Misleading and Deceptive Conduct by energy retailers

There have been a number of cases of energy retailers’ non-compliance with s 18 of Australian Consumer Law. These cases are useful for retailers looking to assess the adequacy of the controls that they have in place to reduce the risk of a contravention of s 18.

Australian Competition and Consumer Commission v EnergyAustralia [2015] FCA 274 is a case that was heard in the Federal Court of Australia with a decision handed down on 27 March 2015. This case concerned conduct by a company called Bright Choice Australia Pty Ltd who were engaged as a tele-sales agent of EnergyAustralia.

From 4 April 2012 until 23 April 2013, EnergyAustralia engaged Bright Choice under a Services Agreement to sell, by way of telemarketing, plans for electricity and gas in defined sales territories. The relevant sales territories included consumer premises located in New South Wales, Queensland, Victoria, South Australia and the ACT. Pursuant to the Services Agreement, EnergyAustralia agreed to pay Bright Choice on each occasion that a consumer contracted to enter into a new plan to purchase electricity or gas from EnergyAustralia as a result of Bright Choice’s marketing. Representatives from Bright Choice where remunerated on the basis of a wage plus commission.

Obligations to comply

Within the Services Agreements were a number of obligations on Bright Choice relating to compliance. These included an obligation to exercise the standard of care, skill and judgement that would be expected of a professional contract experience in the performance of services of a similar nature, to comply with all applicable laws and standards necessary to perform the services, and to ensure that its team members conducted outbound telemarketing calls in accordance with scripting approved by EnergyAustralia. Further, Bright Choice was required to establish, implement and maintain a quality assurance and control program that was subject to EnergyAustralia’s approval.

Bright Choice was required to implement a training program that utilised training materials developed by EnergyAustralia. The relevant training materials developed by EnergyAustralia outlined the requirements for compliance with the applicable laws and standards.

The Services Agreement made reference to the requirements to obtain explicit informed consent. Bright Choice was required to make call recordings of all outbound telemarketing calls and all telephone discussions with customers in which explicit informed consent was obtained and to retain such call recordings for a minimum of two years after the applicable call was made or for a longer period as may be required by any applicable law.

In addition, Bright Choice was required to listen and evaluate a sample of call recordings made for the purposes of recording explicit informed consent with an express obligation to listen to at least 2% of the total number of call recordings that were created every calendar month.

Following the appointment of Bright choice, EnergyAustralia conducted ‘train the trainer’ sessions for Bright Choice senior sales managers in March 2012 and provided training material in March 2012 and updated material in July 2012. The relevant training material covered legal and regulatory compliance topics relating to explicit informed consent and the law of misleading and deceptive conduct. The training material also included instructions in relation to sales techniques to be used, and to be avoided by sales representatives, including ensuring that customers had a full understanding of what they were agreeing to.

EnergyAustralia provided Bright Choice with questionnaires that were designed to test the adequacy of Bright Choice’s training program and which were required to be successfully completed by personnel before they conducted any telemarketing.

The bonus commissions

On 28 March 2013, the Services Agreement was amended whereby EnergyAustralia agreed to pay an additional bonus fee to Bright Choice upon Bright Choice achieving 9,000 new sales per month for five months from 1 April 2013. The base fee for electricity sales, of $120, increased by $35.

Between August 2012 and May 2013, Bright Choice representatives contacted consumers in a number of states and did not obtain the consent of consumers to enter into an EnergyAustralia electricity or gas plan but did submit sale reports to EnergyAustralia for each consumer.

The actual misrepresentation centred on Bright Choice advising consumers that they would be sent an information pack or welcome pack and that they would be able to consider the information to decide whether or not to receive a supply of electricity and/or gas from EnergyAustralia. Consumers were told that if they wanted to accept the offer, they would need to contact EnergyAustralia and unless they did make contact, they would not be treated as having entered into a plan for the supply of electricity and/or gas.

These telephone representations were false, misleading and deceptive because following each telephone conversation, Bright Choice acted and EnergyAustralia dealt with each consumer as if they had agreed to enter into a plan with EnergyAustralia for the supply of electricity and/or gas, when in fact they had not.

Further specific instances of conduct were discussed in the case. For example, on around 18 February 2013, a representative of Bright Choice contacted a certain consumer by telephone and said words to the effect that they were calling because EnergyAustralia had a new offer of a discount of 13% off bills and that this offer was not offered by AGL. The consumer responded that the last time she had been signed up to EnergyAustralia and did not want to be with EnergyAustralia.

