In the latest instalment in the ACCC’s long running battle against misleading credence claims the Federal Court has imposed a pecuniary penalty of $250,000 on a Queensland egg producer for its misleading labelling and marketing of its products as ‘free range’.

The case indicates that the Courts may be willing to consider higher penalties in future on the basis that penalties to date don’t appear to be having the desired deterrence effect.

Background

The ACCC commenced proceedings against R L Adams Pty Ltd (trading as Darling Downs Fresh Eggs) (Company) claiming that between 31 December 2013 to 6 October 2014 the Company engaged in misleading conduct in breach of the Australian Consumer Law by:

  1. supplying for sale ‘barn laid’ eggs in cartons labelled as ‘free range’ eggs (Free Range Cartons); and
  2. promoting the eggs sold in the Free Range Cartons on the website www.fresheggs.com.au.

The Company subsequently admitted to these breaches. Accordingly, the Court was only required to determine the amount of the penalty to be imposed on the Company for the breaches.

For those not familiar with the ‘free range’ egg market, there is significant commercial benefit obtained by selling ‘free range’ eggs as opposed to ‘barn laid’ eggs because consumers are willing to pay a premium for the former.

During the period 31 December 2013 to October 2014, the additional gross profit margin made by the Company from the ‘free range’ label was approximately 30% of its gross profit from the sale of eggs sold under that label. Accordingly, the parties estimated that the Company obtained an additional profit of $102,198 from the misleading labelling of the eggs.

The Court’s decision

Under the Australia Consumer Law the maximum penalty for a single instance of false or misleading conduct is $1.1 million. While the Court accepted the parties’ submissions that in this case the sale and promotion of the eggs (on the Company’s website) constituted a single infringement, the Court noted that ‘it should not be assumed that a series of related infringements will always be treated as a single contravention’.1

Further, in relation to deterrence, the Court observed that the penalty imposed should be seen as a penalty and not just regarded by the defendant and others in the industry as a cost of doing business. This is particularly important in circumstances where there is substantial commercial benefit to be obtained from the infringement.

In this regard, the Court also observed that:

  • general deterrence is an important consideration in the imposition of pecuniary penalties; and
  • the recent line of decisions involving misleading credence claims, particularly ‘free range’ egg claims, indicate that penalties imposed by the Court are not having the desired deterrent effect.

Further, in imposing the penalties, the Court took into consideration the Company’s cooperation with the ACCC, its lack of intention to infringe and the additional profit obtained by the Company. The Court also ordered that the Company implement an Australian Consumer Law compliance program, publish corrective notices in major metropolitan newspapers and on its website and pay the ACCC’s costs in the amount of $25,000.

Implications

This case suggests that the Courts are likely to take a tougher approach when imposing penalties to insure general and specific deterrence in industries where it appears previous penalties for breaches of the Australia Consumer Law have been viewed as ‘a cost of doing business’.

It is also a timely reminder that the ACCC remains particularly vigilant in relation to credence claims and companies should have in place adequate compliance programs to ensure compliance with the Australia Consumer Law.