted the Court was required to address the issue in two stages:
(a)first, what the Commission had proved in relation to the word “fibre” and what consumers took that word to mean at the relevant time; and
(b)secondly, what the Commission had proved about what customers would have taken the word “Fibre” in “FibreX” to mean at the relevant time.
[128] Mr Pilditch correctly emphasised that the enquiry was fixed by the charge period and not what consumers, or the Judge understood at the time of the trial. The former approach was critical to a proper assessment because the charges span a period of development in internet technology from slower internet access to UFB. Correspondingly, consumer understanding would have evolved over the period as UFB became more readily available and as the retail service providers’ and LFCs’ marketing initiatives developed.
[129] Mr Pilditch was critical that the evidence relied on by the Court was insufficient comprising:
(a)evidence that broadband networks are identified by the technology used for the last mile to the home or premises (the FTTH UFB network was therefore known as fibre);
(b)evidence that the LFCs invested millions of dollars in the promotion of fibre broadband and in establishing in consumers’ minds that “fibre” meant FTTH;
(c)Professor Gendall’s opinion that he believed consumers viewing LFCs’ promotional materials would have understood “fibre” to mean FTTH; and
(d)evidence of the extent of the FTTH roll out across the three regions.
[130] While accepting that it is generally not necessary to prove that consumers were in fact misled, Mr Pilditch submitted that because of the way the Commission framed its case it was, in fact, necessary to demonstrate the subjective knowledge or belief in the mind of the consumer between October 2016 and March 2018, being the charge period. That was because consumers at that time had to share that common understanding in order to be liable to be misled by the use of the word fibre.
[131] It is in this context that Mr Pilditch returned to the passing off cases and the topic of descriptive language. He observed that in these cases, invariably, there is some evidence about consumers and how they respond. He gave examples drawn from the case law. In the present case, he was critical there was no such evidence adduced to support the Commission’s case that consumers were liable to be misled when they saw the word “fibre” being used. In those circumstances, and in any event, Mr Pilditch submitted that the Judge should have adopted a tripartite approach in assessing the sufficiency of proof. Mr Pilditch submitted that had the Judge directed herself in this way it would have been plain that the Commission’s case fell woefully short of the required standard.
[132] In order to examine this submission properly, it is necessary to review the four limbs of the evidential foundation relied on by the Judge under two heads; what “fibre” meant in the mind of the consumer and, subject to that, whether the use of “FibreX” and its associated promotional imagery, was liable to mislead. I now turn to consider those issues.
(a)What “fibre” meant to the consumer?
[133] The Judge dealt with the evidence in a reasonably detailed analysis.57 She referred to the expert evidence that fixed line broadband networks are identified in the telecommunications market by the technology used for the last mile to the home or premises. In the case of the Government’s UFB network, the last mile is the fibre optic cable and is thus known as “fibre”. Her Honour traversed the evidence of the two LFCs that they had invested millions of dollars in the promotion of fibre broadband and in establishing in consumers’ minds that “fibre” meant fibre to the home. She traversed the evolution of the consumer messaging into the charging period concluding that by the start of the charge period in October 2016, the focus of the LFCs’ promotion moved from marketing ultra-fast broadband to marketing fibre. Her Honour also referred to Professor Gendall’s evidence and the opinion he expressed that consumers viewing the LFCs’ promotions would have understood “fibre” to mean fibre to the home or to their business.
[134] Analysing the extent of the roll out in the respective areas by October 2016, her Honour concluded that a significant number of consumers in each region would have seen some of the promotional material and thereby understood “fibre” to mean a FTTH product. Those numbers, naturally, would have increased as the roll out continued and Vodafone pursued its marketing campaign.
[135] The question for me is whether there was sufficient evidence to support her Honour’s findings. Mr Pilditch submitted that in the absence of direct evidence on the point such as supporting consumer market evidence, or similar, there was insufficient proof of this element.
57 Conviction decision, above n 1, at [62]–[71].
[136]With respect, I cannot agree for the reasons which follow.
[137] First, the Neumegen v Neumegen case Mr Pilditch cited by analogy is of limited assistance in this context.58 There the plaintiffs called evidence from both law firms to prove that clients were confused and/or mistaken as to which firm they were dealing with. Given that the test under s 11 does not require proof that a consumer was actually misled, it is questionable whether this evidence would have been admissible and whether the Judge would have permitted the Commission to call evidence from consumers as to their understanding. Certainly, evidence tending to prove consumer confusion to that level is unnecessary for the reasons already explained.
