Legal Insight Issue 9

Contents:

Large Australian Retailer Fined $1.25 Million For Trade Practices Act/Australian Consumer Law Breaches

ACCC – The Tiger Showing Its Teeth

A High Court Decision Confirms That Extreme Care Is Required When Drafting Documents

See Red And Stop before Making Green Claims

Warranties Against Defects – A Problem For Everyone In The Supply Chain

Amendments To The Home Building Act

Unconscionable Conduct – Update

A large Australian retailer has been found to have contravened various sections of the Trade Practices Act and the Australian Consumer Law (in respect of conduct pre 1 January 2011 and post 1 January 2011 respectively). The repercussions for the company include a $1.25 million fine; an injunction; publishing corrective notices in various newspapers across Australia; contributing $10,000 towards the ACCC's costs, and no doubt the adverse publicity arising from press and other releases.

The Federal Court of Australia held, on 8 December 2011, that a substantial Australian retailer ("Retailer") made representations to consumers that products had benefits they did not have, engaged in misleading and deceptive conduct and made misleading representations. In short, the Court held that the Retailer:

1. made representations that its 3D televisions (which it advertised for sale across most, if not all, of Australia) could be used to watch the AFL and NRL grand finals in 3D format when the Retailer knew that licences for the broadcast of such games in 3D were only issued to Sydney, Melbourne, Brisbane, Newcastle, Adelaide and Perth;
2. distributed various catalogues widely in the Australian marketplace offering deals in respect of certain outlets, notwithstanding the deals were not available at all outlets in all areas where the advertisements and catalogues had been delivered/advertised; and
3. failed to adequately disclose certain conditions attaching to certain offers/advertisements.

The Court found that:

1. the "fine print" in the Retailer's catalogues and website attempted to negative the plain and prominent impression otherwise created;
2. the conduct was "characterised by blatant and deliberant disregard for the truth", the Retailer "knew of the deceptive nature but did nothing to correct it" and the conduct took place against a background of "obfuscation and, at least initially, indifference on the part of [the Retailer]";
3. the Retailer's initial replies to the ACCC's enquiries were inadequate and the Retailer's initial corrective notices published were "not accurate or adequate";
4. the size of the Retailer was relevant when deciding the appropriate penalty and the time over which the conduct subsisted;
5. although accepting the Retailer had in place a competition and consumer compliance policy and program, it was "yet another unfortunate example of a corporation with a compliance policy to which mere lip-service is paid" and "the compliance policy in the organisation was woefully inadequate";
6. the Retailer, two of its subsidiaries, employees of one of its subsidiaries and 15 former franchisees were the subject of ACCC prosecution in 2002 (although the Court considered this was of minimal relevance); and
7. after the initial meeting between the Retailer and the ACCC, the Retailer co-operated at the highest level and took adequate steps to address the ACCC's concerns.

Readers should note that a majority of the orders were made by consent and after the Retailer admitted the alleged conduct. Further, joint submissions were made (i.e. by the Retailer the ACCC together) in respect of the appropriate penalty and orders.

The lessons from this case are clear. People offering goods and services should ensure that assertions, allegations and representations are clear, unambiguous and accurate. Extreme care should be taken when using fine print which may seek to incorporate provisions or requirements different to those which are the primary focus of advertisements. If (whether inadvertent or not) something is false, misleading, deceptive or likely to mislead or deceive, adequate steps should be taken as soon as possible to correct the statement, allegation or assertion. Further, businesses should ensure that they have in place adequate compliance programs, which are driven from the top level, implemented and enforced at all levels of the organisation, with regular training sessions for their staff. If the ACCC suggests that steps should be taken, it should give you a good idea that it will bear its teeth if you don't.

Case 1

The ACCC issued infringement notices totalling $26,400.00 to Juicy Love Pty Limited t/as Wicked Campers (yes, those campervans with the unusual and quirky paint work) for misleading advertising. Wicked Campers has paid the infringement notices*. The ACCC alleged that between February – August 2011 Wicked Campers made various misleading representations on its website and in a magazine in failing to disclose various fees and charges and specify the total price payable for hire.

