Australian Consumer Law: Fair Markets – Informed Consumers

Introduction

The Federal Minister for Competition Policy and Consumer Affairs, Mr Chris Bowen recently released a report entitled Australian Consumer Law: Fair Markets – Informed Consumers (ACL).[1] The main purpose of this report is to seek comment on a range of changes to consumer protection laws in Australia in an attempt to create a truly national consumer protection law system.

The most notable aspect of the report is that it does not seek any comment on a number of significant additions to the ACCC’s enforcement powers in the consumer protection area. Indeed, it appears that the Federal Government has already decided that additional powers identified in the ACL Report will be provided to the ACCC.[2]

The granting of these additional powers to the ACCC will have an immense impact on its ability to combat breaches of the consumer protection laws. On the other hand, there are real questions about whether granting these additional powers will tilt the balance of power too far in favour of the ACCC in its dealings with business.

What is being proposed?

The ACL proposes four main changes to the existing consumer protection law system -

1. introduction of a range of new enforcement powers and remedies for the ACCC.

2. introduction of unfair contract terms legislation

3. introduction of a new product safety system

4. a range of miscellaneous changes to standardise consumer protection laws across Australia

New enforcement powers and remedies for the ACCC

The new enforcement powers being proposed for the ACCC are - 

• substantiation notices 

• public warning powers 

• infringement notices 

The new remedies which will be available to the ACCC in consumer protection matters are – 

• civil pecuniary penalties 

• disqualification orders 

• non-party redress 

Substantiation notices

A substantiation notice is described in the ACL as a notice which “requires a supplier to provide a consumer regulator with a basis for representations that it makes regarding its goods and services”.[3] A substantiation notice would require that the trader provide specific information to the ACCC within a particular time.

The main advantage of substantiation notices for the ACCC is that it will lower the factual threshold it needs to satisfy itself that a trader may have engaged in a contravention of the consumer protection provisions of the TPA. Currently, the ACCC requests information from a trader either on a voluntary basis or pursuant to section 155 notice. The limitation of a voluntary request for information is that the trader is not required to provide the information and does not have to provide the information within a particular timeframe. However if the trader does provide information voluntarily to the ACCC is has an obligation to ensure that such information is accurate and complete.[4]

The ACCC will often choose to issue a section 155 notice to a trader to compel the production of information and documents rather than seek documents voluntarily. However, in order to issue a section 155 notice, the Chairman of the ACCC must satisfy himself that he has reason to believe that the trader has information or documents which relates to a matter which constitutes or may constitute a contravention of the TPA. While the requirement to form a “reason to believe” does not involve a very high burden for the ACCC, of particular matters it does present a problem.

Where traders are making exaggerated health or medical claims about their products, for example about the ability of their product to cure cancer or other life threatening diseases, it is often difficult for the ACCC to satisfy itself that it has reason to believe unless it first obtains expert medical advice. Unfortunately, the process of locating a suitably qualified expert, retaining and briefing this expert and then obtaining an expert report can take a considerable period. Consequently, the ACCC is often prevented from taking quick action against such bogus traders.

Another area where the ACCC is often unable to move quickly is where a trader makes exaggerated claims about the financial returns which can be made from a particular business venture. The ACCC often needs to obtain expert opinion on the reasonableness of the claimed financial returns before seeking to issue a section 155 notice to a trader.

In both of the types of cases described above, the availability of a substantiation notice will give the ACCC the ability to move much more quickly against traders which have made what, in the ACCC’s opinion, are outlandish claims about the uses and benefits of their goods or services. It is very important to move quickly in these types of cases, because often such traders are simply operating a scam in which they will seek to dupe a number of vulnerable consumers into paying substantial sums of money before transferring the money out of the jurisdiction, liquidating their company and simply vanishing.

The main concern of business about the ACCC having access to a substantiation notice power is that the ACCC may seek to use this power in situations where it is inappropriate. For example, in many consumer protection matters a section 155 notice may be issued in response to customer evidence. While obtaining such evidence does take time, it also provides a valuable cross- check on the initial allegation. When an initial allegation is received from a consumer about a trader’s conduct, it is important to corroborate that account from evidence obtained from other, unrelated consumers to ensure that the original evidence has not been fabricated or misrepresented. The concern is that the ACCC may opt to simply issue a substantiation notice to a trader because this would be simpler and quicker rather than carrying out a preliminary investigation of the allegation

Public warning powers

The ACL also proposes that the ACCC be provided with the power to issue a public warning about a trader. In this regard, the ACL states that “public warnings are (to be) issued to inform the public of potentially harmful conduct taking place in the very short term”.[5]

On the basis of the ACL, it would appear that the public warning power is to be directed against are “...’fly-by-night’ operators, itinerant traders and financial, investment and property spruikers and advisors who often move across state and territory borders.”[6] Therefore, the focus would appear to be on bogus traders which are simply seeking to misappropriate money from consumers and then vanish, making subsequent legal action against them all but impossible.

It is proposed that the public warning power would be subject to certain protocols to govern its use and prevent its misuse. These protocols are likely to be based on existing safeguards contained in state legislation in respect of public warning powers.[7] For example, the decision to issue a public warning will only be exercised in very blatant situations of misleading and deceptive conduct, bordering on fraud. In addition, the decision to issue a public warning is likely to be subject to a public interest test and must be exercised in accordance with the principles of natural justice. It may also be the case that a person subject to a public warning power will have the right to take legal action against the ACCC for defamation in the event that the public warning power has been exercised inappropriately or without a proper basis.

There are a number of concerns about the introduction of a public warning power.

The first concern is that the power may be exercised by the ACCC in inappropriate circumstances. Clearly, a public warning issued about a trader by the ACCC is likely to have the effect of preventing consumers from dealing with that trader. Another likely consequence will be that current customers of that trader, which may have had no particular concern about the trader before the public warning was issued, may now want their money back from the trader believing that trader to be disreputable. This could jeopardise the financial position of the trader in circumstances where it has not been found by a Court to have engaged in any illegal conduct.
The second concern is that even if there is a right for a trader to take action against the ACCC for defamation in circumstances where the ACCC has inappropriately exercised this power, the trader may simply not be able to afford to take such legal action. This is likely to be particularly true where the effect of the public warning has been to significant damage the trader’s business. The right of legal action against the ACCC may be an illusionary right if the company cannot fund the action.

Infringement notices

The most controversial new power being proposed is the power of the ACCC to issue infringement notices. The ACCC will have the power to issue a notice stating that a corporation has engaged in conduct in breach of a provision of the consumer law provisions and requiring that corporation to pay a penalty.[8] It is likely that infringement notices will only be issued for less serious contraventions of the consumer protection laws.

A number of state consumer protection agencies currently have the power to issue infringement notices. These infringement notices can be issued in relation to administrative breaches and less serious substantive breaches. ASIC also has the power to issue infringement notices in respect of breaches of the Corporations Act 2001.[9]

The proposed power to issue infringement notices is controversial because it raises separation of powers issues – namely the blurring of executive and judicial functions. The power to impose a pecuniary penalty on a corporation for a breach of legislation is the exercise of a judicial function, which should properly reside in the Courts, rather than a federal government department, such as the ACCC, which forms part of the executive.

While it is not yet clear how the infringement power will operate, it is likely that a corporation which is the subject of an infringement notice will have the right to challenge the notice in court if they do not believe they have contravened the relevant provision of the consumer protection law.

One would assume that in order to issue an infringement notice, the ACCC would require quite strong evidence that the trader had engaged in a contravention of the TPA. Therefore, while the power to issue an infringement notice may mean that the ACCC does not need to incur the added expense of running litigation, it is unlikely to avoid the expense of having to conduct a full investigation. 