[138] Secondly, given the size of the consumer cohort, measured in literally hundreds of thousands of households, the utility and efficacy of polling a necessarily minute sample of that population would be questionable and plainly open to attack on both the inadequacy of the sample size and the methods of selection.
[139] On this point, drawing on Professor Gendall’s evidence, Mr Pilditch also submitted that a market survey might have assisted. However, it is important to carefully review Professor Gendall’s evidence on the point and place it in context. When first approached by the Commission to give an expert opinion, Professor Gendall suggested that the Commission should consider undertaking a market survey to marshal evidence addressing the alleged secondary meaning. He suggested that the questions could be answered by a survey of consumers in the Wellington, Kāpiti and Christchurch areas, adding that the case for the Commission could be strengthened by a well-designed internet survey. However, Professor Gendall later retracted that view, commenting in evidence that the evidence in favour of the conclusion he came to was “really strong [he] felt”, and adding that he had spent most of his life thinking about the ways consumers in the general public interpret words and analysing their understanding. He said that he was confident that the way in which FibreX would have been interpreted by the general public was reflected in the conclusions he had come to and that he did not need a survey to draw that conclusion.
58 Neumegen v Neumegen, above n 50, at 325.
[140] Thirdly, Mr Flanagan referred me to a number of New Zealand and Australian cases which have discussed the limitations of survey evidence in this context.59 For completeness these are footnoted. The rationale behind the various judicial pronouncements in those cases lies in the legal requirements of what must be proved, how that task is to be undertaken and the practicalities of calling members of the public in an attempt to prove it. As for the first, what must be proved is a tendency to mislead and not proof that consumers were, in fact, misled. As for the second, the correct judicial approach involves an evaluative exercise having regard to all the circumstances, a task which is well familiar to Judges. The third has already been discussed.
[141] Fourthly, I cannot fault the Judge’s treatment of the evidence as set out earlier in this section. She referred to the LFC witnesses. They discussed the very substantial investment they had made in promoting FTTH and the clear and consistent marketing message that UFB and “fibre” equated to a FTTH service. The retailers adopted the same, consistent messaging to potential customers.
[142]Ms Harker, Chorus’ head of marketing, put it this way:
“It is important to have consistency in the marketing terms used to describe different broadband products, because there is some confusion in the market when it comes to buying plans. In general, consumers know what they want to buy and understand that fibre is the best available type of broadband. We see that in preference for fibre in research. Our market insights tell us that ‘fibre’ has a high level of familiarity in New Zealand. However, consumers do not have a high level of understanding about the different technologies and how they work. Accordingly, Chorus has spent significant sums on marketing initiatives and campaigns designed to familiarise consumers with fibre and its benefits.”
And later in her evidence:
“… We have always talked about – you know you saw it in that early material fibre to the premises, fibre to the homes and businesses and schools and health facilities. It is in the early collateral, you know, right to your house and it’s also important not only from the benefits in terms of what you’re getting, but
59 J W Spears & Sons Ltd v Zynga Inc (No. 2) [2015] EWCA Civ 290 at [162]; Intercity v NakedBus [2014] NZHC 124 at [194]; Australasian Conference Association Ltd v A Little Bit of Britain Ltd [2018] NZHC 2501 at [91]; Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634, (2014) ALR 73 at [45]; and Australian Competition and Consumer Commission v Snowdale Holdings Pty Ltd [2016] FCA 541, (2016) ALR 455 at [54].
also the fact that we have to get it to your house, we have to install it, so that has been I think a key part of the marketing communication messaging to the end customers right from the early days.”
[143] Ms Harker also described the evolution of the marketing programme adopted by the LFCs. It was put to her by Mr Pilditch that there were significant differences in the advertising and marketing material between 2014 and 2017. Ms Harker responded:
“There is a shift in the headlines, but I think there is a consistency throughout the documentation around there [sic] to pass to this, and I think that the reason for the shift is, if you think about it, I think I stated it before, if you think about for your average New Zealander there was a big programme being rolled out, it was widely known as a big infrastructure upgrade for New Zealand, the largest in our history at the time, and bringing you know ultrafast fibre broadband to homes and businesses, schools and hospitals, and so in the early years, UFB was people probably had in their head associated with Fibre and then as it became more brand fibre probably took hold, we started talking about Fibre because it would have much more mass awareness by then, so people would connect with it more easily.”
