When representing products and services via promotions or offers to consumers, businesses need to be aware of (and look out for) a number of potential issues.
Below, we take a closer look at four Australian Competition and Consumer Commission (ACCC) and Australian Securities and Investments Commission (ASIC) cases of interest in the promotional area from 2018, and offer some key lessons and takeaways.
1. LG Electronics Australia Pty Ltd (LG)
In ACCC v LG Electronics Australia Pty Ltd  FCAFC 96, the Full Federal Court partially upheld the ACCC’s appeal.
The Full Court found that LG made certain misleading and false representations relating to its customers rights, but dismissed the appeal regarding other LG statements. The Full Court remitted the matter to the primary judge for determination of the balance of relief and any pecuniary penalties.
LG was alleged to have misrepresented remedies available to customers under the Australian Consumer Law (ACL), including that:
- customers were liable for the labour and cost of a faulty product’s repair;
- LG had no obligation to conduct such repair or replace the product; and
- any remedial step from LG was an act of good will.
It was held LG falsely represented the non-existence, exclusion or non-effect of the ACL consumer guarantees, and engaged in misleading or deceptive conduct.
Headline claims: ‘There is nothing LG can do’ and ‘You will have to pay for the repairs’.
Penalty: LG to pay 40% of ACCC appeal costs for misleading consumer rights representations (Competition and Consumer Act 2010 (Cth) – Schedule 2 – s18(1) and s29(1)(m) of the ACL)
- As the Full Court acknowledged, ‘it is a small distance from only mentioning the ACL consumer guarantees if it is expressly raised by a customer, to effectively denying the existence of the ACL consumer guarantees altogether’.
- Businesses need to be careful not to imply or expressly state that a remedy will be denied in all circumstances.
2. Malouf Group Enterprises Pty Ltd (Malouf Group)
In Australian Securities & Investments Commission v Malouf Group Enterprises Pty Ltd  FCA 808, the Federal Court has ordered Malouf Group pay penalties and $1.1 million in repayments to its customers for false and misleading representations and unconscionable conduct in ‘cleaning’ its customer’s credit history.
Malouf Group’s sales tactics misrepresented the services it could actually provide, and hadn’t taken into account all the facts (including individual customer situations) prior to making the claims.
Further, Malouf Group:
- displayed false representations and testimonials on its website;
- developed sales scripts which falsely represented the work completed prior to payment by the customer; and
- represented that further credit ‘damages’ would occur to the file if the consumer did not pay straight away.
The website and sales representations – which included ‘Our investigation team will open your file and look into it’ and ‘Too many enquires can further damage your file and if we process it tomorrow, we may have to reopen it’ – were unsupported. Further, Malouf Group did not have an ‘investigation team’ and assessment was conducted by the sales representatives.
Mr Malouf, the Director of Malouf Group, was knowingly involved in approving false website content, advertising and sales scripts, and was involved in training and supervision of staff to ensure false scripts were followed.
Headline claims: ‘Voted Australia’s No 1 Credit Repairs Solution Company’ and ‘Let us clean your credit’.
Penalties: A $400,000 penalty for Malouf Group and a $100,000 penalty for its Director for false and misleading representations and engagement in unconscionable conduct (Competition and Consumer Act 2010 (Cth) – Schedule 2 – s18(1), s21, s29(1)(b),(e),(f),(g) and s34 of the ACL)
- When advertising your product or service, ensure all features, capabilities and testimonials are accurate and representative of the offering as it currently stands.
- It is important that employees can accurately articulate the features and capabilities of an offering to customers. Accurate communication, training and reference materials can help support this.
3. Pental Limited and Pental Products Pty Ltd (Pental)
In Australian Competition and Consumer Commission v Pental Limited  FCA 491, the Federal Court found Pental made false and misleading representations about its White King ‘flushable’ toilet and bathroom cleaning wipes.
Pental’s products were not made from “specially designed material which disintegrated in the sewerage system like toilet paper” and could have caused significant sewerage problems if they were flushed.
Pental co-operated with the ACCC which included the implementation of an ACL compliance training program, and payment towards the ACCC’s costs.
Headline claims: ‘Flushable’ and ‘Simply wipe…and just flush away’
Penalty: $700,000 in penalties for making false and misleading representations (Competition and Consumer Act 2010 (Cth) – Schedule 2 of the ACL)
- The ACCC is heavily scrutinising any environmental claims made by a business and has also taken action against Woolworths for ‘biodegradable and compostable’ claims.
- Businesses making claims about the features or qualities of its products must take reasonable steps to ensure that they can substantiate those claims.
- When considering a promotional offer, it is important to ensure the key product or service conditions are not buried in disclaimers or elsewhere.
4. Jenny Craig Weight Loss Centres Pty Ltd (Jenny Craig)
An investigation by the ACCC found Jenny Craig’s advertisements of ‘lose up to 10kg of weight for only a $10 program fee’ did not adequately disclose that customers also had to purchase food at an additional cost, meaning customers would actually need to spend far more than $10.
Jenny Craig also failed to disclose that a person featured in an online testimonial was a paid employee. Further, Jenny Craig represented that customers’ faulty products refund rights required the customer to notify Jenny Craig within three days and return faulty products within 10 business days in its original packaging, which contravenes the ACL.
Headline claim: ‘Lose 10kg for $10’
Penalty: $37,800 in ACCC infringement notices for false and misleading representations (Competition and Consumer Act 2010 (Cth) – Schedule 2 – s29(1) (f),(i),(m) of the ACL)
- Businesses must identify applicable exclusions and limitations relating to the offer in the advertising.
- There is a risk of misleading customers when all details are not disclosed in the advertising. This is particularly high risk in relation to ‘click through’ or ‘Ts&Cs apply’ situations where minimal space can be an issue.
- Customers must be informed when a testimonial is given by someone who is employed by the business, and is not an independent reviewer.
- A disclaimer can be used to support (but not contradict) the headline claims. If restrictions or conditions are provided on a separately linked page, it may still be considered misleading.
The contents of this article have been based on press releases issued by the ACCC and ASIC in 2018. The payment of a penalty specified in an infringement notice is not an admission by the parties involved of a contravention of the ACL or ASIC Act.
This publication is introductory in nature. Its content is current at the date of publication. It does not constitute legal advice and should not be relied upon as such. You should always obtain legal advice based on your specific circumstances before taking any action relating to matters covered by this publication. Some information may have been obtained from external sources, and we cannot guarantee the accuracy or currency of any such information.