The laws against misleading and deceptive conduct are found within the general protections of the Australian Consumer Law (“ACL”). This means it is a protection afforded to consumers and to parties engaging in trade and commerce.

As consumer watchdog, the ACCC continues to investigate and bring action against organisations who engage in misleading and deceptive conduct. It is remiss of business owners to not heed the lessons that come from such investigations especially where it has, in recent times, led to Court findings with significant ramifications for organisations.

Case Study 1: Nurofen found to have engaged in Misleading and Deceptive Conduct

In December 2015 the Federal Court handed down an adverse decision against Reckitt Benckiser (the pharmaceutical manufacturer of pain relief medication “Nurofen”) for its misleading and deceptive advertising of the “specific pain relief range” of medication. The penalty, however, was considered inadequate by the ACCC, which instigated an appeal to the Full Federal Court.

What does the law say about misleading and deceptive conduct?

As a general protection, the ACL states that “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. The law also prohibits false or misleading representations about goods or services, misleading conduct as to the nature of goods and unconscionable conduct.

The penalties include: fines, criminal proceedings, compensation for victims, and civil action for recovery of pecuniary penalties and damages for loss.

Recourse is available to aggrieved persons to the trading relationship or the ACCC as the case may be.

What happened in this case?

In the packaging of its Nurofen pain relief medication, Reckitt Benckiser represented that there were four different Nurofen medications to treat different types of pain (back pain, migraine, tension headache and period pain). It distinguished the different types of medication by packaging it in different colours.

The problem with this is that the medication contained the same active ingredient and achieved the same pain relief outcome and was not specifically customised to the specific pain it was advertised to treat.

Between 2011 and 2015, the company sold $45 million worth of the ‘specific pain range’.

The Court in the first instance deemed the conduct “inherently misleading” because there was actually no difference between any of the products. The Court agreed with the ACCC that consumers may have believed they needed to purchase multiple products to obtain sufficient pain relief. For example, a person suffering both back pain and migraine pain may “have been induced to buy and take tablets from the purported Nurofen back pain and Nurofen migraine pain products believing they were different in that each was targeted to a different area of pain”.

Without taking specific evidence about these risks, the Court concluded that the risk of the consumer being misled was a natural and ordinary consequence of the misleading character of Reckitt Benckiser’s conduct. The Court imposed a $1.7 million fine on Reckitt Benckiser  (despite the ACCC seeking $6 million) to send a strong deterrence message. The judge imposed a $1.2 million penalty for the packaging representations at the point of sale, and $500,000 for the website representations.

In handing down its penalty, the Trial Judge considered that the conduct was not a deliberate breach of the ACL, that Reckitt Benckiser had “provided commendable and significant cooperation with the ACCC”, including making offers to change its packaging and attending mediation, and that it had not previously been found to breach the ACL.

The ACCC appealed the $1.7 million fine and in 2016 was successful in obtaining its sought penalty of $6 million against Reckitt Benckiser in the Full Federal Court. This penalty reflected the longstanding and widespread nature of the conduct (5.9 million products were sold at approximately 8,500 outlets) and the substantial sales and profits that were made as a result of it. The Full Court accepted that the loss incurred by consumers was approximately $25 million.

This sum is the highest corporate penalty awarded for misleading conduct under the ACL. It demonstrates the intention of the Court to ensure that ‘would-be wrongdoers’ think twice and decide not to act against the public interest.

Lessons to be learned

The scale of this penalty will no doubt change the course of future marketing strategies for organisations in this and other industries, forcing businesses to be more cautious about what they represent about their service or products.

We urge our business clients to take heed of the warnings coming out of judgments in favour of the ACCC in such instances and use them to guide how you advertise and market your business.

Case study 2: Flushable Wipes

Companies flush away the truth

In December 2016, the ACCC initiated proceedings against two separate suppliers of “flushable wipes: Kimberly-Clark Australia Pty Ltd the manufacturer of Kleenex products, and Pental Ltd and Pental Products Pty Ltd who produce White King products (“Kimberly-Clark” and “Pental” respectively). The proceedings were initiated in response to a complaint from a consumer group.

The ACCC alleges that these companies have breached the Australian Consumer Law (“ACL”) for falsely advertising their respective wipes products as “flushable”, likely leading consumers to believe that the products would break down like toilet paper. In reality, they do not degrade as quickly, causing havoc for water authorities.

Since 2015, Kimberly-Clark have allegedly received over 6000 consumer complaints about damage to pipes and waterways caused by the wipes. The company, however, maintains that the wipes are “flushable and accurate” and states that it will defend the action on this basis.

The ACCC seeks injunctions to stop the marketing of these products, as well as penalties, corrective notices and costs for the breach of the ACL. It takes the view that competitors may have been disadvantaged if consumers were persuaded to purchase the products because of the misleading claims.

We will wait with anticipation to see if a Nurofen-like outcome will follow.

If you are ever in doubt about whether or not what you are representing is in compliance with the Australian Consumer Law, please contact Caroline James (Corporate Law) or Su-Ann Loh (Director, Dispute Resolution Law) on (03) 9629 9629.