“Marketing Law”: an Australian Law Essay

Introduction

In Australia, consumers are protected from unscrupulous business practices by the Australian Consumer law (ACL). This law forms part of the Competition and Consumer Act of 2010 that enhances the welfare of Australian consumers by ensuring compliance to fair competition and trading practices¹. The Australian Competition and Consumer Commission (ACCC) play a key role in regulating markets with monopoly characteristics that limit competition. The ACL is a single law that applies both nationally and in each of the Australian States and Territory. Under the ACL, consumers have protections and businesses have obligations and responsibilities to embrace fair business practices wherever they operate within the country. Among the objectives of the ACCC is to maintain and enhance business compliance with the Competition and Consumer Act of 2010, formerly the Trade Practices Act of 1974. To achieve this, the ACCC plays a litigation function that encompasses analysis, liaison, and outreach programs². Complaints from consumers and businesses regarding scam-based activities, advice on refunds, and warranty requests are directed to the ACCC’s Info Centre.

Besides litigation, the ACCC informs the consumers and businesses about their rights and obligations as provided by under the Competition and Consumer Act. It also works in liaison with other regulators and industry stakeholders in addressing issues related to emerging trade practices³. In particular, because of alleged misrepresentations by Patterson Cheney Pty Ltd, the ACCC on March 2011 ensured that the care retailer company provided enforceable undertakings to the ACCC. In this way, the ACCC protects the consumers against unfair contract terms from business corporations. The ACCC’s court enforceable undertaking is an effective approach to consumer protection.

Background of Patterson Cheney Pty Ltd Enforceable Undertakings

Patterson Cheney Pty Ltd is a retailer of both used and new motor vehicles that sells as Patterson Cheney Holden in Australia. Following the ACCC investigations, the Victorian car retailer has paid $13,200, in the form of infringement notices on its website. The ACCC investigation involved its ‘Free Extended Lifetime Mechanical Warranty’ promotional offer. Patterson Cheney was found guilty of misrepresentation in relation to the offer. On October 15 2010, Patterson Cheney placed an advert on the Herald Sun about the ‘Lifetime Mechanical Warranty’ on new and used cars.⁴ The advert identified the conditions for this offer; the ‘Lifetime Mechanical Warranty’ was only limited to 175,000 Kilometers. Additionally, the advert identified a claim limit for the life of the contract. However, the total value of the claim, which stood at $3,000, was not disclosed in the advertisement.

As a result, the ACCC drove Patterson Cheney to execute undertakings and obligations as accepted by the ACCC stipulations. Patterson Cheney, relative to Section 87B of the CCA, undertook to avoid making misleading representations concerning any offer or warranty related to a particular product for a period of three years. It also has an undertaking to avoid engaging in deceptive or misleading conducts, in its business operations. Furthermore, Patterson Cheney undertook, on its own account, to send a copy of a customer letter to each customer that bought a motor vehicle under the misleading ‘Lifetime Mechanical Warranty’.⁵ Moreover, Patterson Cheney undertook to publish a newspaper notice to correct the misrepresentation in the next edition of the Herald Sun and the Age.

Within two weeks after the commencement of the undertaking, Patterson Cheney was required to publish a corrective notice on its website. The corrective notice was to, among other things, be in the form of a pop-up message automatically generated upon visiting the company’s website. Additionally, the ACCC required that the notice remain displayed for a four-week period on the company website. Patterson Cheney also undertook to offer an option to customers who bought a vehicle under the ‘Lifetime Mechanical Warranty’ to convert within three months to a different plan; the premium-based Cheney Certified Auto protection plan.

Patterson Cheney, at its own expense, undertook to put in place a program on the Trade Practices Compliance to reduce Cheney’s future breaches of the CCA. This was also aimed at creating awareness of the obligations and responsibilities of the company in accordance with the CCA requirements. The Trade Practices Compliance Program was to run for a three-year period upon the commencement of the undertakings. Alongside these undertakings, Patterson Cheney agreed to publish a reference to the undertakings by the ACCC in the news media and the ACCC publications in a bid to discourage such practices.⁶