One area where the infringement notice may be used in a cost effective way, is where a corporation has admitted that it has contravened a provision of the consumer protection law. In these types of matters, the ACCC does not need to conduct a full investigation, as it can rely instead on the corporation’s admissions. An infringement notice could be issued to the trader on the basis of its admissions, thus saving both the ACCC and the trader investigation and litigation costs.

New remedies available to the ACCC

Pecuniary penalties

The most significant new remedy being proposed is the power of the ACCC to seek a pecuniary penalty for a contravention of the consumer protection law provisions.[10] Currently, the ACCC can seek injunctions, declarations, non-punitive orders and compensation in a civil consumer protection case. Currently, if the ACCC wishes to obtain a penalty for a contravention of the consumer protection provisions it must take a criminal prosecution.

The ACL points out that civil penalties are not currently available under either federal or state consumer protection legislation. This is seen as “significant gap in the range of enforcement options available to consumer regulators”.[11] Reference is also made to the greater deterrent effect that access to civil penalties will have on corporations which may be tempted to breach the consumer protection law provisions.[12]

Access to civil penalties for contraventions of consumer law provisions will have a significant impact on the ACCC’s enforcement activities. Civil penalties will give the ACCC considerably more leverage in dealing with corporations which have contravened consumer protection laws. For example, the ACCC will be able to propose a smaller civil penalty in a settlement in return for the corporation agreeing to provide other remedies such as compensation to consumers or corrective advertising.

Another area where the availability of civil penalties will improve the ACCC’s enforcement outcomes is in relation to fly by night operators. Often these types of operators will obtain a significant amount of money from consumers, transfer the money out of the country and then liquidate the company. The ACCC is often faced with the prospect of taking legal action against a company in liquidation and former directors and managers of the company, seeking only injunctions and declarations. Further, the ACCC will not be able to proceed against the company in liquidation unless it has leave of the Court which will often require the consent of the liquidator. Generally, the liquidator will only consent if the ACCC legal action is not going to cost the company in liquidation any money. In these circumstances, the only effective remedy the ACCC can obtain is an injunction against the directors and managers seeking to prevent them from engaging in similar conduct in the future.

If the ACCC has access to civil penalties, it will be able to achieve much better specific and general deterrence. First, a successful civil penalties action against former directors and managers will have the effect of depriving these individuals of some of their ill-gotten gains from their contravention of the TPA. Second, if these individuals failed to pay the civil pecuniary penalty, the ACCC may be able to take action to bankrupt them which would prevent them from taking on director roles for a period.

Disqualification orders

The ACL also proposes the introduction of disqualification orders for individuals who have engaged in conduct in breach of the consumer protection law.[13] The ACL states these orders may “ban or restrict individuals from participating in specific activities for specific periods of time, including managing corporations or undertaking specific business conduct”.[14] Disqualification orders are already available for contraventions of the restrictive trade practices provisions of the TPA.

The introduction of a disqualification order for breaches of consumer protection law is a significant reform. The ACCC often deals with individuals who set up a succession of different companies so that they can continue to engage in the same type of illegal conduct. Currently, all the ACCC can do to prevent these people from repeating their illegal conduct is to obtain an injunction to prevent them from engaging in the same type of conduct. It is relatively easy for an individual to change their conduct slightly to avoid the terms of the injunction, particularly if the Court’s injunction has been drafted quite narrowly. The disqualification order would be a much better way to prevent these types of individuals from setting up new companies to continue engaging in illegal conduct.

The availability of disqualification orders will also give the ACCC much greater leverage in settlement negotiations with companies and their directors/management. The ACCC could advise a company that it would not pursue disqualification orders against particular directors or managers in return for the company’s agreement to other orders such as a higher corporate civil or individual penalty or agreement to pay compensation for consumers.

Non-party redress

The final proposed order in the ACL is non-party redress. The ACL Report describes non-party redress as the power to seek an order from the Court to “seek redress for persons who are not parties to the particular action”.[15] The ACL specifically refers to the Full Federal Court decision in Medibank Private Ltd v Cassidy[16] where it was held that there was no power in the TPA to order a business to provide redress to non-parties to a proceeding.

Currently there are two ways that the ACCC can get financial redress for consumers for a contravention of the consumer protection provisions of the TPA. It can either take an action under section 87(1B) of the TPA or a class action under the Federal Court Act.

In the past, the ACCC has shown a clear preference for proceedings under section 87(1B). This is because under such proceedings the ACCC remains in control of the legal action and can decide when to settle and on what terms. However, under FCA, the class controls the legal proceedings and can decide when and on what terms to settle the litigation. The ACCC is often attempting to achieve other outcomes in its litigation, in addition to compensation for consumers, and it may not want to settle the litigation on the same terms as a class would.

There are a number of difficulties associated with seeking compensation under section 87(1B) of the TPA. There are two ways to run proceedings under section 87(1B) which are described by the ACCC as the one-step approach and the two-step approach.

The one-step approach has the ACCC seeking compensation as part of its initial case, along with other remedies such as injunctions, declarations and non-punitive orders. The main problem with this approach is that the ACCC must obtain written consents from all persons it wishes to represent for compensation before it commences the litigation. Getting these written consents prior to institution of legal proceedings often presents major logistical problems, particularly if there are more than 10 consumers.

The alternative is the two-step approach, in which the ACCC takes legal action for a limited range of remedies and foreshadows that it will be seeking compensation for consumers under section 87(1B) in a follow up action. This is a much simpler approach as the ACCC will not need to get consents from consumers until after it has won the first action.

The two-step approach also has some drawbacks. First, because compensation can only be obtained after the second successful action by the ACCC, there will be a considerable delay before consumers obtain their compensation. Second, there is often a risk that the company against which the ACCC takes legal action will not have sufficient funds to pay compensation after the initial legal action has been concluded. In some cases, the company may even go into administration a consequence of the costs associated with the initial ACCC action.

The new provisions concerning obtain non-party redress will solve a number of these problems. Of central importance is that consumers which have suffered loss will not need to become parties to the litigation in order to get compensation. In addition, ACCC litigation of matters involving a large number of disaffected consumers will be much less complex.

Unfair contracts

The ACL also proposes the introduction of unfair contracts legislation.[17] There are two main aspects to this proposed legislation –
specific unfair contracts legislation which will give the ACCC and individuals the right to challenge unfair terms in standard form contracts
banning of particular terms in standard form contracts on the basis that they are unfair.

Unfair contract terms legislation

The ACL defines unfair contract terms as terms that “cause a significant imbalance in the parties’ rights and obligations under a contract and are not reasonably necessary to protect the legitimate business interests of the supplier”.[18] The ACL also makes reference to the unfair contract terms legislation which currently exists in the UK and Victoria.

The justification for the introduction of unfair contract term legislation appears to be the finding by the Productivity Commission that the consumer detriment from unfair contract terms is likely to be “non-trivial”.[19] In its report, the PC found that from 5% to 15% consumers may be detrimentally affected by unfair contract terms.[20] If this statistic is correct, it would demonstrate that unfair contract terms are indeed a significant problem as effectively one in six consumers is being adversely affected by unfair contracts.

