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Inside the client vs agency test case: Lessons learned from the Advangen litigation
Ikon Communications’ recent court win against its former client Advangen provides compelling reasons for why it is time to hit ‘reset’ on the agency-advertiser relationship, write Stephen von Muenster, partner and Chris Paver, associate from DVM Law, who represented Ikon in the case.
Who should be responsible when an ad campaign doesn’t meet the advertiser’s expectations? Is it the agency which developed, planned and executed the campaign and bought the media? Or the advertiser who requested and signed off on it? Or does responsibility lie somewhere in between?
Ikon Communications’ recent Supreme Court of NSW win against a former client has potentially far-reaching consequences for the broader communications industry. For the first time, agencies can now look to guidance from the courts to help determine the professional standard of care they owe to their clients.
The Ikon case related to a campaign Ikon had developed for its advertiser Advangen International, which owns the Evolis line of hair loss products. Ikon had sued its former client for unpaid invoices totalling nearly $1 million plus interest. In response, Advangen cross-claimed against Ikon, alleging that the agency had caused loss and damage by breaching the contract between the parties and had made misleading representations in breach of the Australian Consumer Law. After a two-year legal battle in the Supreme Court of NSW, the advertiser’s allegations were ultimately rejected and on 22 November 2018 the court awarded Ikon about $1.3 million plus costs.
A still from the TVC
The matter was a comprehensive win for Ikon, which was found to have met the required professional standard and not to have breached the contract or acted in a misleading way. In dismissing Advangen’s cross-claim, his Honour Justice Ball’s judgment provides a number of critical insights that should provide agencies with the motivation they need to revisit their contracting processes upfront, consider ongoing disclosures, using the opportunity to hit the reset button on advertiser engagements.
These are the key takeouts for the communications industry arising from the judgment of this “test case” and how the judgment underscores the mutual need between agency and advertiser for open and transparent engagement processes and industry-appropriate terms and conditions that provide certainty to both parties.
Getting the pitch right
The background to the legal dispute would be familiar to most full-service agencies.
After winning the pitch, Ikon agreed to develop and deliver an integrated advertising campaign that included television, digital, social and other components. The work involved creative development, arranging for the production of two TVCs, and developing a detailed implementation plan to be rolled out across TV, digital, social, blogger, SEO, SEM and other channels over 12 months.
One of Advangen’s key complaints was that Ikon had made ‘misrepresentations’ arising in the ‘pre-contract’ stage, which most agencies would understand includes the ‘pitch’. According to Advangen, Ikon had promised at this stage that it would deliver an integrated campaign that would increase brand awareness and drive sales. Advangen later claimed that these representations turned out the be false, because it said sales did not increase to the levels it anticipated and the different elements of the campaign were not coordinated.
Ultimately the court found that it was not clear Ikon had actually made those representations in the terms alleged. But, to the extent that general representations of that nature were made, it said they “must be understood in context”, that is, as part of a pitch for work. Understood in that way, the representations were not misleading or deceptive because it was plain that Ikon intended to design a coordinated campaign that would increase brand awareness and sales, and that it had the skills and experience to do so. Whether or not those goals were actually achieved did not make the representations misleading or deceptive at the time they were made.
Lessons learned
The critical lessons for agencies at the pitch stage, however, is to be aware of what is being represented on the information available and not to over-promise, agree to unrealistic expectations, or exaggerate their skills and expertise in order to win over the advertiser and get the gig. It should be clear to advertisers that a pitch is a statement of what the agency intends to do and how it will approach the assignment based on the advertiser-originating brief and the current knowledge of the advertiser and its market, and not a promise about a particular outcome or result that the advertiser should expect. Ultimately, a failure to achieve a certain outcome in the future should not generally result in a breach of the contract and an excuse for the advertiser not to pay fees and expenses incurred – few professional service providers can ever guarantee absolutes.
Beware advertiser sales projections
Another representation Ikon was said to have made related to Advangen’s sales targets. The advertiser claimed that Ikon promised to generate sales of at least $750,000 between July and November 2015 and that the television campaign would reach the target audience a certain number of times. As finally put, the real complaint was the claim that Ikon represented it would convert 1% of the target audience reach and that, in the end, Ikon had failed to do so.
The dispute about sales targets is one most agencies well understand. Sales are a key metric for the vast majority of advertisers, but that doesn’t mean the agency can or should guarantee sales outcomes. Sales performance can be influenced by many factors beyond the creative and media campaign. In this case, the argument came down to the interpretation of media campaign documents Ikon developed, including a messaging matrix presented alongside a media plan.
In relation to its reach projections, the court found that Ikon had reasonable grounds for making the representation, as it undertook extensive calculations to determine the projected reach of the campaign and there was no suggestion that its approach was flawed. When making projections, the lesson for media agencies is to ensure their reach claims can be reasonably supported by calculation or objective and accepted industry standards.
In relation to the claim that Ikon promised $750,000 in sales, the court found that sales figures were actually supplied to Ikon by Advangen, not the other way around, and the alleged representation was not contained in the relevant document. Instead, the court said that “Ikon simply provided an analysis of whether that target was reasonable”. Critically, however, the document in question included a disclaimer that “overall conversion to sales is dependent on many factors beyond media”.
