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Telecom Mobile's telemarketing practices found in breach of Door to Door Sales Act

24 June 2004

Issued 24 June 2003

Following a High Court judgment, the Commerce Commission is highlighting to telemarketers that the Door to Door Sales Act applies to their sales practices and that any failure to comply with that Act may amount to a breach of the Fair Trading Act.

The Commission sought summary judgment under the Fair Trading Act in the Wellington High Court to establish that where telemarketing results in consumers entering into contracts for certain goods or services without being informed of their statutory right to a '7 day cooling off' period within which they can return the goods, as required by the Door to Door Sales Act, there is a breach of the Fair Trading Act.

Under the Fair Trading Act, which the Commission enforces, it is illegal to mislead consumers as to their rights.

The Commission took action against Telecom Mobile Limited in relation to two direct marketing campaigns aimed at attracting customers to its CDMA 027 mobile phone network between late 2001 and 2002, neither of which complied with the Door to Door Sales Act.

Telecom Mobile employed Appco, Mainly Mobile and Telnet Services Limited to undertake the door to door/telemarketing campaigns. In both campaigns, unsolicited or 'cold calls' were made by Appco, at the door, or by Mainly Mobile over the phone. Telecom then undertook a credit check of the prospective customer. If that was favourable, a phone was dispatched with the standard contract terms. Those terms committed customers to a 24 month contract which could be cancelled only on payment of early disconnection charges.

The Commission said that Telecom Mobile's failure to comply with the Door to Door Sales Act meant customers had one month within which they could cancel the contracts.

Chair Paula Rebstock said that the Court accepted the key aspects of the Commission's case, finding that Telecom Mobile's door to door campaign failed to inform customers of their rights under the Door to Door Sales Act and this was a breach of the Fair Trading Act.

Justice France did not accept "Telecom's submission that any non-compliance with the Door to Doors Sales Act had been minor".

"Instead she found that the Commission was correct that the omission of the statement and form required by s 6 of the Door to Door Sales Act was misleading conduct under the Fair Trading Act. She also agreed that the statements made by Telecom Mobile in its letters and on the packaging were misleading because the customers had other rights of which they were not advised, in particular, the right to cancel at any time up to one month later without penalty," Ms Rebstock said.

"The effect of these statements was that customers were misled into thinking they were stuck with their contracts."

While the Court found Telecom Mobile in breach of the Door to Door Sales and Fair Trading Acts, it declined to award judgment at this stage, as the orders sought by the Commission were too broad. The Commission had asked for orders that because of non-compliance with the Door to Door Sales Act customers should get their money back.

"Although the Court found the contracts were unenforceable, the Court held that Telecom Mobile did not have to repay its customers the amounts already paid," Ms Rebstock said.

"The Commission is pleased to have had the Court confirm that the Door to Door Sales Act can apply to telemarketing sales and that a failure to comply with the statutory obligations in that Act can amount to a breach of the Fair Trading Act.

"The Commission is considering the next steps available to it in the proceedings."

 

Background

Part of the fact of this case were that when the new mobile phone was couriered to the customer, the phone box had a seal on it which read as follows:

"IMPORTANT: PLEASE READ THIS

This mobile phone, and the services you receive for using it, are supplied on the terms of the Telecom Mobile Communications Service Agreement, which is also supplied with this mobile phone. By breaking the seal on this phone box you agree that you have accepted this mobile phone and read, understood, and accepted the terms of the Telecom Mobile Communications Service Agreement. IF YOU NO LONGER WANT THIS PHONE YOU MUST RETURN IT UNOPENED."

The customer letter inside the phone box stated:

"Please note that if you have broken seals on the phone package we may be unable to process your credit, and the phone will be returned to you."

 

Media contact:

Gail Marshall, Communications Adviser

Phone 029 924 3709

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