One surprising conclusion reached by the PC was that businesses had not identified major costs associated with the introduction of unfair contract terms in the EU, UK and Victoria.[21]

The description of unfair contract term legislation suggests that there will be a two-step process in applying the legislation – a contract terms will be considered unfair if -

1. the relevant term causes a significant imbalance in the parties’ rights and obligations

2. the relevant term is not reasonably necessary to protect legitimate interests of supplier[22]

The first step in determining whether a contract term is unfair will be to assess whether the term causes a significant imbalance in the rights and obligations of the parties. This suggests that the courts will have to consider what the effect of one particular contractual term will be on the respective legal positions of each party to the contract. It is not a case of considering whether the cumulative effect of a number of contractual terms will create a significant imbalance, but rather whether one contractual term in isolation will have that effect.

For example, a term which allowed one party to vary unilaterally the terms of the contract may be seen as providing that party with significantly greater rights than the other party to the contract. Another example would be a clause which excluded the right of one party to take legal action against the other party to the contract for negligence.

The second step in applying the unfair contract term test would be to ascertain whether the term is reasonably necessary protect the legitimate interests of the supplier. This step could be broken down into two separate issues. First, one must identify what the legitimate interests of the supplier are in entering into the contract. This will involve a consideration of whether for example, it is legitimate for a supplier to limit their liability and, if so, to what extent. Second, one will have to consider whether the term is reasonably necessary to protect that legitimate interest. For example, a Court may find that while it is legitimate for a supplier to attempt to exclude liability for certain acts, it may find that the relevant contractual term goes beyond was is reasonably necessary to protect the suppliers’ legitimate interest because it seeks to exclude all liability.

The main concern about the test outlined about to determine whether a contract term is unfair is that it is likely to be quite difficult to apply in practice. In particular, it is likely to be quite difficult to determine what the suppliers “legitimate interests” are and also what is considered to be “reasonably necessary” to protect those interests.

The ACL proposes three limitations on the unfair contract term legislation.

First, remedies under the legislation will only be available where the claimant can show that the contractual term is likely to cause detriment, or a substantial likelihood of detriment, to the consumer. Detriment is not limited to financial detriment.[23] In other words, remedies will not be available to claimants in relation to unfair contract terms if they are not likely to result in any consumer detriment. This will prevent claimants, including the ACCC, from taking action in relation to a particular term which appears unfair on its face but which the supplier is not proposing to enforce against the consumer.

While this requirement will limit access to the unfair contract terms legislation, claimants still have considerable scope to argue that there is a “substantial likelihood” of detriment in circumstances where the supplier has not indicated an intention to enforce the allegedly unfair contract term. A better approach would be to limit access to unfair contract terms remedies to situations where the supplier has enforced or expressed their intention to enforce the allegedly unfair contract term against a consumer. This would limit the application of the legislation to only genuine disputes and avoid theoretical debates about whether there was a “substantial likelihood” of detriment.

The second limitation is that the unfair contract term legislation will only apply to standard, non-negotiated contracts.[24] The onus will be on the supplier to prove that the contract is not a standard contract. This is a necessary limitation on the scope of the legislation which is aimed at addressing the problems arising from contracts which are not subject to any negotiation of the contract terms. Even though this limitation will exclude many contracts from the purview of the legislation, it will still mean than tens of thousands of standard form contracts will be within the scope of the legislation.

The third limitation is that claims that the upfront price for a good or service is unfair are excluded from the operation of the legislation.[25] This appears to be a sensible limitation as an upfront price should not be considered unfair, as the consumer would normally be aware of the price before signing the contract. The only qualification to this is where the supplier does not disclose the full costs of the good or service to the consumer. The failure by a supplier to state the full upfront cost of the good or service would contravene other provisions of the TPA, including the new section 53A.

The ACL also refers to one additional feature of the proposed unfair contract term legislation – namely that in considering whether a contract term is unfair “all of the circumstances of the contract (are) to be considered, taking into account the broader interests of consumers, as well as the particular consumers affected”.[26] The ACL suggests that the purpose of this additional feature will be to facilitate private and ACCC representative actions for damages. In other words, the Court will be required under the legislation to consider whether a wider ban on an unfair contract term may be appropriate if it is in “the broader interests of consumers”.

The main areas of enforcement activity for the ACCC once the unfair contract legislation is introduced are likely to include the car rental, fitness club and telecommunications industries. Many of the examples of potentially unfair contract terms in the ACL have been drawn from standard form contracts in these industries.

The main objections to the unfair contract terms legislation are that –

• there is no clear evidence that there is a need for such legislation

• the scope of the proposed legislation appears to be too broad 

• the enforcement of the legislation may put a significant strain on the ACCC’s resources. 

The Federal Government has not demonstrated the need for this legislation. While most consumers who sign a standard form contract would (if they actually read the contract) no doubt find that many of the contract terms appear to be quite unfair, the reality is that many of these allegedly unfair terms will rarely be enforced. Either the contract will performed without the need for legal action by the supplier or the supplier will choose not to enforce a term which is allegedly unfair. Therefore, a legitimate criticism of the unfair contract legislation is that before any such legislation is introduced, steps should be taken by the Federal Government to ascertain whether a significant problem with unfair contract terms exists in the community.

Also as stated above the proposed legislation is likely to be too broad as it focuses on “substantial likelihood” of detriment, rather than on allegedly unfair terms which have been or are going to be enforced by the supplier against the consumer. It is arguable that the “significant likelihood” requirement is too vague a test to limit the scope of the legislation effectively.

Finally, there must be significant concerns that the ACCC’s role in investigating alleged unfair contract terms in standard form contracts will put a significant strain on its enforcement resources. It is likely that unfair contract term investigations will be quite resource intensive.

Banning unfair contract terms

The ACL also proposes that mechanisms be put in place to ban unfair contract terms from all standard form contracts.[27] While there is no discussion of the policy reasons behind banning allegedly unfair contract terms, the main justification would probably be that there are certain contractual terms which are so clearly and objectively unfair that they should be banned.

The ACL discusses a number of contract terms which may be considered to be clearly and objectively unfair including –

• terms retaining title in goods to suppliers even though the goods cannot be removed from the consumers’ premises without damage [28] 

• terms denying the existence or validity of pre- or post-contractual representations made to consumers [29] 

• terms deeming something to be a fact when it is not actually factual or true [30] 

• terms under which consumers’ acknowledge that they have read or understood the contract [31] 

• conclusive evidence terms [32] 

• terms requiring consumers’ to pay more than the suppliers’ reasonable enforcement costs [33] 

While it is difficult to see how some of the contract terms listed would be anything but unfair, one common objection which had been raised to the idea of banning contract terms is that any unfairness may depend on the context of the relevant transaction. A contract term cannot be banned unless regard is also had to the particular context in which the contract clause applies. On the other hand, by banning particular terms the ACCC will not have to take enforcement action in relation to the same contract term in numerous different types of standard form contracts. Rather the ACCC could take steps to have the particular unfair contract term banned from all standard form contracts.

One possible concern about the proposed mechanism for banning unfair contract terms is that it appears that the power will be exercised by the relevant Minister on the advice of the ACCC. A more transparent approach could be to require the ACCC to take legal action in the Federal Court seeking a declaration that particular contract term was unfair. If the ACCC was successful in obtaining a declaration that a particular contract term was unfair, it would be able to use this finding as a basis for making a recommendation to the Minister that the unfair term be banned in all standard form contracts. This may introduce more accountability to the process of banning a contract terms as being unfair.

Product Liability

The ACL also proposes the introduction of a national regulatory regime for product safety. Under this system, the ACCC will be responsible for recommending permanent bans of unsafe products to the relevant Minister. State and Territory consumer affairs departments will be responsible for recommending temporary bans of no more than 60 days of unsafe products within their jurisdictions. The ACCC will be responsible for determining whether a recommendation should be made to the Minister that a temporary ban is made permanent.[34]

These proposed changes to the administration of product safety laws are significant. Currently, there is a great degree of duplication of effort in relation to product safety between the ACCC and state consumer protection agencies. Further, the level of coordination between these agencies in terms of their product survey work is quite poor. On more than one occasion, this lack of coordination has resulting in some finger pointing when an unsafe product slips through the regulatory safety net, as occurred during the Mattel toy recalls.

