Saatchi & Saatchi court win good news for advertising industry

Advertising agencies are not making a misleading statement whenever they simply prepare an advertisement which is ultimately misleading, following an important decision of the Full Court of the Federal Court.

The decision in Cassidy v Saatchi & Saatchi Australia Pty Ltd [2004] FCAFC 34 means that agencies will only be liable under consumer protection laws for misleading statements if they do more than merely prepare the ad. Clayton Utz acted for Saatchi & Saatchi.

What was the case about?

The ACCC sued the NRMA over an advertising campaign for a type of health insurance. The ads were found to have contravened the ASIC Act's ban on misleading or deceptive conduct in relation to financial products. The ASIC Act contains provisions similar to those found in the Trade Practices Act in respect of misleading and deceptive conduct. At the same time, the ACCC also sued NRMA's advertising agency Saatchi & Saatchi. In other cases advertising agencies have been sued as an alleged "accessory" to the contravention, but here the ACCC said the agency was liable for these ads as a "principal" - that is, that it actually made the misleading or deceptive representations.

This distinction is important. An ad agency can only be liable as an accessory if it knows of the matters that allow the representations in the ad to be characterised as misleading. On the other hand, if the ad agency is found to be a principal, its knowledge won't matter - it made the representations, they were misleading, and that's enough for a principal to be liable.

How were the ads prepared?

NRMA briefed Saatchi & Saatchi on the campaign. Saatchi & Saatchi then prepared a creative brief setting out its proposed approach. After the brief was accepted by NRMA, Saatchi & Saatchi then prepared draft ads. The final versions were approved by NRMA marketing and legal staff. A separate company placed the ads in newspapers. At the very bottom of the ads, in small type, were Saatchi & Saatchi's name and a key number used to ensure the correct ads had been used.

What did the court say?

There were two reasons why Saatchi & Saatchi was found not to have made the representations. First, the advertisements themselves did not convey to the relevant section of the public that the representations were made by the agency, taking into account the terms of the ads, Saatchi & Saatchi's role in their preparation, the significance of its name and key number appearing on the ads, and the evidence of the only consumer put forward by the ACCC. Anyone reading the ads would think they were NRMA ads, not Saatchi & Saatchi ads.

Secondly, Saatchi & Saatchi did not make the representations just because it prepared the ads, or because it provided them to NRMA expecting that NRMA would publish them or knowing that it was the natural and probable consequence of their preparation that they would be published.

What does this mean for advertising?

This is a welcome - and sensible - decision. An agency's day-to-day work will not turn it into a principal under either the ASIC Act or the Trade Practices Act, and hence liable for misleading or deceptive statements in its ads, unless it does more than merely prepare the ads. From this decision - and the earlier one in John Bevins Pty Limited v Cassidy - it's clear that

• an agency's liability - either as a principal or accessory - for misleading statements will depend upon all the circumstances;
• if an agency actually knew facts which could allow the ads to be characterised as misleading, it could be liable as an accessory;
• if an agency does more than prepare an ad, then it could also be liable as a principal - for example, by organising the distribution or taking final responsibility for the content.