Telecom Mobile seriously misled customers

Media Release

Issued 24 August 2005/ no 017

Telecom Mobile seriously misled customers, significant refunds likely

The Court of Appeal has found that Telecom Mobile “seriously misled customers” in door-to-door and telemarketing campaigns, by failing to tell them about their rights under the Door to Door Sales Act.

The Court today ordered the company to contact customers who responded to the campaigns, and undertake corrective advertising.

The advertising should advise customers that the contracts they entered into with Telecom Mobile as a result of these campaigns were unenforceable, and they may be entitled to refunds. The refunds could include all money paid under the contracts they signed up to as a result of these campaigns.

Telecom Mobile undertook the marketing campaigns in 2001 and 2002, targeting the customers of a rival network and encouraging them to switch their mobile use to Telecom 027.

As a result of initial contact over the phone or at the door, a mobile phone was couriered to customers in a sealed box. Once the box was opened, the customer was deemed to have accepted Telecom Mobile’s terms and conditions for a two-year contract. Over 14,000 phones were sent out.

The Court of Appeal upheld the High Court’s finding that in both campaigns Telecom Mobile had breached the Fair Trading Act by failing to inform customers of their rights under the Door to Door Sales Act.

Under the Door to Door Sales Act, customers have a seven-day cooling off period, within which they can change their mind without penalty. The Act requires that this be made clear to customers.

“The right of cancellation provisions in the Door to Door Sales Act are the centre piece of the consumer rights conferred by that statute,” said the Court.

The Court criticised the information sent to customers with the mobile phones: “The contractual document which it [Telecom] prepared completely misstated the position regarding rights of cancellation and necessarily left consumers with erroneous understandings as to their liability.”

Commerce Commission Chair Paula Rebstock welcomed the Court’s findings and said it established an important precedent.

“Other companies will need to take note that the Door to Door Sales Act can apply to telemarketing,” said Ms Rebstock.

“If companies don’t make customers aware of their rights, they could face substantial refunds and costs.”

Ms Rebstock said that companies must provide accurate information to consumers, including information on consumer rights.

Background

A decision in the High Court in 2004 found that Telecom Mobile had breached the Fair Trading
Act by not informing customers of the Door to Door Sales Act rights, but stopped short of ordering the corrective advertising sought by the Commission.

Both the Commission and Telecom Mobile appealed, Telecom Mobile arguing the Door to Door Sales Act did not apply to its telemarketing campaign, and the Commission seeking corrective advertising to inform customers they may be entitled to money back.

The Court dismissed Telecom Mobile’s appeal, describing their argument as “too convoluted to be credible.”

The Commission’s appeal was allowed, and corrective advertising ordered.

The Court suggested Telecom Mobile’s advertisements should acknowledge the Door to Door Sales Act had applied, and tell customers that the contracts were unenforceable, and that money paid could be refunded.

ENDS

Commission media releases can be viewed on its web site www.comcom.govt.nz

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