One clear implication of the proposed reforms is that the ACCC will have to increase its skill base in the enforcement of product safety standards. Currently the ACCC utilises its general enforcement investigators to conduct product safety surveys and investigations. These investigators have no specific training in relation to the particular standards they are enforcing, which is a concern particularly in relation to some of the more complex standards. The simplest way for the ACCC to acquire the necessary skills is for highly experienced and specialised investigators from state consumer affairs departments to transfer to the ACCC to form the core of a new dedicated product safety enforcement area.

Miscellaneous proposed reforms

The ACL outlined a number of other proposed changes to the consumer protection laws which are aimed at achieving harmonisation. Many of these proposed changes are relatively uncontroversial.

For example, consideration is being given to standardising the definition to the term “consumer” in consumer protection legislation.[35] Currently, there are a number of different definitions of the term “consumer” in Federal and State consumer protection legislation. These definitions of “consumer” differ quite significantly. It stands to reason, that such significant inconsistencies in foundational definitional issues, such as the term “consumer”, must create unnecessary costs and complexity for businesses which operate on a national basis.

Other suggested changes include whether to–

• harmonise door-to-door legislation [36] 

• introduce specific legislation concerning telemarketing into the ACL [37] 

• introduce specific legislation in relation to third-party trading schemes into the ACL [38] 

• introduce specific legislation banning mock auctions [39] 

• to change the current provisions of the TPA in relation to pyramid selling to make them more effective [40] 

• to consider banning dual pricing under the ACL [41] 

Conclusions

The proposals contained in the ACL will result in a radical transformation of consumer law protection in Australia. The proposed changes in the ACL will provide the ACCC with both a significant extension of its investigatory and enforcement powers in dealing with businesses and access to a number of new and powerful remedies.

With the power to issue substantiation notices, public warning notices and infringement notices, the ACCC will have extensive powers to take aggressive and pre-emptive enforcement action against businesses which have contravened the consumer protection laws. The ACCC’s access to pecuniary penalties and disqualification orders will provide it with significantly more leverage in settlement negotiations with companies accused of breaching the consumer protection laws.

The main substantive legislative change proposed under the ACL is the introduction of the unfair contract terms laws. This legislation will have far-reaching consequences for most Australian business involved in retail transactions with consumers. All businesses using standard form contracts will have to review the terms of these contracts prior to the introduction of the legislation to remove or redraft any terms which are at risk of being found to be unfair. Indications are that the task of identifying unfair contract terms is going to be anything but a straightforward exercise.

[1] An Australian Consumer Law : Fair Markets Confident Consumers, 17 February 2009 (ACL)-http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1482
[2] For example see Speech of The Hon. Chris Bowen, Minister for Competition Policy and Consumer Affairs, Australian Consumer Law – The Future, Address to the Monash Centre for Regulatory Studies, 17 February 2009, http://www.treasurer.gov.au/DisplayDocs.aspx?doc=speeches/2009/001.htm&pageID=005&min=ceb&Year=&DocType=
[3] ACL, op. cit., p. 46.
[4] See section 137.1 of the Criminal Code.
[5] ACL, op. cit., p. 47.
[6] Ibid.
[7] Ibid., p. 51.
[8] Ibid.
[9] Ibid.
[10] See ACL, op. cit., pp. 43-45.
[11] Ibid., pp. 44-45.
[12] Ibid., p. 45
[13] Ibid.
[14] Ibid.
[15] Ibid., p. 52.
[16] [2002] FCAFC 290.
[17] ACL, op. cit., pp. 29-42.
[18] Ibid., p. 29.
[19] Ibid.
[20] Productivity Commission, Review of Australian Consumer Policy Framework, Appendix D, Box. 7.3
[21] Ibid., pp. 434-435.
[22] ACL, op. cit., p. 30
[23] Ibid., p. 32.
[24] Ibid.
[25] Ibid., p. 34.
[26] Ibid.
[27] Ibid., pp. 35-42.
[28] Ibid., p. 35.
[29] Ibid.
[30] Ibid.
[31] Ibid., p. 36.
[32] Ibid., p. 37.
[33] Ibid., p. 40.
[34] Ibid., pp. 53-54.
[35] Ibid., pp. 63-66.
[36] Ibid., pp. 67-72.
[37] Ibid., pp. 72-74.
[38] Ibid., pp. 79-80.
[39] Ibid., p. 80.
[40] Ibid., pp. 85-87.
[41] Ibid., pp. 88-89.

Recent events – Young Lawyer’s Continuing Legal Education Seminar

I was recently invited by the Young Lawyers International Law Committee to present a CLE Seminar on the topic of “Corporate Legal Responsibility: Green Claims and s52”.

My talk was based on the article entitled “When Green Wash Won’t Wash – Avoiding Misleading Environmental Claims” which I wrote for the November 2008 edition of the NSW Law Society Journal – see blog post Wednesday, 10 December 2008.

For more information see – http://www.lawsociety.com.au/page.asp?partID=16

Recent events - Inaugural Thomson Reuters Competition and Trade Practices Summit

I was recently invited by Thomson Reuters to present a paper at the Inaugural Thomson Reuters Competition and Trade Practices Summit held at the Marriott Hotel in Sydney on 12 and 13 March 2009.

I was asked to present on the topic of Strategies for Effective Interaction with the Australian Competition and Consumer Commission. My talk was based on the article entitled “The ten biggest mistakes companies make when dealing with the Australian Competition and Consumer Commission” which I wrote for the December 2008 edition of Keeping good companies, the Journal of the Chartered Secretaries Association – see blog post Wednesday, 3 December 2008.

I was also asked to Chair the Summit on Friday, 13 March 2009.

For more information about the Summit see –
http://www.iir.com.au/conferences/contracts-legal/thomson-reuters-inaugural-competition-trade-practices-summit/agenda

Clarifying the Publishers’ Defence – Bond v Barry [2007] FCA 1484

Issues:

The issues in this case were whether the publishers defence under section 65A of the Trade Practices Act 1974 (TPA) could be invoked by the freelance journalist who wrote and the media organisation which published an article about Alan Bond in The Sunday Telegraph and whether a news organisation could liable as an accessory for publishing a news article purchased from a freelance journalist.

Context:

Paul Barry, a freelance journalist, wrote an article for The Sunday Telegraph, concerning Mr Alan Bond’s involvement in the Lesotho Diamond Corporation plc. In his article, Mr Barry alleged amongst other things that Mr Bond was effectively running the company, maintaining a lavish London office at the company’s expense, and had forced a number of senior executives to leave the company. Mr Barry also reported on claims by various shareholders that Mr Bond was paying himself massive fees, trying to sell “dud” assets to the company and using shareholder’s money for personal advantage.

Mr Bond took action against Mr Barry and News Limited, as the publisher of The Sunday Telegraph, for misleading and deceptive conduct under section 52 of the TPA. Mr Barry and News responded by seeking to have Mr Bond’s claim struck out as having no reasonable prospects of success due to the likelihood that a defence under section 65A of the TPA would succeed.

Decision:

The decision of Justice French (prior to his elevation to Chief Justice of the High Court of Australia) was that the publishers defence was likely to apply. Accordingly, he dismissed Mr Bond’s action.

