The Australian Competition and Consumer Commission (ACCC) continues to focus on misleading and deceptive advertising and communication strategies adopted by businesses selling products and services as an enforcement priority. This article considers a selection of recent decisions of the Federal Court of Australia in proceedings commenced by the ACCC, where breaches of the misleading and deceptive conduct provisions of the Australian Consumer Law (ACL) have occurred in connection with advertising content and consumer communications. These decisions were made leading up to and following the announcement of the ACCC's key priorities for 2015, one of which was 'truth in advertising'.

Advertisements as to Performance Characteristics and Benefits of Products

In ACCC v Reebok Australia Pty Ltd [1] the Federal Court of Australia examined the conduct of Reebok Australia Pty Ltd (Reebok Australia) relating to the promotion and sale of its EasyTone shoes from September 2011 to February 2013 . Reebok Australia made representations to the effect that wearing EasyTone shoes would increase muscle tone in the wearer's calves, thighs and hamstrings by up to 11%, buttocks by up to 20% and more broadly made the claim that muscle tone would increase to a greater extent than when wearing traditional walking shoes (Promotional Statements). Some or all of the Promotional Statements were displayed on shoeboxes, swing-tags attached to the shoes (Shoe Box Promotional Material) and on in-store promotional materials such as posters and mats (In-Store Promotional Material). The Federal Court of Australia also considered the adequacy of the remedial steps taken by Reebok Australia to attempt to comply with the ACL after it was approached by the ACCC in relation to the Promotional Statements.

One important matter before the Federal Court of Australia was that the USA Federal Trade Commission (FTC) had already taken investigative and enforcement action against Reebok International Ltd (Reebok International) for deceptive advertising in relation to the Promotional Statements used to advertise and sell the same EasyTone shoes in the USA. The FTC and Reebok International reached a settlement in respect of that action in late September 2011. The settlement prohibited Reebok International from making representations in the United States to the effect of the Promotional Statements and/or misrepresenting the results of any tests or research undertaken in connection with the EasyTone shoes. The settlement also resulted in judgement being entered in favour of the FTC in the amount of US$25 million for consumer redress (FTC Settlement).

In the course of the proceedings, McKerracher J considered evidence that three senior managers of Reebok Australia were notified by Reebok International of the FTC Settlement. In response to this notification, the Brand Manager of Reebok Australia sent a direction by email to all agents in Australia which stated that Reebok Australia"… will have to limit the claims we make about our products in the toning category until new testing is conducted and proven successful. These guidelines have already been communicated to our marketing team."

This direction was followed up with an email sent by the marketing and sales manager to the state managers, commission agents and Account Management team of Reebok Australia asking that they contact EasyTone retailers and arrange for the removal of point of sale and other in-store advertising material featuring certain Promotional Statements. No further action was taken to confirm that the direction had been followed.

The Federal Court of Australia found that Reebok Australia was complacent in its compliance with the ACL, finding that it did not have a compliance program in place and the steps it took to remove the In-Store Promotional Material were inadequate. The Court was particularly concerned by Reebok Australia's conduct in relation to the Shoe Box Promotional Material because "it continued to sell the shoes using [the Shoe Box Promotional Material] in significant volumes, did not take any action to remove it until some 14 months after the FTC Settlement and did not even consider that the [Shoe Box Promotional Material] was advertising." The Court also found that Reebok Australia did not make any attempt to verify whether there was a scientific basis for making the Promotional Statements.

The Deputy Chair of the ACCC, Delia Rickard said about Reebok Australia "[w]here businesses claim their products have certain performance characteristics and benefits, they have a responsibility to ensure that those claims are accurate and supported by credible evidence." [2]

Reebok Australia was ordered to pay the sum of AUD350,000 to publish corrective notices and to provide a refund of AUD35 to consumers who purchased a pair of the EasyTone shoes between September 2011 to February 2013.

Advertisements as to Quality, Standard and Grade of Products

Another recent decision concerning contraventions of the equivalent provisions of the former Trade Practices Act 1974 (Cth) (TPA) was made against Dateline Imports Pty Ltd (Dateline) and the Managing Director of Dateline, who was a respondent in the proceedings. [3] Dateline's impugned representations related to a hair smoothing product known as Keratin Complex Smoothing Therapy (Keratin Product) which Dateline imported into Australia. Dateline published multiple magazine advertisements which stated that the Keratin Product contained 35% Keratin (Advertisements) when in fact it contained only 3%. Dateline also sent a letter to some of its customers, potential customers and competitors, in which it represented that a ban imposed on the sale of the Keratin Product in Ireland because it contained excessive amounts of formaldehyde would be overturned (Letter) when there was no reasonable basis for the claim.

