Express law No. 296

Background

The ACCC commenced proceedings against Telstra in respect of unconscionable conduct contrary to s 21 of the Australian Consumer Law (ACL). The parties filed an agreed statement of facts and admissions and proposed consent orders by which Telstra admitted liability for the contraventions alleged by the ACCC and agreed relief, including the amount of penalties to submit to the Court.

The ACCC alleged, and Telstra admitted, that from 1 January 2016 to 27 August 2018 sales staff at Telstra licensed stores located in Western Australia, Northern Territory and South Australia entered 108 Indigenous Australian consumers into contracts for post-paid mobile products and services. The affected consumers possessed one or more of several relevant characteristics such as being from regional and remote communities, not speaking English as a first language, having reading and writing difficulties and being unemployed. 

Sales staff took advantage of the consumers’ particular characteristics and Telstra’s bargaining power to engage in improper sales practices. The improper sales practices included entering consumers into multiple contracts on the same day for products they could not afford, failing to explain the terms of those contracts, making false representations about the costs of devices and add-ons, manipulating credit assessments to ensure consumers would be approved for credit, and taking advantage of a cultural propensity for Indigenous Australian people to express agreement as a means of avoiding conflict. The improper sales practices took place in circumstances where:

• despite being aware of the challenges faced by Indigenous Australians relevant to its business, Telstra did not have effective systems or training in place to prevent the improper sales practices
• stores were incentivised by Telstra to enter into a greater number of contracts for post-paid services than pre-paid services and this affected the incentives paid by stores to sales staff
• Telstra senior management were increasingly aware of the improper sales practices through reports prepared by its credit risk office.

The loss and damage caused to affected consumers was very serious. As a result of the improper sales practices, the affected consumers incurred significant debts (averaging over $7,400). Further, the improper sales practices and Telstra’s pursuit, either itself or through third party debt collectors, of the debts had the potential to cause the affected consumers to feel shame, embarrassment, and distress.
 

Federal Court’s reasoning

At the time of the hearing, Telstra had remediated affected consumers, implemented wide-ranging measures to avoid conduct of this kind in the future, and entered into an enforceable undertaking as to such matters. Telstra also cooperated substantially in the proceedings and made a direct apology to the Court.

The parties sought declarations and penalties totalling $50 million, to reflect the extent and seriousness of the courses of conduct at each of the five stores.

Justice Mortimer found that the declaratory relief and penalties were appropriate, on the following basis:

• the contraventions could be grouped into five courses of conduct, one for each of the stores
• the conduct, in which sales staff took advantage of consumers who were particularly vulnerable, continued to occur over a period of 2.5 years, it was geographically widespread and it was systematic
• the increasing knowledge of Telstra’s senior management over time exacerbated the unconscionable conduct as it revealed how Telstra’s lack of adequate systems and training contributed to the improper sales practices
• the egregious conduct of sales staff and self-interest shown by Telstra in seeking to recover the debts risked diminishing the basic dignity of the affected consumers
• Telstra’s size, as a major telecommunication company with annual revenue exceeding $25 billion, was relevant to the size of penalty necessary to ensure an appropriate deterrent effect
• Telstra had taken significant remedial and corrective action and entered into an enforceable undertaking at significant cost to itself
• the timing and fulsomeness of Telstra’s cooperation was also recognised.

Implications

This judgment generally confirms the existing law on agreed penalty cases, including by reference to the appeal judgment of Volkswagen Aktiengesellschaft v ACCC [2021] FCAFC 49.

Additionally, the penalty imposed against Telstra is the highest penalty imposed for unconscionable conduct and the second highest penalty imposed for breaches of the ACL. In particular, Justice Mortimer observed that the size of the contravener will be relevant to support a higher penalty and so the judgment may assist in establishing the appropriateness of very significant penalties where the conduct involves very large entities.

Text of the decision is available at:
The Federal Court of Australia website, Australian Competition and Consumer Commission v Telstra Corporation Limited [2021] FCA 502