In his decision, Justice French reviewed the legislative history of the publishers defence. He noted that the publishers defence was enacted in 1984 as a response to concerns that news media could be liable for incorrect news reports under the misleading and deceptive conduct provisions of the TPA.

The first question was whether News could take advantage of the publishers defence. As Mr Barry was a freelance reporter who sold his story to The Sunday Telegraph, Mr Bond argued that News was not able to take advantage of the defence in section 65A, as it was not the primary contravener, but rather an accessory to Mr Barry’s conduct. Section 65A provides no exemption for a media organisation which is an accessory to a contravention not covered by section 65A. In other words, a news organisation may be liable as an accessory due to the operation of section 75B of the TPA for publishing a genuine news story if it aided, abetted or induced another party to engage in misleading and deceptive conduct and that party was unable to avail itself of the publishers defence in section 65A.

Justice French adopted a purposive approach to interpreting section 65A of the TPA –

The publications which are protected by s65A include the transmission of information or articles by freelance journalists to media organisations. Absent such coverage media organisations could be exposed to liability as accessories for publishing articles prepared for publication by freelance journalists in contravention of s 52...It would be a major and unintended gap in the coverage of the exemption and completely at odds with its purpose.The second question was whether Mr Barry could invoke the publishers defence. Mr Bond argued that as Mr Barry had a contract to provide articles to News, the article was “in connexion” with the supply of journalistic services which was excluded from the scope of the defence.

Justice French rejected this argument. Justice French decided that the scope of the defence also extended to the communication of information or articles by freelance organisations to media organisations. In this regard he stated –

The purpose of s65A was clearly stated in the Second Reading Speech. To exclude from the exemption the supply of information by freelance journalists to media organisations is to partially defeat that purpose. The communication of news articles to media organisations by freelance journalists is so plainly within the intended purpose of the section that a construction covering it should be adopted provided that construction is open. In my opinion, as stated above, such communication is within the natural and ordinary meaning of publication as publication to the world at large.

Significance:

The significance of Bond v Barry is that it clarifies the scope of the publishers defence in section 65A of the TPA. There has been considerable concern as to whether news organisations could be liable as an accessory for publishing news articles obtained from freelance journalists or other news agencies. As section 65A does not provide a defence to an accessory, news organisations could be liable for news articles simply because they were publishing articles which they had obtained from external sources rather than in-house journalists.

This case makes effectively closes this “loophole” in the operation of section 65A. As stated by Justice French, to apply section 65A in any other way would constitute a major and unintended gap in coverage of section 65A.

More importantly, this decision ensures that Part V of the TPA and its mirror provisions in state Fair Trading Acts are not used as a means of preventing or restricting the publication of genuine news stories by news organisations or the preparation of genuine news stories by freelance journalists.

When green wash won’t wash: Avoiding misleading environmental claims

This article first appeared in the Law Society Journal (November 2008), Vol 46, No 10, pp. 50-54.

Introduction

Businesses are increasingly keen to present an environmentally friendly or "green" image to their customers. Both large and small businesses realise that it makes good business sense to offer environmentally conscious consumers the option of a green product or service. Customers are often willing to pay a significant price premium for a green product.

Unfortunately, many businesses, including large businesses, have made fundamental mistakes in their green marketing. Instead of getting positive publicity for offering a green alternative, these companies have received negative publicity for their “green wash”. In some cases, these companies have had to grapple with unwanted attention from the ACCC.

This article explores some of the green marketing mistakes that businesses have made in trying to sell their green credentials and proposes some guidelines that practitioners can use to help their clients to avoid these kinds of mistakes.

Relevant law

The Trade Practice Act 1974 (TPA) contains two main civil provisions which can be used to attack false or misleading green claims. 

Section 52 prohibits corporations from engaging in conduct which is misleading or deceptive, or is likely to mislead or deceive, while s.53 prohibits corporations from falsely representing:

that goods are of a particular standard, quality, composition or have had a particular history; or that goods have performance characteristics or benefits they do not have.

These provisions are mirrored under state fair trading legislation which applies to corporations, individuals and unincorporated entities.

The remedies available for a contravention of ss.52 and 53 include injunctions, declarations, damages, corrective advertising and non-punitive orders.

Practitioners should be aware criminal penalties of up to $1.1 million per contravention[1] may be available to punish more serious misrepresentations about environmental benefits.

One important aspect of the civil liability regime under the TPA is that it establishes a reverse onus of proof for representations about future matters.[2] Therefore, if your client makes a representation about the future environmental benefits of their product, it may bear the onus of demonstrating that it had reasonable basis for such representations.

Getting caught out

There are many groups monitoring the green claims made by business and there is a high likelihood of getting caught out if you make false green claims. First, the Australian Competition and Consumer Commission (ACCC) appears to have made green claims an enforcement priority. The ACCC has been very active in this area, having taken an increasing number of green representation cases in the last 12 months.

Second, there are a large number of vigilant and sophisticated non-government organisations constantly on the lookout for green claims that are misleading. For example, a complaint by the Total Environment Centre prompted the ACCC to investigate EnergyAustralia (discussed below). These organisations can also initiate their own private actions of breaches of the relevant civil provisions of the TPA.

The final major risk is posed by competing businesses. Competitors will be very keen to complain to the ACCC about a green claim which does not stack up.

ACCC enforcementThe ACCC is increasingly active in the area of green marketing claims. In the last 12 months it has concluded eight investigations into green claims.

The first notable series of environmental investigations taken by the ACCC relate to claims made by the Australian air-conditioning industry that its products were “environmentally friendly”. The first case was taken against Sanyo Airconditioning Manufacturing Singapore Pte Ltd,[3] which claimed that its Eco Multi Series air conditioners had "environmentally-friendly HFC 'R407C' Added" and were "for a new ozone era - keeping the world green".

A problem with this representation is that R407C is considered to be a potent greenhouse gas and as such is hardly “environmentally friendly”. Another gas used in the Eco Multi Series was R22, an ozone depleting hydrochloroflurocarbon, is clearly not beneficial to the ozone layer.

Two important issues arise from this case (which was settled by consent).

First, the ACCC seems to have taken the view that “environmentally friendly” is a representation that a product will have a neutral effect, as opposed to a beneficial effect, on the environment. Therefore a product that does not harm the environment could arguably be described as environmentally friendly.

Second, the ACCC took action against Sanyo Airconditioning for both the text used in its marketing materials as well as the images of trees, the sea and the moon. The ACCC formed the view that such images conveyed a strong environmental message to consumers.

Following this case, there were two further notable investigations into Daikin[4] and Dimplex[5] for making similar representations. In each of these cases the companies entered into s.87B undertakings to cease making the green representations and carry out a range of corrective remedies, including publishing corrective notices on their websites and industry magazines and writing corrective letters to customers and distributors.

Another area of ACCC activity relates to green representations made in relation to motor vehicles.

Recently, the Federal Court declared by consent that representations made by GM Holden Ltd about the environmental benefits of Saab motor vehicles were misleading.[6] In particular, GMH made the claim that “Every Saab is green. With carbon emissions neutral across the entire Saab range”. The basis for this claim was that GMH would plant 17 native trees per vehicle to offset the emissions generated during the life of each motor vehicle. In actual fact, the 17 trees would have only offset the carbon emissions for one year of motor vehicle’s operation.

GMH was ordered to refrain from making such representations in the future and to retrain its marketing staff. However, the largest cost to GMH (apart from the damage to its credibility as a seller of “green” products) was its offer to plant an additional 12,500 trees to offset the carbon emissions from the motor vehicles which it did sell during the Saab "Grrrrrreen" advertising campaign.