[144] The evidence of Mr Fuller, on behalf of Enable, was to similar effect, namely that Enable marketed its FTTH network on the basis that customers got fibre all the way to their door when they brought “fibre”.
[145] There was other evidence consistent with this approach. Mr Brown, a US-based electrical engineering consultant with extensive experience in the cable and fibre optics field, was called by Vodafone. In cross-examination on the commonly accepted differences between fibre and cable he said:
“Q. Now in the United States HFCs called ‘cable’ isn’t it?
A. It’s a common term that is frequently used, yes.
Q. It’s never called ‘fibre’?
A.When you use the technical term, ‘hybrid fibre coax’, yes. When you use the common term, ‘cable’, no.
Q.In fact, when somebody uses ‘fibre’ as a common term, they are referring to fibre to the home aren’t they?
A. That’s typically true.”
[146] Dr Nelson, a New Zealand-based electrical engineer called by Vodafone, also supported this statement when he was cross-examined:
“Q.Now in all your experience in the Internet, in New Zealand, have you ever come across an HFC network described simply as ‘fibre’?
A. No.
Q. That denotes a fibre to the home network of course in New Zealand?
A.Well it denotes all sorts of networks, but generally speaking, it’s fibre to the end point, yes.
Q. And HFC in New Zealand has been known to that or as ‘Cable’?
A. Its … Yes, yeah.”
[147] Furthermore, in Vodafone’s interview with the Commission, Mr Walker of the Commission asked Vodafone’s Ms Ferguson, whether she thought that consumers understood fibre to refer to the fibre optic network rolled out across New Zealand. She answered, “Some will”.
[148] Even Vodafone recognised this distinction in its own advertising of its FTTH service which it described as the “other fibre”. In its instructions to its sales representatives, it specified that FibreX was not fibre, adding “a fibre uses fibre all the way to the home”.
[149] And, of course, there is Ms Horton’s own evidence at interview, when she observed that customers saw the word “cable” as referring to “outdated technology”.
[150] It follows from this analysis that there was ample evidence available to the Judge from which to draw the conclusion she did. It was not necessary for the Commission to lead additional evidence in the form of market surveys for the reasons and inherent limitations already discussed.
[151] Furthermore, in determining whether there was sufficient evidence to satisfy this element the Judge is required to adopt an evaluative approach. That is what Judge Sinclair did. I am not satisfied that having done so, the conclusion she came to was unreasonable or unavailable on the evidence.
(b)Whether “FibreX” was liable to mislead the consumer
[152] This aspect of the appeal is closely connected to the preceding discussion. The Judge, having been satisfied that the relevant consumer group would have understood “fibre” to mean FTTH, went on to consider Vodafone’s claim that the addition of the letter “X” effectively differentiated its HFC service from a FTTH service.60 She referred to Ms Horton’s evidence that the rebranding of the HFC network as “FibreX” suggested to customers that the network included fibre and something else – “… the X being coaXIAL”. She observed that there was no expert evidence adduced by Vodafone supporting this contention and, more particularly, the claim that the addition of the X was sufficient to alert customers to the fact that they were not getting a service of the type commonly identified by the word “fibre”. She referred to the evidence of Professor Gendall who was of the opinion that the suffix X meant exceptional or the X-factor, such that consumers would think that FibreX was probably fibre with a level of enhancement. Professor Gendall referred to the use of suffixes used by broadband providers, opining that all were associated with speed. From that, he concluded that the addition of the X in FibreX would have been understood by consumers to relate to improved speed or capacity rather than differences in the delivery mechanism.
[274] The fact that the Judge referred to but did not expand on “the applicable sentencing purposes and principles” at this point in the decision is of limited moment.129 The Judge had, from the outset130 cited the relevant passage from Steel & Tube where the Court identified denunciation, accountability, totality and consistency as relevant sentencing considerations, as well as the objects of the FTA more specifically.131 In any event, it is plain from a reading of the sentencing notes as a whole that the Judge recognised and applied the relevant sentencing principles. That the Commission may consider that certain principles such as denunciation may not have been applied in practice is a different issue to which I shall later return.
