18 Jul 2013

ACCC using misleading conduct provisions to police consumer guarantees compliance

by Matthew Battersby, Bruce Lloyd

The HP decision is another reminder for businesses to ensure customer-facing staff are properly trained and understand that voluntary warranties and in-store returns policies are in addition to, and not a substitute for, consumers' rights under the Australian Consumer Law.

The ACCC has secured a $3 million pecuniary penalty and a suite of serious compliance orders in its case against Hewlett-Packard Australia Pty Ltd (HP) for misleading and deceptive conduct. The ACCC commenced proceedings against HP in October 2012 and the Federal Court handed down its decision on 5 July 2013 (Australian Competition and Consumer Commission v Hewlett-Packard Australia Pty Ltd [2013] FCA 653).

The HP case concerned misleading representations made by HP to consumers and resellers over a 21-month period in relation to the remedies available for HP products which were not of acceptable quality.

HP initially defended the proceedings but subsequently accepted liability and admitted to the six alleged contraventions of the Australian Consumer Law (ACL). The ACCC was successful in obtaining all of the orders sought in its Fast Track Application (subject to a few agreed variations).

The HP decision has a number of significant implications for businesses because:

  • it was the first high-profile consumer guarantees case brought by the ACCC. Previous ACL penalty cases have primarily concerned advertisements (eg. Optus, TPG, Harvey Norman);
  • it represents the second highest pecuniary penalty which has been imposed by the Federal Court for an ACL breach;
  • most of the conduct occurred by HP staff in overseas call centres and demonstrates the clash between the terms of voluntary express warranties and the non-excludable statutory consumer guarantees;
  • the ACCC chose to use the Federal Court's fast-track procedures which provide for a compressed timetable; and
  • it will shape the ACCC's thinking and sets a precedent for future penalty proceedings commenced by the ACCC in respect of the consumer guarantee provisions.

Educating consumers about the ACL consumer guarantees regime and taking action against businesses who make misleading representations to consumers are current priorities of the ACCC.

ACL consumer guarantees regime

The ACL commenced on 1 January 2011 and contains non-excludable statutory consumer guarantees and remedies which apply to goods and services supplied to consumers.

The ACL contains a guarantee that goods sold to consumers are of "acceptable quality". This guarantee provides protection for consumers who are supplied with goods which may be faulty, defective, unsafe, not fit for their purpose etc. In these circumstances, consumers are entitled to certain statutory remedies from a retailer (eg.repair, replacement, refund). The ACL provides the retailer with an indemnity right against the manufacturer where the retailer provides a repair, replacement or refund for goods which are not of acceptable quality.

Businesses who make false or misleading representations about the existence, exclusion or effect of the statutory consumer guarantees and remedies face a penalty of up to $1.1 million per contravention.

ACCC's case against HP

The ACCC's case against HP comprised a consumer case and a reseller case.

The consumer case concerned the following representations made by HP to consumers about the remedies available for HP products which were not of acceptable quality:

  • Consumers were limited to remedies provided by HP at its discretion.
  • HP products needed to be repaired multiple times before consumers were entitled to receive a replacement.
  • The warranty period for HP products was limited to a specified express warranty period (eg.oneyear).
  • Consumers were required to pay HP to repair products not of acceptable quality.
  • Consumers could only return/exchange HP products purchased from HP's online store at the sole discretion of HP.

The reseller case focused on representations made by HP to resellers that it was not liable to indemnify them unless they obtained HP's consent before providing a refund or replacement to consumers for HP products which were not of acceptable quality.

Federal Court decision

The Federal Court held that HP contravened the ACL by making false or misleading representations about consumer guarantees and remedies which could not be excluded, restricted or modified. The Court made a range of orders proposed by the parties which reflected "the seriousness of the respondent's conduct" and included:

  • Pecuniary penalty: HP to pay a $3 million pecuniary penalty (maximum penalty $6.6 million);
  • Costs: HP to pay $200,000 towards the ACCC's costs;
  • Injunction: HP restrained from making similar false or misleading representations for 3 years;
  • Letter to resellers: HP to send a letter to resellers about the outcome of the proceedings and the statutory consumer guarantees regime.
  • Consumer rights notice: HP to publish information about consumer guarantees on its website and an "Important Notice about Consumer Rights" link at the top of the of its website homepage and online store for three years.
  • Corrective advertising: HP to publish prominent notices titled "Important notice about false and misleading conduct by Hewlett-Packard" on the homepage of its website and online store for 3 years, and in national and major capital city newspapers for two consecutive Saturdays.
  • Consumer Redress Process: HP to establish a process to reassess and resolve consumer complaints (in accordance with each consumer's statutory rights) lodged in response to the consumer rights notice and corrective advertising.
  • Independent review of Consumer Redress Process: HP to appoint an independent auditor to review HP's Consumer Redress Process and provide a report to the ACCC detailing number of complaints, remedy provided, number of consumers denied redress etc.
  • Compliance program: HP to implement and continue an ACL compliance program for a period of three years and provide certain documents to ACCC on request.

Implications and lessons learned from the HP case

HP's conduct highlights the need to have robust processes in place to deal with contractual manufacturer warranty claims on the one hand and ACL claims on the other. This is particularly important where overseas call centres are used to deal with consumer enquiries from multiple jurisdictions. A number of the misrepresentations about ACL rights in the HP case were made by staff employed at HP's Customer Care Centre and Global Solutions Centre.

The HP judgment represents the first high-profile pecuniary penalty decision concerning the ACL consumer guarantees regime. It sets an important precedent and will no doubt shape the approach taken by the ACCC in any future settlement discussions with parties who engage in similar conduct. It is also timely reminder for business to review ACL compliance training programs for retail and call centre staff and any product warranty materials.

Court endorsement of agreed penalties

HP and the ACCC came to an agreement on a proposed penalty which they submitted to the court. Buchanan J endorsed the agreed penalty and relied heavily on the joint submissions of the parties to form the basis of his judgment. There is a well accepted public policy argument to support this approach: it helps provides certainty for litigants and encourages the settlement of disputes in a more timely and cost effective manner.

Confidence in the system of resolving proceedings with regulators however relies in part on courts being seen to exercise their independent judicial function when imposing pecuniary penalties and other remedial orders on the basis of agreed facts and joint submissions of a regulator and a respondent to penalty proceedings. The court must be satisfied that any orders proposed by the parties are reasonable and appropriate to avoid being seen as a "rubber stamp". This position was recently made clear by the Victorian Court of Appeal in ASIC v Ingleby. The reasons for judgement in the HP case are brief and reveal little about the court's assessment of the established "French" penalty factors and how they influenced the penalty and other serious remedial orders imposed. Nevertheless, the first case since the ACL was introduced involving significant penalties following misrepresentations about the availability of remedies for consumer guarantees sets benchmarks for Courts' future orders relating to ACL breaches, in terms of the ACCC's views as to the magnitude of the appropriate penalty to be imposed and the extent of the compliance orders (eg. consumer rights notice at the top of HP's website and online store for three years).

What next from the ACCC?

The ACCC has stated publicly on a number of occasions that consumer protection is one of its enforcement priorities for 2013. The HP proceedings form part of a broader national project designed to educate consumers about their ACL rights and investigate businesses which may be contravening the ACL.

The ACCC is currently pursuing 10 Harvey Norman franchisees for similar conduct and earlier this month launched penalty proceedings against Scoopon alleging misleading and deceptive conduct. Further enforcement action is therefore expected.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.