Commerce Commission v Contact Energy [2020] NZDC 4415 (4 March 2020)

Last Updated: 10 September 2020

IN THE DISTRICT COURT AT WELLINGTON I TE KŌTI-Ā-ROHE KI TE WHANGANUI-A-TARA

CRI-2019-085-000096

[2020] NZDC 4415

COMMERCE COMMISSION

Prosecutor v

CONTACT ENERGY Defendant

Hearing:	4 March 2020
Appearances:	F J Cuncannon for the Prosecutor S M Bisley for the Defendant
Judgment:	4 March 2020

NOTES OF JUDGE I G MILL ON SENTENCING

[1] This is my decision in the sentencing of Contact Energy in proceedings brought against the company by the Commerce Commission. The defendant company has pleaded guilty to seven charges, those charges being described as the company being in trade in connection with the promotion of the supply or use of services made a false or misleading representation as to the benefits of those services.

[2] All the charges relate to a single promotion, that promotion running for several months from 4 April 2017 when the company had joined AA Smartfuel rewards scheme as a participating retailer. The defendant then embarked on an extensive advertising campaign through the rewards scheme. It made two offers which were the subject of the charges.

COMMERCE COMMISSION v CONTACT ENERGY [2020] NZDC 4415 [4 March 2020]

[3] The first of those was that the new and current customers who signed up for a one year fuel rewards plan would get AA Smartfuel rewards redeemable as 30 cents off per litre of fuel every month which is the wording they used in the campaign. There was also an offer to current customers who kept their plan as it was and would make also a smaller saving on fuel each month.

[4] During the promotion the defendant failed, as is now apparent from the pleas of guilty to the charges, to disclose qualifications on the offers in respect of the redeeming of rewards from the AA rewards scheme. These qualifications were that the discounted price was only for one fill no more than once a month and that the maximum on that occasion would be 50 litres of fuel.

[5] The seven charges that I have before me while relating to the same promotion each relate to a different form of the advertising on the promotion and the offers, for example, through websites, mobile applications, social media, another case through television, another case of digital billboards in several centres and so forth. So the seven charges represent the totality of the advertising of the offer or offers which is now accepted was misleading.

[6] I have had substantial written submissions which I have read. I have also received oral submissions today that in effect although arriving at the starting point in slightly different ways the prosecution and the defence agree that the appropriate starting point for the totality of the offending would be a fine of $350,000. It is agreed that there should be a deduction for the guilty pleas which were made in a timely way and also the co-operation received from the company which is acknowledged by the prosecution.

[7] The company took immediate steps to remedy the misleading parts of the offers as soon as they became aware and while that is not a mitigating factor as such the result of that is that there are no further aggravating factors such as the company continuing to make the offer in the knowledge of it being misleading. The company, however, co-operated with the prosecution authority in all respects.

[8] It is necessary for me to traverse the facts of the case but I will not do that exhaustively and the submissions made and then indicate whether I agree with the outcome that the parties have reached and if I do then to impose the penalty that is appropriate in this case.

[9] There was a high degree of dissemination no doubt nationwide and the Commission received 13 complaints about the promotion and that these related to the lack of disclosure. The Commission in this case submits that the defendant’s offending was highly careless which is only one of two areas where there is any disagreement and the Commission submit that the defendant is not entitled to rely on assumptions it obviously made about prior customer knowledge of the way the AA rewards scheme operated. For these reasons the Commission submits that culpability was at that level of highly careless and a deterrent penalty was justified.

[10] As I have said, notwithstanding that, they have both come to the conclusion that a starting point of 350,000 is appropriate, the maximum fine in this case being one of $600,000. I agree with both the Commission and the defence that the seven charges must be seen in their totality as they relate to one promotion and a similar misleading in the various forms of advertising, so it could very much be seen as one offence, although I have no criticism of there being seven charging documents.

[11] It is pointed out in the Commission’s submissions that the defendant is a large company supplying energy to over 550,000 customers. The promotion was communicated to current customers in a series of emails and letters and advertised to the New Zealand public in the other ways I have mentioned. The claim of 30 cents off per litre of fuel per month featured consistently in the promotion materials and also the claim that the people staying on current plans would receive rewards redeemable at 10 percent per litre. The advertising involved a number of slogans such as, no tricks, no waiting, no surprising, no ifs, no buts, no surprises, no rubbish, no word of a lie, they call that a no brainer. Well I guess those are the ways in which promotions are undertaken but unfortunately there was misleading information as has been set out.

