CN11 - Unconscionable conduct case results in 50 million penalty under Australian Consumer Law
16 June 2021
The Federal Court of Australia ("Federal Court") has ordered Telstra to pay $50 million in penalties for engaging in unconscionable conduct through staff at its branded stores in relation to the sale of post-paid mobile contracts to Indigenous Australian consumers. The Court found that while Telstra did not authorise this conduct, the staff's conduct was nonetheless properly attributable to Telstra.
Before these proceedings began, Telstra had already committed to remediate consumers, improve its existing compliance program, review and expand its Indigenous Hotline, and enhance its digital literacy program in remote areas.
Key takeaways
- On 13 May 2021, the Federal Court in Australia Competition and Consumer Commission v Telstra Corporation Limited [2021] FCA 502 ordered Telstra to pay a AUD 50 million penalty for engaging in unconscionable conduct in breach of the Australian Consumer Law.
- Over a two and a half year period, staff at licensed Telstra-branded stores ("Branded Stores") sold post-paid mobile contracts to indigenous Australians who did not understand, or could not afford, the products and services.
- While Telstra did not direct the conduct, the Federal Court found that Telstra did not implement adequate controls to prevent or remediate the conduct.
Conduct in question
From January 2016 to August 2018, staff at five Branded Stores sold Telstra post-paid mobile contracts to 108 Indigenous consumers who did not speak English as a first language, had difficulties with literacy and financial concepts, and/or were unemployed and relied on government benefits as a primary source of income.
The Federal Court found that the staff at the five Branded Stores engaged in a range of exploitative practices on Telstra's behalf, including:
- misrepresenting or failing to adequately explain the nature and potential costs of products and services, including by falsely representing that consumers were receiving mobile devices for "free";
- manipulating credit assessments, so as to be able to enter into post-paid contracts with consumers who would otherwise have failed Telstra’s credit assessment process; and
- exploiting the consumers' lack of understanding of the terms of the transaction, or taking advantage of the cultural propensity for Indigenous Australians to express agreement as a means of avoiding conflict.
While Telstra did not direct, approve or authorise the conduct of the staff at the Branded Stores, the Federal Court found that from at least December 2016 Telstra became increasingly aware of certain aspects of the conduct and failed to implement the necessary controls to guard against the risk of this conduct or remediate its effects.
The Federal Court found that as a result of Telstra's conduct, the Indigenous consumers were exposed to serious financial hardship and distress, including by incurring significant debts to Telstra (ranging from AUD 1,600 to almost AUD 20,000). Some of the consumers were also referred to debt collectors.
The Australian Competition and Consumer Commission ("ACCC") commenced proceedings against Telstra in November 2020, alleging that the conduct of the staff at the Branded Stores contravened section 21 of the Australian Consumer Law.
Penalties for the conduct
On the basis of Telstra's admissions in the parties' agreed statement of facts and joint submissions, the Federal Court found that Telstra:
- engaged in unconscionable conduct in breach of the Australian Consumer Law when staff at Branded Stores sold post-paid mobile contracts to Indigenous consumers on its behalf; and
- failed to take steps to implement processes to protect against, or remediate the effects of, the conduct.
The Federal Court ordered Telstra to pay a pecuniary penalty of AUD 50 million. This penalty was the amount that the ACCC and Telstra had submitted was appropriate for the conduct, having regard to the relevant penalty factors and the applicable statutory maximum penalty of AUD 130.9 million. This is the second highest penalty ever ordered for a breach of the Australian Consumer Law.
Telstra received consideration for the fulsomeness and timeliness of its co-operation. However, the Federal Court considered that the aggravating factors were Telstra's:
- approach to complaints about the sales practices;
- delay in accepting responsibility for the conduct; and
- debt recovery practices.
Therefore, the Federal Court's penalty emphasised the need to send a strong and clear message to those who might be tempted to take advantage of vulnerable consumers, and who are slow to remediate their conduct out of self-interest.
Non-pecuniary requirements
In addition to the pecuniary penalty of AUD 50 million ordered by the Federal Court, the ACCC also accepted a court enforceable undertaking from Telstra. That undertaking requires Telstra to:
- provide remediation to affected consumers;
- improve its existing compliance program for competition and consumer law breaches; and
- undertake other commitments in relation to consumers in remote areas, including reviewing and expanding its Indigenous hotline and enhancing its digital literacy program.
With thanks to Jessica Apel and Alana Perna of Ashurst for their contributions.