[275] The essence of this ground of appeal is actually the submission that Vodafone’s offending was substantially more serious than that in Steel & Tube, and warranted a much higher starting point. Mr Flanagan submitted that each “serious aggravating feature” identified by the Court of Appeal in that case was present here, namely:
(a)Vodafone offended in a calculated manner with intent to profit by misleading consumers;
123 Above n 70. 124 At [88]–[89]. 125 At [90]–[101].
126 At [102]–[115].
127 At [116]–[120].
128 At [121]–[128].
129 At [128].
130 At [14].
131 Steel & Tube, above n 70, at [90]–[92].
(b)the product sold was materially different to what it was represented to be;
(c)Vodafone persisted after being put on notice; and
(d)the offending resulted in significant commercial gain and harm to consumers and competitors.
[276] The first and last of these factors have already been discussed. For the reasons earlier given I am not satisfied that Vodafone’s level of intention can be elevated to wilful or intentional nor have I accepted the Commission’s submissions on the level of commercial gain and harm.
[277] However, I am satisfied that FibreX was a materially different product to FTTH, which, through Vodafone’s gross carelessness in marketing, is what it was represented to be. As previously noted, the harm to the consumer was the denial of their ability to make an informed choice rather than the receipt of a materially inferior product, even if as an HFC service, FibreX had inherent limitations that differentiated it from a FTTH service.
[278] I also accept that Vodafone continued its marketing campaign despite being put on notice by the Commission from an early stage. This conduct may be contrasted to Steel & Tube where the company responded by withdrawing its steel mesh from the market immediately.
[279] As against that, Vodafone’s offending spanned 18 months in contrast to the four years in Steel & Tube, and plainly involved a much more sophisticated and extensive marketing campaign. In addition, in comparing the two levels of fine, there are different considerations in play such as the different maximum penalties available and the effect of inflation.
[280] Taking all these factors into account and recognising that setting the appropriate starting point in a case like this requires judgement rather than a detailed
analysis, I consider that a significantly higher starting point is warranted albeit not of the scale suggested by the Commission.
[281] I consider an uplift of one third from the $2,100,000 figure set by the Judge is appropriate, bringing the global starting point to $2,800,000.
Ground (b): Manifestly inadequate uplift
[282] The next ground of appeal advanced by the Commission relates to the uplift applied for Vodafone’s financial means. It submits that the Judge imposed an uplift that was manifestly inadequate because the Judge:
(a)correctly concluded that the proposed penalty was inadequate to achieve specific deterrence of the defendant, having regard to the defendant’s financial resources; but
(b)imposed an uplift of only $65,475, which did not achieve its stated purpose of ensuring that the penalty served as a personal deterrent.
[283] I am satisfied that an uplift of that order is wholly insufficient to meet the purpose for which it was intended. My reasons follow.
[284] In increasing the maximum penalty for misleading conduct under s 11 of the FTA, Parliament expressly intended to give courts the flexibility to impose higher penalties that undermine the profitability of the offending.132 Otherwise, the penalty may simply be regarded as a modest licence fee to offend or treated as an acceptable cost of doing business.
[285] I also do not accept Vodafone’s submission that the different aspects of its business can be compartmentalised, and that it is more appropriate to assess the appropriate level of fine against the corresponding part of the business (i.e., that for fixed broadband). This is not a distinction drawn in the case law nor it is consistent with the purpose for which a means adjustment is made. The inherent absurdity of
132 Fair Trading Amendment (No 3) Bill 2001 (192-1) (explanatory note) at 1.
that approach is highlighted by calculating the proportion of the uplift to the revenue Vodafone received from its fixed broadband services. The amount of $65,475 represents approximately 0.009 per cent of Vodafone’s revenue from that source in 2021 alone. Plainly a more significant uplift is called for.
