Australia: ACCC takes action against e-cigarette suppliers for allegedly misleading claims

What you need to know

• The ACCC has commenced legal proceedings against two e-cigarette suppliers, alleging they made false or misleading representations and engaged in misleading conduct through statements made about their products on their websites.
• The ACCC is alleging that the Chief Executive of one company and the Director of the other were 'knowingly concerned' in the alleged breaches of sections 18 and 29 of the Australian Consumer Law.
• This action underscores the importance for businesses to ensure that all product claims are accurate and, particularly where health and safety issues are concerned, capable of being verified by evidence.

Australia's consumer law regulator, the Australian Competition and Consumer Commission (ACCC), recently commenced proceedings in the Federal Court of Australia against Social-Lites Pty Ltd (Social-Lites) and Elusion New Zealand Limited (Elusion) in relation to statements made about the chemical composition of their e-cigarette products.

The ACCC's action is yet another reminder to all businesses of the paramount importance of ensuring product claims or statements are fully accurate and verifiable, particularly where those product claims emphasise specific health benefits.

Background

E-cigarettes are commonly understood to be hand held electronic devices that heat a flavoured liquid and deliver vapour when inhaled. The composition of the liquid differs between manufacturers and often contains nicotine.

The ACCC alleges that the two suppliers directly contravened the Australian Consumer Law (ACL) contained in schedule 2 of the Competition and Consumer Act 2010 when they made representations on their websites that the e-cigarette products being sold did not contain any of the toxins found in conventional tobacco cigarettes. Those representations were allegedly made from at least August 2015.

The ACCC has stated that it commissioned independent testing which revealed that the e-cigarette products sold by both suppliers did in fact contain traces of harmful carcinogens (cancer causing agents) and toxic chemicals, including formaldehyde acetaldehyde and acrolein. Formaldehyde is classified by the World Health Organisation International Agency for Cancer Research as a Group 1A Carcinogen. Acetaldehyde is classified as a Group 2B carcinogen, meaning it is possibly carcinogenic. Acrolein is classified as a toxic chemical, and is listed as a dangerous poison in Schedule 7 of the Poisons Standard of the Therapeutic Goods Act 1989 (Cth).

The ACCC is also pursuing the Chief Executive of Social-Lites and the Director of Elusion on the basis that the two individual representatives were "knowingly concerned" in the alleged breaches by their respective companies.

Public safety concerns

In a statement to the media, ACCC chairman, Mr Rod Simms, identified an increasing level of concern among international, national and state authorities with respect to the composition of e-cigarettes and the likely effects of their use. He further stated that the ACCC will continue to collaborate with its local and international counterparts to ensure that the information being presented to consumers is accurate.

Mr Simms also made it clear that the ACCC will not tolerate representations without any scientific backing. He noted that it was "imperative for suppliers to have scientific evidence to support claims that their products do not contain carcinogens or toxic chemicals such as formaldehyde and acetaldehyde."

Mr Simms' comments about this particular action follow the ACCC's previous statements about its strong focus on consumer protection as a top priority for enforcement in 2016.

Applicable legislation

The ACCC's action against Social-Lites and Elusion is based on allegations that the companies breached sections 18 and 29 of the ACL.

Section 18 contains a general prohibition on persons in trade or commerce engaging in "conduct that is misleading or deceptive or is likely to mislead of deceive."

Section 29 relevantly provides that:

"A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of the goods or services:

1. make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or previous use; or
2. make a false or misleading representation that services are of a particular standard, quality, value or grade;

............."

The ACCC is seeking penalties, declarations, injunctions, orders for an ACL compliance program, publication orders and costs.

The ACCC's action remains to be heard.

Key takeaway

Manufacturers and retailers should already be well aware of their responsibilities under Australian consumer laws to ensure that any product claims are accurate, but the ACCC's action is yet another reminder of how seriously this obligation must be taken.

Stakeholders in the healthcare and pharmaceutical industries need to be particularly careful when it comes to claims about a product's medicinal or therapeutic qualities. It is critical to ensure that any representations made about chemical compositions or effects on health are accurate and can be verified by scientific data.

This article is intended to provide commentary and general information. It should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this article. Authors listed may not be admitted in all states and territories