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Commerce Commission delivers $3.675m sting to Vodafone

18 Aug 2023

| Author: Fiona Wu

Fair Trading Act 1986 – appeal against conviction and sentence – cross-appeal against sentence – manifest inadequacy – trial judge error – state of mind – ‘characteristic’ of service as opposed to good – significance of commercial gain – means uplift – discounts

Commerce Commission v Vodafone New Zealand Limited [2023] NZHC 2149 per Moore J.

On 16 November 2018, Vodafone New Zealand pleaded guilty to nine representative charges of misleading conduct under the Fair Trading Act 1986. These charges related to representations on Vodafone’s website of the availability of fibre-to-the-home broadband services (availability charges).

On 23 April 2021, Vodafone was convicted, following trial, on a further nine representative charges of misleading conduct, relating to branding and advertising of its Hybrid Fibre Coaxial network (branding charges).

On 14 April 2022, Vodafone was ordered to pay a fine of $2.25 million in respect of all charges.

The case before the High Court essentially concerned three appeals: Vodafone appealed its conviction on the branding charges and the sentence imposed on all charges. The Commerce Commission cross-appealed the sentence on the basis of manifest inadequacy.

 

Vodafone’s conduct

The charges related to Vodafone having misled consumers to believe its FibreX service was fibre-to-the-home broadband when it was not, and falsely suggesting that FibreX was the only available broadband service at their address, which was untrue. The effect of these representations was that Vodafone gained an advantage over its competitors who were selling “true fibre”.

 

Appeal against conviction

Vodafone advanced seven grounds of appeal against conviction: that the judge erred in failing to address the relevant consumer group; disregarded other aspects of Vodafone’s advertising conduct; wrongly found that FibreX was liable to mislead the consumer; failed to address admissibility issues; made an erroneous finding as to what constituted a “characteristic of service”; reversed the burden and standard of proof; and generally failed to properly consider and weigh all admissible evidence.

Each of these grounds failed, with the court finding the trial judge:

  • adequately identified and defined the relevant consumer group;
  • considered the totality of Vodafone’s conduct and applied the relevant law;
  • reached available and appropriate conclusions about the meaning of the word “fibre” and whether “FibreX” was liable to mislead consumers;
  • did not rely on alleged inadmissible evidence;
  • correctly found the physical makeup of the network was a “characteristic” of service;
  • applied the correct burden and standard of proof; and
  • considered and weighed all admissible evidence.

 

Commerce Commission’s appeal

The Commerce Commission alleged three broad grounds of appeal:

  • the court adopted a manifestly inadequate starting point due to four errors:
    • finding Vodafone’s breaches were grossly careless rather than wilful;
    • erred in assessing the significance of the commercial gain Vodafone made from its offending;
    • erred in assessing the harm to consumers; and
    • failed to identify the factors leading to the starting point chosen;
  • the uplift was manifestly inadequate having regard to Vodafone’s financial resources and the need to achieve specific deterrence; and
  • the court departed from the Moses v R sentencing methodology, resulting in greater discounts than would otherwise have applied.

Moore J did not accept the judge erred in respect of Vodafone’s state of mind in her assessments of the commercial gain or the harm to consumers. However, he did accept the judge’s starting point was inadequate, given the material difference between what was represented and what was provided, and Vodafone persisting in its actions despite being put on notice. He also accepted the uplift was inadequate having regard to Vodafone’s means.

As a result, the starting point of $2.1m was increased to $2.8m and an uplift of $65,475 was raised to $700,000, increasing the end fine from $2.25m to $3.675m.

 

Vodafone’s appeal against sentence

This appeal failed as a result of the Commerce Commission’s cross-appeal being allowed. However, by way of obiter comments, Moore J noted it would have failed anyway: the discounts given were appropriate, the judge adopted a low starting point in the circumstances, the uplift for Vodafone’s means was warranted, and it was not appropriate to give a discount for Vodafone’s offer to reduce trial time (by offering to provide all briefs of evidence to the court in advance of trial and for those briefs to be taken as read, rather than leading evidence viva voce).

 

Applicable principles: whether trial judge erred in finding representation liable to mislead – whether physical components of service is a ‘characteristic’ of service – whether means uplift inadequate – whether starting point manifestly inadequate – whether discounts were appropriate.

 

Held: Vodafone’s appeals dismissed. Commerce Commission’s appeal against sentence allowed. Fine of $2.25m fine substituted with $3.675m fine.

Commerce Commission v Vodafone New Zealand Limited [2023] NZHC 2149.

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