[286] This is where the concept of a fine which “stings” is engaged. In my view a greater uplift is required in order to ensure the penalty “stings” from Vodafone’s perspective and serves as a personal deterrent, particularly given Vodafone’s history of non-compliance with the FTA. On the other hand, the fine must retain proportionality to the offending.133
[287] That brings me to the appropriate uplift in this case. Vodafone’s means are, on any measure, very substantial. The company was purchased in 2019 for $3.4 billion and produced an EBITDAF of $447.9 million for the year ending 31 March 2021. If the Commission’s suggested starting point of $4.8 million is adopted, it contends that an uplift of around 15 per cent would have been appropriate, bringing the fine to
$5.865 million. If that starting point is not adopted, the Commission submits that a significantly greater uplift would be required.
[288] The exercise is made more difficult by the fact that this approach is relatively novel in New Zealand and there is little by way of comparison. The Commission referred me to several Australia cases, where what is suggested is a more established practice, although predominantly in the civil context.134
[289] There does not appear to be any real consistency in the case law in terms of the quantum of the penalty where the offender has substantial means. For instance, in one of the cases referred to me the defendant’s gross sales revenue was between approximately $250 and $340 billion during the period of offending. There, a fine of
$75 million was described as “not a particularly significant amount”.135 In another,
133 Steel & Tube, above n 70, at [105].
134 Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49 [Volkswagen]; Australian Competition and Consumer Commission v Leahy (No 3) [2005] FCA 265, 215 ALR 301; Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330, (2015) 327 ALR 540; and Australian Competition and Consumer Commission v Apple Pty Ltd (No 4) [2018] FCA 953 [Apple].
135 Volkswagen, above n 134.
where the defendant’s gross revenue exceeded $230 billion, the Court considered a fine of $9 million to be sufficient.136 While this is a broad brush analysis that does not take into account any other differences between the cases, it is nonetheless instructive if only to demonstrate that each case turns on its own circumstances.
[290] Again, the assessment of what the level of uplift should be in any case is an evaluative exercise requiring judgement having regard to all the circumstances. Here an uplift of $700,000 on account of means, or 25 per cent of the $2.8M starting point, seems to me to strike the appropriate balance between the competing considerations.
Ground (c): Departure from accepted sentencing methodology
[291] The Commission finally alleges that the Judge erred in the discount applied for mitigating factors specific to Vodafone, in particular because she did not apply the two-step sentencing methodology laid down by the Court of Appeal in Moses v R.137 It says that this resulted in greater discounts than would otherwise have applied.
[292] I am satisfied that the Judge’s failure to follow the two-step sentencing approach is an error of principle. However, under s 250 of the Criminal Procedure Act 2011, I must also be satisfied that a different sentence should be imposed. To this end the well-established rule against “tinkering” with a sentence that is nonetheless within the available range applies.
[293] In this instance, the Judge’s failure to follow Moses would only result in a notional additional discount of $46,725 on the Commission’s analysis. In the context of a multimillion dollar fine, this is plainly minor and did not bring the fine outside of the available range. Nor do I consider the Judge’s approach “opens the door to differing methodologies in future FTA cases” as the Commission contends.
[294]This ground of appeal fails as a result.
136 Apple, above n 134.
137 Moses, above n 112.
Conclusion on Commission’s sentence appeal
[295] The Commission’s appeal against sentence is allowed. The global starting point is increased from $2,100,000 to $2,800,000. The means uplift is increased from
$200,000 to $700,000, or 25 per cent of the new global starting point of $2,800,000.
[296] The remaining adjustments to the starting point were not challenged by the Commission. They comprise:
(a)a 20 per cent uplift for previous offending;
(b)a five per cent discount for co-operation; and
(c)a 25 per cent discount for guilty plea on the availability charges, applying a 65/35 per cent split between the branding and availability charges.
[297] Under the orthodox Moses two step methodology, each of the above uplifts and discounts (including the means adjustment) would be applied at step two of the sentencing process as aggravating and mitigating features of the offender.138 However, the matter is complicated by the fact that the discount for guilty plea applies only to the availability charges, which the Judge apportioned at 35 per cent of the adjusted starting point, after the uplift for previous conviction and discount for co-operation had been applied.
[298]In my view, the approach that most closely accords with Moses is as follows:
(a)First, to apply the 65/35 per cent split to the starting point of
$2,800,000, leading to:
(i)a starting point of $1,820,000 on the branding charges; and
(ii)a starting point of $980,000 on the availability charges.
