Australia: Advertising Agency Off The Hook For Misleading Advertisements

On 25 February 2004, the Full Court of the Federal Court unanimously dismissed an appeal by the Australian Competition and Consumer Commission (ACCC) against the decision of Justice Jacobson in Cassidy v NRMA Health Pty Ltd [2002] in which his Honour held that Saatchi & Saatchi Australia Pty Limited (Saatchi) was not liable for advertisements which it created and developed for NRMA Health Pty Limited and NRMA Insurance Limited (NRMA) notwithstanding that those advertisements were misleading or deceptive.

The appeal dealt with the question of whether an advertising agency which creates and prepares a misleading advertisement for a client contravenes section 12DA of the Australian Securities & Investments Commission Act 2001 (Cth) (the new ASIC Act) as a principal, even though its client has final approval of the form and arranges for publication of the advertisement.

Section 12DA(1) of the new ASIC Act provides that a corporation must not in trade or commerce engage in conduct in relation to financial services that is misleading or deceptive or likely to mislead or deceive. Section 12DA(1) corresponds with section 52(1) of the Trade Practices Act.

Saatchi had provided advertising services to NRMA from about 1993. The terms of the relationship had been recorded in writing in 1998. Whenever NRMA wanted Saatchi to develop an advertising campaign NRMA would send Saatchi a 'communication brief' containing essential information about the campaign to be developed. Saatchi would then prepare an 'ideas brief' for NRMA, including Saatchi's intended approach to create an advertisement suitable for the campaign. Once approved by NRMA, Saatchi would develop the advertisement according to the ideas brief. The creative team of Saatchi would then send drafts to NRMA which were reviewed by NRMA's marketing personnel who had issued the campaign brief, and also by members of NRMA's in-house legal advisers before NRMA gave their final approval.

This practice was followed in the present case. In July and August 2001 NRMA had run a series of advertisements for a new health insurance product stating that NRMA would cover all hospital and medical expenses for the delivery of babies by its fund members, irrespective of how advanced the pregnancy was at the time the mother joined the fund. The advertisements were considered misleading as small print provisos specified that certain conditions applied: a pregnant woman was fully covered only after payment of a policy access or 'co-payment'; and women who were pregnant at the time of joining the fund were required to have completed a 12-month waiting period with NRMA or their existing fund. The advertisements were placed in newspapers for NRMA by a separate company, Zenith Media Pty Ltd (Zenith) unrelated to Saatchi. In even smaller font than the provisos, each of the printed advertisements had the name of Saatchi followed by Saatchi's key number—a unique identification number to ensure the advertisement was published in the correct edition of the newspaper—in the bottom right-hand corner of the advertisement.

It was not disputed that the advertisements in question were misleading or deceptive. What Saatchi disputed was the allegation that Saatchi's role in the creation and development of the advertisements was such that it engaged in contravening conduct as a principal and was therefore primarily liable for the representations made. The primary judge did not accept that the appearance of the name Saatchi in the advertisements was sufficient to hold Saatchi liable as a principal for the advertisements.

No claim was made that Saatchi aided or abetted the contravention of section 12DA by NRMA.

On appeal the ACCC made two key submissions, namely that:

• Saatchi was the co-publisher with NRMA of the misleading advertisements and thus directly engaged in conduct contravening section 12DA, and

• the creation of the advertisements by Saatchi with the knowledge that they would later be published was conduct contravening section 12DA.

On the first submission, the ACCC contended that the position at common law applies whereby more than one party can be liable for publishing a defamatory article, including parties who intentionally lend assistance to the existence of the matter complained of. The Full Court concluded that the ACCC's argument was misconceived. The statutory scheme which distinguishes between principal and accessorial liability allows no room for the operation by analogy of a common law rule.

The Full Court further held that there was insufficient information to identify Saatchi as a co-publisher with NRMA. Saatchi did not distribute or disseminate the advertisements. This was done by NRMA acting through Zenith. The appearance of Saatchi's name on the bottom of the advertisements, particularly the relative proportions of the message of the advertisements and the reference to Saatchi, was also not sufficient to identify Saatchi as a co-publisher. Referring to the fact that in the advertisements Saatchi's name was printed in a font smaller than the small print disclaimer, one of the judges further commented that a person who did not independently recognise the Saatchi name as that of an advertising agency, would be unlikely to ascribe any meaning to the reference.

On the second main submission of the ACCC, the Full Court concluded that Saatchi's conduct in preparing the advertisements for NRMA could never, by itself, have misled or deceived anyone as the misleading and deceptive representation arose from the publication of the advertisements, and Saatchi was not involved in the publication of the advertisements. It was, rather, NRMA who retained control over the process and who could choose which message to convey to the public. Finally, it was NRMA who initiated further action through Zenith, without which the advertisements would have never been published.

Even though the appeal was dismissed, the Full Court held that there might still be circumstances in which an advertising agency could be held liable—it all depends on the relevant circumstances and the pleadings in each case.