Misleading or deceptive conduct – is there such thing as a charitable free lunch?

On 18 October 2024, the Federal Court handed down its decision in Australian Securities and Investments Commission v Latitude Finance Australia (No 2) [2024] FCA 1205. It held that the advertisements run by Harvey Norman displaying its ‘no deposit’ and ‘60 months interest free’ offerings were in contravention of section 12DA(1) and section 12DF(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act).

Background

In 2022, ASIC commenced proceedings against Latitude Finance Australia (Latitude Finance) and Harvey Norman Holdings Ltd (Harvey Norman) in relation to Harvey Norman advertisements that promoted ‘no deposit’ and ‘interest-free’ payments for the period January 2020 to August 2021. These advertisements did not make clear that a Latitude ‘GO’ Mastercard was required to access the deal of 60-months interest free. In many of the advertisements, there was no reference to the relevant financial product, namely a credit card, or to the relevant issuer, namely Latitude Finance. Some advertisements contained in very small print a reference to Latitude, but for the majority of the advertisements, this was not displayed.

Ultimately, the small print for customers who did sign up to the Latitude GO Mastercard, and relied on the 60 months interest free period, was that they were liable for $537 in fees on top of the purchase amount.

Reasonable expectations and materiality

We have previously written about the potential for a materiality threshold to exist for misleading or deceptive conduct. It is well established that conduct that only has a remote likelihood of causing an error is not misleading or deceptive. For example, in the relatively recent case of ASIC v CBA, it was held that in some circumstances a misrepresentation may not be sufficiently credible to be believed by the relevant persons.[1]

Latitude most notably contended that in the context of the advertisements, customers would know “there is no such thing as a free lunch, let alone charity”[2] and that the statements were sufficiently credible in their own right. Latitude, in its submissions, further contended that the ordinary and reasonable consumer would have known that there would have been additional terms and conditions tied to the offer displayed.[3] Yates J however did not accept this position. Contrast this with the case of ASIC v CBA where the Court did accept the position that the ordinary and reasonable customer would not have reasonably expected that their bank statements would be free of error.[4] Downes J in this case notably said that “the ordinary and reasonable customer …does not expect perfection from a bank in the performance of its contract” (emphasis added).[5]

Rather, Yates J was satisfied that the ordinary and reasonable customer in these circumstances would have included “those who thought that they were doing no more than paying the purchase price for the goods they wished to buy on an instalment basis that Harvey Norman was prepared to accept to entice consumers to purchase from Harvey Norman stores”[6], i.e. quid pro quo. Thinking back to older cases like Fraser v NRMA[7], this element of consideration or quid pro quo is often critical. In Fraser v NRMA, the effect of the reiteration of the phrase ‘free shares’ in the prospectus was held to be misleading and failed to make clear that rights were being given up by the policyholders in accepting shares. In these circumstances, the significant consideration or quid pro quo that needed to be provided by the customer (by entering into a collateral contract constituted by the application for the credit card) was ultimately critical in the finding of misleading or deceptive conduct.

What wasn’t considered – DDO

Interestingly, the design and distribution obligations (DDO) regime did not form part of the case. ASIC has been particularly interested in the practices of credit card issuers and distributors in the context of DDO obligations, taking one of its first proceedings under DDO in connection with a credit card offered in a retail store (see our article here). How the DDO obligations are being satisfied by credit card issuers and distributors has also been a focus of ASIC reports including in ASIC REP 778. In that report, ASIC specifically mentions the action against Harvey Norman and Latitude in the context of discussing DDO.

ASIC expects that marketing will direct distribution of a product towards the target market. While not forming part of ASIC’s case against Latitude and Harvey Norman, we can expect that ASIC will continue to be interested in how marketing practices are undertaken consistently with the reasonable steps obligation under DDO.

Use of disclaimers

Previously, we have explored the use of disclaimers to mitigate false, misleading or deceptive conduct and its associated limitations, such as in cases like ASIC v NAB[8] and ASIC v CBA[9].

However, a disclaimer will not necessarily be sufficient to negate the overall context and dominant message of a particular statement or advertisement. A key question will be the prominence and clarity of the disclaimer. Indeed, as Allsop CJ once cautioned: “the courts should be astute and careful not to permit consumers to be misled on available meanings or connotations of phrases deliberately chosen to sell products on the basis that everyone takes advertising with a pinch of salt.”[10]

In particular, Yates J noted that a disclaimer of “fees and charges apply” in the context of Harvey Norman’s advertisements were “largely, uninformative and, in fact, cryptic”.[11] It was ultimately held that the ordinary and reasonable customer would not have been expected to have drawn the conclusion that the fees and charges were those that applied to a continuing credit contract linked to a credit card.

Further, in the context of Harvey Norman’s television advertisements, it was held that a fleeting disclaimer or visual image won’t be sufficient; that is, the litmus test will be whether the customer could have read the disclaimer without hitting pause on the remote.[12] Harvey Norman’s advertisements were displayed on screen ranging from 5 to 30 seconds. This was also demonstrated in the ACCC v TPG Internet Pty Ltd case[13] whereby TPG’s advertisements were on screen for approximately 15 seconds and were accompanied by a voiceover stating the $29.99/month cost, when there were, in fact hidden charges disclosed in the fine print. Similar to the case at hand, the High Court dismissed that the misleading character of the advertisements might be neutralised by its attribution of knowledge to the target audience and any circumstances whereby the customer would have known TPG services were commonly offered as a “bundle”. This is especially the case where the target audience was left only with the dominant message at the end of the advertisement.

Ultimately, it was held that customers would have had a reasonable expectation that they would have been informed of the requirement of establishing and maintaining a Mastercard account, not because as ASIC contended in its submission that credit cards are “risky” but rather, “for ordinary and reasonable consumers, entering a financial arrangement for the purchase of goods of $1,000 or more is not a trivial matter.”[14] Here, relevantly Yates J took into account that the ordinary and reasonable customers were the class of persons who were purchasers of home and electrical goods, such as those advertised in the representative advertisements.[15]

Conclusion

So, is there such a thing as a charitable free lunch? Probably not. But it depends on what context we are talking about.

Is this article helpful? We have a detailed methodology that can help you consider whether a misstatement or advertising is likely to be misleading or deceptive – contact one of experts below or email our Breach Reporting Hotline if you have a particular scenario you would like to discuss.

We can also provide an advanced breach reporting masterclass to your team. Please do not hesitate to contact one of our experts below.