138 Above n 112.
(b)Second, to apply the 25 per cent means uplift, 20 per cent uplift for previous offending, and five per cent discount for co-operation to the
$1,820,000 starting point on the branding charges, leading to:
(i)an adjusted starting point on the branding charges of
$2,548,000.
(c)Third, to apply the 25 per cent means uplift, 20 per cent uplift for previous offending, 5 per cent discount for co-operation, and 25 per cent discount for guilty plea to the $980,000 starting point on the availability charges, leading to:
(i)an adjusted starting point on the availability charges of
$1,127,000.
(d)Fourth, to calculate the fine for each of the nine branding charges from the adjusted starting point of $2,548,000 on those charges, being:
(i)$238,111 on each of the nine charges.
(e)Fifth, to calculate the fine for each of nine availability charges from the adjusted starting point of $1,127,000 on those charges, being:
(i)$146,510 on each of the six charges for the charge periods from
1 November 2016 to 19 May 2017 and 20 May 2017 to 31 October 2017; and
(ii)$82,646 on each of the three charges for the charge period from 1 November 2017 to 28 March 2018.139
139 This reflects the fact that the representations in the third charge period, the Commission accepted, were inadvertent. The Judge appeared to apportion the fine on the availability charges between the first two charge periods, and the third charge period, at approximately 78%/22%, although she did not explain her calculations. I have followed that split here.
(f)Finally, to add together the adjusted starting points, leading to a total fine of $3,675,000.
[299] Vodafone is therefore sentenced to pay a total fine of $3,675,000, which is an increase of $1,425,000 from the fine of $2,250,000 imposed by the Judge at first instance.
Vodafone’s sentence appeal
[300] Because I have determined that the Commission’s sentence appeal must succeed, it necessarily follows that I do not accept the sentence imposed in the District Court was manifestly excessive. That would ordinarily dispose of Vodafone’s sentence appeal. However, for the sake of completeness, I shall deal with Vodafone’s sentence appeal albeit in a more abbreviated fashion than might ordinarily be the case.
[301] Mr Pilditch did not take issue with the Court’s factual findings at sentencing but submitted that the end sentence was nonetheless manifestly excessive because the Court:
(a)departed from accepted sentencing methodology;
(b)made several errors relating to the adjustments for personal culpability factors, namely:
(i)improperly penalised Vodafone for offending that occurred at the same time as the present offending;
(ii)applied an uplift for Vodafone’s previous convictions that was outside of the available range;
(iii)applied an insufficient discount for co-operation; and
(iv)failed to provide a discount for reducing trial time;
(c)applied a means adjustment; and
(d)adopted a manifestly excessive starting point.
[302]I shall deal with each of these grounds in turn.
Departure from accepted sentencing methodology
[303] Mr Pilditch acknowledged that the Judge failed to apply the two-stage sentencing methodology in Moses but contended, despite the Commission’s submission to the contrary, that this resulted in a sentence that was manifestly excessive.140
[304] On Vodafone’s analysis, this failure resulted in the fine on the availability charges being $140,000 higher than it otherwise would have been.
[305] As noted earlier, I am satisfied that the Judge’s failure to follow the two-step sentencing approach is an error of principle. However, the focus must be on the end sentence imposed, which I found was manifestly inadequate. Furthermore, in substituting the sentence on appeal I have endeavoured to adhere to the Moses methodology as best as possible in the circumstances.
Errors relating to adjustments for personal culpability factors
[306] Under this ground of appeal, Vodafone alleges a number of errors relating to the adjustments adopted for personal culpability factors. It acknowledges that individually, these errors may not have resulted in a manifestly excessive sentence but submits that in combination they become material.
(a) Improperly penalising Vodafone for offending that occurred at the same time as the present offending
[307] Mr Pilditch submitted that the Court erred in taking into account Vodafone’s Billing Beyond Termination offending, which overlaps to a certain extent with the present offending in that it took place between 1 January 2012 and 17 December 2018.
140 Above n 112.
Mr Pilditch submits that this offending ought to have been considered as if it was being heard alongside the present charges, totality being the primary consideration.
