Universal Telecasters (QLD) Ltd v Guthrie

(1978) 32 FLR 360

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(Judgment by: Nimmo J)

Between: Universal Telecasters (QLD) Ltd
And: Guthrie

Court:

Judges: Bowen CJ

Nimmo JFranki J

Subject References:
Trade Practices
Companies

Hearing date: 7 December 1977, 8 December 1977
Judgment date: 4 April 1978

Sydney

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Judgment by:
Nimmo J

1. This is an appeal from an order made by a single judge of this Court on 12th October, 1977, by which the appellant company was convicted of contravening s. 53 (e) of the Trade Practices Act 1974 and fined $2,000 and ordered to pay the respondent's costs. Section 53 (e) reads as follows:

"A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services - make false or misleading statements concerning the existence of or amounts of, price reductions; . . . " The charge which led to the conviction was that on or about 15th April, 1975, in Brisbane in the State of Queensland the appellant, "a corporation as defined in the Trade Practices Act 1974 did in contravention of s. 53 (e), in trade or commerce, in connection with the promotion by advertising of the supply of goods, to wit Falcon motor cars, make misleading statements concerning the existence of price reductions, the said misleading statements being made in and by an advertisement published and screened by the Television Station TVQ Channel O in Brisbane in the State of Queensland, the said statements being misleading in that the said statements contained the words and sentences, 'Dr. Jim's lovely tax cuts are guaranteed till only April 30, so if you haven't been out to Metro Ford by then you could be a dead set April Fool. Metro Ford offer immediate delivery of automatic Falcon 500 sedans that save you $335. If you don't take delivery by April 30 you're up for an extra 335 bucks in tax', which made the statements misleading in that the said words and sentences meant and implied that the existence of a reduction in price for such vehicles on account of sales tax cuts would not continue after 30th April, 1975, so that a purchaser would then have to pay an additional $335 in sales tax on such a vehicle whereas the true position was that a reduction in price on account of sales tax cuts was to continue (though at a reduced amount) after 30th April, 1975, so that a purchaser would not have to pay $335 additional sales tax but a lesser sum". (at p366)

2. The appellant conducts the television station TVQ Channel O at Brisbane. On 15th April, 1975, it transmitted through its television facilities the advertisement about Falcon motor cars with the text as quoted in the charge. This advertisement referred to sales tax reductions on motor vehicles which had been announced by the treasurer, Dr. Jim Cairns, on 28th January, 1975. The tax reductions were operating on 15th April, 1975, although it was not until 18th April, 1975, that they received legal sanction by retrospective legislation. Prior to the reductions coming into effect on 29th January, 1975, sales tax was payable on new passenger motor cars at the rate of twenty-seven and a half per cent. In anticipation of the legislation, following the treasurer's announcement, sales tax in respect of those vehicles from 29th January to the end of April 1975 was to be at the rate of fifteen per cent and thereafter at an additional rate of two and a half per cent for each succeeding month until it was restored to twenty-seven and a half per cent after the end of August 1975. (at p366)

3. At the hearing of the charge evidence was given that one Mr. A. B. Paterson on viewing a telecast of the advertisement early in April 1975 rang the station at about 7.30 p.m. and had a conversation with a person, who, when informed that Mr. Paterson wished to complain about what he considered a misleading advertisement, advised Mr. Paterson to ring either the station manager or station sales manager the following day. This he did soon after 9 a.m. and was advised that the sales manager was unavailable. He rang again at 10.30 a.m. and was put through to a person who "introduced himself as Terry Garry, sales manager". Mr. Paterson informed Mr. Garry that he considered the advertisement was misleading inasmuch as sales tax would not increase by $335 on the Falcon in May. Mr. Garry then questioned Mr. Paterson as to his knowledge of whether or not sales tax would increase, and, if so, by what amount and Mr. Paterson answered, "that on the basis that I had until recently been employed by a finance company and I was aware of the proposals in relation to sales tax increases in May". Mr. Garry then said that "he had had a look at the ad. or they had had a look at the ad." and intimated that the advertisement had been reviewed but in the light of Mr. Paterson's conversation with him, "they would again review the advertisement and take whatever action they saw fit". (at p367)