Case 2

In Federal Court proceedings by the ACCC against Sontax Australia (1988) Pty Limited, the ACCC alleged that Sontax supplied luggage straps with non-compliant warnings. Sontax was ordered to pay a $40,000.00 penalty. Orders were also made (in finding that Sontax had breached a previous Court undertaking regarding supply of such luggage straps) that Sontax be restrained from similar conduct; it undertake a compliance program; it publish corrective notices; and pay $20,000.00 towards the ACCC's costs.

Case 3

Tank Broker Pty Limited has paid infringement notices totalling $19,800 as a result of ACCC allegations that it failed to disclose the full price of rainwater tanks and advertised "was" versus "now" prices when there wasn't in fact any real saving. Tank Broker also provided an admission that its conduct was likely to mislead consumers and undertakings, including to undertake a compliance program, not advertise "was" versus "now" prices unless they were genuine, publish corrective notices and specify prominently a single total price for its goods and services.

Case 4

The Federal Court held (ACCC –v- TPG Internet Pty Limited [2011] FCA 1254) that some of TPG's broadband advertisements were misleading in failing to disclose the actual costs associated with its broadband service. The Court found that the TPG advertisements represented that the broadband service was available for $29.99 per month, when in fact the service was at least $59.99 per month as it was only available if a consumer also purchased home line rental at $30 per month. The Court was: "satisfied that the choice TPG made in its advertisements – particularly its decision to strongly emphasise the component price of $29.99 and to de-emphasise the actual price of $59.99 and the requirement to also rent a home telephone line is an unfair trade practice. It is an unfair trade practice to require consumers to find their way through to the truth past advertising stratagems which have the effect of misleading or being likely to mislead them."

Case 5

The ACCC has issued public warning notices ("ACCC Notices") in relation to the conduct of Safety Compliance Pty Limited ("Company"). By way of telephone sales, the Company (which operates from Tweed Heads, NSW) sells workplace safety material to businesses across Australia. The ACCC Notices (which are to alert consumers of a potential breach of the Australian Consumer Law and endeavour to prevent detriment to consumers), allege that the Company made misrepresentations about OH&S obligations and harassed, coerced, misled or deceived consumers. The ACCC is encouraging consumers to contact their relevant state or territory agency in relation to OH&S obligations.

* Payment of an infringement notice is not an admission of guilt, or an admission of contravention of the Competition and Consumer Act (previously the Trade Practices Act).

The High Court of Australia (in Western Export Services Inc iv- Jireh International Pty Limited [2011] HCA 45) confirmed that if the plain and unambiguous meaning of a contractual clause can be derived from words used in the contract, that is the construction which must be adopted, notwithstanding that it is reasonably understood by the parties (with knowledge of the surrounding circumstances and object of the relevant transaction) to mean something else.

The relevant clause under consideration was along these lines: "one of the primary goals (of this contract) is to establish (ABC Pty Limited) or an associated entity as a supplier of product Y. For sales by (ABC Pty Limited)... Z shall receive..."

At first instance, the trial Judge read the words "or an associated entity" into the second reference to ABC Pty Limited, on the basis that the provision would make more sense from a "commercial point of view" given the parties' intention.

The NSW Court of Appeal overturned this decision in finding that a Court cannot disregard unambiguous language simply because the contract (if words were added) would have a more commercial and businesslike operation.

Although the construction ultimately adopted (by the High Court) may not have been the intention of the parties at the time of entry into the contract, given the second reference to ABC Pty Limited did not refer to "or an associated entity", it was impermissible for the Court to import these words. The Court confirmed that it is inappropriate for the Court to admit evidence of, amongst other things, the surrounding circumstances, where there is no ambiguity in the words used.