[308] This submission overlooks to a certain extent the fact that the Billing Beyond Termination offending predated the current offending by over four years. In this regard, even if it cannot be regarded as aggravating the present offending, it plainly does show an ongoing pattern of non-compliance. That is precisely the position reached by the Judge, as illustrated by the following paragraph of the judgment:141
“… It is not in dispute that the Billing Beyond Termination offending occurred during the same period as the present charges and on that basis, those convictions cannot be regarded as aggravating offending. However, in my view, this conduct is still relevant as another example of Vodafone’s culture of non-compliance.”
[309] It follows that I do not consider there to be any error in the approach adopted by the Judge. In any event, however, the complete exclusion of the Billing Beyond Termination offending is unlikely to have made a material difference to the 20 per cent uplift applied for all of Vodafone’s previous convictions. It was not the most serious of the five ‘groups’ of charges for which Vodafone was penalised, nor did it have as direct a relevance to the present charges.142
(b)Uplift for previous convictions
[310] Following on from the previous ground, Mr Pilditch submitted that Vodafone’s previous convictions in general are not as aggravating as the Court suggested and did not warrant as high an uplift. He submitted that the convictions capture what is fundamentally different criminality and are temporally distinct.
[311] With respect, I take a different view. All of Vodafone’s previous convictions relate to offending under the FTA and, when taken together, reveal a concerning indifference to its consumer obligations under the Act. The uplift applied by the Judge
141 Sentencing decision, above n 2, at [145].
142 It was accepted by the Commission that the Billing Beyond Termination offending was not intentional and had occurred due to errors in Vodafone’s legacy billing systems. In contrast, the Broadband Everywhere and Largest 3G network campaigns involved misleading representations with regard to the product offered, and did not stem from systems or human error.
appropriately reflects the nature and extent of these convictions, and the persistence of Vodafone’s conduct despite serial penalties being imposed.
[312] I also do not see it as significant that Vodafone was constituted by different senior management teams across this period. If anything, this feature tends to suggest either that there is an entrenched culture of non-compliance within senior levels of the company or that Vodafone has attempted to address its compliance issues by passing them around management teams, rather than undertaking a comprehensive corporate strategy designed to address regulatory compliance in a co-ordinated fashion.
(c)Discount for co-operation
[313] Mr Pilditch next submitted that Vodafone’s co-operation with the Commission’s investigation warranted a greater discount than five per cent. He pointed out that Vodafone was not compelled to do anything, and that several exhibits relied on by the prosecution would not have been admissible but for Vodafone’s co- operation. Mr Pilditch also noted that it was Vodafone who alerted the Commission to the error which gave rise to the availability charges in the third charge period.
[314] I am not satisfied the Judge erred in this respect. While Vodafone volunteered some information, the Commission’s position was that some of this information was wrong or misleading in important respects, and resulted in additional delays at trial. Moreover, its co-operation did not accompany guilty pleas on all charges nor payment of compensation. The five per cent discount struck the appropriate balance between these considerations.
(d)Discount for reducing trial time
[315] Finally in relation to personal culpability factors, Mr Pilditch submits that the Court failed to consider a relevant mitigating factor, namely the steps taken by Vodafone to reduce the trial time.
[316] Mr Pilditch explained that at sentencing, Vodafone submitted that it should be given credit under s 9(2)(fa) of the Sentencing Act for its offer to provide all briefs of evidence to the Court in advance of the trial, and for those briefs to be taken as read,
or read at the trial. He says that it was the Commission which insisted all evidence be led viva voce.
[317] According to Mr Pilditch, Vodafone’s submission was disregarded by the Judge at the hearing, and not addressed in her sentencing decision.
[318] I am not certain it is appropriate to give credit under s 9(a) for a mere offer to take steps which could operate to shorten the proceeding or reduce costs, even if the offer was frustrated by the other party’s intransigence. Whether a discount is given at all for this factor is a matter for evaluation by the Judge in the particular circumstances of the case.143 In this instance, there may be a variety of tactical reasons in play as to why Vodafone was prepared to have the briefs of evidence taken as read, or read at the trial, just as the Commission may have been motivated to insist all evidence be led viva voce. In any event, experience indicates that taking evidence as read does not, in the long run, generally materially reduce hearing time. The Judge is still required to read the evidence either outside Court sitting times or in Court. Inevitably there will be supplementary evidence required, particularly in a document heavy case such as this.
[319] While it would have been preferable for this factor to have been squarely addressed in the judgment, I do not consider the failure to do so amounts to a material error.
