The push to increase penalties for breaches of the Australian Consumer Law

Key takeaways

The Australian Competition and Consumer Commission (ACCC) has announced its intention to pursue higher penalties for breaches of the Australian Consumer Law (ACL). With support from the Productivity Commission’s preliminary report into ‘Consumer Law Enforcement and Administration’ and citing encouragement from the courts, the ACCC is poised to:

“continue to advocate for higher penalties for breaches of Australia’s consumer laws to ensure that they act as an effective deterrent and are not simply viewed as a cost of doing business” – ACCC Chairman Rod Sims¹

Call for legislative change

The ACL currently provides for maximum financial penalties of $1.1 million for companies and $220,000 for individuals for each contravention. These amounts have remained unchanged since 2011. The effectiveness of these maximum penalties is in question. Submissions, including those lodged by the ACCC, to the ongoing Productivity Commission enquiry into Consumer Law Enforcement and Administration have argued the ACL maximum penalties are “too low and need to be increased if they are to act as an effective deterrent.”

One option proposed by Consumer Affairs Australia and New Zealand (CAANZ) in the Australian Consumer Law Review Interim Report is to mirror the penalty provisions applying to the competition provisions of the Competition and Consumer Act 2010(Cth) (CCA). Utilising this approach, the maximum penalty for a breach of the ACL by a company would be the greater of:

• $10 million;

• three times the value of the benefit the company received from the breach; or

• 10 per cent of annual turnover in the preceding 12 months if the benefit cannot be determined.

The maximum penalty for an individual would be increased to $500,000. Each of these maximums applying for each contravention.

The Productivity Commission Draft Report endorses consideration of the CAANZ’s recommendation:

“DRAFT FINDING 4.4: Australian governments should increase maximum penalties for breaches of the ACL. They should consider the option, being examined by CAANZ, of aligning them with the penalties for breaches of competition provisions in the Competition and Consumer Act 2010.”

Legislative change – Where next?

The Productivity Commission’s final report is expected to be handed to the Australian Government in March 2017 and publicly released shortly thereafter after. We expect the Productivity Commission to maintain its draft finding that Australian governments should increase maximum penalties for breaches of the ACL and consider the option of aligning the ACL penalties with the penalties for breaches of the CCA competition provisions.

A snapshot – Two multimillion dollar consumer protection judgments

The ACCC’s push for higher penalties is in line with recent multimillion dollar judgments against Reckitt Benckiser Australia and the Valve Corporation, both of which are seen as encouragement from the courts.

Penalty pain: ACCC v Reckitt Benckiser Australia

The Federal Court held that Reckitt Benckiser Australia engaged in conduct liable to mislead the public as to the nature, characteristics or suitability for purpose of the Nurofen suite of pain relief products by representing on the packaging of their products, and its website, that those product were formulated to treat specific ailments (tension headaches, back pain, period pain and migraine pain). In fact each product contained the same active ingredient (342mg of ibuprofen lysine), which treats all pain in the same way and does not target any particular type of pain.

The ACCC’s submissions sought $6 million in penalties while inviting the Court to consider a higher amount.² However the Court at first instance, after finding the infringement was not deliberate and that the only potential effect of the conduct on consumers or competitors was monetary (the products effectively treated the pain that they represented), imposed a penalty totalling $1.7 million.

The ACCC appealed the decision submitting the $1.7 million penalty was “manifestly inadequate”. The Full Federal Court agreed. It upheld the appeal and imposed a penalty of $6 million. The Court noting the penalty “could have been many millions more, the ACCC’s figure of $6 million being at the bottom of the appropriate range in all the circumstances of this case”. In substantially increasing the penalty amount the Court emphasised deterrence and observed that the “case involves a clear example of the need for the application of the deterrence objective” of civil penalties, that is, to promote the public interest in compliance – stating:

“The objective of any penalty in this case must be to ensure that Reckitt Benckiser and other “would-be wrongdoers” think twice and decide not to act against the strong public interest in consumers being able to making decisions about buying non-prescription medicines free from representations that are liable to mislead and thereby distort their decision-making processes.”³

Full steam ahead: ACCC v Valve Corporation

The importance of deterrence was also clearly evident in the ACCC action against Valve Corporation (Valve).

Valve is an American based digital entertainment technology company selling digital media through its distribution platform ‘Steam’. In March last year the Federal Court held Valve via its Steam Subscriber Agreement and Steam Refund Policy had breached the ACL by engaging in misleading and deceptive conduct and by making misleading representations concerning the existence, exclusion or effect of consumer guarantees to Australian consumers. The Subscriber Agreement and Refund Policy contained unlawful representations that:

• consumers had no entitlement in any circumstances to a refund from Valve for purchases;
• excluded or modified the statutory guarantees or warranties of acceptable quality; and
• consumers had no entitlement to a refund from Valve for purchases.

At the relief hearing the ACCC proposed a penalty of $3 million. Valve submitted the Court should impose a penalty of $250,000. The Court adopted the comments of, now, High Court Chief Justice Kiefel and Justice Burchett in NW Frozen Foodsin relation to the principles applicable to the determination of pecuniary penalties:

“[t]he Court should leave no room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay”⁴

The Court rejected Valve’s penalty submission emphasising that it is “not even a real cost of doing business” and would “barely be noticed.” The Court noted that even counsel for the company accepted the amount was “next to nothing” for a corporation of Valve’s size and with its revenues.

Both Valve and the ACCC have since lodged appeals. Valve’s appeal challenges the Court’s findings, the penalties awarded and other orders. The ACCC’s cross-appeal disputes two findings that statements made by Valve during online chats with consumers were not misleading because those consumers asserted their rights under the Australian Consumer Law and were, therefore, not mislead.

Our prediction for ACL penalties

We predict:

• the Productivity Commission to maintain its draft finding supporting increased ACL penalties, by recommending consideration of aligning the ACL penalties with the CCA competition penalty provisions;
• the introduction of legislation increasing the maximum ACL penalties;
• the ACCC to continue to advocate for higher penalties to deter breaches of the ACL; and
• Australian Courts will continue the recent trend of imposing increased penalties for breach of the ACL having regard in particular to the size, market share and financial position of the offending company or individual and the benefits derived and losses suffered as a consequence of the offending conduct.

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¹Rod Simms, ACCC media release, 29 March 2016, ‘Federal Court finds Valve made misleading representations about consumer guarantees’.
²Rod Sims, ABC News interview, 26 April 2016, ‘ACCC calls for increase to maximum penalties for breaches of consumer laws’, transcript at: http://www.abc.net.au/news/2016-04-29/accc-calls-for-increase-to-maximum-penalties-for/7372356

³Australian Competition and Consumer Commission (ACCC) v Reckitt Benckiser (Australia) Pty Ltd[2016] FCAFC 181, [150].
⁴NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission(1996) 71 FCR 285, 294–295.

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