The Australian Competition and Consumer Commission (ACCC) recently instituted proceedings in the Federal Court of Australia against DuluxGroup (Australia) Pty Limited (Dulux). The ACCC alleges Dulux made false and misleading representations and engaged in misleading or deceptive conduct by claiming that two of its paints would cut energy consumption, when Dulux had no reasonable basis for making these claims.
For companies promoting the energy efficiency of their products, these proceedings demonstrate:
- the ACCC's continued tough stance towards companies which it believes are making unsubstantiated energy efficiency claims; and
- that the increased range of remedies available to the ACCC under the Australian Consumer Law (ACL) reduces its incentive to accept Court-enforceable undertakings in lieu of a Court based outcome.
The ACCC's Case against Dulux
On 5 December 2012, the ACCC announced that it had instituted proceedings in the Federal Court alleging Dulux breached the ACL by making false or misleading representations and engaging in misleading or deceptive conduct relating to its Dulux InfraCOOL and Dulux Weathershield Heat Reflect paints. The ACCC is alleging that Dulux does not have reasonable grounds for making representations that:
- the Dulux InfraCOOL paint can and will:
- reduce the interior temperature of the living zones of a house by 10°C;
- significantly reduce the energy consumption costs associated with a house; and
- significantly reduce the carbon footprint, or environmental effect, associated with a house by reducing energy consumption costs associated with a house.
- the Dulux Weathershield Heat Reflect paint can and will:
- reduce the surface temperature of the external walls of a house by up to 15°C;
- significantly reduce the interior temperature of a house; and
- significantly reduce the energy consumption costs associated with a house.
The ACCC has placed particular emphasis on Dulux's lack of a reasonable basis for making these energy efficiency claims. In announcing the ACCC's action against Dulux, Chairman Rod Sims stated:
"Dulux has a corporate responsibility to make sure any claims it makes are accurate and backed by adequate scientific and/or technical evidence".1
Perhaps, of even greater importance, is that in addition to the ACCC's request that the Court impose pecuniary penalties, injunctions and declarations, the ACCC is seeking orders for:
- non-party consumer redress; and
- corrective notices.
A New Weapon in the ACCC's Armoury: Consumer Compensation
Prior to the introduction of the ACL, the ACCC typically only obtained compensation for consumers through accepting voluntary offers of compensation via court-enforceable undertakings. The offer of consumer compensation often provided errant companies with a negotiating chip with the ACCC to avoid litigation. With the ability to seek non-party consumer redress under the ACL, the ACCC now has a lower incentive to avoid litigation. Therefore, those making energy efficiency claims (or those claiming their product somehow performs better in a meaningful way) need to be more vigilant than ever to ensure they have a reasonable basis for making such claims.
As demonstrated in previous cases, non-party consumer redress can be significant. In the ACCC's action against LG Electronics Australia Pty Ltd (LG) in 2006, the terms of the settlement included consumer compensation worth up to $3.1 million.
Corrective Notices: Far-Reaching and Pervasive
In addition to significant pecuniary penalties sometimes running into the millions, other remedies, such as corrective notices, can significantly harm a company's reputation and cause significant brand damage. Indeed such damage can extend beyond Australia to global markets. Again, in the ACCC action against LG, LG voluntarily agreed to writing corrective letters to affected customers and retailers, and publishing prominent corrective advertisements in several newspapers and on their website.
Costs of Litigation Go Beyond Penalties and Compensation
Other significant, but often overlooked costs, of ACCC court action include:
- stringent multi-year audits of competition and consumer compliance programs and compliance reporting requirements; and
- serious organisational disruption diverting valuable resources and managerial attention to managing ACCC litigation, rather than on delivering business success.
Lessons to Be Learnt
The ACCC's recent action against Dulux shows that the ACCC is ready and willing to use all tools now available to it to ensure that companies have a reasonable basis for making energy efficiency claims. Increased ACCC monitoring of energy efficiency claims and the use of the full range of tools available to the ACCC under the ACL have significantly increased the costs and risks associated with making unsubstantiated representations regarding energy efficiency.
Companies that promote energy efficient products should prepare adequate scientific or technical evidence before making energy efficiency claims. Implementing procedures that clearly document technical tests that are often already conducted by manufacturers present a very cost effective way for businesses to mitigate the risk of publishing marketing materials that make false claims or are likely to mislead consumers.
To quote ACCC former Chairman Graeme Samuel in 2010:
"[The ACCC's] actions demonstrate the ACCC's concern to ensure that consumers are not misled into believing that products will save them money on energy costs when this is untrue. Suppliers of these types of devices are on notice that the ACCC is on the look-out for those who want to make spurious energy saving claims and should take immediate steps to review their marketing material or they may face similar action".2
The assistance of Fadi Metanios, Solicitor, and Paul Phuah, Clerk of Addisons in the preparation of this article is noted and greatly appreciated.
1 Sims, R., ACCC institutes proceedings
against Dulux for alleged false and misleading paint advertising,
2 Samuel, G., Federal Court declares consumers misled over Power Saver device, http://www.accc.gov.au/content/index.phtml/itemId/952221/fromItemId/142
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