Foreign businesses beware: the Australian Consumer Law goes global

Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224

The Full Federal Court has affirmed a $3 million penalty levied against Valve Corporation (Valve) for contraventions of the Australian Consumer Law (ACL). Valve was held to have made false or misleading representations about the existence or exclusion of a guarantee or remedy in breach of section 29(1)(m) of the ACL, and engaged in misleading or deceptive conduct in breach of section 18 by representing to customers that they were not entitled to refunds under any circumstances. The Full Court held the ACL applied to Valve despite its lack of physical presence in the Australia. The fact that the contractual relationship between Valve and its customers was governed by Washington State law provided no protection.

Background

Valve is an American online game developer and distributor which has been estimated to be more profitable per employee than Google or Apple.¹ The Valve network (Steam) has over 125 million worldwide subscribers who download and play games via the platform.² Valve does not have any offices or employees in Australia, but does own servers in the country and earns significant revenue from Australian customers. In 2012 and 2013 a number of Australian consumers downloaded games from Steam which contained bugs that rendered them virtually unplayable. Valve refused to provide refunds to these customers, referring to the Steam Subscription Agreement and refund policy.

Representations

The Steam Subscription Agreement provided (in capitals) “ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART”.³ Steam’s refund policy similarly stated that refunds were not available.⁴ The ACL contains guarantees which require goods supplied to consumers in trade or commerce to be of acceptable quality.⁵ These guarantees cannot be excluded by contract.⁶ Where there is a failure to comply with the guarantee of acceptable quality, customers can in certain circumstances elect to receive a refund.

The Australian Competition and Consumer Commission (ACCC) alleged that Valve had unlawfully excluded statutory guarantees of acceptable quality, and made representations that sought to prevent consumers seeking remedies for failure to comply with the guarantees. Valve’s representations that refunds would not be made in any circumstances were alleged to be false and misleading as the Company was legally obligated to provide refunds to Australian consumers in some circumstances.

Valve claimed that although the representations regarding refunds were incorrect for Australian consumers, they were not misleading as a reasonable consumer would interpret them as the “default global position”.⁷ The Full Court rejected this argument, finding that the reasonable consumer would not read the Subscriber Agreement or refund policy “in that limited way.”⁸ The representation in the refund policy was made without qualification, while the representation in the Subscriber Agreement was capitalised with the agreement stating elsewhere that the only exceptions were “expressly set forth in this agreement”.⁹ This emphasised that refunds could not be sought outside the bounds of the agreement.

Application of the ACL to Valve

Valve argued that the ACL did not apply to it as the Subscriber Agreement was governed by the law of Washington State. The Full Court found that whilst the agreement was regulated by Washington State law, section 67 of the ACL meant that the consumer guarantees would apply regardless of the choice of governing law.¹⁰ The Full Court emphasised that the ACL contains no provision limiting the jurisdictional application of the consumer guarantees.¹¹  Rather, the conflict of laws provision (section 67) makes clear that where a contract purports to apply an alternative regime in lieu of the ACL, the consumer guarantees will apply to any supply made under the contract regardless of that term.¹²

Valve further claimed the misrepresentations were not made in Australia as the material containing the representations had been uploaded in Washington. The representations were available on the Steam website which is accessible to the world at large, and did not change according on the location of the customer that accessed them. The Full Court held that the fact that the representations were made to Australian consumers who accessed and read them in Australia meant the representations were made in Australia for the purposes of determining liability under the ACL.¹³

Valve also argued that it did not carry on business in Australia. Valve is a United States corporation with no physical presence, subsidiaries, or employees in Australia. Although it was unnecessary to consider this issue in light of the Court’s findings regarding the location in which the representations were made,¹⁴ the Full Court nonetheless rejected this argument. Valve had more than 2 million Australian subscribers, owned and leased property (servers) in Australia, and made content available to customers via these servers ¹⁵. This was sufficient to find that Valve carried on business in Australia.

Decision and implications

The Full Court upheld the penalty levied by the Federal Court despite Valve’s protests that it was excessive. The Court was critical of Valve’s cavalier attitude to the Australian law, finding the company showed “a very poor culture of compliance in relation to Australian operations”.¹⁶ Whilst Valve could easily have afforded Australian legal advice, it chose not to seek any as it did not align with the way Valve thought about its “legal position in the world.”¹⁷

Enterprises which carry on business or make representations about their goods or services in Australia cannot avoid the ACL even where they are domiciled in a foreign jurisdiction. Likewise, contractual provisions which provide that the applicable law is that of a foreign jurisdiction will not displace the provisions of the ACL. Where a business is supplying goods to Australian consumers it will likely be subject to the ACL, even where the goods are purchased online and the business is located in another country. All businesses servicing customers in Australia, whether physically or online, should review their terms to ensure compliance with the ACL.

This article was written by Teresa Torcasio, Partner and Katherine O’Brien, Law Graduate.

Teresa Torcasio

P: +61 3 8644 3623

E: ttorcasio@hwle.com.au

¹ Chiang, Oliver ‘The Master of Online Mayhem’ (9 February 2011) https://www.forbes.com/forbes/2011/0228/technology-gabe-newell-videogames-valve-online-mayhem.html#71c146233ac0.
² Soper, Taylor, ‘Valve reveals Steam’s monthly active user count and game sales by region’ (3 August 2017) https://www.geekwire.com/2017/valve-reveals-steams-monthly-active-user-count-game-sales-region/.
³ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [3].
⁴ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [57].
⁵ Australian Consumer Law s54.
⁶ Australian Consumer Law s64.
⁷ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [157].
⁸ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [158].
⁹ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [158].
¹⁰ Section 67 of the ACL states:
67 Conflict of laws
If:

• The proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or
• A contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:
  • the provisions of the law of a country other than Australia; and
  • the provisions of the law of a State or a Territory.

The provisions of this Division apply in relation to the supply under the contract despite that term.

¹¹ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [110].
¹² Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [109].
¹³ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [134].
¹⁴ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [140].
¹⁵ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [150].
¹⁶ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [220].
¹⁷ Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224 [219].