Facts
Decision
Comment


The Federal Court recently imposed penalties on a major building company for false and misleading advertising in promoting the sale of detached residential houses.(1)

Facts

Metricon Homes Queensland Pty Ltd is a project builder of residential housing in southeast Queensland and northern New South Wales. Four distinct aspects of Metricon's conduct were pursued by the ACCC, as follows.

Pictorial representations
Between July 17 2010 and January 15 2011 Metricon published and distributed around 1.06 million 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 this price. The designs also included fixtures and fittings that were not actually offered by Metricon at all.

Build-time guarantee
All advertising brochures distributed by Metricon between January 2009 and January 2011 offered a 'build-time guarantee', but stated that it was subject to terms and conditions available only on its 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' (ie, price before the promotion) and a 'pay-only' price (ie, the price payable during the promotion) were advertised. However, each of the houses represented in the brochures either had never been offered for sale before 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 that 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 - the standard price (or recommended retail price) and the promotional price. This was done to induce purchasers by suggesting that a saving would be made on the difference between the two prices if the upgrade package were 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.

Decision

Sections 52 and 53 of the Trade Practices Act 1974 (Cth) and Sections 18 and 19 of the Consumer Law, 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.

Although the ACCC and Metricon agreed with respect to the breaches and the proposed penalty, under the above acts, responsibility for determining whether contraventions have occurred and setting the appropriate pecuniary penalty to be applied lies with the court. The court took into account the following:

  • 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 law, 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 anyone had 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 had shown a disposition to cooperate; and
  • the financial position of the company; and
  • the fact that any penalty imposed should have the principal object of deterring both the contravener and others.

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

  • While 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 (approximately A$307,500) was such that it represented a very substantial commitment to the consumers involved.
  • While the total penalty was far from the maximum under the legislation, it was a significant amount when weighed against Metricon's financial position.
  • Senior management was involved in the breaches (ie, the perpetration was not by a lower-level employee).
  • Although Metricon had policies in place, these 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.
  • The ACCC submitted that Metricon was entitled to real credit for its involvement in discussions with the regulatory body.

Metricon was ordered to pay a total of A$800,000 in pecuniary penalties, as follows:

  • A$150,000 in relation to the pictorial representations;
  • A$250,000 in relation to the build-time guarantee;
  • A$250,000 in relation to the discount list prices;
  • A$150,000 in relation to the upgrade packages; and
  • A$50,000 in relation to the ACCC's costs.

Comment

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 marketing campaigns in order to ensure that buyers' decisions are based on sound facts and representations.

For further information on this topic please contact Nick Prove or Jordan Smith at Piper Alderman by telephone (+61 2 9253 9999), fax (+61 2 9253 9900) or email (nprove@piperalderman.com.au or jsmith@piperalderman.com.au).

Endnotes

(1) Australian Competition and Consumer Commission (ACCC) v Metricon Homes Queensland Pty Ltd ([2012] FCA 797).

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.