Rationale for the ACCC’s Action

Based on Section 87B of the Competition and Consumer Act of 2010, the ACCC considered the practice by Patterson Cheney unscrupulous and subjected it to enforceable undertakings. Accordingly, the car retailer company made misleading representation regarding the existence of the warranty thereby contravening Section 53 (g) of the Trade Practices Act of 1974, now part of the CCA.⁷ Moreover, by claiming that the ‘Lifetime Mechanical Warranty’ applied to each motor vehicle, Patterson Cheney gave the implication that each vehicle is entitled to a warranty that applies throughout the vehicle’s expected lifetime. However, in fact, the ‘Lifetime Mechanical Warranty’ had limitations with respect to the expected lifetime of the vehicle and the total claims value. The promotional offer was only applicable when the vehicle had travelled a total distance of less than 175,000 Kilometers and the total claims value was less than $3,000. These two conditions were not revealed to consumers in the advertisement.

The Australian Competition and Consumer Commission considered the advert in the Herald Sun, ‘Lifetime Mechanical Warranty’, misleading and in contravention of the TPA Act of 1974. Moreover, Patterson Cheney acknowledged that the advert was misleading because the details of the offer remained undisclosed to the consumers. Essentially, the TPA offers protection to consumers by providing legal rights and obligations in any contractual agreement between consumers and sellers.⁸ Failure to meet the requirements or obligations on the part of the trader amounts to a breach of contract. Under the statutory rights provided by the TPA, when a contract has been breached, the consumer is entitled to compensation or refund for unsatisfactory service or poor quality goods.⁹

Apart from the statutory rights provided for in the Act some businesses offer extended warranties. Extended warranties also entitle consumers to compensation or refund in an event of any problem. In Patterson Cheney’s case, the ACCC took action against the vehicle retailer because of violations of the consumer statutory rights. The ACCC identified that, the ‘Lifetime Mechanical Warranty’ was grossly misrepresented warranting enforceable undertakings to the company. This would minimize the risk of unscrupulous trade practices in the motor industry in the future.

The Australian Consumer Policy

The consumer policy in Australia involves the ACL that offers protections to consumers and obligations and responsibilities to businesses. The Australian courts, the ACCC, the Australian Securities and Investments Commission (ASIC), and state consumer protection agencies enforce and regulate the ACL.¹⁰ The ACL replaced the previous consumer protection laws nationally and within states. It contains the Competition and Consumer Act 2010 and some aspects of the ASIC Act (Cth) of 2001¹¹ that aimed at protecting consumers with regard to inappropriate financial services and products.

With respect to deceptive or misleading conduct, the ACL section 18 states that, it is illegal for any business to provide misleading information to consumers or give information that is likely to be deceptive. Further, the ACL provides that failure to disclose essential information, predictions, or opinions amounts to misleading of the consumers. By implication, acts such as advertisements or promotions, which do not provide sufficient or relevant information, are misleading conducts. A misleading conduct, whether intentional or otherwise, creates a wrongful impression among the audience regarding the quality, value, or price of consumer services or goods. The penalty for deceptive or misleading conduct ranges from compensatory orders, damages, and court-enforceable undertakings.

Section 18 of the ACL, which was previously under section 52 of the TPA, prohibits deceptive conduct among traders. Under this section, it is unlawful for a business to conduct deceptive advertising or make a misrepresentation about the existence of a warranty or guarantee for which they have to pay.¹² According to this rule, it is an offence for a ‘person’ to conduct misleading advertising or engage in any deceptive conduct. However, there are threshold issues for Section 18 to apply. Given that section 18 does not specifically mention corporations, the ACCC must identify the corporation and the nature of its business operations in order to determine whether the legislation is applicable or not.

In contrast, section 52, part g of the TPA act specifically identified the corporations and defined any deceptive or misleading conduct by corporations as an offence.¹³ Nevertheless, section 131 of the Competition and Consumer Act of 2010, (it also contains the ACL), clarifies that corporations are also part of the ‘person’ in section 18 of the ACL. Thus, the ACL covers all forms of business, whether small individual traders or large corporations. Similarly, the ACCC has to identify how a corporation’s conduct in trade amounts to deceptive conduct and the appropriate measures to enforce compliance.¹⁴

After identifying the threshold issues, the Federal court recommends three strategies in determining whether a particular promotional strategy violates section 18.¹⁵ Firstly, the ACCC must identify the particular section of the public likely to be misled by the promotional strategy. After identifying the target audience, the impression conveyed by the advert is determined taking into account variables such as level of education or age to establish a standard for determining the misleading conduct. The court then determines whether the impression conveyed was misleading or not based on the evidence provided.

