In brief: Madgwicks has successfully defended its client against Telechoice, one of Australia’s mobile phone network providers, for a $191,453 phone bill following the fraudulent use of his stolen mobile phone.

What you need to know:

  • Contact your provider immediately to report phone theft in order to avoid incurring fraudulent charges.
  • Telcos may not be able to promptly discriminate between normal and fraudulent use on a mobile phone, unless you alert them.
  • It is prudent to use PIN security on mobile devices and SIM cards.
  • If the Telecommunications Industry Ombudsman (TIO) does not assist you at first because a dispute falls outside its Terms of Reference, ask again, and again.
  • Regulators must consider introducing voluntary or imposed caps on consumer phone charges, and broadening the Terms of Reference for the TIO.

Background

The Madgwicks team, led by Senior Associate James Graham, advised its client, Kim Beveridge (Beveridge), in a claim by Telechoice (Business Service Brokers Pty Ltd v Beveridge (2017) VSCA 184).  On 14 June 2017, the Court of Appeal of the Victorian Supreme Court dismissed an appeal brought by Telechoice against Beveridge for payment of $191,000 following fraudulent use of his stolen phone.

When Beveridge’s mobile phone was stolen whilst travelling overseas, thieves charged more than $190,000 in international roaming forwarding charges within 20 hours of the theft.

Telechoice initially sued Beveridge for $191,453 in the Victorian County Court. Telechoice’s claim was dismissed at first instance, awarding indemnity costs against Telechoice for pressing ahead with the proceeding.

Telechoice then appealed and the Court of Appeal threw out its appeal on 14 July 2017, awarding further costs to Beveridge.

The facts

  • On 28 February 2014, Beveridge’s post-paid mobile phone was stolen whilst travelling in Barcelona.
  • The thieves removed the SIM card and used it in another phone to activate call forwarding on Telechoice’s network.
  • The sophisticated scam involved routing thousands of separate calls and text messages through call forwarding over a 20-hour period until Telechoice identified the fraud and suspended the service on 1 March 2014.
  • Telechoice invoiced Beveridge for $191,453 for charges made to his stolen phone up to the time it was cancelled.
  • Telechoice rejected all offers to settle and sued for the full amount of its invoice. Telechoice maintained its claim before finally reducing it to $34,945 one year later, in response to Beveridge’s defence that it would be unconscionable for Telechoice to profit from a known third party fraud.

Lesson for telcos and all businesses

His Honour Judge Murphy found that call forward roaming was not a service which Telechoice could charge for under its contract.  Even if a literal interpretation of Beveridge’s mobile phone contract suggested that a customer’s liability is unlimited as to amount, neither Telechoice nor Beveridge contemplated, nor intended, that such a liability could occur.  Both the original call forward roaming claim of $191,453 by Telechoice, and its reduced claim of $34,945, were outside the realm of what Telechoice and Beveridge had agreed and expected could happen under the contract:

“His overall credit limit was less than $500.  The amounts involved show the scale, but not necessarily the absolute amount, of the expected risk that [Telechoice] was seeking to protect itself against in the post-paid service, including when international roaming was activated.” [53]

The Judge’s reasoning here is important. Businesses cannot automatically hold contractual terms over the heads of consumers which impose an uncapped liability out of proportion to what was contemplated by the parties.

Judge Murphy gave further guidance on what might constitute an unconscionable claim against a telco in a case such as this. He found that even if Telechoice had been entitled to claim those charges under the contract:

  • it would have been unconscionable for Telechoice to profit by claiming $191,453 from the third party fraud, particularly because Telechoice had done nothing to deserve that profit and as it claimed to have been unaware that this type and amount of fraud or could occur; however
  • it would have been conscionable, (ie not unconscionable) for Telechoice to recover its out of pocket costs of $34,945 from Beveridge.

Lessons for consumers

Service providers cannot always quickly detect the difference between normal and fraudulent use, unless they are notified.  Wiping data off a phone remotely does not protect the device from additional fraudulent use.

Therefore, it is prudent to use PIN security on both handsets and SIM cards.  Also, theft of a mobile phone needs to be reported immediately to telcos to avoid incurring unauthorised charges.

Lessons for regulators and the TIO

As well as negotiating directly with Telechoice, Beveridge requested the assistance of the TIO. Beveridge was told that the TIO was unable to assist because the case exceeded the monetary limit in the Ombudsman’s Terms of Reference.

It was reported in 2014 that the TIO exercised a discretion to intervene in a dispute very similar to Beveridge’s situation.  In that case, a young traveler (David) incurred about $571,000 of fraudulent calls after his phone was stolen overseas.  The telco initially pressed David for full payment, but when David reported the case to the TIO, the telco withdrew its entire claim against him.

In contrast, in 2014 the then-Ombudsman declined to exercise his discretion to intervene in Beveridge’s case when the TIO made an assessment that the two cases were different.

This decision by the TIO is disappointing if media reports were correct that David did also not report the theft to his telco, only to overseas police, just as Beveridge had done.

Australian regulators and telcos should take note of Beveridge’s case.  In late 2013, the UK government encouraged UK mobile carriers to adopt a scheme under which the main telcos capped customers’ bills at £50 if they notified the telco within 24 hours of their phone being lost or stolen overseas.

Had Australia’s telco’s adopted the UK scheme, Beveridge would not have had his last three years compromised by the stress and uncertainty of this litigation. Additionally, Telechoice would not have incurred many of thousands of dollars learning this costly lesson.

Madgwicks’ Senior Associate, James Graham, says: “This judgment, affirmed by Victoria’s highest court, has important lessons for consumers and businesses in Australia.  Even when businesses wish to rely on their own standard-form contracts, they need to critically evaluate exactly what they can enforce and at all times consider the expectation that they act conscionably with customers.”