4. On 9th April, 1975, Mr. A. A. Wise of the Trade Practices Commission, as a result of a telephone call from a Mr. Meldrum about the advertisement, rang Channel O, asked the telephonist to connect him to whoever was responsible for answering inquiries on advertisements shown on that channel. He was connected to Mr. Garry. Mr. Wise identified himself and his place of employment and informed Mr. Garry that a complaint on the Metro Ford advertisement had been received. Mr. Garry, after stating that he was the sales manager of the appellant, asked what was wrong with the advertisement. Mr. Wise replied, "I do not know, that is why I would like to obtain the transcript of the advertisement if I could". Mr. Garry then said, "I cannot see anything blatantly wrong with the advertisement. I will send you a copy in the mail". At that time Mr. Wise was not aware of the text of the advertisement. On 15th April, 1975, Mr. Wise checked the text of an advertisement televised by Channel O at 7.45 p.m. on that date and found the wording to be exactly the same as the wording of the text of the advertisement he had received from Mr. Garry. In the evening of the same day, Mr. Paterson again viewed the advertisement televised by Channel O. He again rang the station and asked to speak to someone in authority. The person he spoke to identified himself as a technician. He suggested that Mr. Paterson ring the following morning, when he could then speak to the manager, the sales manager or perhaps Fonda Metassa, the speaker of the text of the advertisement, if he so desired. Mr. Paterson did not again contact Channel O but rang the Trade Practices Commission on 16th April, 1975. On that day Mr. Wise rang and arranged a meeting with Mr. Garry for 21st April, 1975. Up to that stage Mr. Wise had not notified Mr. Garry or anybody else at Channel O that the Trade Practices Commission considered the advertisement to be a contravention of the Act. (at p367)

5. On 21st April, 1975, Mr. Wise called on Mr. Garry at the Channel O studios and advised him that the Trade Practices Commission had an objection to the advertisement. Mr. Garry thereupon said the advertisement "would be withdrawn at once", and it was. (at p367)

6. At the hearing before this Court, senior counsel for the appellant sought to have the order of 12th October, 1977, set aside on the following five grounds: firstly, that the appellant did not make the statements contained in the advertisement; secondly, that the advertisement was not misleading concerning the existence of a price reduction; thirdly, the respondent, having treated the appellant as a principal offender, had not proved essential elements of the charge such as that the appellant is a corporation within the meaning of the statute, which, if it made the statements, made them in its trade or commerce; fourthly, s. 85 (3) of the Act affords a defence, assuming that the offence were otherwise established, to a person in the position of the appellant if it published the advertisement in the ordinary course of its business and did not know and had no reason to suspect its publication would amount to a contravention, and the appellant was such a person; fifthly, s. 85 (1) of the Act affords an alternative defence: "which is in substance that the offence, if it occurred, occurred despite reasonable precautions and due diligence on the part of the appellant". (at p368)

7. The first ground on which it is contended that the order should be set aside is based on the undisputed fact that the advertisement was prepared by an advertising agency, Doyle Dane and Bernbach Pty. Ltd., on the instructions of the advertiser, Metro Ford Pty. Ltd. and then sent to the appellant to be telecast. In those circumstances, it is argued, it was the advertising agency that made the statements and all that the appellant did was provide the means by which they were published. This argument suggests that the mere preparation by the advertising agency constitutes the making of the statements. In the context of Pt V of the Act, I consider that the making of statements involves more than that and requires their dissemination by one means or another to potential consumers. In the present case the text of the advertisement was disseminated to potential consumers by the appellant in its telecast which made no reference to the advertising agency. In my view the making and publishing of the statements in this case were contemporaneous and mutually inclusive. Such a state of affairs appears to me to have been contemplated by the legislature for s. 85 (3) provides a defence to a person whose business is to publish or arrange for the publication of advertisements and who received an advertisement for publication in the ordinary course of business but did not know and had no reason to suspect that its publication would amount to a contravention of Pt V of the Act. It follows that, in my view, this ground for setting aside the order must be rejected. (at p368)

8. The second ground raised by counsel is that the advertisement was not misleading "concerning the existence of price reductions" because, he argued, the words, "If you don't take delivery by April 30 you're up for an extra 335 bucks in tax" related not to the then existing price reductions but to the cessation of those reductions at a future date. I consider this argument is misconceived because it seeks to limit the application of the words "the existence of price reductions" to present price reductions. There is nothing in the context in which the words are used to warrant such a restrictive interpretation. In my view the intention of the legislature is to prohibit a corporation from making misleading statements concerning the existence of price reductions regardless of whether they are presently operating or are to operate at some future date. (at p369)

