Businesses have received yet another reminder from the ACCC that they must check their social media and marketing materials to ensure that they are not contravening the Australian Consumer Law (ACL)1 when making claims about their goods or services.
This month, the ACCC issued Grape Co Australia Pty Ltd (Grape Co) with an infringement notice, ordering Grape Co to pay a penalty of $34,920 in response to alleged false or misleading representations about the place of origin of its grapes.2 This infringement notice and penalty follows on from similar compliance and enforcement action taken this year by the ACCC in relation to claims made by businesses as to the place of origin of their goods and services and claims about their goods and services being ‘locally owned’.3
This article discusses the penalty issued to Grape Co in light of other recent actions taken by the ACCC and concludes with some key lessons for businesses.
Penalty issued against Grape Co
Grape Co is a table grape trader located in the Sunraysia region of Victoria which supplies various types of grapes to domestic and international markets under product names like ‘Cotton Candy’ and ‘Candy Hearts’. Grape Co had published the following claim on its website:
Every single one of our grapes is personally hand-selected from the finest fruit on our family’s estate in Sunraysia Australia.
In actual fact, while some of the grapes sold by Grape Co were grown on the Grape Co family estate, others were grown on the properties of third party growers. As a result, the ACCC found that the representation made by Grape Co on its website was in breach of section 29(1)(k) of the ACL, which provides that:
a person must not, in trade or commerce, in connection with the supply or possible supply of goods or services, or in connection with the promotion by any means of the supply or use of goods or services, make a false or misleading representation as to the place of origin of goods.
In a media release issued by the ACCC, Deputy Chair Mick Keogh stated that food producers must ensure they are not misleading customers as a result of marketing statements, particularly with regard to the place of origin of goods or produce. In particular, Mr. Keogh noted that ‘consumers looking to support small businesses may make purchasing decisions based on representations that the produce is sourced from a family farm, and it is important they are not misled so they get what they pay for’.4
Place of origin
The ACCC has made clear its stance on businesses which inaccurately represent that their goods and services originate from a particular place or country. Last year the ACCC took action against Kimberly-Clark Australia Pty Ltd (KCA) for claims that its Kleenex Cottonelle flushable cleansing cloths were made in Australia, when in fact they were imported from overseas. This claim was made via a ‘made in Australia’ logo on KCA’s website that formed part of a static banner on each page. The ACCC alleged that such claims breached section 29(1)(k) of the ACL.
This action ultimately made its way to the Federal Court, where the court found in favour of the ACCC, stating that representations as to the place of origin of goods ‘may be a significant influence to some customers on their choice of product’ and may ‘play on a consumer’s desire to purchase goods that are manufactured in Australia to support local business’.6
Locally owned
The ACCC has also made clear its stance on businesses which inaccurately purport to be ‘locally owned’, when in fact they are foreign owned. Recently, the ACCC issued penalties against two Australian funeral companies which represented that they were locally owned, when in fact they were owned by a large global company.7 While the funeral homes had been acquired years prior, they had failed to reflect this change in ownership on their website and in their marketing communications, which was found by the ACCC to be a false or misleading representation in breach of section 29(1)(g) of the ACL.
