Not an Australian Registered Company? No Worries, Says the Federal Court, the Australian Consumer Law Still Applies.

By Su-Ann Loh

Every year the ACCC, as Australia’s consumer watchdog, publishes its policy on compliance and enforcement.

The purpose of the document is to give the public an idea of where it will channel its investigative powers for the coming year for the purpose of protecting certain consumer groups. This year the publication was made available in February and the priority areas relate to conduct of significant public interest or conduct in a significant new or emerging market issue, just to name a few.

As many would know the ACCC will typically investigates larger companies or businesses whose trading actions have a large impact on the Australian community or where an area of law needs to be clarified. As a business owner it is a good idea to stay tuned to the ACCC’s enforcement policies and to pay attention to the decisions handed down at law for the year. This is because it will give you some guidelines on legal developments that you need to be aware of as you trade and supply goods or services to your consumers.

Consumer protection is an ever evolving area of law which directly or indirectly affects many of our business clients.

An example of a court decision that has recently redefined the impact and reach of the Australian Consumer Law (“ACL”) is the case of the ACCC v Valve Corporation (No 3) [2016].

The case surrounds the application of consumer guarantees at sections 18 and 29 of the ACL.

Section 18 states that a supplier in trade or commerce must not engage in misleading or deceptive conduct or any conduct that is likely mislead or deceive. Section 29 states that the representations made about goods or services in trade or commerce including those in connection with the promotion of the supply of the goods or service cannot be false or misleading. It then outlines the characteristics of the goods or service that consumers must not be misled or deceived about. Section 54 reinforces sections 18 and 29 because it outlines what the guarantee is for acceptable quality.

The consumer guarantees are powerful and prevalent such that section 67 disallows parties to contract out of it in the supply of goods and services.

This is all good and well but trade and commerce in many industries is fast moving.

Many players in our market do not actually have a physical presence in Australia although they have a large Australian consumer base.

Further in such international supply relationships, Australia consumers contract with the overseas suppliers and consciously or unconsciously agree to subscribe to their laws not the ACL.

Also the definition of “goods” and “services” is not always easy to categorise especially if what is sold can be a combination of the two at different times.

This case is helpful in giving definition to who is caught by sections 18 and 29 (and 54 and 67) and what (actions or inaction) is caught by those sections.

Who?

Valve Corporation (“Valve”) is a US registered and based company that operates an online game distribution network called Steam. Consumers can either buy the games as a product and/or download the games for use as well as access Steam’s website, online support assistance service and video game delivery platform. They have a subscription base of over 2 million in Australia.

The ACCC alleges that the representations on Valve’s website were misleading and deceptive about the existence of consumer protections (including under section 54) and therefore it was in contravention of sections 18 and 29 of the ACL.

But Valve is based in the US and their terms and conditions with their consumers state that all their disputes about their subscription agreement are governed by the law of the State of Washington.

So, how did Valve’s contract sit with section 67 and is the nature of their supply congruent with the carrying of business in Australia such that the ACL actually binds them?

The Court found that their contract attracts section 67 in that it tried to substitute the ACL, therefore the ACL prevails despite the term that the laws of the State of Washington apply.

Further, the Court found Valve was carrying on business in Australia and the representations it made through its website was conduct in Australia. Justice Edelman heard Valve’s submissions about all the assets it had in the US but turned his attention also to the assets and reach that Valve had to its Australian consumer base. Such assets include servers worth $1.2MIL in Australia and about 2.2 million subscribers and a bank account in Australia through which subscription fees are collected and remitted to the US.

In effect the Court took a pragmatic approach in finding that despite its lack of physical presence in Australia, Valve’s reach and the impact of its representations were far and wide in Australia such that it was as good as or could be properly classified as carrying on business and conduct in Australia. This outcome has far reaching consequences for businesses abroad whom despite not being based in Australia have a strong presence in Australia via its consumers and potentially its standing in the industry.

Now is the time for all companies to review their online presence and content to ensure it is compliant with the ACL.

What action is caught?

It seems easy enough to classify what Valve sells, right? Not so.

Valve submitted that what it sells is a “service” because consumers acquire the license to play the games and this is different to the provision of computer software, therefore section 54 does not apply.

The Court found against this argument by reviewing the legislation in its substance and not its form. Justice Edelman held that such a limited interpretation of the law is not what was envisioned by the ACL and further the core of the dispute relates to the supply of computer games and the provision of computer software for this to happen. This was therefore defined as the “supply of goods” thus catching the obligations under section 54.

Was Valve in breach of sections 18 and 29?

The final hurdle then was for the Court to determine whether or not the representations submitted by the ACCC on the website for Valve were misleading and deceptive and in contravention of sections 18 and 29 of the ACL.

The Court held that the following were representations that were in breach of the relevant sections:

• The capitalised wording in the subscription agreement stating that the consumer did not have an entitlement to refund in whole or in part. It was considered misleading because a reasonable consumer would believe, despite any overlaying legislative obligations imputed into the agreement, the contractual term on its face value and form the view that it is non-refundable, when it is under the ACL.
• Stating in its refund policy that “this section will apply to the maximum extent permitted by applicable law” under the heading “no guarantees” where there are guarantees under the ACL doesn’t fix the breach by implying the application of the ACL especially in the context. This too was considered a misleading representation by Valve.

Lessons

Aside from the broad reach of the ACL to international suppliers, this case is a critical reminder that businesses need to be aware of the consumer protections that apply to them under the ACL and make sure that the representations they make (which are accessible to the consumers) orally or in writing about those guarantees remain consistent. It is not good enough just to know what the guarantees are, suppliers need to make sure their policies accurately represent the guarantees. It is also not good enough to try and contract out of the application of the ACL even if you are based overseas and your presence is online.

In short, the case summarises it well – conduct is still conduct that is misleading and it doesn’t stop being misleading just because the person was not actually misled.

We recommend taking a proactive approach to compliance with the ACL. If you need assistance with any of your terms and conditions, internal policies and marketing content, please contact Su-Ann Loh (Senior Associate, Dispute Resolution Practice Group) or Peter North (Senior Associate, Business Law Practice Group) on 03 9629 9629.