Lessons learned
Ikon was found not to have made the sales representation in this case, but the fact the issue was raised is a pertinent reminder about the danger of incorporating an advertiser provided or demanded sale figure into media buying documents, such as media plans or messaging matrixes. It is very rare than a media agency will promise certain sales results for an advertiser because there are simply too many factors at play, but the lesson from the Ikon case is that agencies should ensure their contracts are abundantly clear on this point – that sales outcomes are not guaranteed or, if they are, there are strict conditions and assumptions attached to such a ‘guarantee’.
Where sales targets are presented by the advertiser or used by the agency to sense-check a media buy or reach goals, the agency should ensure that any documents reflecting those targets contain clear, prominent, and unambiguous disclaimers to that effect. This protection can be reinforced by clear terms in the agency/advertiser contract.
Understanding the audience
Advangen’s misrepresentation case also claimed that Ikon had booked media against the wrong audience. The allegation was that Ikon had represented it would direct television advertising spend at women over 35 years of age, but ultimately booked television media for women 40+.
The issue was that while the campaign audience was W35+, the television buy was necessarily restricted by the available OzTam demographics. In this case, the facts showed that Ikon selected the available W40+ demographic and explained its rationale to the advertiser, and the advertiser had approved the choice and instructed Ikon to proceed.
Accordingly, the court found the pleaded representation not to be misleading and said, “it is difficult to see how it could be said that Ikon did not have reasonable grounds for making the representation when it did precisely what it said it would do. It did what it said it would do by choosing the W40+ demographic; and it did that because that was the best and most cost-effective means of achieving what it said it would do.”
It’s important for media agencies to effectively communicate why they are buying certain demographics
Lessons learned
Ikon’s approach was correct. But agencies would do well to remember that not all advertisers will be familiar with the rules of media buying, nor with the fact that campaign target audiences may be slightly different to the buying audience due to limitations in television buying or other media channel demographics. To avoid disputes later, agencies should consider clearly disclosing in their contracts or Media Buying Authorities (or similar) any limitations on media buying, including limitations relating to the media channel to be purchased and demographics available, and should ensure that advertiser’s sign-off on any variations. Audience differences based on the media channel selected should also be clearly explained.
Understanding the regulatory background
In addition to its claims for misleading and deceptive conduct, Advangen alleged that Ikon had breached the contract between the parties in a number of ways. The crux of Advangen’s contractual claim was that Ikon had breached a warranty in the contract that required it to provide its services “with the degree of skill, care and diligence expected of persons and suppliers experienced in the provision of similar services”. This test became known in the case as the “contractual standard” and the wording would be familiar to may agency CFOs and account directors. However, for the first time we now have a judicial consideration of what this actually means in the communication context.
Unlike in some industries and professions where the expected standard of care is well established, in advertising and media the level of care an advertiser can expect from its agency is far less certain. What, for example, is an agency required to do, and what is it responsible for, if a regulator says a TVC as prepared and scripted cannot proceed?
This issue arose in the Ikon case. Ikon’s creative services for Advangen included developing two TVCs, one targeted at women and the other at men. Because Advangen operated in a pharmaceutical context, it emerged that approval was required from the Australian Self Medication Industry (ASMI) and the Complementary Healthcare Council (CHC), which rejected the initial scripts.
Lessons learned
This issue could be addressed by ensuring the agency receives a comprehensive advertiser brief and checking up front that the advertiser is aware of and discloses all regulatory requirements. If certain messages cannot be included in advertisements for regulatory reasons, agencies should ensure that their internal processes require the advertiser to disclose this fact. Again, the agency/advertiser contract should clearly set out what regulatory requirements and compliance each party is responsible for.
Process is important, but a creative brief is not essential
The bulk of the case focused on the female TVC. Advangen claimed the TVCs fell short of the “contractual standard” for procedural reasons, specifically that Ikon did not prepare a ‘creative brief’ for the campaign, and then re-assess the TVCs against the brief once regulators rejected the original scripts.
This argument was rejected by the court, which found Ikon had followed the advertiser’s instructions – including that the TVC have “an underlying emotional pull and the science be treated as secondary” – and had worked with its advertiser to try to overcome the regulator’s feedback. His Honour found that “Ikon was plainly aware of the issues and what Advangen wanted to achieve and sought to address those matters in reformulating the TVC. No explanation is given of how a creative brief would have produced a different outcome”.
Lessons learned
So on the guidance of the court, agencies can be confident that the existence of a formal creative brief is not essential for a creative agency to meet the relevant standard of care. However, the importance of seeking the advertiser’s clear written instructions as to the creative approach and following a structured process when developing the creative campaign, responding to feedback from regulators, and obtaining final advertiser approval in writing, is an important part of the creative development process.
The importance of advertiser approvals
Advangen also claimed that Ikon should have appreciated that the TVC would be ineffective after it was changed following regulator feedback, and as such Ikon had failed to meet the “contractual standard” in preparing the TVC. This argument was based on an expert’s opinion that while the original scripts prepared by Ikon met the standard, they lost their therapeutic message after the regulator required changes.
