TELECOM may have to return up to $18 million to 14,000 027 subscribers, according to the Commerce Commission. This follows the Court of Appeal’s confirmation of the High Court decision holding that Telecom Mobile seriously misled consumer customers about their right to cancel a two-year 027 contract.
In 2001 and 2002, Telecom had carried out a marketing campaign encouraging Vodafone users to switch to Telecom. It used contract marketing agencies, including a telemarketer. It’s the telemarketing side of the case that I’m addressing in this article, because this was a new ball game for the courts.
The Door to Door Sales Act gives rights to non-business consumers whenever sales are made outside ‘appropriate trade premises’, except where the consumer initiates the tran-saction. It is designed to give consumers an out when they are on the receiving end of pressure-selling on their own doorstep — they can cancel a contract within seven days (or one month, in the case of a credit contract) after signing up, subject to a few provisos. If they cancel, they’re entitled to a full refund. I recall using it some years ago when my mother (no pushover) told me she’d signed a contract to have her roof cleaned because it was the only way she could get the salesman off her doorstep. I cancelled it on her behalf, quoting the Door to Door Sales Act. There was no further problem, although that may have been assisted by my relaying to the company’s manager my mother’s succinct description of the salesman.
After customers agreed over the phone to sign up, Telecom carried out a credit check. If customers were accepted, they were sent a shrink-wrapped phone in a box with a label saying that if they wanted to cancel the contract, they must send the phone back without breaking the seal. This was significantly different from the statutory notice required by the Door to Door Sales Act, setting out the consumer’s rights to cancel. The Commerce Commission prosecuted Telecom for breach of the Fair Trading Act by misleading consumers about their rights.
Telecom argued that because contracts were made during a phone call from the telemarketer’s trade premises, the Door to Door Sales Act did not apply. But in reality, Telecom would not accept customers before doing a credit check, and that was always going to be after the telephone conversation. And according to the label on the package, the contract was not made until the consumer broke the seal. The Court of Appeal said that the only “sensible and fair commercial way of looking at the transactions [was] to regard the discussions on the telephone as being merely precursors to the completion of a contract”.
Telecom was convicted and ordered to provide corrective advertising, including advice to the 14,000 consumers that their contracts were unenforceable and that they are entitled to ask for a refund of moneys that were already paid. At this stage, it is understood that Telecom proposes to appeal the decision.
Of even more interest, however, are the comments of the Court of Appeal on the application of the Door to Door Sales Act to telemarketing in general, and in particular to cold calls. The Court said, “There may be something to be said for the view that sales effected by a telemarketing campaign involving the cold calling of prospects at their homes and completed, from the point of view of such prospects at their homes, should be regarded as having been made otherwise than at ‘appropriate trade premises’ even if the telemarketer happens to be ringing from a shop.” It looks as if telemarketers should put a bit of effort into understanding the Door to Door Sales Act if they want to avoid becoming the next Telecom …
Rae Nield’s regular Marketing Brief column appears on page 30.