The ACCC has been successful in another action over the publishing of false testimonials online. On 18 December 2015, the franchisor of the Electrodry Carpet Cleaning business, A Whistle & Co (1979) Pty Ltd, was ordered to pay $215,000 in penalties by the Federal Court.

Background

Electrodry provides a range of cleaning services and has more than 100 franchises across Australia. In 2012, Electrodry outsourced its marketing and call centre duties to a Hong Kong contractor based in the Philippines, which subsequently attempted to induce its franchisees to contravene the Australian Consumer Law (ACL) by requesting that they publish fabricated testimonials on consumer review websites such as Yelp, Google and True Local using their mobile phones.

The ACCC instituted proceedings against Electrodry alleging that it:

  • made false or misleading representations by its contractor (acting as Electrodry’s agent or at its direction) posting fake testimonials relating to Electrodry Carpet Cleaning on the internet;  and
  • induced or attempted to induce its franchisees to make false or misleading representations by posting fake testimonials on the internet.

Under section 29(1)(e) of the ACL, a person must not make a false or misleading representation that purports to be a testimonial by any person relating to goods or services.

At the time of issuing the proceedings in July 2014, ACCC Deputy Chair Dr Michael Schaper stated:

While online testimonials can be a useful and genuine marketing tool, it is important that online businesses understand that making or inducing false or misleading representations about testimonials breaches the Australian Consumer Law.

During the proceedings, Electrodry admitted that it had made false or misleading representations in contravention of the Australian Consumer Law by authorising its agent to publish fabricated testimonials on the Internet, and attempting to induce its franchisees to publish similar testimonials on a range of consumer related websites.

The Federal Court’s decision

In imposing the penalty, Justice Yates stated that inducing and attempting to induce franchisees to post fake testimonials was serious conduct, due to its “potential to adversely affect a large number of customers” and its “dishonest purpose”.

His Honour observed that:

All the testimonials were posted on online review websites and were easily accessible to Australian consumers of the kinds of services provided by Electrodry Carpet Cleaning. The authors of the testimonials were not consumers of Electrodry Carpet Cleaning’s services, had not been provided with such services and had not, as consumers, formed the favourable opinions that the testimonials represented. The testimonials were intended to convey, and no doubt did convey, that they stood as an independent and critical assessment of Electrodry Carpet Cleaning’s services. They were, of course, nothing of the sort. Just as with other forms of false or misleading advertising, the fabricated testimonials had the potential to mislead a large number of consumers, divert customers from law-abiding competitors, and generate a positive perception of Electrodry Carpet Cleaning that was based on falsehoods. (at [43])

Justice Yates did, however, note that Electrodry had sought to cooperate with the ACCC from the outset, looking to resolve the proceedings as quickly and as cost efficiently as possible, including through the preparation of a comprehensive agreed statement of facts and admissions. His Honour considered that, in the circumstances, a substantial discount was warranted and that, but for that cooperation, the pecuniary penalty would have been significantly greater.

In this particular case, like soda water to a red wine stain, cooperation with the ACCC, applied quickly and liberally, helped to mitigate the penalty imposed by the Court for a breach of the ACL.

Electrodry was also ordered to publish a corrective notice, pay $10,000 by way of contribution to the ACCC’s costs, and was injuncted from publishing fake testimonials for a period of three years.

Implications

The Federal Court’s decision confirms that the ACCC is taking a strict approach towards the publishing of fake testimonials, and misleading conduct online in general. As we noted in a previous post, the ACCC called out online conduct as one of its key priorities for 2015.

Following the decision, ACCC Deputy Chair Dr Michael Schaper stated:

Consumer issues in the online arena remain an area of ACCC concern. While online testimonials can be a useful and genuine marketing tool, it is important that online businesses understand that making or inducing false or misleading representations about testimonials breaches the Australian Consumer Law.

With the upcoming ACL review in 2016, and Chairman Rod Sims recently calling for higher penalties for misleading and deceptive conduct (read our post here), we will be closely monitoring findings of misleading and deceptive conduct, particularly in relation to conduct online.