11 Jul 2019

Enforcement guaranteed: ACCC continues to regulate alleged misleading consumer guarantee representations

By Adrian Kuti, Mitchell Donohue

Recent action by the ACCC should put retailers, manufacturers and service providers on notice to ensure their marketing content and procedures for dealing with product defects do not infringe the Australian Consumer Law.

Earlier this year the Australian Competition and Consumer Commission (ACCC) flagged that it would continue to focus on retailers, manufacturers and service providers complying with, and not misleading consumers about, consumer guarantees under the Australian Consumer Law (ACL).  The ACCC has also repeatedly indicated its intention to take action against suppliers who engage in misleading and deceptive advertising practices more broadly.

As was the case in 2018, the first half of 2019 has seen the ACCC continue to add teeth to its bark, commencing proceedings against a number of retailers, manufacturers and service providers from various industries who have made allegedly false or misleading representations about their products, or the consumer guarantee rights that customer may have in respect of those products, and successfully obtaining penalties and other non-court enforcement outcomes in relation to such matters.

A quick recap on false and misleading representations and the ACL

Section 18 of the ACL prohibits a person from engaging in conduct in trade or commerce that is misleading or deceptive or is likely to mislead or deceive, while section 29 of the ACL prohibits the making of a range of specific false or misleading representations about goods and services in connection with the supply or possible supply of those goods or services (including in relation to the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy to which a consumer may be entitled).  Section 33 of the ACL also prohibits conduct that is liable to mislead the public as to the nature, manufacturing process, characteristics, suitability or quantity of any goods. Section 34 of the ACL similarly prohibits conduct that is liable to mislead the public as to the nature, characteristics, suitability or quantity of any services.

While the ACCC has always taken action to protect consumers from false and misleading advertising claims, in recent years the ACCC has turned much of its attention on false and misleading representations made specifically in respect of consumers' warranty and consumer guarantee rights under the ACL.

Consumer guarantees have been around since 2011 and operate to protect consumers against purchasing products that, amongst many other guarantees, do not meet an acceptable level of quality. Retailers must ensure their products do what they are expected to do, are fit for purpose and match the description provided at the time of sale.  These consumer rights are provided for by the ACL, cannot be excluded by contract and therefore apply to all retailers and service providers who supply goods or services to consumers.  They are also of significant importance to manufacturers of the goods which are supplied by retailers to consumers; they must take particular care in relation to the often fraught relationship and inevitable tension between consumers' ACL consumer guarantee rights and  their relationship to contractual rights granted to consumers under the terms of a manufacturer's warranty.

If retailers, service providers or manufacturers make false or misleading representations (whether in relation to the features of their products or specifically about consumers' rights under the consumer guarantee provisions of the ACL), they risk potential pecuniary penalties under the ACL of the higher of:

  • $10 million;
  • 3 times the value of the benefit obtained by the misrepresentation; or
  • 10% of the annual turnover of the company during the 12 month period preceding the misrepresentation.

Earlier this year Rod Sims, Chair of the ACCC, stated the ACCC is "concerned that many manufacturers and large retailers are not complying with consumer guarantee laws and this will be an area of renewed focus for [the ACCC] this year".

Recent action by the ACCC has shown it is open to testing the limits of the ACL and litigating to enforce these obligations in a range of industries.  We explore a handful of high-profile recent examples of ACCC enforcement action below.

Let the (online) games begin

In June 2019, the ACCC commenced proceedings against Sony Interactive Entertainment Network Europe Limited for making alleged false or misleading representations to Australian consumers on its website, and in dealings with Australian customers of its PlayStation online store, about their consumer guarantee rights.

The ACCC alleges Sony made misleading representations to consumers that they were not entitled to refunds for faulty video games that had been digitally downloaded or if 14 days had passed since purchasing the video game from its online store. Sony also allegedly represented to consumers it could provide virtual PlayStation currency instead of a monetary refund when consumers had requested a refund.

Specifically, the ACCC alleges that Sony engaged in misleading or deceptive conduct in contravention of section 18 of the ACL, and made false or misleading representations concerning the existence/exclusion/effect of warranties, guarantees, rights and remedies available to users in contravention of section 29(1)(m) of the ACL, by way of:

  • representations set out in the PlayStation Terms of Service relating to users rights to a refund, and access to statutory guarantees;
  • representations relating to users rights to a refund made through a message displayed to users during the course of a purchase and by email sent to users who topped up their PlayStation wallet to make a purchase; and
  • representations made to Australian users by the PlayStation Support Centre, either over the phone or by email, about users rights to a refund, and the form of refund to which they are entitled.

