In Touch: Full Federal Court says environmental claims on packaging not misleading representations; ACCC publishes first report on airline competition; more authorisations in response to COVID-19; and other developments

The latest in competition and consumer law 11 min read

ACCC accepts undertaking by Back In Motion Physiotherapy to remove alleged UCTs from its franchise agreements

On 18 September 2020, the ACCC accepted a court-enforceable undertaking by Back In Motion Physiotherapy Pty Ltd (Back In Motion) to remove terms from its franchise agreements that may be unfair. Back In Motion's network of franchisees provide physiotherapy services in Australia and New Zealand.

The ACCC considered that the following terms of Back In Motion's franchise agreements were unfair under the ACL:

• Restraint of trade (ROT) – this term prevented franchisees, on exiting the agreement, from offering physiotherapy services within a radius of up to 10km of any Back In Motion franchise site for up to 12 months. Given the number of Back In Motion franchise practices in Australia, the clause had the potential to restrain former franchisees from offering services across most metropolitan areas.
• Special condition buy-out fee (BOF) - under this term, franchisees could elect to pay Back In Motion a fee equivalent to four times the franchisee’s annual royalty fees to be released from the ROT.

The undertaking provided by Back In Motion includes the following:

• an admission that the ROT and BOF terms may be unfair under the ACL;
• Back In Motion will not include, enforce or purport to rely on the ROT and BOF terms in current or future franchise agreements; and
• Back In Motion will write to affected current and former franchisees to inform them that the ROT and BOF terms will not be enforced against them.

ACCC's appeal dismissed over Woolworths' 'biodegradable and compostable' claims

On 29 September 2020, the Full Federal Court dismissed the ACCC's appeal in relation to environmental claims made by Woolworths about its 'Select Eco' range of products.

By way of background, in July 2019, the Federal Court dismissed the ACCC's allegations that Woolworths' representations that its products were 'biodegradable and compostable' were representations about 'future matters' concerning the products (which are taken to be misleading if the person does not have reasonable grounds for the representation at the time it is made). The trial judge found that Woolworths' representations that its products were 'biodegradable and compostable' were expressions of an inherent characteristic of the 'Select Eco' range as manufactured. To read more about the trial decision, see our Insight: Woolworths' 'biodegradable and compostable' claims not misleading.

On appeal, the ACCC argued that Woolworths' packaging made promises about what would happen to the products in the future.

Key takeaways from the Full Court's decision are as follows:

• Interpretation of 'biodegradable and compostable' – despite accepting the trial judge's finding that Woolworths' products were in fact capable of composting and biodegrading, the ACCC argued that Woolworths had made implied representations that the products would biodegrade and compost within a 'reasonable time'. The Full Court disagreed, and found that the phrase 'biodegradable and compostable' did not import any temporal element. Endorsing the views of the trial judge, the Full Court found that the terms 'biodegradable' and 'compostable' refer to inherent characteristics, and that the products’ capability to biodegrade and compost could be assessed, tested and determined at the time the representations were made.
• Meaning of 'representations with respect to future matters' under the ACL – the ACCC argued that Woolworths' representations were with respect to 'future matters', because those representations concerned processes (ie degradation and composting) that would, if the products were appropriately disposed of and treated, occur in the future. The Full Court rejected this interpretation, finding that representations about the nature, quality, character or capability of a product based upon its inherent characteristics (such as a product being flammable, recyclable and/or biodegradable) are not representations 'with respect to a future matter' under the ACL. Rather, representations with respect to future matters applies to statements which amount to 'predictions, promises and forecasts' and are directed to future events but which cannot be proven to be true at the time they are made. The Full Court drew a distinction between this case and therapeutic goods cases, noting that the latter concerned representations which are made with respect to future matters in that the promised health benefit will only be obtained in the future (if at all) if the consumer uses the product as directed.

On the basis of the above, the representations made by Woolworths were found to be with respect to present facts regarding the capability of the products to biodegrade or compost and therefore not representations as to future matters. Given that those representations were true at the time they were made, the Full Court found that Woolworths had not contravened the ACL.

ACCC issues infringement notices to mobile alarm company resulting in penalties of $25,2000

Flight Plan Digital Pty Ltd (trading as Live Life Alarms) has paid penalties of $25,200 after the ACCC issued two infringement notices for alleged false or misleading representations made on its website in relation to a fake testimonial and its ‘14 day money back guarantee’.

Live Life Alarms is an online seller of personal ‘SOS’ alarms which are typically used by the elderly and people with disabilities to obtain urgent assistance.

The ACCC's infringement notices related to allegations that Live Life Alarms had made false or misleading representations by:

• publishing a testimonial on its website and representing that it was from one of its customers when, in fact, the testimonial related to a competitor's product; and
• making statements on its website that customers who exercised their rights under the '14 day money back guarantee' would be refunded the full purchase price of the alarm. The ACCC alleged that, when refunding customers, Live Life Alarms deducted almost 20% of the purchase price for postage and other fees.

Eyes on the skies: ACCC publishes first report on airline competition in Australia

As discussed in a previous edition of InTouch, in June 2020 the Federal Treasurer directed the ACCC to monitor and report on the prices, costs and profits of Australia’s domestic airline industry for a period of three years.