Another recent ACCC matter involved green representations by V8 Supercars as part of its ‘Racing Green Program’.[7] V8 Supercars claimed that planting 10,000 native trees would offset the carbon emissions from the V8 Championship Series as well as all associated transport emissions of the racing teams travelling to events. The ACCC was concerned that consumers would understand that the 10,000 trees would absorb the carbon emissions in a short period of time, when in actual fact the emissions from one year of racing would only be absorbed by these trees over several decades.

The final matter involved representations made by Goodyear about its Eagle LS2000 range of tyres.[8] Goodyear said that this tyre range was environmentally friendly, designed for minimal environmental impact, and that its production processes resulted in reduced carbon dioxide emissions. Goodyear settled this matter with the ACCC by providing a s.87B undertaking in which it admitted that these environmental benefits could not be substantiated.

The ACCC has also looked at green claims made by energy companies. It investigated EnergyAustralia’s representations about its CleanAir and GreenFuture non-accredited electricity products.[9] EnergyAustralia claimed that consumers who signed up would get “100% green electricity at no extra cost” and that “for every kilowatt hour of electricity you buy, the same amount of electricity will be generated from 100% renewable sources, and that’s guaranteed”.

The ACCC was concerned that consumers would conclude that they were supporting new sources of renewable energy rather than simply offsetting their electricity against existing sources. While EnergyAustralia did not admit that its representations were misleading, it did acknowledge that customers may have been confused by the representations. EnergyAustralia agreed to a range of remedies including compensation, corrective letters to customers and a contribution of $100,000 to an educational brochure to explain the difference accredited and non-accredited products.

Lessons

The main lessons to come out of this review of ACCC investigations are: 

• don’t let your client make a green representation unless it has the scientific evidence to back up the claim; 

• be careful how your client uses images in green marketing material as the ACCC will be looking carefully at any images used, and not just the text; 

• don’t let your client overstate the environmental benefits of a green initiative; 

• make sure your client’s green representations are not too confusing for consumers; and 

• recognise that some environmental benefits are simply too complex to translate into a short and sharp marketing message. 

Resources

There are three key resources for practitioners who are advising clients in the area of green marketing claims:

• “Green marketing and the Trade Practices Act”.[10]

• “Carbon claims and the Trade Practices Act”.[11]

• “Environmental labels and declarations – Self-declared environmental claims”.[12]

“Green marketing and the Trade Practices Act”

This guide was released by the ACCC in 2008. It explains the specific sections of the TPA that may apply to green marketing claims.

In section 2 the guide sets out a range of principles that businesses should consider prior to making environmental claims. One important principle is that when a business makes a green claim it should consider the whole life cycle of the product. Even if a product is not environmentally detrimental during its useful life, if it has significant environmental impacts when discarded, a business should avoid making broad unqualified environmental claims about it.

In section 4 there is a useful “Checklist for marketers”. This checklist provides a list of the types of questions practitioners should be asking their clients about their products before signing off on any environmental marketing campaign or advertisement.

"Carbon claims and the Trade Practices Act"

This guide was also issued in 2008. It provides a useful guide to how businesses can make carbon claims that will stand up to scrutiny. There are three main types of claim: 

• a claim that a business has acquired carbon offsets for their product (as in the Saab and V8 racing examples); 

• that a product is carbon neutral; and 

• that the product’s carbon footprint has been reduced, for example, through the use of new technology (as in the Goodyear example). 

Section 2 deals with carbon offsets. The section defines relevant terms and provides an insight into some of the issues to be aware of – for example:

• additionality – the benefits of the carbon reduction should be “in addition” to those that would have happened anyway; 

• double-counted offsets – defined as when an offset is not “retired” and two or more businesses claim the same emission reduction; and 

• low-quality offsets – not all offsets have equal value so it is important to ensure that the offsets purchased will match the level of emissions a company is claiming to reduce. 

Section 3 deals with carbon neutral and low carbon claims. Reference is made to the generally accepted means of understanding and quantifying greenhouse gas emissions under the Greenhouse Gas Protocol.[13] This protocol uses the term “scopes” to describe emission sources as either: 

• scope 1 – direct emissions; 

• scope 2 – indirect energy emissions; or 

• scope 3 – other indirect emissions. 

The ACCC encourages businesses to use these concepts when making carbon neutrality claims. This is helpful advice as a business is likely to breach the TPA if it claims that a product is carbon neutral on the basis of scope 1 – direct emissions, but fails to consider scopes 2 and 3. Any marketing claim should be qualified to clearly explain the extent of the carbon neutrality.

The ACCC also provides some practical advice on how to assess a business’s carbon footprint by use of a footprint calculator. Like any such calculation, the end result is only as good as the information fed into it. Businesses need to be very careful to ensure that they have reliable and detailed information before trying to work out their carbon footprint.

The guide also talks about the risks of making low carbon claims. The ACCC is of the view that if a business fails to explain the appropriate context for such claims, they will usually be too vague to be properly understood by consumers.

Finally, in section 4 the ACCC provides a checklist for businesses which are intending to make a carbon claim.

“Environmental labels and declarations – Self-declared environmental claims”

This Australian and New Zealand Standard has been in existence since 2000. While it is still not a mandatory standard, given the interest in green marketing claims in the community, it is only a matter of time before a mandatory standard is introduced. Accordingly, it is worthwhile to consider the main aspects of this standard as it provides some good insights on how to ensure green marketing claims are not misleading or deceptive.

The objective of this standard is described as “to harmonize the various national guidelines on environmental claims used in product labels and in marketing generally, in order to facilitate trade in the global marketplace and to give consumers confidence in environmental claims”.

The object of giving consumers confidence in environmental claims is particularly important in the green marketing area. Consumers do not have the time to fully research the scientific evidence which bears on a green claim. Accordingly, consumers are more reliant on the accuracy of the green marketing material when making their purchasing decision.

The specific objects of the standard are listed in clause 4 and include such objectives as:

• ensuring that companies make accurate and verifiable environmental claims that are not misleading; 

• the prevention or minimisation of unwarranted claims; and 

• the reduction of marketplace confusion. 

Clause 5.3 states that “An environmental claim that is vague or non-specific or which broadly implies that a product is environmentally beneficial or environmentally benign shall not be used. Therefore, environmental claims such as ‘environmentally safe’, ‘environmentally friendly’, ‘earth friendly’, ‘non-polluting’, ‘green’, ‘nature’s friend’, and ‘ozone friendly’ shall not be used.”

Clause 5.4 states that claims that a product is “free” of an environmentally damaging substance should also not be used. The reason being that such claims cannot generally be demonstrated to be literally true owing to the presence of trace contaminants.

Clause 5.5 prohibits the making of sustainability claims as there are no definitive methods of “measuring sustainability or measuring its accomplishment”.

Clause 5.7 provides a checklist of specific requirements that every environmental claim should meet in order to satisfy the standard. For example there is a requirement that environmental claims be accurate and not misleading, and that they can be substantiated and verified. There are also requirements to ensure that consideration is given to the entire life cycle of the product and that any comparative claims are clear and accurate.

Conclusion

Green marketing claims are becoming an increasingly important area for businesses. Businesses risk breaching the TPA if they make sloppy, vague or unresearched green representations.

However, if businesses and their practitioners carefully consider the key resources identified in this article, namely the green marketing and carbon claims guides issued by the ACCC and the current Australian Standard on self-declared environmental claims, they will minimise this risk.

Practitioners should recognise that one implication of following these guides is that sometimes a proposed environmental claim will simply be too qualified or complex to be used in any marketing campaign. However, it is much better to abandon the use of a claim at an early stage than to be the subject of an ACCC investigation, with the resultant negative publicity, if an oversimplified or otherwise misleading green claim is caught short.

