This year, the Australian Competition and Consumer Commission (ACCC) has made no secret of the fact it is pursuing big penalties against big players which act in breach of the Australian Consumer Law.

Big players 

We are nearly halfway through 2017 and so far we have seen the ACCC hold true to its word, particularly in respect of consumer guarantees. After a final hearing in February this year in the ACCC’s ongoing Federal Court proceedings against technology giant, LG Electronics, the next big name technology manufacturer on the ACCC’s hit list for the year was Apple, with the ACCC initiating Federal Court proceedings on 5 April. But the ACCC did not stop there – Thermomix, the manufacturer of highly sought after kitchen appliances came next, with the ACCC initiating Federal Court proceedings on 16 June.

Big penalties 

Central to the ACCC’s case against LG, Apple and Thermomix is that these manufacturing powerhouses misrepresented the remedies available to consumers for defective devices under the consumer guarantee regime. If the ACCC is successful in its arguments, the maximum pecuniary penalty that could be imposed is $1.1 million per breach, which in Apple’s case could lead to a total penalty of up to $4.4 million and for LG, that could mean a total penalty of up to $6.6 million.

But if these penalties aren’t already a significant cause for concern, you should be aware that Consumer Affairs Australia New Zealand (CAANZ) has proposed a legislative amendment to increase the maximum penalties available under the Australian Consumer Law to the greater of:

  • $10 million;
  • three times the value of the benefit the company received from the breach; or
  • 10% of the company’s annual turnover in the preceding 12 months.

This amendment would bring these penalties into line with the competition provisions of the Competition and Consumer Act 2010 (Cth). The Consumer Affairs Forum (CAF), made up of Commonwealth, State, Territory and New Zealand Ministers responsible consumer protection, is meeting in August to consider whether to support this and other legislative amendments proposed by CAANZ in its final review of the Australian Consumer Law.

Ensure your business isn’t the ACCC’s next target

1. Understand if and how the consumer guarantee regime applies to your business.The consumer guarantee regime is significantly broader than many businesses – and lawyers – appreciate.

  • Consumer guarantees don’t just apply to “consumers” – on the contrary, if your business supplies goods or services where the price per unit is < $40,000irrespective of the purpose of the supply or its intended recipient, the consumer guarantees may apply. As a result, a broad range of B2B transactions are captured and this is likely to broaden if CAF accepts CAANZ’s proposal to increase this threshold to $100,000.

  • Is your business deemed a “manufacturer” under the regime? – does your business import goods? If the manufacturer does not have a place of business in Australia, the answer may be yes. Does your business permit its brand or name to be applied to goods? If so, it may be deemed a manufacturer even if it has no involvement in the manufacturing process.

  • Be aware of cross-border and online transactions – if your business supplies goods or services to Australian customers, the transaction may be subject to consumer guarantees. Do not expect any leniency from the ACCC if your business is based overseas as the ACCC has not been shy to pursue foreign based entities. For example, in proceedings against Valve Corporation last year, Valve was ordered to pay a pecuniary penalty of $3 million for making false or misleading representations to consumers about their consumer guarantee entitlements (refer to our focus paper for a full discussion of the case). Further, the ACCC has included Apple’s US based parent company, Apple Inc, in its current proceedings against the Australian Apple entity, Apple Pty Limited.

2. Ensure you and your staff understand your business’ obligations under the regime – or the ACCC may have grounds to allege you have made false or misleading representations concerning the availability of rights under the consumer guarantees.

  • Understand consumers’ rights to remedies for defective goods or services – be wary of imposing blanket conditions on the availability of refunds or replacements. For example, the ACCC is alleging Thermomix made a number of false or misleading representations to consumers by representing to certain consumers that it would not provide refunds or replacements for the high end appliances at any time, and to other consumers, that certain remedies were only available if the consumers signed agreements with non-disclosure and other terms. Similarly, the ACCC is alleging Apple denied consumers remedy for defective iPhones and iPads where the devices had previously been repaired by third parties.

  • Manufacturers and suppliers owe different obligations to consumers – be clear on your business’ obligations to consumers to remedy defective goods or services. We are awaiting judgment in the ACCC’s proceedings against LG to hear the Federal Court’s view on the parties’ differing arguments about manufacturers’ obligations to remedy defective goods prior to consumers suing for damages.

  • Warranty obligations – understand that manufacturers’ warranties are in addition to consumers’ rights under the consumer guarantee regime and the expiration of the warranty does not necessarily extinguish other rights the consumer may have at law (for further discussion of warranties against defects, see our focus paper).

3. Review your contracts – if your contracts are drafted in a way which is inconsistent with your consumer guarantee obligations, you may be in breach of the Australian Consumer Law. In particular, pay careful attention to:

  • Adopting standard form agreements prepared by foreign parent companies – these may not comply with your Australian consumer guarantee obligations.

  • Warranties against defects – warranties should be worded clearly to express that warranties are in addition to a consumer’s rights under the guarantees, not instead of them.

  • Drafting limitations on liability – any limitations on your business’ liability for defective goods or services must closely track the wording in the Australian Consumer Law.