The high cost of non-compliance
Businesses must be careful to manage ACL compliance risks to avoid facing penalties imposed by the ACCC or the Federal Court. In addition to reputational risks, a contravention of the ACL can result in significant financial penalties which have recently been dramatically increased. The current maximum penalty for contraventions of the false or misleading representation provisions of the ACL is the greater of the following:
- $10,000,000;
- three times the value of the benefit obtained from the contravention (where the value can be determined); and
- if the value of the benefit cannot be determined, 10% of the Australian connected group turnover in the preceding 12 months.8
Recent decisions demonstrate the willingness of courts to impose significant penalties, particularly where contraventions are blatant or predatory. Earlier this year, the Full Federal Court upheld a $125 million penalty against Volkswagen AG,9 for making false representations about compliance with Australian diesel emissions standards, contrary to section 29(1)(a) of the ACL. On 29 June 2021, the Federal Court imposed a $1.2 million penalty on Sumo Power Pty Ltd, in addition to ordering payment of $800,000 to affected customers, for misleading consumers about the independence of their marketing agents and about how much the affected customers would pay for their electricity if they switched energy providers to their company. The representations were held to be in breach of sections 29(1)(h) and 29(1)(i) of the ACL.10
Key lessons for business
- Businesses should ensure that all marketing materials are reviewed for ACL compliance before these materials are published. In addition, all existing marketing materials should be monitored and updated where they are no longer accurate (for example, where the business is sold or where there is some other change in the commercial structure or operation of a business that could give rise to a marketing claim no longer being true);
- The essential element of section 29(1)(k) of the ACL is whether an ordinary and reasonable consumer would be misled as to the origin of the goods. Accordingly, the fact that a relevant representation is a half-truth, or mostly true, will not generally constitute a defence to a contravention; and
- Contraventions of section 29(1)(k) and other consumer protection provisions of the ACL can result in significant financial penalties for businesses. The most important thing a business can do, once alerted to any breach of the ACL, is to cooperate with the ACCC and take quick remedial action if possible, which has been noted by the Federal Court to be influential on any penalty ultimately imposed.11
How can we help?
We have a dedicated consumer law team that can help you manage risk and ensure compliance with the ACL. In addition, we can assist you with navigating any compliance or enforcement action that has been instituted against you by the ACCC. If you would like more information about the services that we provide, please contact us.
This article was written by Teresa Torcasio, Partner, Zoe Vise, Solicitor, and Adam Den, Law Graduate.
1Competition and Consumer Act 2010 (Cth) Sch 2 (“Australian Consumer Law” or “ACL”).
2ACCC, ‘Grape Co pays penalties for alleged misleading representations on grape origins and the Horticulture Code breaches’ (Media Release, 21 June 2021) https://www.accc.gov.au/media-release/grape-co-pays-penalties-for-alleged-misleading-representations-on-grape-origins-and-horticulture-code-breaches. Note that Grape Co was also issued an infringement notice and penalty for breaches of the Horticultural Code of Conduct, which are not discussed in this article.
3Teresa Torcasio et al, ‘The ACCC makes good on its promise to target the funeral sector as funeral businesses are penalised for alleged false or misleading statements about their ownership’ HWL Ebsworth Lawyers (8 April 2021) https://hwlebsworth.com.au/the-accc-makes-good-on-its-promise-to-target-the-funeral-sector-as-funeral-businesses-are-penalised-for-alleged-false-or-misleading-statements-about-their-ownership/.
4ACCC Media Release, above n 2.
5ACCC v Kimberly-Clark Australia Pty Ltd (No 2) [2021] FCA 102; Teresa Torcasio et al, ‘Kleenex ordered to ‘clean up’ the claims made on its website – a warning to businesses to carefully review their marketing content for compliance with the ACL’ HWL Ebsworth Lawyers (1 March 2021) https://hwlebsworth.com.au/kleenex-ordered-to-clean-up-the-claims-made-on-its-website-a-warning-to-businesses-to-carefully-review-their-marketing-content-for-compliance-with-the-acl/ (‘Kleenex Article’).
6Ibid.
7 Teresa Torcasio et al, ‘The ACCC makes good on its promise to target the funeral sector as funeral businesses are penalised for alleged false or misleading statements about their ownership’ HWL Ebsworth Lawyers (8 April 2021) https://hwlebsworth.com.au/the-accc-makes-good-on-its-promise-to-target-the-funeral-sector-as-funeral-businesses-are-penalised-for-alleged-false-or-misleading-statements-about-their-ownership/.
8Teresa Torcasio and Marian Ngo, ‘Breaches of the Australian Consumer Law attract a record breaking $26.5 million penalty’, HWL Ebsworth Lawyers (9 October 2019) https://hwlebsworth.com.au/breaches-of-the-australian-consumer-law-attract-a-record-breaking-26-5-million-penalty/.
9Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission (ACCC) [2021] FCAFC 49 (Wigney, Beach and O’Bryan JJ).
10Australian Competition and Consumer Commission v Sumo Power Pty Ltd [2021] FCA 712 (Kerr J).
11 Kleenex Article (n5), para 9 – 11