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You're also wrong in the UK, the US, Australia and most other countries I can think of, unless by 'claim offence' you mean they can claim they were offended rather than seek legal remedy. What sources exactly have you based your opinion on?

Here's a few of links explaining the situation in the UK, Australia and US for photography of people in public places :

UK
US
Australia

Commercial Use case study: Virgin Mobile "areyouwithusorwhat?"

In June 2007 Virgin Mobile Australia launched an "exciting and impactful" multi-hundred thousand dollar billboard and internet campaign to tout their SMS-TEXT services in Australia. What made it noteworthy was that they illustrated their ads with "creative commons" pictures appropriated from Flickr, without the photographers' knowledge or permission. Moreover a lot of the images also featured close-up and clearly identifiable depictions of people (eg. Molly E. Holzschlag or Alison Chang), again without their knowledge or consent.

Despite assertions the photos were used legitimately via Flickr's "creative commons" license, the fact is Virgin never obtained consent from any of the people shown in the ads: the license only applied to the photographer's copyright, not the subject's consent to use their likeness. Thus: (1) the images were used to sell products and services and (2) photo-subject consent was never obtained. Consequently the ads appeared to be in direct contravention of the TPA, and considering the magnitude of the campaign, prompt action could then be expected by the ACCC to injunct and fine the things out of existence.

Or so it would seem, except for one major problem -- either by accident or design the people-photos were not taken in Australia and neither the photographers nor subjects were Australian citizens. Which put them beyond the scope of the TPA or any other Australian legislation! If the photographs were taken here, then the subjects would have a case. If they were taken overseas of Australian citizens, again people might have a legitimate complaint. But foreign persons + foreign photographers + foreign locations?... Nyet.

(Mind you it hasn't stopped Ambulance Chasers from trying.)

Luckily the campaign created such an international stink that Virgin Mobile had to act. Despite the apparent letter-of-the-law compliance, on July 25th the ad-copy was reworked and all identifiable images of people were removed. Furthermore, a few weeks later Virgin Mobile then abruptly terminated the campaign and ghost-towned the website.

Sorry, I was just responding to the issue of attribution. They seem to have done the right thing there, according to the requirements of the Creative Commons license.

I have to admit that I don't know much about Australian law, but under the (possibly flawed) assumption that it's similar to US and UK law, they really should have investigated the privacy issues some more. Given the inherent difficulty of suing someone in another country, they'll presumably get away with it, but it's fairly obviously incorrect behavior, nonetheless.

For those of you following along. There's a Flickr discussion about this issue here:
http://www.flickr.com/groups/central/discuss/72157600541608353/

One of the links currently lurking in that discussion is to:
http://www.4020.net/words/photorights.php

Which is an Australian solicitor's attempt to explain the legal rules covering candid photography in Australia. He actually addresses this particular case (search for "Virgin").

His conclusion is that, because the pictures Virgin Mobile used weren't taken in Australia, and the people pictured weren't Australians, they narrowly avoided falling under the jurisdiction of Australian law. Had those pictures been taken in Australia, or of Australian citizens, they absolutely would have needed model releases. There's no way they could have known ahead of time that none of the pictures were of Australians, so they basically got lucky.

Nevertheless, they really should have known better. Skating around the edges of the law like that is not very responsible behavior for a corporation to engage in. They've since abandoned that advertising campaign, presumably because someone with a clue looked into it and decided it was a really bad idea. Who knows? Maybe the bad publicity on the Internet contributed to the decision.

From the site covering the issue on Australia's side

Despite assertions the photos were used legitimately via Flickr's "creative commons" license, the fact is Virgin never obtained consent from any of the people shown in the ads: the license only applied to the photographer's copyright, not the subject's consent to use their likeness. Thus: (1) the images were used to sell products and services and (2) photo-subject consent was never obtained. Consequently the ads appeared to be in direct contravention of the TPA, and considering the magnitude of the campaign, prompt action could then be expected by the ACCC to injunct and fine the things out of existence.

Or so it would seem, except for one major problem -- either by accident or design the people images were not taken in Australia and neither the photographers nor subjects were Australian citizens. Which put them beyond the jurisdictional scope of the TPA or any other Australian legislation! If the photographs were taken here, then the subjects would have a case. If they were taken overseas of Australian citizens, again people would have a legitimate complaint. But foreign persons + foreign photographers + foreign locations?...

Nyet.

It goes on to state Virgin Australia has pulled the ads anyway.

I can not see how this will hold up at all in a US court when the actions are not Illegal in the country it happend.

I'm not American either. But since the picture was taken in the US, Virgin has significant assets in the US, and they're being sued in a US court, looking at US law makes sense, no?

It appears you're not really correct about Australian law either. See here: http://4020.net/words/photorights.php#commuse

For commercial use, ie. use of an image of someone to try to sell a product other than the photo itself, requires authorization - a model release.

It sounds like Australian law is very close to US law (and Canadian law) in this case.

This has been already examined as a legal case study (about half-way down the page). Its conclusion is that Virgin was wrong but will probably get away with it because the photographic subjects were shot outside of Australia.

Model releases are different, as the model is the main focus of the photo. In the US and the UK members of the public have a very limited scope of privacy rights when they are in public places. This is the key different, model releases come into play for studio shots. Basically, in public, anyone can be photographed without their consent except when they have secluded themselves in places where they have a reasonable expectation of privacy such as dressing rooms, restrooms, medical facilities, and inside their homes. See ThePhotographersRight.pdf for more details of the US situation; photoattorney.com has more of the same. You can find an overview of Australian law here

Finally the NYTimes covered a case where the subject of a photo in public sued because the photographer use it in an exhibit and was making money. The suit sought an injunction to halt sales and publication of the photograph, as well as $500,000 in compensatory damages and $1.5 million in punitive damages and was brought under the NY privacy laws. It failed because the photo was consider art.

Rubbish. Here's a page on Australian street photography legal issues by a lawyer:

Whenever you enter private land, you do so with the understanding that you consent to any requirements the property's owner may impose on you. So if they tell you to stop taking photographs, for whatever reason, then there is nothing you can do about it. It's their turf and their rules - so stop it!

Hence the difficulty taking photographs inside shopping centres, "walmarts", department stores or supermarkets. These areas may be publicly accessible, and have arguably become the "village square or commons" of our time, but they're still on private land, and thus fall under the control & regulation of their owners. Which means they can prohibit almost anything they like (including photography) on their land and there is nothing you can do about it. (Remember no Bill of Rights in Australia = no Freedom of Speech.) Mind you, once you leave their land, there is nothing to prevent you from taking photographs from outside their property borders (this was the finding in the 1937 Victoria Park case).

Although property owners can use "reasonable force" to evict people if they don't follow their lawful instructions, they can never threaten violence (= "assault"), or detain you at length (= "false imprisonment"), or push you around & seize your camera or film (= "battery"). Rent-a-cops, supermarket clerks, shopping centre managers and even customers at a Haldon Street Cafe in Lakemba should take careful note of this.

Finally, what if you take photos, publish them, and are then contacted (threatened?) by the property owner, claiming you have no right to use images of their "private space"? Frankly - ignore them!