Stephens Lawyers & Consultants Legal Update: January 2013

Federal Court rules that the ‘corporate world should know that it is wrong to engage in … deceptive business practices and doing so will incur the risk of large penalties’

Business should be aware that there are significant penalties that attach to offences under the Australian Consumer Law and recent court decisions indicate that the courts will impose substantial penalties.

These penalties came into effect with the Australian Competition and Consumer Act 2010 on 1 January 2011. Businesses that are found to be in breach of section 29 of the Australian Consumer Law for making false or misleading representations in respect of supply or possible supply of goods and services can be liable for civil penalties of up to $1.1 million for each act or omission.1 Significantly, company directors and individual employees can also be personally liable to pay pecuniary penalties in respect of each contravention of section 29.2

The Australian Consumer Law prohibits companies from indemnifying directors in respect of any liability to pay penalties under the Australian Consumer Law and from any legal cost incurred in defending an action where a director is found to be liable.3 However, a defence is available to employees and directors where they can establish that in making the false or misleading representations, they acted honestly or reasonably in the circumstances.4

Since the ACCC has begun to enforce the Australian Consumer Law, the courts have made orders for penalties of over $1 million, six times.5  One such example was in ACCC v Energy Watch Pty Ltd [2012] FCA 749. The case concerned a wide range of claims that Energy Watch had made over a variety of mediums including internet, television, radio and print advertisements.6 The charges related to the claims that Energy Watch could give residential electricity customers a saving of $386 over a 12 month period7 and business customers a saving of $1,878 over the same period.8 These representations were found to be false by the Federal Court as they lacked an adequate basis, in contravention of section 29.9

Significantly, Energy Watch’s former CEO and director, Ben Polis, was found to be personally liable to pay a penalty of $65,000. As the figurehead of Energy Watch, Mr Polis had appeared in many of the advertisements that contained the false representations.10 The court held that as Mr Polis was the CEO and a director of Energy Watch, his appearance in the advertisements had added significant gravitas and had compounded the effect that the false representations had, as opposed to if an actor or voiceover artist had been used.11

The Energy Watch decision is the most recent example of the courts ordering large penalties for breaches of the Australian Consumer Law. In making the order for a penalty of $1.95 million against Energy Watch, Justice Marshall noted that deterrence was a strong consideration in awarding such a high penalty, saying that the ‘corporate world should know that it is wrong to engage in such deceptive business practices and doing so will incur the risk of large penalties’.12

Apple was also fined $2.25 million under the Australian Consumer Law for making the misleading claim “iPad with WiFi + 4G”.13 This claim appeared on Apple’s website, on signage contained on demonstration units and on promotional and marketing material.14 The Federal Court held that Apple was liable under section 33 of the Australian Consumer Law for making the misleading claim about the nature of its iPad product as it was unable to connect to the Telstra’s 4G network, which the court held had been implied in the representation.15

The Government has provided the ACCC with $12.8 million over the next four years in an effort to counter breaches of the Australian Consumer Law and the strong message coming from the judiciary is that breaches of the Australian Consumer Law will be handed high penalties as a deterrent to others – businesses should therefore take note that the era of taking calculated risks in respect of Consumer Law is coming to an end.16

Business can minimise the risk of breaches of the Australian Consumer Law by appropriate staff training in respect of their Australian Consumer Law obligations and by careful review of all advertising and marketing material before dissemination.

For further information contact:

Katarina Klaric
Principal
Stephens Lawyers & Consultants

Suite 205, 546 Collins Street
Melbourne VIC 3000
Phone: (03) 8636 9100
Fax: (03) 8636 9199
Email: [email protected]ephens.com.au
Website: www.stephens.com.au

All Correspondence to:
PO Box 16010
Collins Street West
Melbourne VIC 8007

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Disclaimer: This newsletter is not intended to be a substitute for obtaining legal advice.

© Stephens Lawyers & Consultants. January 2013. Authored by Katarina Klaric and Matthew Churkovich.

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Sections 29 and 224(3) Australian Consumer Law Schedule 2 of the Australian Competition and Consumer Act 2010.
2 Section 224(1) Australian Consumer Law Schedule 2 of the Australian Competition and Consumer Act 2010.
3 Section 229 Australian Consumer Law Schedule 2 of the Australian Competition and Consumer Act 2010.
4 Sections 226 Australian Consumer Law Schedule 2 of the Australian Competition and Consumer Act 2010.
5 ACCC Press release “ACCC and AER Issue Joint Annual Report 2011-2012” dated 16 October 2012.
6 ACCC v Energy Watch [2012] FCA 749 [1].
7 ACCC v Energy Watch [2012] FCA 749 [3].
8 ACCC v Energy Watch [2012] FCA 749 [5].
9 ACCC v Energy Watch [2012] FCA 749 [1].
10 ACCC v Energy Watch [2012] FCA 749 [25].
11 ACCC v Energy Watch [2012] FCA 749 [5].
12 ACCC v Energy Watch [2012] FCA 749 [13].
13 ACCC v Apple Pty Limited [2012] FCA 646 [51].
14 ACCC v Apple Pty Limited [2012] FCA 646 [1].
15 ACCC v Apple Pty Limited [2012] FCA 646 [26].
16 Prime Minister’s Press Release, ‘New Funding for ACCC to crack down on misleading carbon price claims’, 13 July 2011.