The obvious lessons are:

1. be extremely careful when agreeing to the terms of any commercial document;
2. never assume that what you intend a clause to mean is what a Court will ultimately decide it means, if such a meaning would be a gloss on the words in fact used, which are otherwise clear; and
3. a Court is unlikely to admit evidence of surrounding circumstances if the wording used in the document is unequivocal.

Marketing goods or services based on their "environmental" credentials is a powerful selling technique. All too often, these claims are made without careful consideration of the accuracy or evidence for the claim. Making environmental claims that are inaccurate or unsubstantiated may involve misleading and deceptive representations in breach of the Australia Consumer Law ("ACL"). Whilst there are no pecuniary penalties for misleading and deceptive conduct, related provisions of the ACL specifically targeting such conduct in relation to the supply of goods and services have pecuniary penalties of up to $1.1 million for a corporation and up to $220,000.00 for an individual.

The Australian Competition and Consumer Commission ("ACCC") has very clearly signalled its intention to pursue claims about the environmental benefits of products or services which are vague, unsubstantiated, misleading, confusing or inaccurate.

The following guidelines should be followed. An environmental claim must be:

1. accurate and able to be substantiated;
2. specific not unqualified or of a general nature - avoid using terms like "safe" and "friendly" or unqualified pictures or graphics;
3. in plain language;
4. related to a real benefit and not overstate the benefit. For example, do not convey the impression that a product is environmentally neutral. Very few products are!
5. identify whether the benefit refers to the packaging or product itself;
6. made in light of the whole product life cycle;
7. verified if related to an endorsement or certification.

The principal difficulty in making a green claim is the potentially broad and unqualified nature of the claim. For instance, use of the word "green" may be vague and imprecise and require a consumer to have to make their own assessment of the meaning of the term. This creates potential for the consumer to be misled. Remember the intention of the advertiser is not relevant to an assessment of whether a particular claim is misleading or deceptive. Similar problems exist with the use of phrases such as "environmentally friendly" or "environmentally safe". "Pictures" used in the content of the claim may also amount to a misrepresentation.

Claims about the energy efficiency of a product can also be problematic, particularly if the efficiency is not quantified by comparison to a known benchmark or rating system. The Star System (Equipment Energy Efficiency Programme) of rating products such as refrigerators, freezers, washers, clothes dryers, dishwashers and air conditioners is based on a very complex set of testing criteria. Any false representation about a product's performance or energy efficiency will be a serious offence under the ACL and can lead to heavy pecuniary penalties.

Caution should also be adopted when using the term "recyclable". If a product or some component of it is not recyclable or facilities for recycling do not exist, the claim will arguably be false. Again heavy pecuniary penalties can apply.

Manufacturers, retailers and service providers commonly make promises about the quality or fitness for purpose of their goods or services. These assurances are referred to as warranties and serve to enhance the attractiveness of products or services over those offered by a competitor. They have become a significant selling point for goods and services and it is not unusual these days to find products being offered with promises of "lifetime warranty" or "satisfaction guaranteed or your money back".

The Australian Consumer Law (ACL) defines these types of promises as "warranties against defects".

Effective 1 January 2012, anyone who, in the course of trade or commerce, supplies goods or services to a consumer containing a document which "evidences a warranty against defects" must include in the document mandatory content and text. The pecuniary penalties for failing to do so are, for each offence, $50,000 for a corporation and $10,000 for an individual. Additionally, proceedings for misleading representations may result in penalties of up to $1.1 million for corporations and $220,000 for individuals.

By any measure, this is serious business!

The legislation is likely to cause difficulties for participants in the supply chain, particularly retailers. Although the manufacturer usually prepares and packages the written warranty, the legislation is directed to anyone who "gives" a non-complying warranty to a consumer. Inevitably, the retailer as the last link in the supply chain, will "give" the warranty as much as the manufacturer who prepared it.

