Federal Court orders sky high penalty against STA Travel

In the first decision to be handed down with respect to conduct covered by the new penalty regime under the Australian Consumer Law (ACL), the Federal Court has ordered that STA Travel Pty Ltd (STA Travel) pay a pecuniary penalty of $14 million for making representations that were false, misleading or deceptive in contravention of sections 18, 29(1)(g) and 34 when advertising its “MultiFLEX Pass” product.

Under the new ACL penalty regime, which came into effect on 1 September 2018, the maximum penalty per contravention increased to become in line with penalties for anti-competitive conduct; that is:

• $10 million
• three times the value of the benefit received, or
• 10% of annual turnover if court cannot determine benefit from the offence.

The previous maximum penalty for ACL contraventions was $1.1 million per contravention.

STA Travel’s conduct

STA Travel supplies travel and tourism related services to consumers, “emphasising discounts and flexibility and with a marketing focus towards students and young people.”

If a customer sought to change a booked flight, they would ordinarily be required to pay an STA Travel change fee and the airline change fee (if applicable). In or around September 2011, STA Travel introduced MultiFLEX Passes which permitted the customer to change the date, route, destination, class or airline (subject to ticket or fare rules), including when the customer was part way through their trip.

STA Travel sold a range of MultiFLEX Passes in store, via telephone and online, including:

• the “ONEFlex Pass”, which cost $49 and allowed one flight date change; and
• the “Unlimited” or “Ultimate” Change Pass, which cost $149 and allowed an unlimited number of flight date changes.

STA Travel published a range of advertisements on its websites, in brochures and instore in respect of its MultiFLEX Passes from March 2014 to August 2019 which made statements such as:

• “make unlimited date changes” on the road, without any qualifications to that general representation;
• that the holder was entitled to “One Free change to your flights”, in respect of the “One Date Change” Pass;
• “Save time and money by purchasing your date changes up front!”; and
• “make fee-free changes to your flights…”,

without any indication that there was any further cost to be paid for date changes.

However, it was STA Travel’s policy and practice to charge customers who had purchased a MultiFLEX Pass and sought to make a flight change:

• the difference in the cost of the airfare (if any);
• an STA Travel margin on the transaction; and
• any applicable taxes,

but not “change fees” that might otherwise be charged by STA Travel or the airline. This occurred in approximately 65% of instances.

Orders by consent?

The parties agreed, and Justice O’Bryan found, that the advertisements and promotional materials conveyed a representation that a customer who purchased a MultiFLEX Pass and subsequently made changes to the date of a flight booking would not be charged anything for the change, when this was not in fact the case.

While the parties also agreed on a form of orders which they jointly submitted should be made, Justice O’Bryan was not prepared to make all the orders in the form originally proposed by the parties.

Declarations

In particular, His Honour was not prepared to make the declarations sought, as they “annexed each of the infringing advertisements to a generic declaration”. In considering the relevant authorities, His Honour noted that the declarations “should contain appropriate and adequate particulars of how and why the impugned conduct is a contravention of the Act” and “should accurately reflect the contravening conduct in a concise way”, and instead made declarations specific to 10 types of infringing representation.

Injunctions

Similarly, His Honour held that the original form of injunction proposed by the parties was not appropriate as it was unlimited as to time and “sought to restrain the amounts charged by STA Travel, when the contraventions concerned the making of misrepresentations and not the charges imposed on customers” (in other words, that there was an “insufficient nexus” between the contravening conduct and the conduct to be enjoined).

Justice O’Bryan instead restrained STA Travel for 5 years from “making a representation in an advertisement, on its website or in other promotional material that a customer who purchases a “MultiFLEX” pass and who subsequently makes a change to the date of a flight booking would not be charged anything to change the date of the flight booking when that is not the case.”

Penalties

Justice O’Bryan did not, however, interfere with the total penalty proposed by the parties. In considering all of the relevant factors, His Honour took into account, among other things, that:

• the relevant conduct continued until after the ACCC first raised its concerns with STA Travel, after the date on which the ACCC commenced proceedings and after STA Travel had admitted contraventions. “STA Travel failed to act in a timely way to remove advertisements which it now concedes were misleading or deceptive”;
• the advertising and promotional materials, and the representations conveyed by those materials, reached an indeterminate audience. While the precise number of contraventions could not be ascertained, it was “likely to be very large”;
• there were at least ten different courses of conduct, arising from the ten different advertisements. This is relevant as ACL penalties are imposed per contravention;
• eight of the ten advertisements were published at least in part in the period after 1 September 2018 (that is, under the new penalty regime where the maximum penalty for each contravening act or omission increased from $1.1 million to $10 million);
• a proportionately high part of the penalty was ordered for conduct which took place after admissions in the proceeding that the conduct was misleading or deceptive; and
• during the period 2015 to 2019, STA Travel generated, on average, approximately $1.6 million per annum in revenue from the sale of the MultiFLEX Pass (being, on average, approximately 4.5% of its annual total revenue).

Justice O’Bryan expected that the $14 million penalty would serve the purposes of specific and general deterrence.

His Honour also made orders for the publication of a corrective notice, the establishment of a more robust consumer law compliance program to run for three years with reporting of material failures to the ACCC, and that STA Travel pay $200,000 in respect of the ACCC’s legal costs.

Key takeaways

As ACCC Commissioner Sarah Court said, “these penalties serve as a timely reminder to all travel businesses that they must not misrepresent the costs applicable when travel services are changed.” However, this decision also serves as a more general and pertinent reminder that caution should be exercised when making any absolute claims, such as “unlimited” and “free”.

Businesses should also ensure that there is not a disconnect between their marketing and legal teams, as the fact that certain advertisements were published even after admissions in the proceeding that the conduct was misleading or deceptive reflected poorly on STA Travel and was taken into account in determining the appropriate penalty to be imposed.

Image credit: Wikimedia Commons/ Ivan Bandura – aeroplane wing / CC BY2.0 / remixed to B&W and resized