9. The third ground relied on by counsel is that the respondent failed to prove an essential element in the offence charged, namely, that the appellant is a "trading corporation" formed within the limits of Australia (see par. (b) of the definition of "corporation" in s. 4 of the Act). He admitted that the appellant is a corporation formed within the limits of Australia but argued that it is not a "trading corporation". The expression "trading corporation" is defined in s. 4 to mean "a trading corporation within the meaning of paragraph 51 (xx) of the Constitution" but for present purposes that definition does not assist. No single test for determining whether or not a particular corporation is a "trading corporation" is to be found in the judgments delivered in the case of The Queen v. Trade Practices Tribunal; Ex parte St. George County Council (1974) 130 CLR 533 which was cited by counsel for the appellant. Some of the judges in that case considered that the description "trading corporation" refers to the activities of the corporation at the relevant time, others to the purpose for which the corporation was formed. In the present case the activities of the appellant on 15th April, 1975, were those of a corporation operating a commercial television station for profit. Its principal and almost exclusive activity, was selling its services to advertisers. Although the memorandum of association of the appellant was not tendered in evidence it may be inferred from its activities that it was formed for the purpose of performing them. The appellant televised the advertisement, the subject of the offence charged, in the ordinary course of the business activities it was conducting and for which it had been incorporated. In such circumstances I consider that the evidence establishes beyond reasonable doubt that the appellant was at the relevant time a "trading corporation" within the meaning of the Act. (at p369)

10. The fourth ground for setting aside the order under appeal is based on s. 85 (3) of the Act which reads: "In a proceeding under this Part in relation to the contravention of a provision of Part V committed by the publication of an advertisement, it is a defence if the defendant establishes that he is a person whose business it is to publish or arrange for the publication of advertisements and that he received the advertisement for publication in the ordinary course of business and did not know and had no reason to suspect that its publication would amount to a contravention of a provision of that Part." Before the subsection affords a defence to the appellant it must establish that on the balance of probabilities it did not know and had no reason to suspect that the publication of the advertisement would amount to a contravention of Pt V of the Act. Since a company has no mind of its own the question immediately arises - Whose lack of knowledge and whose lack of reason to suspect is relevant? In Tesco Supermarkets Ltd. v. Nattrass Lord Reid said:

"I must start by considering the nature of the personality which by a fiction the law attributes to a corporation. A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. There is no question of the company being vicariously liable. He is not acting as a servant, representative, agent or delegate. He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company. It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company's servant or agent" (1972) AC, at p 170 . (at p370)

11. His Lordship went on to say:

Reference is frequently made to the judgment of Denning L.J. in H. L. Bolton (Engineering) Co. Ltd. v. T. J. Graham & Sons Ltd. [1957] 1 QB 159 , at p 172. He said: 'A company may in many ways be likened to a human body. It has a brain and nerve centre which controls what it does.

It also has hands which hold the tools and act in accordance with directions from the centre. Some of the people in the company are mere servants and agents who are nothing more than hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company, and control what it does. The state of mind of these managers is the state of mind of the company and is treated by the law as such.'

"In that case the directors of the company only met once a year: they left the management of the business to others, and it was the intention of those managers which was imputed to the company. I think that was right. There have been attempts to apply Lord Denning's words to all servants of a company whose work is brain work, or who exercise some managerial discretion under the direction of superior officers of the company. I do not think that Lord Denning intended to refer to them. He only referred to those who 'represent the directing mind and will of the company, and control what it does'.

directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. Their subordinates do not. They carry out orders from above and it can make no difference that they are given some measure of discretion. But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them. I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company" (1972) AC, at p 171. (at p371)

12. The officers of the appellant who, I think, on the evidence could be said to represent the mind and will of the appellant are the general manager (Mr. R. G. Archer), the secretary (Mr. G. E. Lusk) and the sales manager (Mr. Garry). At all material times Mr. Archer had complete responsibility for implementing the policy of the appellant as determined by its board of directors as dictated to them, if necessary, by the appellant's parent company. In no way did the directors of the appellant or the directors of its parent company interfere with the management and operations of the television station. Mr. Lusk stood in for Mr. Archer when he was absent and exercised the same powers and performed the same duties as the general manager normally did.

