Introduction

The ramifications of the Australian Competition and Consumer Commission (ACCC) v Valve Corporation (No 3) [2016] FCA 196 (Valve case) are best remembered as exposing operators of foreign based websites to the Competition and Consumer Act 2010 (Cth) (Act) where internet sales are made to Australians. In the Valve case, Valve Corporation was pursued by the ACCC for misleading and deceptive conduct for representing to Australian customers that they were not entitled to refunds where defective video games were purchased. The ACCC was able to prove that the Act was enforceable against Valve Corporation because the conduct of the Valve Corporation was considered to have arisen in Australia, hence triggering Australian jurisdiction.

What else arises from the Valve case?

In the context of the Corporations Act 2001 (Cth) (Corps Act), the court’s finding that Valve Corporation carried on business in Australia also raises the question as to whether Valve Corporation should have registered as a foreign company in Australia. Section 601 CD(1) of the Corps Act states:

'1. A foreign company must not carry on business in this jurisdiction unless:

      a. it is registered under this Division; or

      b. it has applied to be so registered and the application has not been dealt with.

 2. For the purposes of this Division, a foreign company carries on business in this jurisdiction if it:

      a. offers debentures in this jurisdiction; or

      b. is a guarantor body for debentures offered in this jurisdiction.

 and Part 2L.1 applies to the debentures.’

The concept of ‘carrying on business’ needs referral to ss 21(2) and (3) of the Corps Act. The Valve case endorsed previously espoused tests on what the concept embraces and concluded that ‘carrying on business’ amounts to a series or repetition of acts commonly involved in activities undertaken for the purpose of profit. Interestingly in the Valve case:

  • Valve Corporation did not have an established place of business in Australia as its business was conducted off shore through their website;
  • Valve Corporation was not a registered company in Australia, had no Australian staff and owned no real estate; and
  • Contracted with Australians through its website.

However, the Federal Court found that:

  • Valve Corporation had more than 2 million accounts opened by Australians;
  • Valve Corporation’s yearly earnings from Australian consumers was in the millions of dollars;
  • Valve Corporation owned and used content servers in Australia (initially valued at $1.2 million) which operated as a digital warehouse;
  • Valve Corporation had contractual relationships with Australian businesses; and
  • Valve Corporation paid tens of thousands of dollars to Australian companies as expenses in maintaining business in Australia.

Putting this all in context, a foreign corporation operating a internet website without having an Australian address could unwittingly, by regularly filling orders from Australian consumers, not only fall foul of the ACCC and the Act, but also breach the Corps Act by failing to register as a foreign corporation in Australia because it has satisfied the carrying on business test in Australia.

Furthermore, to fall into this category, a company does not actually need to have a physical place of business in Australia.

The takeaway points

If your company is one which operates a successful internet business outside Australia, you should review how your business is operated and its dealings with Australian residents. Lessons to be learned from the Valve case are:

  • That you may have unwittingly exposed your company to regulation under the Act; and
  • That you may need to register your company as a foreign company in Australia.