Key Points: It is now more important than ever for companies to hold credible and complete substantiation materials for all claims made, as these may need to be provided to the regulator on short notice.

Earlier this year the first round of the Australian Consumer Law reforms came into effect including provisions relating to unfair contact terms as well as enhanced enforcement provisions.

For suppliers of products one of the more significant aspects of these reforms is the new power to issue "substantiation notices". The Australian Competition and Consumer Commission ("ACCC") now has the power to issue a notice requiring the person to provide information/documents that could be capable of substantiating product claims.

The practical effect of this reform is that it is now more important than ever for suppliers of goods to hold credible and complete material that substantiates product claims and is capable of being provided to the regulator on short notice. This is particularly important for suppliers who may be part of large, multi-national groups, where claims may be developed by a foreign parent for use by the Australian subsidiary.

The power to issue substantiation notices

The new power applies where a corporation has, "in trade or commerce, made a claim or representation promoting, or apparently intending to promote... a supply, or possible supply of goods or services by the person to another person". As such it will apply to promotional claims made by any means, including product packaging, consumer advertising, and representations made to trade customers.

It also applies to all kinds of claims that may be made in relation to products - for example, country of origin claims, composition claims, performance claims, product safety claims, etc. Indeed, given the ACCC's recent focus on "green" claims as an area of enforcement priority, we predict that they may be particularly utilised by the ACCC when conducting investigations in this area, such as investigations into claims regarding carbon impacts and biodegradability claims.

What types of information are covered?

The types of documents/information that may be required to be produced are those "that could be capable of substantiating or supporting the claim or representation". Where the claim relates to the supply, or possible supply, of goods, there is also a specific power for the ACCC to require the production of information/documents in relation to the quantities in which, and the period for which, the corporation will be able to make the supply. This power will be relevant to the investigation of "bait advertising".

Responding to a substantiation notice

A person has 21 days to respond to a substantiation notice (although this time period may be extended by the regulator). "Individuals" (that is, individual persons not corporations) may refuse to provide particular information/documents on the grounds that the information/documents may incriminate them or expose them to a penalty.

Failure to comply with a substantiation notice could expose a corporation to a penalty of up to $16,500, while providing false or misleading information in response to a substantiation notice could attract a penalty of up to $27,500.

What has changed?

The ACCC has always had information gathering powers under section 155 of the Trade Practices Act 1974 ("TPA"). So what, if anything, has changed?

One significant difference is a section 155 notice can only be issued where "the Commission, the Chairperson or a Deputy Chairperson has reason to believe that a person is capable of furnishing information, producing documents or giving evidence relating to a matter that constitutes, or may constitute, a contravention of this Act".

While this is not a particularly high threshold, there must be some reason to believe that there has been a possible breach of the TPA. In contrast, substantiation notices can be issued wherever a claim has been made to promote the supply of goods. Substantiation notices are therefore an arbitrary investigation power and can potentially be used for fishing expeditions. For example, the ACCC could target a particular industry sector issuing substantiation notices even where there is no reason to suspect that the particular businesses involved have engaged in misleading conduct.

The second main difference is that section 155 notices must specify the information sought with sufficient particularity to enable the recipient to know what is required. However, with a substantiation notice the ACCC can make a very broad request for documents or information "that could be capable of substantiating or supporting the claim or representation". It is left to the person who receives the notice to determine what documents might be relevant to substantiating the claim.

So what happens if the material you provide is not sufficient to substantiate the claim?

The following statement appears in the ACCC's publication "News For Business: ACCC powers to issue infringement, substantiation and public warning notices":

"Substantiation notices do not require a person to prove that a claim or representation is true or is not misleading; rather they are a preliminary investigative tool that helps the ACCC determine whether further investigation is warranted."

While strictly speaking this may be a correct statement of the legal position, it ignores the obvious practical consequences of providing inadequate material in response to a substantiation notice - if the company is not able to substantiate the claim when called upon to do so, then the ACCC will likely form the view that the claim is misleading. This increases the risk that enforcement action will be taken.

What does this mean?

With the introduction of civil pecuniary penalties the regulator no longer needs to prove contraventions to the criminal standard of beyond reasonable doubt, but only needs to establish its case on the balance of probabilities - a much lower standard.

This means that the ACCC will be more likely to commence court proceedings in matters where the issues are a little unclear - for example, where there may be divergent scientific views. As such it is important that companies be able to reassure the ACCC that its claims are not misleading at the earliest opportunity - ie. when the substantiation notice is issued.

Because the period of compliance is short - 21 days - it is now more important than ever for companies to hold credible and complete substantiation materials for all claims made, as these may need to be provided to the regulator on short notice. We suggest that this material should be collated and recorded in a systematic manner as part of the claims development process.

This reform holds particular significance for suppliers of products who are part of large, multi-national groups. It is not uncommon in such circumstances for claims/marketing materials to be developed - and substantiated - by a foreign parent for use by the Australian subsidiary. This means that the Australian company may not hold any substantiation for the claims made. This does not mean that the claims are misleading - however, if there is a delay in obtaining the substantiation material from the foreign parent then this may lead to a perception on the part of the ACCC that the claims cannot be substantiated, making a further, more comprehensive investigation more likely. Accordingly we suggest that material should be held in Australia, or alternatively, that systems be developed so that substantiation material can quickly be obtained from the parent company if necessary.