Although the legislation takes effect from 1 January 2012, the problem for manufacturers and retailers is that goods will have been manufactured and packaged with warranty cards and enter the supply chain many months before they are offered to the consumer. As a transitional measure, the Australian Competition and Consumer Commission (ACCC) has indicated that until September 2012, when considering its enforcement attitude to non-complying warranties against defects for stock which enters the supply chain that is manufactured and packaged before 1 November 2011, the ACCC will consider whether the retailer had serious practical problems updating the warranty documents and whether they have taken all reasonable steps to convey the mandatory text to consumers (e.g. by placing a compliant sticker on the outside of packaging or erecting point of sale signs with mandatory text – the ACCC website Q&A Section suggests the form of words for such a sign. However, this means that goods entering the supply chain after 1 November 2011 and sold to consumers after 1 January 2012 with non-complying warranties will potentially involve a breach of the ACL and a risk of significant penalties to retailers/manufacturers.

The new law has been legislated since 2010. The ACCC has undertaken a broad information campaign to alert manufacturers and retailers of their obligations effective 1 January 2012. In those circumstances, little quarter is likely to be given for non-compliance.

If your organisation is not presently compliant, prompt action should be taken to review trading terms, policies and voluntary warranties.

Amendments have been made to the Home Building Act. The amending Act was assented to on 25 October 2011, however, some provisions commence on proclamation (date(s) to be decided by the Government). The main amendments are:

1. A contract must be in writing for residential building works only if the work is valued at over $5,000. Residential building work between $1,001 - $5,000 requires a written quote. Work below $1,001 does not require any writing
2. The monetary threshold for mandatory Home Warranty Insurance will increase from $12,000 to $20,000.
3. The limitation periods for breach of the statutory warranties and the home warranty insurance scheme will be aligned; both will be 6 years. Readers should note that the warranty in respect of "non-structural defects" (generally more cosmetic or minor defects which do not prevent the premises from being used for living) is only 2 years. It is anticipated that this change will apply to new contracts entered into after 1 February 2012, however, this is subject to change.
4. A new definition of "completion" has been inserted. This is the date from which statutory warranty and home warranty insurance time periods begin to run.
5. Amendments to the Home Warranty Insurance provisions, which require (subject to limited exceptions) a claim to be notified and made within the period of insurance.
6. Strengthening the consumer protection objectives of the Act by clarifying that proportionate liability provisions of the Civil Liability Act do not apply to claims arising from a breach of the statutory warranties. This means a party who is only partly liable for the loss (by reason of sub-contracting part of the work to others) cannot limit their liability. E.g. one of many wrongdoers (perhaps the only wrongdoer who has the means to pay damages) cannot limit the damages otherwise payable by saying "but I sub-contracted that part of the work to ABC Pty Limited... I shouldn't have to pay for that", therefore ensuring that the homeowner is not left short by choosing not to, or not being able to, pursue ABC Pty Limited.
7. The minimum amount of cover for home warranty insurance policies will increase from $300,000 to $340,000 and the excess on a claim will be reduced from $500 to $250.

The NSW Government has said it proposes to make further changes to the Home Building Act and further reform the Home Building sector in early 2012.

Amendments to merge the existing provisions of the Competition and Consumer Act, 2010 – Schedule 2 (sections 21 and 22) and create a single provision relating to unconscionable conduct were recently passed by both Houses of Parliament and are expected to commence operation on the later of 1 January 2012 or assent.

The list of matters the Court will consider to determine whether conduct constitutes unconscionable conduct will remain effectively the same. However the distinction and minor wording differences found in the unconscionable conduct provisions for business and consumer transactions will be removed. Public companies are not able to bring actions for unconscionable conduct which infringes the existing provisions or the new provision. In interpreting the new provision, Courts will not be limited to common law or equitable concepts regarding such conduct and will be able to consider patterns of behaviour over time and look at a variety of factors including negotiations between the parties prior to a contract commencing and conduct of the parties post contract.

Hugh & Associates is a Sydney based legal firm with extensive experience in commercial, finance and insolvency law and litigation. If you require legal advice in these areas, we would be pleased to assist you.

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