. In Patterson Cheney’s case, the ACCC invoked section 18 of the ACL that primarily prohibits against deceptive conduct through advertisements. In advertising the ‘Lifetime Mechanical Warranty’, the vehicle retailer omitted, either willingly or inadvertently, essential information. It failed to inform the potential consumers that the promotion was only limited to 175,000 kilometers, and the maximum claim was $3000; thus, the corporation failed to reveal relevant information. Accordingly, the ACCC identified this as misleading and deceptive conduct as per section 18 of the ACL. Consequently, the ACCC sought court enforceable undertakings from Patterson Cheney.

As aforementioned, Patterson Cheney placed an advert on the Herald Sun about the ‘Lifetime Mechanical Warranty’ on new and used cars.¹⁶ The advert identified the conditions for this offer; the ‘Lifetime Mechanical Warranty’ was only limited to 175,000 Kilometers. Additionally, the advert identified a claim limit for the life of the contract. However, the total value of the claim, which stood at $3,000, was not disclosed in the advertisement.

Enforcement Powers of ACCC

The ACCC has various powers for enforcement of the ACL. Under section 218 of the ACL, the ACCC retains the discretion to accept written undertakings regarding a firm’s conduct.¹⁷ However, if the voluntary undertaking agreement is breached, then the court seeks a federal court injunction to compel compliance with the undertakings and fines. Thus, in Patterson Cheney’s case, the court’s enforceable undertakings aimed at ensuring compliance. Additionally, the ACCC can use substantiation notices to implement the ACL. Section 219 of the ACL gives power to the ACCC to demand that a business involved in the supply of goods or services provide substantial information. In this way, misleading advertising is avoided.

Under section 223 of ACL, the ACCC can implement the consumer laws through public warning notices.¹⁸ The section mandates relevant regulators particularly the ACCC, and ASIC, to issue a written public notice, warning consumers about a misleading conduct of a person or corporation. Additionally, the CCA Div. 5 empowers the ACCC to issue infringement notices to corporations following a breach of section 29 of the ACL. However, this legislation does not cover section 18 of the ACL legislation.

In my opinion, the ACCC’s action against Patterson Cheney was justified and appropriate. Patterson Cheney issued misleading and deceptive information in the advertisement, ‘Lifetime Mechanical Warranty”. The corporation omitted relevant information, which amounted to silent practices and, in a way, influenced consumer choices regarding their products. The 175,000 kilometers warranty limit and the $3,000 claim limit were not revealed to the potential customers in the fine print. Therefore, the warranty was in contravention of section 53(g) of the TPA and section 18 of the ACL. Additionally, by informing the potential customers that each vehicle would have a lifetime warranty when in fact, the ‘Lifetime Mechanical Warranty’ had limitations not disclosed to consumers, violated section 18 of the ACL.

The ‘Lifetime Mechanical Warranty’ amounted to unfair competition and deceptive advertising in many respects. Firstly, it targeted a wider audience, as it was published in the Herald Sun. This means that the advert influenced, and in the process, misled many people. Additionally, to the ordinary citizen, the advert conveyed the idea that each vehicle bought from Patterson Cheney was supplied with a lifetime warranty. However, in actual sense, the essential details of the ’Lifetime Mechanical Warranty’ guarantee remained undisclosed. Consequently, the impression created by the advert was, in my opinion, false and thus breached section 18 of the ACL.

The key justification for introducing the ACCC’s action against Patterson Cheney is to promote fair competition and consistency in the motor industry. The ACL legislations currently criminalize business activities that are harmful to society. Most notably, misleading advertising unfairly deprives the consumers of money or property. In this respect, the promotional offer by the car retailer was morally wrong and aimed at obtaining a profit through deception.¹⁹ Since Patterson Cheney’s action was an emerging marketing issue, the ACCC’s action aimed at deterring future contravention of the ACL provisions in the motor vehicle industry. Thus, the ACCC by taking a hard stance on Patterson Cheney after the misleading advert sent a message that anti-competitive practices have a greater impact upon the welfare of the society.

