Following our report from November last year, The Federal Court has found that Meriton Serviced Apartments (Meriton) engaged in misleading and deceptive conduct in circumstances where it adopted a scheme preventing unfavourable reviews for its properties on the TripAdvisor website. The case clarifies that conduct intended to create a misleading positive impression on an online review site may be misleading. However, it also raises some interesting questions for businesses as to whether steps taken to encourage customers to post positive reviews might give rise to the same concerns.

Meriton’s Scheme

During the period November 2014 to October 2015, Meriton participated in the Review Express service offered by TripAdvisor under which it provided TripAdvisor with the email addresses of guests who had stayed at its properties and TripAdvisor sent email invitations to these guests to post a review. However, rather than sending TripAdvisor the email addresses of all consenting guests who had stayed at its properties, the Court found that Meriton adopted the following two practices:

  • adding the letters ‘MSA’ to the beginning of certain guests’ email addresses who had made a complaint or were otherwise considered likely to have had a negative experience at a Meriton property, with the result that the masked email addresses were invalid
  • withholding the email addresses of certain guests from TripAdvisor who stayed at a Meriton property during a period of major service disruption (e.g. no hot water, disruptions to phone services, lifts being out of order, etc.).

There were 14,584 instances of email addresses being added with the letters ‘MSA’ during the period 1 April to 31 December 2015, indicating that a broad-scale masking operation was being carried out by Meriton.

The Court found that Meriton’s practices of masking emails and withholding other emails from TripAdvisor’s review process were “systematic and deliberate” and had the effect of:

  • reducing the number of negative reviews of Meriton properties appearing on the TripAdvisor website (and correspondingly improving the relative number of favourable reviews)
  • in some cases, affecting the ranking (but not the rating) of the Meriton properties on the TripAdvisor website
  • overall, creating a more positive or favourable impression of the quality or amenity of the Meriton properties on the TripAdvisor website.

Accordingly, the Court held that Meriton engaged in misleading and deceptive conduct. The maximum penalty for each breach is $1.1 million. Theoretically, each act of changing an email address could constitute a separate breach and as such, Meriton is at risk of a very substantial penalty. A hearing to determine penalties will take place at a later date.

Encouraging Positive Reviews

The misleading and deceptive conduct in this case concerned two practices effecting customers on a large scale that were intended to reduce the likelihood of negative reviews being posted on TripAdvisor and, in doing so, create a more positive or favourable impression of the quality or amenity of the Meriton properties. While not dealt with in the judgement, the case gives rise to the obvious question: could conduct that incentivises customers to post a positive review (whether truthful or not) also be misleading and deceptive?

Based on the ACCC’s guidance for online reviews, the answer from the Commission’s point of view appears to be “yes”. The ACCC recommends that incentives should only be offered in exchange for reviews if:

  • incentives are offered equally to consumers likely to be complimentary and consumers likely to be critical, and positive and negative reviews are treated the same
  • the reviewer is expressly told that the incentive is available whether the review is positive or negative
  • the incentive is prominently disclosed to users who rely on affected reviews.

Such an outcome is definitely open from the Meriton decision. Extrapolating from the Judge’s reasoning in Meriton, there is a real risk that an incentivisation strategy could be misleading and deceptive conduct if it is “systematic and deliberate”, intended to increase the likelihood of positive reviews (or reduce negative reviews) and is conducted on a large scale – provided that it then actually had that effect.

Conduct versus representation

Another interesting element of this case is that Meriton’s conduct is quite different from traditional misleading and deceptive conduct previously dealt with by the ACCC and the Courts, as it normally involves some form of representation being made by the business directly to its customers (e.g. fabricating testimonials and editing and deleting reviews). In this case, Meriton’s conduct involved impeding the TripAdvisor prompt to dissatisfied consumers to post reviews and manipulating the process by which consumers post online reviews. The Court held that the fact that the relevant statements on the TripAdvisor website were made by guests, rather than by Meriton, does not of itself present an obstacle to a finding of misleading or deceptive conduct. This is because each of the relevant Australian Consumer Law (ACL) provisions are concerned with conduct and don’t necessarily require the making of a representation.

The case also emphasises the broad application of the ACL provisions relating to misleading and deceptive conduct. The Court recognised that each of the relevant provisions was drafted and enacted at a time well before the internet (as we now know it) and websites such as TripAdvisor existed. Nevertheless, the Court expressed that each provision is drafted in “elegant and simple language capable of potential application to new circumstances that arise through developments in technology”.

What your business needs to know

There are several important messages arising from this case that go to the heart of businesses interacting with consumers in the online space:

Importance of independent consumer review platforms in driving consumer choice

The rising importance of online review platforms to the consumer decision-making process, as well as the ACCC’s ongoing compliance focus on this area, mean that review platforms provided by businesses need to be transparent and impartial. Businesses should consider developing a consumer law compliance strategy that sets out how the legal risks relating to consumer conduct are being managed.

Consider the overall impression your business is giving to its consumers

In the online world, businesses interact with consumers in countless ways. Your business needs to ensure that its conduct including the content of its webpage and its processes for online reviews (if relevant) do not fall within the scope of conduct prohibited by the ACL. This includes ensuring that your review platform correctly reflects the opinions of all consumers who have submitted the reviews.