The ACCC is seeking: pecuniary penalties, declaratory relief, an order restraining Sony (and its parent company) for a period of 5 years, from making representations similar to the alleged false, misleading or deceptive representations, an order that Sony (and its parent company) provide a disclosure notice to all PlayStation users (by prominently publishing it on the PlayStation website) which sets out the Court's findings, as well as information about consumer rights under sections 18 and 29, and the consumer guarantee provisions of the ACL, orders requiring Sony to implement (and maintain for a period of three years) a compliance programme, and orders for costs.

The allegations made in the Sony proceedings are similar to those made in the ACCC's  successful proceedings commenced against Valve Corporation in 2014. Valve operates an online gaming platform known as Steam and was found by the Court to have made false or misleading representations to consumers that they were not entitled to a refund for digitally downloaded video games that were purchased even if the video games were faulty. At first instance, and on appeal, Valve had argued amongst other things that it did not relevantly carry on business in Australia since it operated out of the United States of America and did not have a retail presence directly in Australia. The Full Federal Court dismissed Valve's appeal and upheld the Federal Court's decision that Valve had carried on business in Australia because, amongst other things, it supplied games to Australian consumers. Valve was ultimately ordered to pay $3 million in penalties.

Resistance is futile

Just last week, the ACCC commenced proceedings against Samsung Electronics alleging it made false, misleading and deceptive representations in advertising the water resistance of various Galaxy-branded mobile phones.

The ACCC alleges that Samsung has widely advertised on social media, online, TV, billboards, brochures and other media that the Galaxy phones are water resistant and depicted them being used in, or exposed to, oceans and swimming pools in circumstances where Samsung did not have reasonable grounds for making such representations and, further or alternatively, when the Galaxy phones would not be, or were not, suitable for use in, or exposure to, all types of water, and the useful life of the Galaxy phones could or would likely be adversely affected if used in, or exposed to, liquid (including liquid other than fresh water).

In describing the alleged harm suffered by consumers, the ACCC also alleges that the harm suffered by consumers "was and is exacerbated by Samsung Australia refusing to take responsibility for Galaxy phones damaged by such use and Samsung Australia's denial of any liability under its express and statutory warranty obligations".

The ACCC is seeking penalties, consumer redress orders, injunctions, declarations, publication orders, an order as to findings of fact, and costs.

Other recent ACCC enforcement actions

The ACCC is not only focusing on retailers in the tech space however.  In recent periods, the ACCC has commenced proceedings or accepted court-enforceable undertakings against numerous companies across a range of industries, including LG, Fitbit, various airlines, various vehicle suppliers, nine AFL clubs, 12 NRL clubs and Jenny Craig.

Recently, the Federal Court of Australia awarded judgment against Jetstar Airways Pty Ltd for making false or misleading representations about what guarantee rights were available to consumers.  Jetstar was ordered to pay $1.95 million in penalties for claiming fares were not refundable and if consumers wished to have any entitlement to a refund, it was first necessary for those customers to purchase a separate flight bundle at an additional cost.

In June 2019, the ACCC also accepted a court-enforceable undertaking from jewellery retailer Pandora Jewellery Pty Ltd for misrepresenting consumers about their consumer guarantee rights.  Pandora undertook that it would conduct a comprehensive review of its ACL compliance program including Pandora's policies and procedures relating to exchanges, repairs and refunds as well as a review of Pandora's training program and customer complains handling system.

Guaranteeing retailers', manufacturers' and service providers' guarantees don't raise flags for the ACCC

It is clear the ACCC is ready and willing to take action to bring retailers into line with the ACL in a range of industries..  The ACCC has indicated enforcing consumer guarantees and misleading and deceptive conduct more broadly is a priority in 2019 and its recent actions suggest it is staying true to its word.

 It is therefore important for retailers to review their practices and consider:

  • whether current representations in advertising, warranty booklets, terms and conditions and online are at risk of misleading consumers about the nature of the products being sold and the consumer guarantee rights to which consumers may be entitled under the ACL;
  • whether current refund policies and other practices for addressing potential product defects are at risk of misleading consumers about their rights under the ACL;
  • amending policies to ensure they are consistent with the ACL;
  • ensuring written content informs consumers of what remedies are available if there is a fault; and
  • whether current customer complaint handling systems are in place and adequate to deal with consumers' rights under the ACL.

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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.