The Enforcement of Undertakings

Under section 87B of the TPA act of 1974, the ACCC has the powers to accept written undertakings such as in Patterson Cheney case, or seek litigation in federal courts in Australia.²⁰ The parties concerned may modify the undertakings as per the ACCC’s requirements. Since the ACCC’s enforcement of is pursuant to the provisions of the TPA act, I think undertakings are the best tools for enhancing the welfare of the Australian consumers. The undertakings aim at undoing the harm caused by misleading conducts through corrective advertising. In my opinion, enforceable undertakings are appropriate compliance tools compared to the imposition of fines or customer refunds.

Besides, I think the resolutions based on undertakings given by the concerned businesses under section 87B of the TPA are preferable to the lengthy and costly court processes. Such undertakings allow the ACCC to seek efficient resolutions of cases without undertaking litigation. In any case, under section 87B, the undertakings are ultimately enforceable in federal courts. In previous cases, the ACCC has sought undertakings such as customer refunds, corrective advertising in the media, and company funded customer education programs.

In my opinion, through the court enforceable undertakings, the ACCC achieves more in protecting consumers compared to other enforcement options. It seeks redress for the consumers affected by the misleading conduct while at the same time enforcing compliance to deter future breaches by the same business. More importantly, the general education, especially on the concerned party or industry, enhances public awareness that effectively protects consumers from exploitation. On the other hand, refunds or compensation cannot effectively deter future misconducts.

In making a decision, either to pursue litigation or accept an undertaking, as provided for under section 87B, the ACCC considers the option that offers redress to the affected parties and ensures compliance. However, after the commencement of the undertakings, if the ACCC has any reason to believe that the business has failed to comply with the undertaking, it resorts to consultations. If this fails, then the ACCC seeks court orders to enforce compliance by the business. In my opinion, this presents an option for the ACCC to seek compliance and thus effectively deter future unscrupulous business practices. Following this application, the offending party will have to pay for the legal costs to the ACCC. In the case of Peter Cheney Pty, the retailer paid $32,000 infringement costs to the ACCC due to failure to comply with the undertakings.

Similar cases include the Stores Online International Inc, vs Australian Competition and Consumer Commission case (2007)²¹, FCA 1597 and the Signature Security Group Pty Ltd vs the ACCC (2003), FCA 375.²² In both cases, the ACCC sought court orders to enforce compliance following breaches of section 87B undertakings. Additionally, the federal court established that each of the respondent company had breached its undertaking and required it to pay for the litigation costs. In light of these court cases, I think the ACCC, after establishing a breach of the undertakings, still has the powers to enforce compliance through court orders. In this way, compliance is enhanced, and the loss or damage that may arise because of the breach is appropriately addressed.

Additionally, undertakings present an appropriate way of promoting consumer awareness incase of silent practices, comparative advertising, and deceptive or misleading advertising. Silence can be misleading as a business fails to disclose all information that regards a particular product or service.²³ The ACCC investigation can reveal whether the business withheld certain information from the relevant audience. If there is, then the business conduct breached section 18 B of the TPA Act. For instance, in the Henjo v Collins case, 1988, FCR 546, the ACCC investigation revealed that the restaurant failed to reveal its licensed capacity to customers and thus breached section 18.²⁴ Consequently, the ACCC ordered undertakings involving corrective advertising and notices.

Conclusion

The Competition and Consumer Act (CCA) of 2010 and the Trade Practices Act (TPA) of 1974 are essential components of the Australian consumer policy. In particular, section 18B of the CCA outlaws deceptive advertising or failure to give relevant information to consumers. The Australian Competition and Consumer Commission (ACCC), which is the main consumer protection agency, implement these legislations. The ACCC enhances the welfare of the Australian consumers pursuant to the provisions of the TPA by promoting competition and protecting consumers.

Pursuant to section 87B of the TPA act, the ACCC implements various enforcement measures including compensation, refunds to customers, and undertakings. Court enforceable undertakings, like the Patterson Cheney Pty Ltd, offer a more appropriate remedy compared to the costly litigation processes. Additionally, the undertakings enhance compliance, reduce future breaches by businesses, and promote consumer awareness.

Bibliography

Australian Competition and Consumer Commission (ACCC), 2011. Holden dealer Admits misleading ‘lifetime mechanical warranty’ promotion. Web.

Australian Department of the Treasury, 2011. Australian Consumer Law. Web.

