A few weeks ago, the ACCC won on appeal just 2 of the 19 counts of false or misleading conduct which it had brought against LG.

After a gritty two and a half year battle in the Federal Court, it’s hardly a satisfying result for either the ACCC or LG. The case has been remitted to the trial judge for sentencing, where LG will be facing pecuniary penalties of up to $1.1 million for each breach of the ACL.

So, how did this all come about? And, more importantly, what does this mean for manufacturers?

Some quick background facts

Timeline

14 December 2015 – the ACCC commenced proceedings against LG, claiming that LG had made false or misleading representations about consumers’ rights in relation to faulty LG TVs.

The crux of the ACCC’s complaint was that LG had represented, in breach of the Australian Consumer Law (ACL), that consumer remedies were limited to the LG manufacturer’s warranty.

It also complained that LG had represented that, where that warranty had expired, various conditions would apply to a consumer’s ability to claim a remedy from LG, e.g. consumers were entitled to have their faulty TV repaired but not refunded or replaced, consumers were liable for labour costs, and consumers would only be entitled to a remedy if they paid for the costs of assessing the failure.

In its evidence, the ACCC relied on representations made through LG’s website, emails sent by LG representatives, and statements made by LG representatives over the phone.

1 September 2017 – the trial judge dismissed the ACCC’s case, finding that LG had no additional obligation in the given circumstances to refer to the ACL as a potential source of remedies for consumers beyond its expired manufacturer’s warranty.

22 September 2017 – the ACCC lodged its appeal in the Full Court. 27 June 2018 – the Full Court partially upheld the ACCC’s case on appeal, finding that LG had made 2 false representations to consumers in breach of the ACL.

Where did LG go wrong? 

The Full Court found that on 2 occasions, LG had made representations via its customer service representatives to the effect that LG was unable to provide a remedy because the faulty LG TV was out of warranty. LG had maintained this position despite the consumer specifically referring to their ACL rights.

The Full Court noted that these problematic representations were unequivocal statements about what customers “had to do” (i.e. pay for repairs) and what LG “could not do” (i.e. repair the TV for the customer). They were not framed in terms of what LG might be willing to do irrespective of legal rights and duties. They were also framed as statements of fact which, in their context, conveyed the impression that no rights other than those under LG’s manufacturer’s warranty existed, operated or had potential effect.

Accordingly, the statements were false and in breach of the ACL.

Why did the ACCC fail on so many fronts? 

On the remaining 17 counts, the Full Court agreed with the trial judge and dismissed the ACCC’s appeal. In so doing, the Full Court focused on the trial judge’s finding that the ACCC had failed to prove that any of the faulty LG TVs were in fact non-compliant with the statutory guarantee as to “acceptable quality” under the ACL.

This had 2 key implications:

  • It was not possible to establish any actual liability of LG in respect of the faulty TVs under the ACL.
  • The context in which the dealings between LG and its consumers, repairers and retailers took place could be construed as “a form of negotiation” over the practical assistance that LG might offer its customers upfront – without having regard to the actual legal position of the parties. That is, it didn’t actually call for a discussion of consumers’ rights under the ACL.

In these circumstances, the fact that LG customer service representatives failed to mention the possible application of the consumer guarantee regime did not amount to a “half-truth” which was likely to mislead or deceive consumers as to their rights under the ACL.

This was the case despite the fact that the practical assistance offered by LG involved requiring the relevant consumers to bear costs which they might not otherwise have had to bear if they had relied successfully on their rights under the ACL.

What does this mean for you as a manufacturer?

It’s a complicated case on the facts, so what does it really boil down to in practice?

First, as a manufacturer, you do not have any obligation under the ACL to engage directly with consumers – consumer complaints can be, and often are, referred to the relevant supplier.

However, if you do choose to communicate with consumers, then you may want to take another look at your staff training policies. Broadly speaking, consumers have a less sophisticated understanding of the ACL than wholesale traders, for instance. This in turn makes consumers more vulnerable to being misled about their legal rights – which means that you need to take particular care in how you phrase statements that are aimed at consumers.

Here are some rules of thumb:

  • Staff should never tell a customer that he or she has no legal rights outside your manufacturer’s warranty. Unequivocal statements such as “We cannot help you because the warranty has expired” should be avoided at all costs.
  • Having a blanket “don’t ask, don’t tell” approach to ACL rights is likely to put you at risk of being drawn into time-consuming and costly investigations by the ACCC. This is exactly the sort of policy that LG had in place at the time of the contraventions.
  • If a technician needs to be engaged to assess a fault, you will be within your rights to require the consumer to make the initial payment. However, you should make it clear to the consumer that it is a cost for which you may end up reimbursing him or her if the results of that assessment point to a failure of a consumer guarantee – e.g. if your good fails the “acceptable quality” guarantee.