In assessing the amount of damages to be paid by Dateline Rangiah J considered that the misleading representations were not the dominant message, that small wording was used and the representations were not emphasised. Further, Dateline engaged in corrective behaviour when it found out that representations made to it by its supplier about the composition of the Keratin Product were untrue. Rangiah J acknowledged that Dateline's contravening conduct was not deliberate but found that Dateline ought to have made its own enquiries as to the composition of the Keratin Product and should have verified the accuracy of the representations made by the supplier. In this context, Rangiah J said "I do not accept that this is a case where [Dateline] could not have found out the truth" and imposed a pecuniary penalty of AUD85,000 as a deterrent to both Dateline and other corporations against engaging in similar conduct.

Dateline's managing director, who approved the content of the Letter and signed it, knowing it to be misleading, was not ordered to pay any pecuniary penalty but was found to have been knowingly concerned in Dateline's contravention of the TPA in relation to the representations made in the Letter.

Advertisements as to the Price of Products

In the recent Federal Court of Australia decision of ACCC v Actrol Parts Pty Ltd [4] (Actrol), Actrol admitted to making false, misleading and deceptive representations, including in relation to pricing.

Actrol's breaches of the ACL arose from its explanation to customers, in a letter sent by email to approximately 8000 customers and published on its website, about its reasons for increasing the prices of the hydrofluorocarbon refrigerants (HFCs) it imported into Australia. In anticipation of an increase in the import levy – resulting from the imposition of an equivalent carbon price levy (ECPL) after 1 July 2012 – Actrol implemented a pricing strategy which included taking steps to:

• import extra HFCs before the introduction of the higher levy so that its storage facilities were full
• adopt a cylinder quote management system based on its customers' historical usage data, to meet any additional orders from its customers before the levy increase
• ensure that it would import six months supply of HFC prior to 1 July 2012
• announce the price increase in June 2012 which would include the higher import levy plus 15-20% to take effect from 1 July 2012.

Actrol's national sales and marketing manager drafted a letter to customers which explained that the price increase affecting various HFCs was due to "changes in input costs and general market conditions …". The letter was approved by Actrol's then managing director. By sending the letter, Actrol made two key representations to its customers. The first representation was that the price changes were due to input cost alterations and changes in market conditions, when in fact this was not the reason for the price increases, as Actrol had protected itself from the effects of the higher levy until the middle of 2013. The second representation which was found to be implied by the content of the letter was that the price increases were due to the introduction of the ECPL under the carbon tax scheme. However, the increases were actually due to a combination of factors, and not solely the ECPL. Actrol was fined AUD520,000 for the contraventions.

Key Learnings

The decisions considered in this Legal Insight demonstrate the importance for businesses advertising goods and services to: 

• take steps to independently verify the accuracy of representations made in relation to the benefits, performance characteristics and/or price of any products and services offered to consumers or potential consumers 
• ensure that the marketing, communications and management teams responsible for the creation, verification and approval of advertising content and consumer communications are familiar with and comply with the business's obligations arising under the misleading and deceptive conduct provisions of the ACL. One important method by which this may be achieved is by implementing a compliance program which provides:
  • practical guidance with respect to the creation, verification and approval of advertising content and consumer communications within the requirements of the ACL 
  • remedial steps and strategies to respond promptly and adequately to any breach or potential breach of the ACL brought to the attention of the business by the ACCC.

The current maximum pecuniary penalty for a contravention of section 29 of the ACL is AUD1.1 million for a corporation. Where the ACCC has reasonable grounds to believe that a breach of section 29 has occurred, it can issue an infringement notice of up to AUD10,200 for a corporation or up to AUD102,000 for a listed corporation.

[1] Australian Competition and Consumer Commission v Reebok Australia Pty Ltd (2015) FCA 83.

[2] Australian Competition and Consumer Commission 'Reebok Australia to pay $350,000 for false and misleading representations' (Media Release, MR 259/14, 23 October 2014).

 [3] Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791 and Australian Competition and Consumer Commission v Dateline Imports Pty Ltd (No 2) [2014] FCA 1222.

[4] [2015] FCA 312.