[1] Part VC TPA – Section 75AZC(1)(a), (b), (e).[2] Section 51A, TPA.[3] ACCC institutes court action against Sanyo Airconditioners Manufacturing Singapore Pte Ltd: http://www.accc.gov.au/content/index.phtml/itemId/365424/fromItemId/621575.
Federal Court finds "Green" claims to be misleading: http://www.accc.gov.au/content/index.phtml/itemId/398527/fromItemId/621575.
(The author ran this investigation and litigation at the ACCC.)[4] Warning to air conditioning industry after Daikin 'green' claims challenged by ACCC: http://www.accc.gov.au/content/index.phtml/itemId/596776/fromItemId/621575.
(The author ran this investigation at the ACCC.)[5] Dimplex chills out on "environmentally friendly" claims: http://www.accc.gov.au/content/index.phtml/itemId/770506/fromItemId/621575.
(The author ran this investigation at the ACCC.)[6] ACCC takes action against GM Holden Ltd over Saab 'green' claims: http://www.accc.gov.au/content/index.phtml/itemId/808355/fromItemId/621575.
Saab 'Grrrrrreen' claims declared misleading by Federal Court: http://www.accc.gov.au/content/index.phtml/itemId/843395.[7] V8 Supercars corrects carbon emissions claims: http://www.accc.gov.au/content/index.phtml/itemId/843360.[8] Goodyear Tyres apologises, offers compensation for unsubstantiated environmental claims: http://www.accc.gov.au/content/index.phtml?itemId=833219.[9] EnergyAustralia clears air about green electricity claims: http://www.accc.gov.au/content/index.phtml/itemId/806650/fromItemId/621575.
(The author ran this investigation at the ACCC.)[10] Green marketing and the Trade Practices Act, ACCC, 2008 – electronic version available for free download at http://www.accc.gov.au/content/index.phtml/itemId/815763.[11] Carbon claims and the Trade Practices Act, ACCC, 2008 – electronic version available for free download at http://www.accc.gov.au/content/index.phtml/itemId/833279.[12] Environmental labels and declarations – Self-declared environmental claims, AS/NZS ISO 14021: 2000, available for purchase at http://www.saiglobal.com/.[13] http://www.ghgprotocol.org/.

The ten biggest mistakes companies make when dealing with the ACCC

This article first appeared in Keeping good companies, Journal of Chartered Secretaries Australia Ltd, December 2008, Volume 60 No. 11, pp. 681-684

Introduction

Even if you educate your staff regularly on compliance with the Trade Practices Act 1974 (TPA) and have lawyers review all your communications rigorously, that’s no guarantee that your company will never be the subject of a complaint to the Australian Competition and Consumer Commission (ACCC). When that happens, some companies make fundamental mistakes. Other mistakes raise more subtle issues. So, if you are investigated by the ACCC, what should you do? Or, to look at it another way, what should you not do?

1. Being needlessly aggressive

Be firm in your dealings with the ACCC, but needless aggression is not helpful. Rather than intimidating an ACCC investigator into backing off, it is more likely to push them to ask more questions and request additional information.

Investigators have two universal traits: suspiciousness and stubbornness. (I say this as a former ACCC investigator). If you are needlessly aggressive, you will simply arouse the investigator’s suspicions that your company is hiding something. If an investigator forms this opinion, it may take a long time for them to change their mind.

2. Attacking the credibility of the complainant

Whether the identity of the complainant is known or just suspected, companies often devote considerable effort to explaining how a complainant has a score to settle and is unreliable or dishonest. This is a waste of time. The ACCC receives a significant portion of its evidence from disgruntled former employees who have a score to settle with their former employer and is used to assessing their credibility.

Unless you can provide some fairly hard evidence about their lack of reliability, it is doubly useless. ACCC investigators have to determine the honesty and likely reliability of prospective witness in court. Be wary of making such claims because they are more likely to increase an investigator’s suspicions that your company has something to hide.

3. Not properly responding to ACCC information requests

It is surprising how often companies do not respond properly to the ACCC’s information requests. Often companies don’t respond fully to questions or do not respond to some questions at all.

Possibly, the company does not understand the ACCC’s questions or it rushed its response. However, an investigator may interpret this failure as a sign that the company has something to hide or is not taking the issue seriously.

If you do not fully understand the ACCC’s questions, call the ACCC contact officer to discuss them. The questions might not have been clearly expressed. It is also important that the person from your company who will prepare the information speaks directly to the ACCC contact officer (in the presence of your legal adviser if need be) so nothing is lost in translation.

You should never feel pressured to provide information voluntarily to the ACCC before it is ready. Sometimes inadequate responses to ACCC questions stem from the company rushing to collect and provide information. If your company is struggling to collect all the requested information by the due date, you should call the ACCC and propose a staged delivery of information. The ACCC investigator’s main concern is to ensure that they have enough information to keep the investigation moving forward. An investigator would prefer to get some information quickly, rather than waiting months for complete production.

Finally, be careful to ensure the accuracy and completeness of the information provided voluntarily to the ACCC. It is a criminal offence to provide false, misleading or incomplete information to the ACCC. This offence carries a maximum penalty of 12 months imprisonment (s 137.1 of the Criminal Code).

4. Arguing few customer complaints in mitigation

Many companies argue that the complaints received by the ACCC comprise a very small proportion of their total number of customer inquiries and sales. This is a bad strategy for a number of reasons.

First, in consumer protection circles it is often argued that an absence of complaints can be good evidence that a deception is effective. Customers do not complain about a misleading representation if they do not know it is misleading. A good example is a representation that your company offers the lowest prices. Customers will not complain unless they have compared prices and subsequently realised that your company is not offering the lowest prices. Obviously there are other types of misrepresentations which will be discovered quickly by the consumer, such as bogus free offers.

Second, many consumers often do not complain even if they are misled. Either they never get around to complaining or they blame themselves for having been taken in. In addition, the fact that a customer does not complain to the ACCC does not mean that they have not complained to their family and friends.

Finally, a claim that only a few customers have complained sends the wrong message to the ACCC. It suggests that your company does not value the concerns of a section of its customer base, however small. It also suggests that your company may be taking a cost/benefit approach to dealing with customer complaints.

Instead of dismissing complaints as a minority of customers, carefully investigate each of the complaints and explain to the ACCC the reason for each complaint. The main focus of your internal investigation is to satisfy the ACCC that the complaints are not symptomatic of a wider problem within the organisation, but represent isolated incidents.

5. Being too reactive in dealing with the ACCC about its media release

Many companies neglect the issue of the ACCC media release until the very end of the investigation. Then they seek a range of concessions from the ACCC such as the right to agree the content of the media release, the right to edit the media release or the opportunity to provide comments on the media release before it is issued. However, the ACCC will rarely compromise the integrity of its media release.

Consider other ways to influence both the content of the ACCC media release and its impact. The way your company responds to the ACCC during the investigation will have a bearing on the content of the media release. Obviously if your company has not cooperated with the investigation, it can hardly expect praise. But if your company cooperates in a timely way it is entitled to have that acknowledged.

The ACCC media release concerning GIO’s refund of GST payments on car leases is a good example of the ACCC acknowledging the cooperation of a company. GIO made sure it commenced the process of providing refunds prior to the issue of the media release so that it would get positive comments from the ACCC.[1]

Make sure you contact the ACCC in writing before the end of the investigation requesting that it mention in its media release the cooperation your company provided during the investigation. Emphasize the benefits to the ACCC of this approach. If the ACCC praises your company for constructively resolving a problem, this will provide an incentive for other companies to come forward to resolve their own problems (as happened following the GIO media release referred to above).