On 17 September 2020, the ACCC published its first quarterly report on airline competition in Australia. The report sets out types of behaviour that might raise competition concerns in the domestic airline market (some of which have been raised by market participants in complaints to the ACCC), including:

• capacity dumping - operating or increasing capacity on a route beyond expected demand to impede a competitor’s entry or expansion;
• predatory pricing – offering airfares below cost with the purpose or effect of preventing a competitor's entry or expansion;
• exclusive agreements – entering into agreements:
• with suppliers (eg for flight catering or ground handling services) that include a restriction on the supplier’s ability to provide services to competing airlines with the effect that those airlines are unable to acquire services needed to operate flights;
• with corporate customers for the supply of airfares, which include clauses that require the customer to exclusively use that airline with the effect of preventing a competitor’s entry or expansion;

• cartel conduct – reaching agreements with competing airlines on what routes to service and/or what prices to charge for airfares on particular routes;
  • concerted practices - making industry announcements that disclose sensitive commercial information, which facilitates the alignment of future pricing or capacity strategies between competing airlines with the purpose or effect of lessening competition;
• use of loyalty programs – using a loyalty program in a way that deters a competitor’s entry or expansion;
• altering schedules, networks or infrastructure with the purpose or effect of preventing a competitor’s entry or expansion; and
• hoarding inputs such as airport takeoff and landing slots – scheduling flights for the purpose of retaining a slot but with no real intention of operating the flight, and likely cancelling the flight close to its scheduled departure time, with the effect that competitors or potential competitors are prevented from accessing those slots.

Federal Court says workplace relations advisor's use of Google Ads not misleading or deceptive

On 1 October 2020, the Federal Court dismissed the ACCC's case against workplace relations advisor Employsure, finding that Employsure's use of Google Ads did not misrepresent to small businesses that Employsure was, or was affiliated with, a government agency.

Key takeaways from the Federal Court's decision:

• Use of Google Ads not misleading or deceptive - Employsure used Google Ads which featured headlines that contained the phrases 'fair work ombudsman' (FWO) and 'fair work commission' (FWC). Further, the Google Ads were generated using keyword search terms such as FWO and FWC. The ACCC contended that the use of those keywords was liable to mislead consumers about the nature of Employsure's services.
  The court found that the Google Ads were not misleading or deceptive when viewed from the perspective of a reasonable member of the relevant class (being business owners searching for employment-related advice on the internet). The court also reinforced that the deliberate use of keywords to generate Google Ads is not misleading or deceptive conduct.
• Advertisements of 'free advice helpline' not false or misleading - the ACCC claimed that Employsure's advertisements of a 'free advice helpline' were false or misleading as the 'primary function' of the helpline was to pitch further paid services to new clients. The court rejected this, and found that any reasonable business owner would have appreciated that in offering something for free, Employsure's aim would be to create profit-generating opportunities.
• Unconscionable conduct – the ACCC also alleged that Employsure acted unconscionably toward small businesses who, after ‘googling’ the FWO or a related government agency and believing they were speaking with someone of that agency, entered into contracts with Employsure. The court found that Employsure did not engage in unconscionable conduct as the claimants' erroneous belief that they were dealing with the FWO was not caused by Employsure's conduct.
• Unfair contract terms – the ACCC also claimed that Employsure's standard form contracts contained unfair terms, including a no early termination clause, unilateral price increases on automatic renewal and a clause allowing Employsure to demand payment of the full balance of the contract if a customer defaulted on a single payment. The court found that the clauses were reasonably necessary to protect Employsure's legitimate interests (including for its business to remain profitable given it was still relatively young). The court also found that the unilateral price increases term did not create a significant imbalance because customers could give notice if they did not wish to renew the contract.

ACCC grants more authorisations in response to COVID-19: chicken meat processors to cooperate on meat supply; cooperation authorised in medical industry to supply essential medicines and devices

The ACCC has granted further authorisations allowing cooperation and coordination between competitors in the chicken meat and essential medicine industries in response to the COVID-19 pandemic.

On 24 September 2020, the ACCC issued a draft determination proposing to allow Ingham’s, Turosi, Hazeldene’s Chicken Farm and the Australian Chicken Meat Federation (the representative body for the chicken meat industry) to coordinate through a ‘COVID Working Group’ to reduce the impact of the pandemic and associated Victorian Stage 4 restrictions on the chicken meat industry.

Processors must provide weekly reports to the ACCC setting out decisions made by the COVID Working Group, as well as any further information requested by the ACCC. Authorisation is proposed until 31 December 2020.

On 24 September 2020, the ACCC also issued a final determination granting authorisation to members of both Medicines Australia (MA) and the Generic and Biosimilar Medicines Association (GBMA) to cooperate in relation to the supply of prescription-only medicines and devices, if there are shortages resulting from the COVID-19 pandemic. The ACCC considers that the proposed conduct is likely to result in public benefits by ensuring supply of these essential medicines and devices.

Authorisation is granted until 30 September 2021, subject to conditions that allow monitoring by the ACCC and require MA to advise government agencies if MA/GBMA Working Group members intend to coordinate in relation to government tenders for essential medicines and devices.