June 2017

A case of smoke without fire: international tobacco retailer’s claims held to be misleading and deceptive under the Australian Consumer Law

If you are an international online retailer, think twice before assuming you won’t fall into the broad net of the Australian Consumer Law (ACL).[1]

The facts

Elusion Australia Limited (Elusion), a company registered in New Zealand, promoted and sold e-cigarette products to consumers in Australia, including on its website.

Between August 2015 and June 2016, Elusion made representations on its website that its e-cigarette products did not contain:

  • Harmful chemicals, cancer-causing chemicals or carcinogens.

  • Harmful chemicals, cancer-causing chemicals or carcinogens found in tobacco cigarettes.

  • Any of the chemicals found in tobacco cigarettes.

What did the Australian consumer watchdog allege?

The Australian Competition and Consumer Commission (ACCC) alleged that the representations had the ability to mislead consumers about the health effects of non-nicotine e-cigarettes. More specifically, the ACCC argued that, by making the representations, Elusion had breached the ACL in the following ways:

  • By engaging in conduct that was misleading or deceptive, or likely to mislead or deceive.[2]

  • By making false or misleading representations that goods were of a particular composition in connection with the supply or possible supply, and the promotion of the supply or use of goods.[3]

  • By engaging in conduct that was likely to mislead the public about the nature or characteristics of goods.[4]

The ACCC also alleged that John Dennis Burden, the managing director of Elusion, was directly or indirectly concerned in, or a party to, the above breaches because he had knowledge of Elusion’s conduct.[5] 

Elusion rolls over and admits to allegations

In an interesting twist, Mr Burden appeared on behalf of himself and Elusion. He admitted to the allegations made by the ACCC. As a result, the parties negotiated the matter and sought orders and declarations from the Court by consent.

The Court exercised its discretion and agreed that the orders sought by the parties were appropriate. Accordingly, the Court made the following orders:

  • Elusion was fined $40,000.

  • Mr Burden was fined $15,000.

  • Both Elusion and Mr Burden were restrained from further making the representations.

  • Elusion was ordered to remove all advertising or promotional material containing the representations within seven days.

  • Elusion was ordered to publish details of its breach on its website for a 90-day period.

  • Mr Burden was ordered to attend and undertake a training session on obligations and responsibilities under the ACL and to provide the ACCC with a certificate of completion.

  • Each of Elusion and Mr Burden were ordered to pay $5,000 to the ACCC for its costs. Although the ACCC had incurred higher costs in litigating the matter, it did not claim its full costs due to the cooperation of the parties in settling the matter.

What should you take away?

Directors may be personally liable for breaching the ACL

If you are a director of a company operating in the retail sector, you may be held personally liable if your company breaches the ACL. 

One of the advantages of trading as a corporation is that it enjoys limited liability and has a separate personality from its directors (except in limited circumstances).

In this case, Mr Burden was also fined because he had knowledge of the essential elements of Elusion’s breach of the ACL. In addition, he was knowingly concerned in or a party to those breaches.  In its judgment, the Court referred to Mr Burden as being the ‘controlling mind’ of Elusion.

The ACL can apply to companies based overseas

Although Elusion is registered and based in New Zealand, the ACCC used the following facts to argue that the representations took place in Australia and, as a result, that the ACL applied:

  • The website stated that Elusion shipped products Australia-wide.

  • The website quoted prices in Australian dollars.

  • Elusion had accepted payment from customers in Australian dollars.

The decision in this case echoes the ACCC’s earlier success against international gaming company Valve Corporation, which had made misrepresentations about consumer guarantees on its website, in breach of the ACL.[6]  Both cases show that the ACCC is taking action against businesses that breach the ACL, regardless of whether or not they are based in Australia.

Would you like to find out more?

If you are an international business supplying goods or services to consumers in Australia and want a clear understanding of your obligations under the Australian Consumer Law, contact us.

Author: Priti Joshi

 

[1] Australian Consumer Law, Competition and Consumer Act 2010 (Cth), schedule 2 (ACL).

[2] In breach of section 18 of the ACL.

[3] In breach of section 29(1)(a) of the ACL.

[4] In breach of section 33 of the ACL.

[5] In breach of sections 224(1)(e) and 232(1)(e) of the ACL.

[6] Australian Competition and Consumer Commission v Valve Corporation (No 3) (2016) 337 ALR 681.