Your company should also ensure that it has a contact person available for reporters to call when an investigation is resolved and the ACCC media release is issued.[2] It would be very unfortunate to have a report in the newspapers the day after the ACCC media release along the lines that ‘the Managing Director of XYZ Pty Ltd was unavailable for comment.’ Your company should provide the ACCC investigator with the name, position and contact details of the relevant person and ask that this information be provided to the ACCC’s Media Unit. When reporters call the ACCC for further information about its media release, the Media Unit will be in a position to provide these details.

Finally, it is surprising how few companies issue media releases themselves following an ACCC media release. The ACCC announcement will rarely cover all issues which are important to your company. For example your media release could reassure customers that the TPA problems have been fixed and that they were not systemic but isolated.

If your company was particularly strategic you could issue your own media release before the ACCC issued its media release. By taking this approach, you will more or less guarantee that the ACCC media release does not get much coverage. However, be aware that if you adopt this approach, it may upset the ACCC.

6. Saying that everybody else is doing it

The effect of this statement on an investigator is clear. They immediately get much more excited about the investigation as they realise they are now dealing with a broad industry problem rather than an isolated incident. Also, the fact that many companies in an industry engage in the same conduct makes the investigation a much higher priority.

Clearly, if it’s true, your company should advise the ACCC as early as possible that the alleged conduct is common in the industry. However, you should try to turn this to your advantage. To do this, you need to be aware of some of the enforcement philosophies of regulators such as the ACCC. In taking enforcement action, a regulator will try to achieve both specific and general deterrence. As it cannot take on every case, it has to select the cases which will best achieve both goals.

Accordingly, there are three broad enforcement approaches. The ACCC may pursue a case against: 

• the market leader because a successful outcome will achieve general deterrence by getting smaller players to fall into line 

• the company which is engaging in the most blatant conduct in breach of the TPA, as the ACCC is likely to both win this case and get the most extensive remedies or 

• the company which has a history of similar conduct, as this may provide an opportunity to secure the most severe sanctions such as a criminal conviction. 

If the ACCC approaches your company about an issue which is a widespread industry problem, try to persuade the ACCC to pursue somebody else. For example, if you are the market leader, you may want to suggest to the ACCC that it focus its efforts on another company which is engaging in more blatant conduct or is a repeat offender. Alternatively, if you are a repeat offender you may try to focus the ACCC on a company which is engaging in more blatant conduct. However, if your company is engaging in the most blatant conduct, I suggest you give up as soon as possible.

7. Not using a lawyer who specialises in the Trade Practices Act

While it may come as a surprise, many companies use lawyers who have little or no knowledge or experience of the TPA or the ACCC. The TPA is a specialised area and companies should retain a specialist lawyer to represent them. The exception to this may be straightforward instances of misleading and deceptive conduct.

However, in all other matters, your company should ensure its lawyer has appropriate experience. Ask your lawyer for details of the trade practices matters they have managed and then check to see how successful they have been. You would probably want to know whether your lawyer had lost every trade practices case that they had run.

8. Being too reactive about remedies

Companies often err in being too reactive in terms of the remedies required to fix a contravention of the TPA. They often provide masses of information to the ACCC voluntarily, but may never suggest remedies to the ACCC to resolve the problem. Rather, they will wait for the ACCC to propose a remedies package which may contain all manner of elaborate remedies, many of which are not acceptable to the company. Then the company will spend weeks trying to whittle down the ACCC’s proposals to something it can live with.

Instead, try to get on the front foot by proposing a range of remedies to the ACCC at an early stage. By doing this, you will shift the onus to the ACCC to explain to your company why the remedies you have proposed are inadequate and why additional or more elaborate remedies are needed. You should try to set the agenda on appropriate remedies, rather than allow the ACCC to do it.

9. Not implementing remedies immediately

Many companies are willing to implement remedies from an early stage in the investigation, but don’t do so because they think it is better to wait for ACCC approval. By not implementing the remedies you are happy to implement immediately, your company runs the risk of the ACCC upping the ante and proposing additional and more elaborate remedies.

If you acknowledge that there is a need to take remedial steps, you should implement these steps immediately even if the investigation is still ongoing. There are a number of strategic benefits from taking this pre-emptive approach in dealing with the ACCC.

First, your company will show the ACCC that it responded positively to the concerns at the earliest possible stage. Second, this will reduce the likelihood that the ACCC will make demands for additional or more elaborate remedies. In other words, the ACCC will be in the position of having to explain why the measures you have already implemented did not fix the problem. Finally, if your company has already implemented a range of remedies, there is less likelihood that the ACCC will press for a court enforceable undertaking, as there will be few, if any, remedies left to implement.

10. Agreeing to a section 87B undertaking too readily

The biggest mistake a company can make is to agree to a s87B undertaking too readily. Section 87B is an administrative tool which permits the ACCC to accept undertakings from companies to settle investigations, including consumer protection, restrictive trade practices and merger investigations.[3] Though a s87B undertaking is not approved or otherwise brought to the attention of the Federal Court when it is executed, it can be enforced in the Federal Court if its terms are breached.

Many companies don’t understand that, when they sign a s87B undertaking, they are exposed to a range of broad and open-ended remedies if the undertaking is breached. The court can order the company in breach of the undertaking to:

• pay to the Commonwealth the amount of the financial benefit obtained directly or indirectly and reasonably attributable to the breach and / or 

• compensate any other person who has suffered loss or damage as a result of the breach. 

An order to pay the Commonwealth the amount of the financial benefit obtained could be a significant sum of money, for example, all the revenue that a misleading advertising campaign has generated.

In dealing with the ACCC, companies should seek to enter into a dialogue about the reasons why it is seeking a s87B undertaking. The ACCC usually tries to resolve investigations in one of three ways: an administrative undertaking, a s87B court enforceable undertaking, or through court action. 

The ACCC will generally take court action if:

• a company refuses to provide remedies to resolve a TPA problem 

• the contravention is considered to be particularly blatant or 

• the company is a repeat offender.

However, the basis for an ACCC decision to seek a s87B undertaking is often far from clear. Some people see the s87B undertaking as constituting a greater punishment than an administrative undertaking. There are strong grounds for arguing that a s 87B undertaking should only be sought if the ACCC has genuine concerns that your company cannot be trusted to comply with the terms of an administrative undertaking.

The best way for you to reduce the likelihood of the ACCC requiring a s 87B undertaking is to start implementing corrective remedies prior to the settlement of the investigation. Your company will thus be able to counter any claims by the ACCC that a s87B undertaking is required because it cannot be trusted to implement the agreed remedies.

A further benefit of implementing remedies at an early stage is that you will remove much of the ACCC’s leverage in the settlement negotiations. The main leverage which the ACCC has in seeking a s87B undertaking is that it will commence legal proceedings unless your company agrees to the undertaking. However if some of the proposed remedies have already been implemented, there is very little justification for the ACCC to go to court to get the balance of the remedies it is seeking.

[1] ‘GIO provides 2,800 GST refunds on car leases’ ACCC media release MR 231/00, 24 August 2000 - http://www.accc.gov.au/content/index.phtml/itemId/87475/fromItemId/621406

[2] See also C Anderson ‘Managing communications and reputation’ Keeping good companies, Vol 60 No 9, pp. 565-568.[3] See also C Coops ‘Take it away! – approaching section 87B undertakings in a merger context’, Keeping good companies, Vol 60 No 8, pp. 481-483.