Bruce, A., 2011. Consumer Protection Law in Australia. Sydney: LexisNexis Butterworths, Clarke, F., & Corones, G., 2008. Consumer Protection and Product Liability Law. Sydney: Lawbook Co.

Corones, S., 1999. Competition Law and Policy in Australia. LBC Information Services.

Duns, J., & Davison, J., 2000. Competition Law – Cases and Materials. Sydney: Butterworths.

Everett, D., & Ransom, A., 1989. The Fair Trading Acts. Sydney: Longman Cheshire.

Gillies, P., & Selvadurai, N., 2008. Marketing Law. Sydney: The Federation Press. Griggs, L., Webb, E., & Freilich, A., 2008. Consumer Protection Law. Melbourne: Oxford University Press.

Healey, W., & Terry, M., 1992. Misleading or Deceptive Conduct. Sydney: CCH Henjo v Collins case (1988), FCR 546.

Hurley, A., & Wiffen, G., 1999. Outline of trade practices and consumer protection law, 2nd edn. Sydney: Butterworths.

Latimer, P., 2009. Australian Business Law. Sydney: CCH.

Lockhart, K., 2003. The Law of Misleading or Deceptive Conduct. Sydney: LexisNexis Butterworths.

Parkinson, P., 2002. Tradition and Change in Australian Law. Sydney: Lawbook Co.

Patterson Cheney Pty Ltd v Australian Competition and Consumer Commission (2011), ACN: 005 805 247.

Signature Security Group Pty Ltd v Australian Competition and Consumer Commission (2003), FCA 375.

Stienwall, R., 1974. Annotated Trade Practices Act. Sydney: Butterworths, Stores Online International Inc, v Australian Competition and Consumer Commission case (2007), FCA 1597.

Webb, E., 2000. Consumer Protection Law. Sydney: Butterworths.

Footnotes

1. Australian Department of the Treasury, 2011. Australian Consumer Law. Web.
2. Australian Competition and Consumer Commission (ACCC), 2011. Holden dealer admits misleading ‘lifetime mechanical warranty’ promotion. Web.
3. Duns, J., & Davison, J., 2000. Competition Law – Cases and Materials. Sydney: Butterworths. P.142.
4. Australian Competition and Consumer Commission (ACCC).
5. Australian Competition and Consumer Commission (ACCC).
6. Australian Competition and Consumer Commission (ACCC).
7. Griggs, L., Webb, E., & Freilich, A., 2008. Consumer Protection Law. Melbourne: Oxford University Press. P. 154.
8. Stienwall, R., 1974. Annotated Trade Practices Act. Sydney: Butterworths. P. 91.
9. Bruce, A., 2011. Consumer Protection Law in Australia. Sydney: LexisNexis. p. 42. Butterworths.
10. Parkinson, P., 2002. Tradition and Change in Australian Law, 2nd ed. Lawbook Co. p.21.
11. Webb, E., 2000. Consumer Protection Law. Sydney: Butterworths. P. 126.
12. Corones, S., 1999. Competition Law and Policy in Australia. LBC Information Services. p. 18.
13. Lockhart, K., 2003. The Law of Misleading or Deceptive Conduct, Sydney: LexisNexis. P. 34.
14. Healey, W., & Terry, M., 1992. Misleading or Deceptive Conduct. Sydney: CCH. P. 153.
15. Latimer, P., 2009. Australian Business Law. Sydney: CCH. P. 75.
16. Australian Competition and Consumer Commission (ACCC).
17. Gillies, P., & Selvadurai, N., 2008. Marketing Law. Sydney: The Federation Press. p. 31.
18. Griggs, L., Webb, E., & Freilich, A., 2008. Consumer Protection Law. Melbourne: Oxford University Press. p. 81.
19. Hurley, A., & Wiffen, G., 1999. Outline of trade practices and consumer protection law, 2nd ed. Sydney: Butterworths. P. 91.
20. Everett, D., & Ransom, A., 1989. The Fair Trading Acts. Sydney: Longman Cheshire. P. 162.
21. Stores Online International Inc, v Australian Competition and Consumer Commission Case (2007), FCA 1597.
22. Signature Security Group Pty Ltd v Australian Competition and Consumer Commission (2003), FCA 375.
23. Clarke, F., & Corones, G., 2008. Consumer Protection and Product Liability Law. Sydney: Lawbook Co. p. 80.
24. Henjo v Collins case (1988), FCR 546.