The investigation

On 7 December 2012, EnergyAustralia commenced an investigation into Bright Choice’s telemarketing practices. On 28 March 2013, EnergyAustralia received details of concerns with Bright Choice’s telemarketing practices including a failure to obtain explicit informed consent. In April and May 2013, EnergyAustralia identified an increased number of customer complaints and cancellations from telesales made by the Representative. EnergyAustralia commenced an investigation into Bright Choice’s conduct and the investigation included a review of sample call recordings. EnergyAustralia identified that representatives were not obtaining explicit informed consent from customers nor were they following the scripts provided to them.

On 23 September 2013, EnergyAustralia terminated the services agreement with effect from 23 October 2013. EnergyAustralia required that Bright Choice cease all marketing sales calls from 23 September 2013.

In accordance with section 274 of the National Energy Retail Law, EnergyAustralia reported the non-compliance to the Australian Energy Regulator. In or around November 2013, EnergyAustralia voluntarily implemented a consumer remedial program at its own cost of $958,085.00 under which EnergyAustralia sought to contact remaining customers of EnergyAustralia originating from Bright Choice.

EnergyAustralia also implemented a process to safeguard against new customers being transferred without explicit informed consent. This process involved EnergyAustralia sending an SMS or email to every new customer that is entered into a contract with EnergyAustralia following an unsolicited outbound telemarketing sales call. This correspondence included a mobile number or email address to confirm the customer had in fact requested the transfer to, and entered into a market retail contract with, EnergyAustralia.

The court noted that following the termination of the Services Agreement and reporting of the conduct subject to the proceedings, EnergyAustralia made significant improvements to its compliance program to align it with the principles of the Australian standard for compliance programs AS3806.

The improvements made by EnergyAustralia included:

  • undertaking a quarterly certification and risk assessment of explicit informed consent compliance across the business, including by, each quarter, reassessing the effectiveness of business practices and processes against the explicit informed consent obligations.
  • Providing regular, at least annually, practical training for directors, officers, employees, representatives and agents of EnergyAustralia whose duties could result in them being concerned with conduct that may contravene EnergyAustralia’s obligations to obtain explicit informed consent;
  • appointing a compliance officer with responsibility for ensuring compliance and for overseeing its compliance program;
  • establishing a monthly scorecard process to assess the performance of third-party vendors in relation to complaints, cancellations and compliance with EnergyAustralia’s ACL and NERL obligations; and
  • ensuring that all third-party telesales calls are recorded in their entirety with random telesales call recordings provided to EnergyAustralia for quality assurance review.

When considering sections 18 and 29(1) of Australian Consumer Law, his honour noted the well-defined applicable legal principles that conduct is likely to mislead or deceive if there is a real or remote chance that it will do so and that the conduct must be capable of leading a person into error and the error or misconception must result from the conduct.

EnergyAustralia and Bright Choice admitted that the representations that were made were made in trade or commerce and in connection with the supply or possible supply of electricity and/or gas. They further admitted that the conduct was misleading and deceptive or was likely to mislead and deceive in contravention of section 18 and that they were false and misleading representations concerning the existence, exclusion or effect of a condition or right in contravention of section 29(1)(m).

Section 38 of the National Energy Retail Law provides that a retailer must obtain the explicit informed consent of a small customer for certain transactions including the transfer of the customer to the retailer from another retailer and the entry by the customer into a market retail contract with the retailer. Section 39 of the National Energy Retail Law provides that explicit informed consent is given where the retailer, or a person acting on the retailer’s behalf, has clearly, fully and adequately disclosed all matters relevant to the consent of the customer, including the purpose or use of the consent, and the customer gives consent. Consent by the customer must be given in writing signed by the customer, verbally (provided that it is evidenced in such a way that can be verified), or by electronic communication generated by the customer.  

The penalty

In considering the appropriate penalties to be applied, the court considered the case of Ministry for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72. The relevant principles included that it is the responsibility of the court to determine the appropriate penalty to be imposed in respect of a contravention. Determining the quantum of a penalty is not an exact science. Within a permissible range, the courts acknowledge that a particular figure cannot necessarily be said to be more appropriate than another.

After considering all of the applicable principles, the court ordered that EnergyAustralia pay a penalty of $1,000,000.

Where did EnergyAustralia fall short?

In examining where EnergyAustralia fell short, the court accepted the submissions of the Australian Competition and Consumer Commission and the Australian Energy Regulator that the presence of a significant financial incentive at least increased the risk of sales calls to consumers occurring without proper processes being observed.

The court noted that there was a flaw in EnergyAustralia’s internal processes in that even though the Services Agreement provided for an audit mechanism, EnergyAustralia did not, or did not adequately, exercise its audit powers. The court concluded that “given the size of the commissions being paid by EnergyAustralia and the number of telesales made by its agent, Bright Choice, EnergyAustralia’s internal procedures were deficient.”

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Connor James

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