01 June 2021

A word of warning from the lawyers: ACCC prosecutions and heavy fines can result from false or misleading advertising and promotional campaigns

This article was published in the Hire and Rental News magazine May 2021 issue, page 50.

According to figures published by the Australian Competition and Consumer Commission (ACCC) $198.2 million in penalties were handed down by Courts in relation to consumer protection actions commenced by the ACCC against businesses in the financial year ending 30 June 2020. 

In this article we explain some of the key provisions of the Australian Consumer Law that relate to false or misleading advertising and promotional campaigns and the lessons to be learned by businesses, including hire and rental businesses, from recent ACCC prosecutions.

The ACCC and the Australian Consumer Law

The Australian Consumer Law (ACL) is a national law for the promotion of fair trading and consumer protection.  Broadly speaking the ACL prohibits a range of dishonourable conduct that may affect consumers and provides consumer guarantees with respect to goods and services.  The ACCC regulates the ACL and it has a wide range of enforcement powers to ensure that businesses comply.  In a nutshell if you sell goods or services (whether as an individual or a business) to consumers or small businesses then you will most certainly be bound by the provisions of the ACL.

Key concepts

The ACL affects the supply of good or services to a ‘consumer’ and it affects conduct ‘in trade or commerce’. 

  • A consumer is a person who acquires:

    • goods or services for less than $40,000. From 1 July 2021 that threshold is going to increase to $100,000; or

    • goods or services of a kind ordinarily acquired for personal, domestic or household use; or

    • a vehicle or trailer for transport of goods on the road.

  • Trade or commerce includes any business or professional activity (whether or not carried on for profit).

What sort of conduct is prohibited by the ACL?

Misleading or Deceptive Conduct

The ACL provides that “a person must not in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.  This is one of the most litigated pieces of legislation in Australia.

Conduct can be statements (oral or written), it can be actions or even failing to do or say something.  The term ‘misleading or deceptive’ is not defined in the ACL.  The threshold test is if the overall impression of the conduct induces or is capable of inducing error.  Whether particular conduct is misleading or deceptive is a question of fact to be determined in the context of the circumstances of the alleged conduct as a whole.  It does not matter whether or not there was an intention to mislead. 

Misleading or deceptive conduct applies across a broad spectrum of conduct – whether directed to the public at large, for example advertising campaigns, or to private negotiations between two parties.  Where the public is involved the ‘reasonable person’ test is applied i.e. the ACL is there to protect the ‘reasonable person’. 

Statements that have multiple meanings or half truths carry greater risk and even statements that are literally true and accurate may carry with it a misleading impression.  Silence can also be misleading.  A failure to correct a true representation which later becomes untrue may be misleading.  It is also important to note that correcting a misleading statement does not absolve liability, the conduct is considered at the time that the statement is made.

False or Misleading representations

The ACL also prohibits false or misleading representations about goods and services including for example, their price, standard, quality, value or grade.

Consequences of getting it wrong

The consequences for businesses of breaching the ACL can be severe with the Courts imposing damages, compensatory orders and injunctions.  For false or misleading representations the Court can also impose adverse publicity orders and pecuniary penalties.  The maximum penalties per breach of the ACL for making false and misleading representations are the greater of: $10 million; or three times the value of the benefit; or 10% of annual turnover for corporates; or $500,000 for individuals.

Case studies - advertising and promotional campaigns that breached the ACL

Boundaries are often pushed when it comes to advertising goods and services.  After all advertising is all about inducing or enticing consumers to buy your products or services.  It is an area where misleading conduct and false or misleading representations easily occurs. 

Case Study #1: ACCC v GlaxoSmithKline Consumer Healthcare Australia Pty Ltd

GlaxoSmithKline and Norvatis were involved in marketing and selling ‘Osteo Gel’ and ‘Emulgel’ as different products. Osteo Gel was sold for a higher price and was represented to be more effective than Emulgel. However, both products were found to be the exact same product as they contained the same active ingredients and were equally effective in treating local pain and inflammation.

The ACCC brought proceedings for misleading and deceptive conduct, false or misleading representations about the gel and misleading conduct as to the nature, manufacturing process and characteristics of the goods.  The concern being that consumers were potentially misled in to paying more for an identical product believing that it was more effective.

PENALTY: GlaxoSmithKline was ordered to pay $1.5 million and Norvatis was ordered to pay $3 million.

Case Study #2: ACCC v Oscar Wylee P/L

The ACCC commenced action against glasses company Oscar Wylee, who had run a ‘buy a pair, give a pair’ promotion that for every pair of glasses purchased, the company would donate a pair glasses to someone in need.  However, out of 328,010 pairs of glasses sold, the company only donated 3,181 frames, without lenses, to charity.

The Court found that Oscar Wylee was guilty of engaging in contravening conduct, which took advantage of the charitable nature and goodwill of customers, to induce customers to buy products.

PENALTY: $3.5 million, restraining orders, an order that Oscar Wylee publish corrective notices, orders to review its ACL compliance program, and an order to contribute to ACCC’s costs.

Case Study #3: ACCC v Kogan Australia Pty Ltd

Kogan, a well-known online shopping platform in Australia, was found to have misled consumers by advertising that customers could use the code ‘TAXTIME’ to reduce prices by 10% at the checkout.  However, the Court found that the price of 621 products had been increased by 10% immediately before the promotion. 

PENALTY: $350,000 and an order to pay ACCC’s costs.

Key tips and takeaways

  • Ensure all advertising and other promotional material contains accurate statements about the qualities and other characteristics of your goods or services.

  • Ensure you can substantiate all goods and services claims, statements and representations with actual proof.

  • Ensure that everything you say about your goods and services is not only accurate, but not likely to mislead anyone.

  • Don’t remain silent when it is necessary to say something to prevent someone from being misled. If you think a customer is not sure about a particular deal, term or feature of a product or service, then make it clear.

  • Don’t use deceptive pricing practices. For example, an ‘original price’ must have been the original price for a reasonable time.

  • Don’t make predictions without reasonable grounds.

  • Don’t hand out material prepared by others without checking accuracy.

  • Seek advice if you suspect proposed statements or conduct may be misleading.

 

Authors: Jennifer Shaw, Michael Cossetto and Rebecca Renshaw.