Untruth and consequences – the cost of misleading consumers about their rights

By Deborah Polites, Chris McLeod, Rebecca Lobb
19 Sep 2019
A "per contravention" penalty at this level is a sobering reminder that there is no tolerance for misleading consumers as to their rights under the statutory consumer guarantees.

The Federal Court has ordered LG to pay a penalty of $80,000 per consumer for making misleading representations to two consumers about their rights under the Australian Consumer Law (ACL). While the case involved only two instances of misleading conduct, it sets a benchmark for a high "per contravention" penalty that could have very significant ramifications in cases where the conduct involves greater numbers of consumers (Australian Competition and Consumer Commission v LG Electronics Australia [2019] FCA 1456).

The penalty arose from an ACCC action against LG that originally involved 41 instances of alleged misleading statements by LG to consumers, repairers and retailers. Following a hearing in the Federal Court and subsequent appeal to the Full Court, the Full Court's finding was that LG had engaged in misleading or deceptive conduct in only two cases. The case was then remitted to the trial Judge, Justice Middleton, to set the level of the pecuniary penalty.

The two consumers believed they had purchased faulty televisions. In phone conversations with the consumers, LG representatives implied that consumers' rights under LG's manufacturer's warranties were the only rights the consumers had if their televisions were faulty. In fact, consumers also have rights under the statutory consumer guarantees in the ACL in a number of situations, including if products are defective. In the case of a "major failure" in the product (as defined in the ACL) those rights include the right to receive a refund or replacement product.

As a result, statements by LG representatives implying that there was nothing further that could be done outside the terms of the manufacturer's warranty were misleading. The ACL specifically provides that it is a contravention to make a false or misleading statement about consumers' rights, including about their rights under the statutory consumer guarantees.

Notably, the ACCC did not assert that LG had engaged in a systematic course of conduct involving contravention of the ACL. However, the ACCC did suggest that the two examples suggested that the process of training new call centre staff was evidently ineffective. The Judge concluded that the two contraventions were "relatively isolated instances; they were cases of understandable human error that took place in a call centre that received thousands of calls every month and in the context of a complex legal regime".

In setting the penalty at $80,000 per contravention, the Judge took into account a number of factors that tended to mitigate LG's conduct:

  • LG had internal policies designed to ensure that the requirements of the ACL were followed when dealing with customer complaints;
  • LG's customer service training and processes were considered adequate;
  • the contravening statements were made by low-level customer service agents in contravention of LG's internal policies and procedures and so were not authorised by senior LG personnel;
  • LG was able to demonstrate that it had regard to its obligations under the ACL and provided adequate staff training and had implemented appropriate ACL compliance policies and procedures;
  • there was no proof of misleading conduct involving many products, or over an extended period or territorial area;
  • there was no evidence of any earnings to LG as a result of the contraventions;
  • the customers involved understood their rights were not, in fact, misled;
  • the customers did not suffer loss or damage as a result of the contraventions; and
  • earlier instances of non-compliance by LG were very different to the misleading conduct being considered and were therefore not relevant.

The Judge also noted that pecuniary penalties are not to be imposed at a higher rate than is otherwise appropriate simply because a company has significant financial resources, and that pecuniary penalties for a relatively minor contravention should not be set so high as to make it seem impossible for a compliance programme ever to be effective.

In setting a penalty of $80,000 for each of the two contraventions, the Judge appears to have been mindful of the overall penalty that would be imposed – a comparatively modest one, by comparison to penalties that have amounted to millions of dollars for more widespread contravening conduct. Nevertheless, a "per contravention" penalty at this level is a sobering reminder that there is no tolerance for misleading consumers as to their rights under the statutory consumer guarantees.

The penalty represents a baseline penalty for a relatively minor contravention of the ACL in the presence of many mitigating factors – at a level that could result in a very high total penalty if applied in a case involving a larger number of contraventions. The ACCC has commented that the case is "a reminder that making misleading statements about consumer guarantee rights, even to only one or two consumers, can result in penalties being imposed". The ACCC can be expected to continue its pursuit of such cases, particularly in the context of the interaction between manufacturer's warranties, "extended warranties" and the statutory consumer guarantees, and to seek high penalties.

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