The Federal Court has found Excite Mobile made false and misleading claims and its 'unconscionable' conduct towards its mobile phone customers across Australia.
The company invented a fictitious complaints handling body to deceive customers and created a fictitious debt collector to coerce them into paying an alleged debt to Excite Mobile.
Excite Mobile's directors, Obie Brown and David Samuel were both found to have been directly knowingly concerned in Excite Mobile's contraventions. An agent of Excite, Fiona Smart, was also found to have been knowingly concerned in false representations made in relation to debt collection conduct.
A large number of consumers across the country were affected by Excite Mobile's conduct, including those living in indigenous communities on the Cape York Peninsula, remote areas in Queensland and Western Australia and Northern Territory.
The court found Excite Mobile acted unconscionably in relation to the sales method it used to induce customers to enter into a 24 month mobile phone contract, the terms included and in its reliance upon, and enforcement of, those contractual terms.
Both Brown and Samuel were found to have been knowingly concerned in the unconscionable conduct of Excite Mobile including falsely representing to customers that mobile phone coverage was available at their home address when it was not, including customers in remote indigenous communities where no coverage was available.
It also created a fictional complaints handling organisation called "Telecommunications Industry Complaints" which deceived consumers into believing that complaints about the company were handled by an independent organisation.
The mobile operator also sent letters sent to at least 1074 customers, falsely representing they were from independent debt collector Jerry Hastings or a representative, and that the debt alleged to be owed to Excite Mobile had been referred for collection, when in fact there was no independent debt collector. The telephone number provided in the letters was answered by Smart and Brown who claimed to be from Jerry Hastings' office. The Court found that Brown and Smart then induced or attempted to induce customers to pay the debt allegedly owed to Excite Mobile.
It also made false representations in some letters about the rights and remedies available to Excite Mobile in the event that legal proceedings were instituted against the customer. This conduct was considered to be unconscionable, and included false representations that to recover the alleged debt a court would make orders requiring the customer to pay an additional charge equal to 20 per cent of the customer's alleged debt for failing to pay on time, and for the repossession of all assets of value owned by the customer including children's toys.
In handing down his decision, Justice Mansfield considered the sales contract entered into between Excite Mobile and the customer to be "clearly unfair" and "to such a degree as to attract a strong adverse moral judgment".
Justice Mansfield also considered the marketing approach of Excite Mobile to be "cynically indifferent to the interests of its potential customers, and was unconscionable."
Excite Mobile relied upon and enforced a "day cap" clause in its mobile contract, which in some cases only allowed a customer to make an approximately two minute call per day before being charged fees in excess of the monthly contract charge.
The structure of Excite Mobile's contracts meant that customers were very likely to incur high excess usage charges as the operation of this term was not adequately disclosed.
The terms that Justice Mansfield found to be unconscionable, in addition to the "day cap" clause included a $75 cool off fee that customers were required to pay, as well as a $195 charge imposed for returning a damaged phone, even if it was only the box that was damaged.
"This is a landmark decision on unconscionable conduct," ACCC chairman Rod Sims said. "It also confirms the ACCC belief that the telecommunications sector must improve their standards in relation to the proper disclosure and clarity of key terms and conditions to consumers.
"The conduct of Excite Mobile was outrageous. Inventing a fictitious complaints handling body to deceive customers and creating a fictitious debt collector to coerce the customer to pay an alleged debt to Excite Mobile is unjustifiable and unacceptable."
The matter was brought to the ACCC's attention via the Indigenous Consumer Assistance Network. Further assistance was provided by the Central Australian Aboriginal Legal Aid Service.
The ACCC will now seeking declarations that Excite Mobile contravened the Trade Practices Act 1974 and that its directors Brown and Samuel and its employee/agent Smart were knowingly concerned in this conduct.
The ACCC will also seek injunctions; pecuniary penalties; orders that Brown and Samuel be disqualified from managing a corporation for a period of five years; an order for findings of fact pursuant to section 83 of the Trade practices Act 1974; and costs.