However, this argument was also rejected and found to simply be the subjective opinion of the expert. It did not establish that the TVC fell short of some industry standard. The Court found that whether a particular advertisement is likely to work or not was a matter of subjective opinion and quoted expert witness and industry veteran, Colin Wilson-Brown, who gave evidence that “there is no such thing as ‘the right answer’, when developing and advertising campaign. Ask ten agencies for the best approach, and there will likely be ten different responses, all of which meet the Standard”.
Lessons learned
Critically, the court highlighted that the standard of care expected of agencies includes obtaining advertiser approvals. His Honour said: “no doubt, that fact explains why it is particularly important for the advertising agency to obtain the advertiser’s approval to the final TVC, so that it can be satisfied that the TVC meets the advertiser’s expectations. Consistently with what is required by the standard that is what Ikon did in this case.” Agencies that do not have clear advertiser approvals processes would be well advised to adopt an approval process across all communications disciplines, and ensure all creative work and other professional services, such as media, has the advertiser’s sign off at the critical stages of development and before the campaign goes live.
Define what is in scope, and what is out of scope
A key issue in Advangen’s claim that Ikon breached the contract was the allegation that Ikon had not coordinated the campaign. This was said to breach an obligation to “ensure” campaigns were set up and went live on time. However, the court found that Ikon had delivered its services in accordance with the contract and that the obligation to “ensure” the campaign went live on time could not be interpreted as an absolute obligation on Ikon. In essence, this means that Ikon was not responsible for delays caused by events outside its control. His Honour said: “The obligation must be interpreted as an obligation on Ikon to do everything on its part to be done to ensure that the campaigns were set up and ready to go live on time. It would make no commercial sense to interpret the obligation as an absolute one.”
The principal ‘delay’ in the case related to website development, upon which other services such as the deployment of a blog depended. Critically, the court found that it was plain from the terms of the contract that website development did not form part of Ikon’s services, indeed it was expressly excluded. Delays caused in delivering campaign elements such as a live blog therefore did not result in a breach of contract by Ikon, because those services could not actually be delivered by Ikon until the advertiser had approved or completed the necessary technical work on its website. Ikon understood that work would need to be done on the website, and foreshadowed in the contract that, if such work was required, it could be done by another agency, Fusion. Ikon made arrangements with Fusion for some work. However, the court found that the delays were caused “largely because Advangen wanted its own web designer to set up a UAT site, which took several weeks, and was slow in making a decision whether to retain Fusion to do the work necessary to transition to the live site”.
Lessons learned
The lesson for agencies is that by identifying likely out of scope services in their contracts and a positive obligation on advertisers to provide timely instructions and approvals, they can ensure that any delays associated with those services, including where those services haven’t been completed or are delayed by the advertiser, do not become the agency’s responsibility.
Implementing the take outs and next steps for the agency-advertiser relationship
Ikon’s case against Advangen could thankfully be said to confirm the notion that advertising, at least in the creative sense, remains an art and not a science. As the court found, when presented with the same problem, ten agencies might present ten different solutions, all of which might meet the required “standard” of care.
Advertising was found to be an art, not a science
Regardless of the professional communications discipline, agencies should have a proper process. Drawing on the judgment from the Ikon case, creative, media, digital, social and full-service agencies should be looking to revisit their own processes at the pre-contract, contracting, and service delivery stages to ensure they have clear internal processes in place to track key stages in the advertiser engagement and service delivery process.
Already, a number of agencies are carrying out ‘ground-up’ reviews, in order to implement some of the lessons learned. This should include assessing pitch procedures and making sure necessary disclosures are in place about what the agency can and cannot achieve in terms of sales or other deliverables/outcomes. It should include clear contracting that defines the scope of any agency’s services, including those things that are out of scope or will incur additional fees, and appropriate disclaimers on key documents.
Limitations associated with third party platforms or products should be carefully disclosed. There must be a written record of advertiser approvals, including at key stages of creative development, before a campaign goes live, and critically on decisions such as media to be purchased and target media audiences (such as via a valid and binding Media Buying Authority). And it should appoint a key person in charge from the agency’s perspective, to make sure that all approvals are managed, contracts and authorities are signed by the advertiser, and that integrated campaigns are roll-out as planned.
By implementing these processes, agencies can manage their risk and client relations in an effective way, drawing on this new judicial guidance about the standard of care they are required to demonstrate for the commercial benefit of both agency and advertiser.
Stephen von Muenster, partner (left) and Chris Paver, associate from DVM Law (right)
DVM Law advised Ikon Communications Pty Ltd in the above matter. The full judgment is available here.
Looks like Ikon did all the right things.
Great win and looks more-so that advertisers should take a good hard look at themselves; not necessarily the agencies.
Sincerely,
MR
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An outstanding outcome for Ikon, and the right outcome.
Congratulations Stephen and Chris, that’s a huge accolade. Well argued, and of particular note, the comment that “The Court found that whether a particular advertisement is likely to work or not was a matter of subjective opinion.”
Thank goodness that common sense prevailed.
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