The Federal Court has declared that Derodi Pty Ltd and Holland Farms Pty Ltd, trading in partnership as Free Range Egg Farms (FREF), made false and misleading representations under the Australian Consumer Law (ACL) by labelling and promoting their eggs as “free range”.

The Decision

The Court held that:

  1. FREF engaged in conduct that was misleading or deceptive or likely to mislead or deceive regarding the characteristics of the eggs contained in the free range egg cartons (s 18 ACL):
  1. FREF made misleading representations on their three websites, Facebook, Twitter, print advertisements and on their free range egg cartons claiming that the average maximum number of hens per square metre in their outdoor range area was two, when there were between eight and eleven hens per square metre; and
  2. FREF made representations that the hens were farmed in conditions where the laying hens were able to move around freely on open ranges in safe and healthy conditions when in fact they were not given access until they were around 26 weeks old.
  1. In connection with the supply or possible supply of eggs, and the promotion of the supply of eggs, FREF made misleading representations that the eggs were of a particular quality, or have had a particular history (s 29(1)(a) ACL).
  2. FREF engaged in conduct that was liable to mislead the public regarding the nature or characteristics of the free range egg cartons (s 33 ACL).

The Court ordered FREF to:

  1. pay a pecuniary penalty of $300,000 (s 224 ACL);
  2. undertake corrective advertising to alert affected consumers and to educate the industry (s 246(2)(d));
  3. undertake a compliance program to avoid future contraventions (s 246); and
  4. pay the ACCC’s costs of the proceeding fixed in the sum of $35,000.

Key Points of the Case

  1. FREF’s co-operation and contrition resulted in the ACCC not pleading a case that FREF acted intentionally, a finding which Engelman J stated may have been “easily reached”.
  2. The ACCC took strong action against FREF as their directors were deemed to have been fully aware of the significant import and power of their representations.
  3. The words “free range” are now very well known. They are not puffery like “the best goods” or the “finest clothing”. FREF’s representations involved real content which was coupled with powerful pictorial and verbal imagery.
  4. FREF’s untrue representations harmed consumers and disadvantaged other egg suppliers who were producing genuine free range eggs. The loss to the consumer was up to $3.88 per dozen.

Implications

  1. Credence claims such as “free range” are powerful tools for businesses to distinguish their products from “cage” or “barn laid” eggs.
  2. In certain circumstances, contrition and co-operation by a defendant can lead to the ACCC showing a degree of leniency in the prosecution of its case against the defendant.
  3. Notwithstanding any co-operation from the defendant, courts are prepared to impose substantial penalties for contraventions of the Australian Consumer Law with a view to ensure that the penalty is not regarded as an acceptable cost of doing business.

On a related note

This case forms part of the ACCC’s broader work in the area of free range claims made by egg producers. In September 2015, the Federal Court ordered a $250,000 penalty against Darling Downs Fresh Eggs and a $300,000 penalty in September 2014 against Pirovic Enterprises Pty Ltd for misleading ‘free range’ claims.

On 31 March 2016, the Commonwealth, State and Territories Consumer Affairs Ministers agreed to introduce within the next 12 months a national information standard under the ACL requiring eggs to be labelled as “free range” if they have been given meaningful and regular access to the outdoors and the maximum outdoor stocking density is 10,000 hens.

Background

FREF supplied eggs labelled as “free range” under the brands Ecoeggs, Port Stephens and Field Fresh free range eggs. The websites stated that their hens are “genuine free range”, “our hens are healthy and happy with access to green pastures”, and “our hens have daily access to our outdoor range, providing opportunity to flap their wings, dust bath and run around”.

Their websites portrayed images of hens against a background of sky and fields, overlayed with the words, “taste freedom”. They also displayed a live remote camera which showed an outdoor range with the words “only 2 hens per square metre”.

FREF admitted that it contravened subsections 18, 29(1) and 33 of the ACL.

False and Misleading Representations - the Law

Under section 18 of the ACL, a person, must not in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive. The conduct does not have to be intentional but will be in breach if it leads a reasonable member of the target audience into error.

Under section 29(1)(a) of the ACL, 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 that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use.

Under section 33 of the ACL, a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods.

For a copy of the judgment click here.