Glossy brochures, pretty pictures and marketing slogans: a lesson from Metricon Qld

Introduction

Metricon Qld Pty Ltd (Metricon Qld) has been ordered by the Federal Court in Australian Competition and Consumer Commission (ACCC) v Metricon Qld Pty Ltd [2012] FCA 797 (ACCC v Metricon Homes) to pay $800,000, plus legal fees and give undertakings for misleading promotional material. ACCC Chairman, Rod Sims, stated “the penalties ordered in this case [serve] as a serious warning.”¹

Background

Metricon Qld is a company which builds and offers for sale detached residential houses. Between July 2010 and January 2011 Metricon Qld distributed over 1 million advertising brochures to customers. Each brochure contained advertising material which depicted various house designs and elaborate photographs.

The ACCC commenced proceedings against Metricon Qld in relation to this advertising material alleging that it had engaged in misleading and deceptive conduct and made false and misleading representations in breach of the Trade Practices Act 1974 (Cth) (TPA) (for conduct prior to 1 January 2011) and the Australian Consumer Law (ACL). The Federal Court of Australia found in favour of the ACCC.

The federal court decision

The Federal Court found Metricon Qld liable for misleading and deceptive conduct and for making false and misleading representations on the basis of the following four features of the advertising material.

1. Inclusion of items not part of the package. The houses depicted within Metricon Qld’s brochures where offered ‘from’ a specific price. However, the house designs included features and fittings which were not included in the ‘from’ price. In fact, some of the features and fittings depicted were not even supplied by Metricon Qld.
2. False guarantees. Metricon Qld made representations within the brochures that it would guarantee the building of houses within a specified time frame and that it would compensate consumers if the build time was not met. The brochure alerted consumers to the existence of terms and conditions, but rather than detailing them, directed consumers to Metricon Qld’s website. The terms and conditions, in fact, excluded the majority of houses built by Metricon Qld, with the result that very few customers were able to advantage of the ‘build time guarantee’.
3. Fictional discounts. Metricon Qld’s brochures presented a ‘list price’ in comparison to a ‘pay only price’. However, the majority of houses depicted had only ever been listed at the ‘pay only price’. The consumer savings were therefore fictional.
4. Misleading upgrade packages. Metricon Qld advertised an ‘upgrade package’ which included various features and fittings at a ‘promotional price’ (compared to a ‘standard price’). The consumer would, consequently, save the difference between the two prices. However, the fittings and features advertised were only on a few occasions offered at the standard price, and were usually offered at the promotional price.

The penalty

The penalty in this case was severe. In addition to Metricon Qld’s contravention of the TPA and the ACL, the Court also considered a number of factors, such as moral culpability, in determining the appropriate penalty. While the Court noted that Metricon Qld had cooperated with the ACCC during the investigation and assisted in the speedy resolution of the matter, it reinforced that “In the exercise of power granted by the legislation the Court is not merely giving effect to the wishes of the parties, it is exercising a public function and must have regard to the public interest in doing so.”²

In this regard, the Court found that Metricon Qld’s conduct was egregious, continued over 2.5 years, and was intended to induce customers who may have approached a competitor. Further, as the purchase of a house is a large commitment, the potential consequences that Metricon Qld’s conduct could have had for consumers was significant. Moreover, the Court found that senior management at Metricon Qld had participated in the contravention and due to the size and financial status of the company a “significant” penalty was warranted.

The implications of the decision

The principles in ACCC v Metricon Homes serves as a lesson to all companies in respect to promotional material.

As the ACCC Chairman, Rod Sims, warns “Photographs and glossy brochures that promote products should be of what the consumer will be supplied at the advertised price, not an ungraded package that would ultimately cost the consumer much more.” Further, “If companies run promotions or advertise savings then those savings must be real, not a lure to attract customers to their products over competitors who might be doing the right thing.”³

As a result of this decision, businesses should not only be wary of whether their marketing material is compliant with the ACL, but should take proactive steps to ensure compliance. For example, companies should consider implementing an ACL compliance program which scrutinizes marketing material prior to distribution. As ACCC v Metricon Homes illustrates, a failure to do so may end up being a very expensive exercise.

Footnotes

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.