Means adjustment
[320] The next ground of appeal relates to the upward adjustment the Court applied for Vodafone’s means. In short, Mr Pilditch submitted that such an adjustment, while available to the Court more generally, was not warranted in this case.
[321] Mr Pilditch disputes that Vodafone ever accepted a means adjustment was appropriate or invited the Court to make one. He also submits that while the Court articulated a global upward adjustment of $65,000, it effectively imposed a $140,000 increase, which is the equivalent of approximately 20 per cent.
143 Mehrok v R [2021] NZCA 370 at [50].
[322] Mr Pilditch further reinforces that the fine must retain proportionality to the offending and submits that the fine adopted by the Court before the means adjustment was plainly sufficient to serve its purpose, being the highest on record for offending under the FTA.
[323] I have already addressed the means adjustment in the context of the Commission’s sentence appeal. I found that the means adjustment was not only necessary but that a greater uplift was required in the circumstances to ensure the fine served its deterrent purpose and had a “sting”.
Manifestly excessive starting point
[324] Last, Mr Pilditch submitted that the sentencing Judge erred in her assessment of the gravity of the offending when measured against the relevant case law and, in turn, its assessment of the appropriate starting point.
[325] First, Mr Pilditch submits there is a material difference in the duration of offending; here, 18 months, in contrast to the four years in Steel & Tube and the nine years in Reckitt Benckiser.144 While technically correct, this submission overlooks the nature of the offending in those cases, which appears to have been more passive in contrast to the involved and extensive multimedia advertising “blitz” in the present case.
[326] Secondly, unlike the above cases and Carter Holt Harvey, the present offending did not involve a risk to life and safety.145 In Mr Pilditch’s words: “no one was going to die if FibreX did not deliver a comparable service to a FTTH connection”. Again, this cannot be disputed, although I consider Vodafone risks understating the potential effects of its offending by describing it as “an architectural possibility that some consumers could experience some issues with screening Netflix and playing shooter games”. Broadband is a key resource to thousands of New Zealanders and, as the Judge found, the choice of broadband is an important one for
144 Steel & Tube, above n 70; and Reckitt Benckiser, above n 90.
145 Carter Holt Harvey, above n 90.
consumers. Vodafone’s offending, it accepted, caused harm to consumers within the FibreX coverage areas by depriving them of the ability to make an informed choice.
[327] Thirdly, Mr Pilditch submitted that in the cases referred to above, there was no way for a consumer to learn the true position. In contrast, he says that Vodafone never kept the access technology from consumers, rather this information was readily available online. Mr Pilditch adds that unlike Carter Holt Harvey, Vodafone made changes to its upfront advertising in response to the Commission’s investigation.146 As I have touched on earlier when discussing Vodafone’s “layered” approach, I do not accept the information was ‘readily available’ to consumers. In addition, the upfront changes Vodafone made to its advertising were largely ineffective.
[328] Mr Pilditch said that these factors, when considered together, demonstrate that the present offending is significantly less serious than these cases, and yet the Court selected a starting point within a comparable range. For reasons that I have already discussed, I do not accept this argument. The starting point of $2,100,000 was low in all of the circumstances.
Conclusion on Vodafone’s sentence appeal
[329] It follows that Vodafone’s appeal against sentence must fail. Consistent with the accepted approach on Solicitor General appeals the substituted sentence is the lowest of the available range.
RESULT
[330]The conviction appeal is dismissed.
[331]Vodafone’s sentence appeal is dismissed.
[332]The Commission’s sentence appeal is allowed.
146 Above n 90.
[333] The total fine of $2,250,000 is quashed and a fine of $3,675,000 is imposed in its place. This is to comprise:
(a)$2,548,000 on the branding charges, being $238,111 on each of the nine charges; and
(b)$1,127,000 on the availability charges, being:
(i)$146,510 on each of the six charges for the charge periods spanning 1 November 2016 to 19 May 2017 and 20 May 2017 to 31 October 2017; and
(ii)$82,646 on each of the three charges for the charge period spanning 1 November 2017 to 28 March 2018.
Moore J
Barristers/Solicitors: Meredith Connell, Auckland Mr Hamlin, Auckland
Ms Fleming, Auckland Mr Pilditch KC, Auckland Wilson Harle, Auckland
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