One NZ (formerly Vodafone) has been hit with a $3.675 million fine for conduct that was liable to mislead consumers - the largest fine ever ordered by a court under the Fair Trading Act 1986.

The High Court upheld the District Court’s finding in April 2022 that One NZ was in breach of section 11 of the Act when naming and marketing their network upgrade, “FibreX.” Section 11 prohibits conduct that is liable to mislead the public as to the nature, characteristics, suitability for a purpose, or quantity of services.

The decision is the result of a successful application by the Commerce Commission for an uplift from the original $2.25 million fine awarded by the District Court against One NZ.

 

The misleading marketing campaign

“FibreX” was advertised extensively by One NZ between October 2016 and March 2018. It was an upgrade to the company’s broadband network in certain parts of the country, known as a “hybrid fibre-coaxial” network. It was not, however, a “fibre-to-the-home” system – being the  system of ultra-fast broadband, where fibre optic cable is used to deliver broadband all the way to a customer’s home, which was introduced by the Government in 2009.

The Commission argued that One NZ’s use of the term “Fibre” is a generic description of a “fibre-to-the-home” connection, which was not the case for One NZ’s “hybrid-fibre-coaxial”. The District Court agreed, finding that consumers were liable to be misled by One NZ’s branding and advertising.

The District Court found One NZ guilty of nine charges relating to its branding and advertising of FibreX. One NZ was also found guilty of another nine charges, as a result of falsely suggesting to consumers that FibreX was the only available broadband service at their address.

While the $2.25 million fine imposed by the District Court last year was the largest fine awarded under the Act at the time, the Commission appealed and sought an uplift to the fine. The Commission submitted that One NZ’s fine was “manifestly inadequate” and did not appropriately reflect the seriousness of the offending, nor the financial resources of the business. At the same time, OneNZ also appealed its convictions on the branding charges as well as the sentence on all charges.

The High Court’s response and uplift

The High Court agreed with the Commission: it allowed the Commission's appeal, dismissed One NZ’s cross-appeal, and ultimately uplifted One NZ’s fine from $2.25 million to $3.675 million.

The uplift reflected the seriousness of the offending, the size of the company, and the need for deterrence. Justice Moore stated that a greater uplift is required in order “to ensure the penalty ‘stings’ from [One NZ’s] perspective” and serves as a deterrent, particularly given One NZ’s history of non-compliance with the Act.

The Commission's Chair, John Small, said “One NZ’s conduct was misleading and, in addition to the consumer harm, it distorted competition for the supply of broadband services in New Zealand.”

One NZ’s previous non-compliance includes a $350,000 penalty in 2019 for false representations in invoices it sent to customers, and a $960,000 fine in relation to advertising campaigns One NZ ran from October 2006 to February 2009 for various broadband and mobile phone promotions.

What does this mean for your business?

The Court’s willingness to order an uplift to the fine, over what was already a record-level, shows how important it is that marketing is accurate and truthful in order for customers to be able to make informed purchasing decisions. Businesses must not operate under the assumption that consumers will undertake further enquiry to find out what is being offered to them.

For more guidance on how businesses can ensure they meet Fair Trading Act obligations, please contact one of our experts.

Special thanks to Achi Simhony and Claudia Paterson for their assistance in writing this article.