ACCC loses 'flushable wipes' appeal due to pleading and evidentiary issues

In brief 6 min read

Yesterday, the Full Court of the Federal Court dismissed the ACCC's appeal in its case against Kimberly-Clark Australia for representations in relation to 'flushable' wipes.

The Full Court's decision identifies pleading and evidentiary issues in the ACCC's case, and provides useful guidance for companies about how courts will interpret product representations and what will be considered to be the relevant 'context' of representations made in marketing materials.

Where it all started

The ACCC filed proceedings in December 2016 against Pental Products Pty Ltd in relation to its 'flushable' White King Toilet Wipes, and separately against Kimberly Clark Australia Pty Ltd in relation to its Kleenex Cottonelle Flushable Cleansing Cloths. The ACCC alleged that both companies had made false and misleading representations about their products being flushable and having similar characteristics to toilet paper once flushed.

The ACCC had some success in its campaign against 'flushable' wipes in 2018, when it succeeded in the Federal Court in its claims against Pental. As we previously reported, the Federal Court ordered Pental to pay $700,000 in penalties. However, in that case, Pental admitted it had misrepresented that its wipes were made from a specially designed material that disintegrated in the sewerage system like toilet paper, had similar characteristics to toilet paper when flushed and were suitable to be flushed into the sewerage system when that was not the case.

In contrast, in the Kimberly-Clark proceeding, Kimberly-Clark admitted it had represented that its wipes were 'flushable' in that they were suitable to be flushed, but denied that representation was false or misleading and denied it had made the other representations alleged by the ACCC – in particular, that its wipes had similar characteristics and would break up or disintegrate in a similar timeframe and manner to toilet paper. The ACCC claimed that the representation that the wipes were suitable to be flushed was false or misleading, because the wipes caused damage to sewerage systems. As we reported here, the Federal Court dismissed the ACCC's case against Kimberly-Clark in 2019 (other than in relation to a representation that the wipes were made in Australia, which Kimberly-Clark agreed was false). The ACCC appealed to the Full Court against the Federal Court's findings.

The Full Court's findings on appeal

In its judgment delivered yesterday,¹ the Full Court upheld the Federal Court's findings that:

• the representation that the wipes were flushable was not false or misleading; and
• Kimberly-Clark did not make the alleged representations that the wipes were similar to toilet paper.

Pleading and evidentiary issues

One of the ACCC's key grounds of appeal was that the Federal Court was wrong to find that in order for the ACCC to prove that the flushability representation was false or misleading, the ACCC had to prove that the wipes in fact caused or contributed to actual harm to household plumbing or the sewerage network. Instead, the ACCC contended that it only had to prove there was a 'real risk' that the wipes could cause or contribute to such harm, which the ACCC said it had proven at trial.

The Full Court rejected this for two key reasons:

• First, the ACCC's pleaded case was that the flushability representation was false or misleading because the wipes caused damage to household plumbing or the sewerage system. It did not run a case that the wipes were not suitable for flushing because they posed a 'risk' of harm. The Full Court said that the two cases are quite different, and the ACCC 'chose to run the former case and not the latter'. As the Full Court said, the risk of harm case 'cannot be run for the first time on appeal.'
• Second, in any case, the ACCC had failed to prove on the evidence put forward at trial that the wipes did in fact create any material increased risk of harm compared to toilet paper, which it was accepted is 'suitable to be flushed'. This is despite the ACCC relying on extensive technical evidence about the products and their composition, the design of plumbing and sewerage systems, customer complaints about the products and even a demonstration of how the wipes and toilet paper would each react under agitation (which, the court noted, even the ACCC's own experts did not endorse as an appropriate test for determining flushability). The Full Court held that the ACCC's evidence 'amply demonstrated that wipes caused blockages, but not that the [Kimberly-Clark] wipes caused blockages'.

Ultimately, the ACCC was hamstrung on appeal by the narrowness of its pleading in relation to the flushability representation (that it was false because the wipes 'caused' damage) and its inability to prove its pleaded case as a matter of evidence.

Where to from here?

Some interesting general points can be drawn from the Federal Court and Full Court decisions against the ACCC:

• the Federal Court found that, while representations made about a product must be ascertained in their context, representations made on the product website and on product packaging should be considered separately as they were unlikely to be read together by a consumer. This is significant for companies preparing marketing material and considering what is the 'full context' in which a court may consider a representation to have been made;
• the Federal Court held that the flushability representation was not a representation about a 'future matter' under section 4 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)). As we previously reported, the ACCC had multiple appeals on foot addressing the question of what is a representation about a future matter. Under the ACL, a representation as to a future matter is misleading and deceptive if the person making the representation does not have reasonable grounds for making it. The Federal Court held that a representation as to a 'future matter' is one that:² 

expressly or by implication makes a prediction, forecast or projection, or otherwise conveys something about what may (or may not) happen in the future.

The ACCC claimed that the flushability representation was a future representation about how the wipes would behave in the sewerage system once they were flushed. The Federal Court disagreed, finding that the representation was as to a current state of affairs, being that the wipes were 'able to be flushed' and not as to how they would behave once they were flushed. Interestingly, the ACCC did not appeal the Federal Court's decision on that issue; and

• the devil is in the detail. The ACCC ultimately lost its case on the crucial flushability representation due to the narrowness of its pleading and its failure as a matter of evidence to prove its pleaded case. The ACCC tried unsuccessfully to rely on a broader case on appeal, but was bound by its pleaded case at trial.

The ACCC has stated it is 'carefully considering the judgment'.