06 Feb 2014

ACCC goes online: Scoopon fined $1 million for misleading conduct

by Bruce Lloyd, Matthew Battersby, Stephanie-Kate Bratton

Online retailers have the same obligations as traditional retailers under the Australian Consumer Law.

Online trading and consumer protection were priorities for the ACCC in 2013, with the conduct of Australian online group buying website Scoopon put under the microscope.

On 3 July 2013, the ACCC commenced enforcement proceedings against Scoopon Pty Ltd alleging misleading or deceptive conduct in contravention of the Australian Consumer Law (ACL). Scoopon co-operated with the ACCC and on 17 December 2013 the Federal Court found Scoopon liable for several contraventions of the ACL and ordered Scoopon to pay a fine of $1 million: ACCC v Scoopon Pty Ltd (QUD 402 of 2013).

The Scoopon case is a reminder to businesses that:

  • online retailing is an ACCC priority;
  • businesses operating on the internet have the same obligations under the ACL as traditional retailers;
  • penalties for non-compliance are significant; and
  • the ACL does not require the ACCC to prove intention or obtain evidence actual consumer harm before a penalty can be imposed.

The Scoopon decision follows a number of other high-profile misleading or deceptive conduct cases in 2013, which included proceedings against Hewlett-Packard Australia, TPG Internet and a number of Harvey Norman franchisees.

Like the Hewlett-Packard Australia case, there was both a consumer and business element to the Scoopon case which was divided into three broad categories of contravening conduct:

1. False or misleading representations about consumer remedies;

2. False or misleading representations about the benefits of Scoopon's services; and

3. False or misleading representations about the price of goods.

Representations about Consumer Guarantees

The Federal Court held that Scoopon made false or misleading representations to consumers that they had no refund rights in circumstances where the consumer attempted to redeem a Scoopon voucher during its validity period but no service was available.

The remedies available under the ACL, where a good or service fails to meet the statutory consumer guarantees, cannot be excluded, restricted or modified and attempts to do so may constitute misleading or deceptive conduct.

Representations about the benefits of Scoopon's services

Scoopon was found to have made a number of representations to merchants regarding the benefits of Scoopon's service, including overstating the benefits of the service and understating the risks. For example:

  • Scoopon made a misleading representation to a merchant that 30% of vouchers sold on the site would not be redeemed, resulting in a windfall for the merchant.
  • Scoopon made misleading representations to merchants that there was no risk of a financial cost or loss in running a deal with Scoopon, when there was a real risk of additional cost.

Representations about the price of goods

Scoopon was also found to have made misleading representations in relation to the price of goods and services sold on its website. These representations were found to have been made in respect of three separate products and generally overstated the type or quantity of goods available at the advertised price.

For example, Scoopon advertised a three-piece set of luggage, stating "3 piece set" and "$155" without any qualifications. The Court held that this representation was misleading because only the smallest piece of the set was available, as a single item, for purchase at the price of $155. The entire three-piece set was available for purchase at the price of $499.

Penalties for Scoopon's misleading and deceptive representations

Scoopon was ordered to pay a pecuniary penalty of $1 million and restrained from making similar misleading representations for a period of two years.

The Court ordered Scoopon to pay a proportion of the ACCC's legal costs and further develop and enhance its existing compliance program.

In something of a departure from standard practice, the Court made a community service order that requires Scoopon (at its own expense):

  • to prepare for and hold an educational seminar on ACL compliance for members of the Association for Data-driven Marketing and Advertising;
  • to have the documents for this presentation settled by a lawyer with consumer law experience or a consumer compliance expert; and
  • to make these resources available to the Association for Data-driven Marketing and Advertising for its unrestricted use for a period of 12 months.

This type of non-monetary order differs from the more traditional compliance program and corrective advertising orders which courts have made in previous ACL cases, and reflects the ACCC's enforcement objectives of promoting awareness and compliance with the ACL.

Trends in enforcement: Settlements

The orders made by the court in ACCC v Scoopon were agreed by the parties in order to settle the dispute.

It appears that an increasing number of consumer protection matters are being resolved in this way. For example, Hewlett-Packard agreed to a settlement in November 2013, resulting in a $3 million penalty for making false or misleading representations. Luv-a-duck also settled with the ACCC in November 2013, admitting to false and misleading representations about the conditions in which its ducks were farmed.

Already this year, the ACCC, Euro Solar and Worldwide Energy and Manufacturing agreed by court order that they had contravened the ACL by displaying false testimonials on their websites and making false or misleading representations as to the country of origin of their goods.

Continuing priorities for 2014

Media statements issued by the ACCC following the Scoopon case indicate that its efforts to ensure that online retailers are complying with their obligations under the ACL will continue in 2014, with ACCC Chairman Rod Sims confirming that “[o]nline competition and consumer issues are a priority for the ACCC... The ACCC will continue to take further action in this area to improve business practices and protect small businesses and consumers.”

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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.