[12] In effect the maximum value of a 30 cent offer on fuel would be a saving of

$15 a month and $5 a month in respect of the other offer and the customers may have

been misled as to the benefits of the rewards scheme if they interpreted the representation of 30 cents off per litre of fuel every month as meaning they would receive that benefit each time they purchased fuel in the course of the month. The promotion was successful insofar as it accounts I understand for over 5300 new customers, 2269 of which were new AA Smartfuel members and 90 who were new both to Contact and to AA Smartfuel rewards.

[13] The legislation of course that governs this, the Fair Trading Act 1986 is designed to contribute to a trading environment in which the interests of customers are protected, businesses compete effectively and consumers and businesses participate confidently and this requires of course businesses to ensure the information they provide to consumers is accurate, enabling them to make informed choices.

[14] So with that in mind I have had submissions from both the Commission and Contact on the penalty. This is a serious offence of course, the maximum fine being

$600,000 for corporate bodies, and the importance of course of denunciation, deterrence and accountability all feature within the purposes of the sentencing.

[15] On behalf of the Commission it is submitted that the customers who are not already sufficiently familiar with the Smartfuel rewards scheme may have been misled as to the benefits of the scheme and I have to accept that that was a real risk in promoting the matter in this way. There was a large degree of dissemination and an appreciable number of people who appeared to accept the offer for one reason or another, those in total being some 44,860 customers and I have already referred to the breakdown of some of those as new customers.

[16] The starting point of $350,000 is said to be supported also by several cases that I have been referred to and there seems to be substantial agreement here as to how to interpret those cases and apply them to the facts of this case. The two issues that have been raised before me are first of all the characterisation of the conduct, the Commission characterising it as highly careless and the defendant as careless. There is also the issue of potential harm or detriment to the customers, the Commission submitting that although this cannot be reduced down to a figure or an amount it can be inferred that there was harm because of the type of the promotion and the claims

made and the reasoning that people could have joined the scheme misunderstanding or not understanding the actual terms of it. The defence says that that is very speculative indeed and it is impossible to say that any actual harm has occurred and it is not likely to have occurred but in the end it is a particularly speculative exercise of which I can take little notice.

[17] Just dealing with those differences before I turn to the acceptance or otherwise of the proposed penalty. When it comes to carelessness I suppose in many cases it is not difficult to assess because you know it when you see it. Those are the cases that lie at the extremes. This may be a case, however, that lies somewhere in the middle. The Commission submit to me that this is not mere carelessness but on the other hand it is not wanton carelessness and it may not be gross but it is highly careless. The information that was withheld carelessly was very important to the decision to join or take up the scheme promoted. The assumption by the defendant company that people would have known what the terms of the rewards scheme were was careless indeed and they should not have made such an assumption, particularly with important information such as this.

[18] The defendant on the other hand says that this is simply carelessness. That it could be assumed that people would understand what was being offered. The rewards scheme was a well-established and well-known scheme and really the only omission made would have been the absence of the word “once” in relation to the offer relating to the 30 cents per litre every month and that given that that could have been interpreted easily that it was once a month and any event there would be very few vehicles that would hold more than 50 litres of fuel on one filling.

[19] Be that as it may, I do not accept this was mere carelessness, an oversight. This information was important and it may have been known to the defendant company but it should have been made clear in the promotion and it was a very simple matter to do so to make it quite clear that it was in relation to once a month with a maximum of 50 litres, a very easy thing to have done and something that the company was not entitled to assume would be known and was not made clear in the way that they promoted it. This was not wanton carelessness or gross carelessness but it was

something more than simply an omission and as best as I can characterise it is that it was a moderately careless mistake .

[20] As far as potential harm is concerned I think it is likely that there was some harm or disadvantage to people who did not interpret the scheme properly. It cannot be quantified. It can be inferred that it was more than no harm or no disadvantage and so I do not think I can write that off as a simply speculative submission but I cannot give it too much weight because in fact it cannot be actually quantified.

[21] In my view the parties have correctly identified the starting point in this case given the authorities that I have been referred to and also the maximum penalty available and I see this series of offending is simply the various strands of one transaction or promotion. So, having said that, the starting point is a starting point of

$350,000 and I also agree that the deduction submitted to me of 30 percent is appropriate and the overall penalty would be a fine of $245,000 which will be imposed in the following way: On each of the seven charging documents the defendant is convicted and fined $35,000 with Court costs of $130 to pay.

I G Mill

District Court Judge