In the case of Australian Competition and Consumer Commission v Metricon Homes Queensland Pty Ltd [2012] FCA 797 the Federal Court imposed penalties on a major building company for false and misleading advertising in promoting the sale of detached residential houses.

Metricon Homes Queensland Pty Ltd is a project builder of residential housing in South-East Queensland and Northern New South Wales. There were 4 distinct aspects of Metricon’s conduct that were pursued by the ACCC. These were:

Pictorial representations in the Resort Style Living Brochure

Between 17 July 2010 and 15 January 2011 Metricon published and distributed around 1,060,000 pictorial advertising brochures entitled “Resort Style Living” via local newspapers and at its display centres. The brochures depicted house designs offered “from” a price, including fixtures and fittings offered by Metricon. However the fixtures and fittings were not covered by the “from” price. The designs also included fixtures and fittings not actually offered by Metricon at all, and not within the “from” price.

Build Time Guarantee

All advertising brochures distributed by Metricon between January 2009 and January 2011 offered a “Build-Time Guarantee” but stated it was subject to terms and conditions only available on their website. The terms and conditions on the website differed from the information given in the brochures.

Discount List Price

Between July 2009 and December 2010, Metricon distributed brochures containing promotions entitled “Home Expo Promotion” and “Red Hot Rollback Promotion”. In these brochures, a “List Price” or price before the promotion and a “Pay-Only” price, being the price payable during the promotion, were advertised. However, each of the houses represented in the brochures had either never before been offered for sale by Metricon or had not been offered for sale at the “List Price” before the start of the promotion. This was done to induce buyers into believing substantial savings would be made by purchasing during the promotion.

Upgrade Packages

Advertising brochures were released between January 2009 and June 2011 that offered “Upgrade Packages”. Two prices were provided in the brochure for the included fixtures and fittings, being the “Standard Price” or “RRP” and the “Promotional Price.” This was done to induce purchasers by suggesting a saving would be made on the difference between the two prices if the upgrade package was purchased. However Metricon had not entered into supply contracts for those fixtures and fittings hence there was no known value or basis to claim that the consumer would be saving money.

Sections 52 and 53 of the Trade Practices Act 1974 (Cth) (“TPA”) and sections 18 and 19 of the Australian Consumer Law (“ACL”), as set out in Schedule 2 of the Competition and Consumer Act 2010, prohibit engagement in conduct that is misleading or deceptive or is likely to mislead or deceive.

Even though there was agreement between the ACCC and Metricon about the breaches and also the proposed penalty, under those Acts it is for the court to determine whether contraventions have occurred and the appropriate pecuniary penalty to be applied.

The court took into account the following principles:

  • The fact that the regulatory authority and contravening party were in agreement as to the relevant facts and the appropriate relief
  • Matters specified in the ACL, including the nature and extent of the act or omission and of any loss or damage suffered as a result; the circumstances in which the act or omission took place; and whether the person has previously been found by the Court to have engaged in similar conduct
  • Factors espoused in Trade Practices Commission v CSR Limited [1990], including the size of the contravening company; the degree of power; the market share of the company; the deliberateness of the contravention; whether the contravention was caused by the conduct of senior management; whether the corporate culture was conducive to compliance; whether the company has shown a disposition to co-operate; and the financial position of the company
  • That any penalty imposed has the principal object of deterrence of the actual contravener and others.

Order

The court held it appropriate in this instance to enforce the agreement reached between the parties for the following reasons:

  • Whilst neither party was aware of any actual loss that had been incurred as a result of the contraventions, the average price of the houses sold (~$307,500) was such that it represented a very substantial commitment to the consumers involved
  • Whilst the total penalty of $800,000 was far from the maximum under the legislation, it was a significant amount when weighed against the financial position of Metricon
  • Senior management was involved in the breaches – i.e. the perpetration was not by a lower level employee
  • Although Metricon had policies in place, they had failed to capture the contravening conduct
  • Metricon had no previous convictions or allegations of contraventions
  • The transactions to purchase extended over many months, which afforded consumers time to find out what actually was included, even if initially misled, and
  • The ACCC submitted that Metricon Qld was entitled to real credit for its involvement in discussions with the regulatory body.

Metricon was ordered to pay a total of $800,000 in pecuniary penalties, made up of:

  • $150,000 in respect of the Pictorial Representations
  • $250,000 in respect of the Build Time Guarantee
  • $250,000 in respect of the Discount List Prices
  •  $150,000 in respect of the Upgrades Packages, and
  • $50,000 in respect of the ACCC’s costs of the Application.

Given the inherent reliance that prospective consumers place on advertising, coupled with the substantial financial and personal outlay in building a home, builders must apply the adage “what you see is what you get” to their marketing campaigns so that buyers’ decisions are based on sound facts and representations.