Mr. Garry was sales manager whose principal task was to obtain revenue for the company from advertising. According to Mr. Archer he was a departmental head with whom he dealt directly. He was an executive who attended meetings of the executive. His duties included the obtaining of advertisements and the receiving of complaints in relation to them. Mr. Archer stated that if there was a complaint to the station, for example, a telephone call or a letter, it would be promptly referred to Mr. Garry if it related to advertising matter. In this case it was Mr. Garry who received the telephone calls from Mr. Paterson and Mr. Wise and it was Mr. Garry who interviewed Mr. Wise on the two occasions he visited the studio. According to Mr. Archer Mr. Garry was expected to exercise "some subjective judgment" regarding any such complaints but had no discretion to deal with them if they were matters involving litigation or anything that would jeopardize the station's licence; such matters were to be referred to him or Mr. Lusk. According to Mr. Lusk, Mr. Garry's responsibility as sales manager did not change in Mr. Archer's absence when Mr. Lusk then considered himself to be Mr. Garry's boss "for general responsibility of the station" but not in "sales matters". According to Mr. Yardley, who had the responsibility for the vetting of advertisers' commercials which had not been examined by the Federation of Australian Commercial Stations, it was Mr. Garry's prerogative as sales manager to withdraw any commercial in the event of a problem. Mr. Garry in fact exercised that prerogative on 21st April, 1975, in respect of the advertisement the subject of the charge after first previewing it with Mr. Yardley. (at p372)

13. From this evidence concerning Mr. Garry's status, duties and responsibilities it seems clear to me that the task of receiving complaints in relation to advertising matter had been delegated to him. The fact that he was obliged to refer some complaints he received to Mr. Archer or Mr. Lusk instead of handling them himself does not, in my opinion, affect in any way his responsibility to receive them. It follows, in my view, that receipt by him of a complaint must be regarded as receipt by the company of that complaint and its subject matter. His knowledge of or reason to suspect a contravention of Pt V must therefore be that of the company. If it were otherwise, how could a member of the public like Mr. Paterson who made his complaint to the person designated by the company to receive it and to whom he was directed to make it communicate to the company that it had telecast a misleading advertisement? (at p372)

14. Mr. Archer and Mr. Lusk gave evidence which leaves no doubt in my mind that on and prior to 15th April, 1975, they did not know and had no reason to suspect that the advertisement that was telecast on that date would amount to a contravention of Pt V. They did not know and had no reason to suspect a contravention of Pt V because it was Mr. Garry's responsibility to receive in the first place all complaints in relation to advertising and for reasons not disclosed in the evidence he did not inform them before 15th April of his conversations with Mr. Paterson and Mr. Wise. Mr. Garry was not called to give evidence at the hearing of the charge and in the absence of any other evidence that would establish that he did not know and had no reason to suspect that publication of the advertisement would amount to a contravention of Pt V the company, in my opinion, has failed to discharge the onus of proof imposed upon it by the subsection. In any case, had Mr. Garry been called I think, in view of the evidence given by Mr. Paterson and Mr. Wise, he would have experienced real difficulty in satisfying the trial judge that he had no reason to suspect that publication of the advertisement would amount to a contravention. Both men spoke to him well in advance of 15th April, 1975. Mr. Paterson not only told him that he considered the advertisement was misleading but also informed him of his qualifications to express such an opinion. Mr. Garry must have been impressed for he undertook to have the advertisement reviewed in the light of Mr. Paterson's complaint. Not long after his conversation with Mr. Paterson, Mr. Wise, after informing him that he was an officer of the Trade Practices Commission, stated that he had received a complaint about the advertisement and requested a copy of the text of it. On that occasion Mr. Garry stated that he saw nothing blatantly (the emphasis is mine) wrong with the advertisement.

I consider that what was conveyed to Mr. Garry in the two conversations provided reason enough for him to suspect that further telecasting of the advertisement would amount to a contravention of a provision of Pt V of the Act, the contents of which had been drawn to his attention as shown later in this judgment. Notwithstanding his knowledge of two complaints about the advertisement it appears that he took no measures to investigate them before 21st April, 1975, when the advertisement was withdrawn. (at p373)

15. The fifth and final ground argued on behalf of the appellant is that it is entitled to rely on the defence provided by s. 85 (1) of the Act. Section 85 (1) reads:

"Subject to sub-section (2), in a prosecution under this Part in relation to a contravention of a provision of Part V, it is a defence if the defendant establishes-

(a)

that the contravention in respect of which the proceeding was instituted was due to a mistake, to reliance on information supplied by another person, to the act or default of another person, to an accident or to some other cause beyond his control; and

