The ACCC will take swift action to protect consumers against misleading advertising and courts will impose significant penalties for businesses who do not comply with the Australian Consumer Law.

The recent decision of the Federal Court in the Energy Watch case, and action taken by the ACCC against Retail Food Group (owner of Brumby’s), remind businesses to consider carefully the basis for claims made about goods and services, particularly any statement relating to price.

“Sharp” business practices lead to heavy penalties in the Energy Watch case

In July 2012, the Federal Court ordered Energy Watch Pty Ltd to pay a $1.95 million penalty for misleading advertising. The Court also ordered that Energy Watch’s former CEO, Mr Ben Polis, pay $65,000.

Energy Watch (now in liquidation) provided brokering services for the retail purchase of electricity and gas for both residential and business customers. The ACCC commenced proceedings against Energy Watch and Mr Polis, alleging that they had contravened the Australian Consumer Law (ACL)[1] by making a number of false or misleading representations as part of an extensive marketing campaign, including television, print and radio advertisements and a billboard at the MCG.

The ACCC alleged (and the Court found) that Energy Watch and Mr Polis had:

  • falsely represented that Energy Watch compared the rates of all or many of the energy retailers available in a specified area when it only compared the customer’s existing rate with that of Energy Watch’s “preferred providers”;
  • falsely represented it had an adequate basis to say that it had saved or would save residential consumers (who changed to an energy retailer introduced by Energy Watch) $386 over a 12 month period when it had no adequate basis for saying so;
  • falsely represented that it had an adequate basis to say that it had saved or would business consumers (who changed to an energy retailer introduced by Energy Watch) $1878 when it had no adequate basis for saying so; and
  • falsely represented that Energy Watch would save a person who changes to an energy retailer introduced by Energy Watch an average of $386 on their electricity bills.

The ACCC sought declarations, pecuniary penalties and costs.

The Federal Court finds against Energy Watch

The Court considered each type of advertisement and each class of representation separately and found that Energy Watch made six types of representations in 80 advertisements across the various forms of media. Although many of the advertisements contained disclaimers of some kind, the Court found that these were ineffective in most cases.

Mr Polis was found to have personally contravened the ACL because of his role in the voiceovers in nine radio advertisements by Energy Watch (Australian Competition and Consumer Commission v Energy Watch Pty Ltd [2012] FCA 425). In assessing the appropriate penalty, Justice Marshall noted that Mr Polis was the “figurehead of Energy Watch, thereby giving greater gravitas to the false and misleading conduct than if the radio advertisements had been spoken by a voiceover actor.”

In determining the appropriate amount for the penalty, Justice Marshall considered factors including the size of Energy Watch, the deliberateness of the contraventions of the ACL, the period over which the contraventions occurred, whether the contraventions arose out of the conduct of senior management, whether the corporate culture of Energy Watch was conducive to compliance with the ACL, whether Energy Watch had co-operated with the ACCC, and Energy Watch’s financial position.

A very significant factor considered by the Court was deterrence:

“The corporate world should know that it is wrong to engage in such deceptive business practices and doing so will incur the risk of large penalties”

Importantly, Justice Marshall also noted that retail energy prices are a “matter of public interest. For many people, energy bills represent a large part of day-to-day living expenses. Energy prices are also significant for businesses.”

Although Justice Marshall gave Energy Watch and Mr Polis credit for cooperating with the ACCC in the efficient conduct of the trial, he noted that the ACCC first warned it about compliance issues concerning advertising in June 2011 and Energy Watch’s conduct continued until September 2011.

The Energy Watch decision is the sixth in which the Federal Court has ordered penalties of over $1 million since the introduction of the ability of the ACCC to seek civil pecuniary penalties under the ACL. Chairman Rod Sims stated “The ACCC will take action to protect considers and the Federal Court will impose significant penalties for misleading advertising.” The ACCC also indicated that it would be closely monitoring other energy comparison services:

“[T]here are numerous energy price comparison services and the ACCC will be communicated with them to ensure they do not mislead consumers.”

“Let the Carbon tax take the blame”

In another energy-related matter, the ACCC recently accepted a court-enforceable undertaking from Retail Food Group in relation to a carbon price statement.

The ACCC took action after the managing director of Brumby’s Pty Ltd distributed a newsletter to 250 Brumby’s franchisees containing the following statement:

“We are doing an RRP review at present which is projected to be in line with CPI, but take an opportunity to make some moves in June and July, let the Carbon tax take the blame, after all your costs will be going up due to it.”

Chairman Rod Sims made the ACCC’s views on such statements clear: “Brumby’s carbon price statement may have had the effect of inducing or encouraging Brumby’s franchisees to make representations to retail customers linking product price increases to the carbon price without reasonable basis”. Any claims made about the carbon price “must be truthful and have a reasonable basis”, Mr Sims said.

The ACL prohibits businesses from making false, misleading or deceptive claims about the price of goods or services including in relation to the carbon price. The ACCC’s Carbon Price Claims – Guide for Businesses gives businesses some guidance about their rights and obligations when making claims about the carbon price.

Lessons learnt

  • The ACCC will take swift action to protect consumers against misleading advertising and courts will impose significant penalties for businesses who do not comply with the ACL.
  • Retail energy prices are a matter of “public interest” and the ACCC is currently taking a particular interest in the energy sector and carbon price claims.
  • To avoid contravening the ACL businesses should ensure they have systems in place for reviewing and verifying statements in public documents.
  • Any warnings given by the ACCC should be taken seriously and acted upon quickly.