(b)

that he took reasonable precautions and exercised due diligence to avoid the contravention." (at p373)

16. In so far as par. (a) of the subsection is concerned, the learned trial judge was satisfied that the appellant had established on the civil onus the necessary facts to sustain the defence the subsection affords. His finding in this connection was not questioned on this appeal. Paragraph (b) of the subsection imposed on the appellant the same onus of establishing that it took reasonable precautions, and that it exercised due diligence to avoid the contravention. (at p373)

17. Shortly after the Act came into force a system of vetting television advertisements was introduced by the appellant in order to avoid contraventions of the Act. The instrument which set the system in train was a memorandum dated 23rd October, 1974, issued by Mr. Archer. It read:

18. With the Trade Practices legislation effective from 1st October, it is imperative that we protect the station to the best of our ability from any violation of this Act, particularly in respect to the consumer protection provisions. (at p374)

19. This simply means that all commercials to be transmitted by the station must be vetted before they are telecast. (at p374)

20. The people responsible for this vetting will be Ken Yardley in respect to advertiser's commercials and Alec Linning for station promos. Alec Linning will also watch all advertiser's commercials that are produced by the station. (at p374)

21. We will accept any material that has F.A.C.T.S. approval without further vetting by Ken Yardley. (at p374)

22. The Film Department will be responsible for advising Ken Yardley on a daily basis of any film or VTR material which is received and does not have F.A.C.T.S. approval. The Film Department will introduce a system on their cards to show the material has been checked. (at p374)

23. The Film Department and Traffic Department will liaise to advise Ken Yardley of any material that is late and is likely to arrive after hours - either week nights or week-ends. With his past knowledge of the client, Mr. Yardley can decide if these 'late' advertisements can go to air. (at p374)

24. The Traffic Department will be responsible for advising Ken Yardley of the arrival of new advertising material other than film or videotape. (at p374)

25. Mr. Yardley and Mr. Linning have a booklet summarizing the Trade Practices Act. Mr. Lusk and I are in possession of the full Act. (at p374)

26. If there is any doubt about the legality of a commercial the person responsible for the initial vetting should report to Mr. Lusk or myself. If there remains doubt we will seek legal advice or some other outside opinions. (at p374)

27. This practice is to take effect immediately." (at p374)

28. Before Mr. Yardley received his copy of the memorandum Mr. Archer discussed its contents with him and explained to him what was expected of him. He also went through the Act with him and to the best of his ability pointed out the loopholes and the problems that the station might face and outlined what Mr. Yardley's task was in relation to them. At or about that time Mr. Yardley was given the booklet referred to in the memorandum which provided in layman's language an adequate summary of the provisions of Pts IV and V of the Act. Later he was given a copy of the Act. (at p374)

29. The memorandum relates to vetting before advertisements are telecast but provides no procedure for dealing with complaints received after they have been telecast. Mr. Archer stated that complaints between 9 a.m. and 5 p.m. were channelled to the appropriate executive but there was no system for logging them. He further stated that any calls made outside those hours were to be logged by the technicians on duty if they thought they were complaints. Since the prime time for television viewing is outside normal office hours one would have expected the appellant to have foreseen the probability of telephone complaints particularly in the evening. To have made no more positive provision than to require technicians to log what they considered to be complaints, in my view, amounts to a deficiency in the system and a failure to take reasonable precautions to avoid contraventions of Pt V. I consider provision should have been made whereby such complaints could be referred to someone in authority to enable prompt investigation. In the instant case Mr. Paterson rang the station on the night of 9th April, 1975, and specifically stated that he wished to complain about what he considered to be a misleading advertisement, but neither that call nor his call on 15th April, 1975, was logged. (at p375)

30. Mr. Archer, to whom full power to manage and operate the station had been delegated by the directors of the appellant, delegated to Mr. Garry, an executive of the company, full power to receive complaints about advertising matter, including complaints that telecast advertisements were in contravention of the Act, between 9 a.m. and 5 p.m., but made no similar delegation in relation to complaints made to the station outside those hours and during the prime viewing time. For this reason, I find that the appellant has not discharged the onus imposed upon it by s. 85 (1) (b) and is therefore not entitled to rely on the defence the subsection affords. (at p375)

31. The appellant having failed on all five grounds, I would dismiss this appeal with costs. (at p375)