ACCC gets a bigger stick: maximum penalty for breaching the Australian Consumer Law substantially increases

Amidst the recent leadership chaos in Canberra, you could easily be forgiven for failing to notice that Parliament recently passed legislation which substantially increases the maximum pecuniary penalty that may be ordered under the Australian Consumer Law (ACL). 

As of 1 September 2018,[1] the maximum civil pecuniary penalty for corporations under the ACL increased from $1.1 million per contravention to the greater of:

• $10 million; or
• if the court can determine the value of the benefit obtained from the offence by the corporation (and any related bodies corporate) – three times the value of the benefit; or
• if the court cannot determine the value of the benefit – 10% of the annual turnover of the corporation.

The maximum penalty for individuals has also increased from $220,000 to $500,000.

Importantly, these amendments align the maximum penalties available under the ACL with the maximum penalties under the competition provisions of the Competition and Consumer Act 2010 (Cth).

Consistent with the competition law penalty regime, the court can now benchmark the penalty as against the benefit gained from the breach or the size of the offending corporations business.

These increases follow Consumer Affairs Australia and New Zealand’s final report finding that the maximum penalties available under the ACL were insufficient to deter breaches for highly profitable conduct, as some businesses see a penalty under the ACL as a ‘cost of doing business’. For large companies with annual turnover in the billions, the maximum penalties available under the ACL prior to this reform were ‘arguably inadequate’ to have the intended deterrent effect.[2]

The difficulty the courts have faced in determining an appropriate penalty for a large corporation was recently explored in the case of Australian Competition and Consumer Commission v Apple Pty Ltd (No 4) [2018] FCA 953, in which Corrs acted for the ACCC.

In this case, a pecuniary penalty of $9 million was imposed on Apple Inc for making false or misleading representations as to consumer guarantees and the rights and remedies available to consumers under the ACL, in breach of section 29(1)(m) of the ACL. The penalty was ordered by consent, following a settlement reached between the ACCC and Apple.

In considering the appropriateness of the pecuniary penalty on a company of Apple’s size, Justice Lee grappled with the tension between the principles that:[3]

• the size of a corporation does not itself justify a higher penalty than might otherwise be imposed;[4] and
• where a penalty does not impose a ‘sting’, it is less likely to achieve its intended deterrent effect.[5]

Justice Lee expressed concern that the penalty of $9 million might be regarded as ‘loose change’ by a ‘behemoth’ like Apple, but observed that he was ‘constrained by authority’ in that the ‘leviathan nature of Apple Inc [could not] dominate the analysis’ nor ‘justify a higher penalty than otherwise would be imposed’.[6] This commentary is particularly interesting when comparing penalties awarded against large corporations for breaches of the ACL with breaches of competition law.

Thus far, the highest penalty imposed for a breach of the ACL is $10 million, in ACCC actions against Coles and Ford respectively, which were ordered by consent. The highest contested penalty awarded by the court is $6 million in the ACCC action against Nurofen.[7] In recent actions by the ACCC against Heinz and Meriton, two very large corporations, the court has imposed penalties of $2.25 million and $3 million respectively.[8] In stark contrast, the highest penalty imposed for a breach of competition law is $46 million against Yazaki.[9]

It is not surprising then that, in making his final observations, Justice Lee referred to the Apple case to be ‘a paradigm example of the difficulties that can arise when a penalty regime fixes maximum penalties as to body corporates, without reference to size of the contravener’.

While these difficulties may be closer to resolution, it will be interesting to see how this new penalty regime impacts the court when the conduct of concern involves a multitude of contraventions, and in turn, the possibility of a much higher overall penalty.

In many cases the number of contraventions can stretch into the thousands or even be indeterminate, particularly where the conduct involves the making of false or misleading representations on a website or on packaging. In such circumstances, the court has found it unhelpful to identify the number of contraventions to determine the notional maximum penalty and instead has often used a course of conduct analysis.[10]

However, this has presented challenges for the court in determining an appropriate overall penalty in accordance with the totality principle. As the cases of Heinz and Meriton demonstrate, this is particularly so where the contravener is of a large size and the direct consumer harm is not easily quantifiable.

It may be that overall penalties such as $3 million or $6 million seemed more appropriate when compared to a maximum penalty per contravention of $1.1 million. However, the increased maximum penalties mean that the court will be required to grapple with much larger maximum figures in determining an appropriate penalty.

We look forward to seeing how the court confronts this challenge.

In the meantime, companies should be wary that ‘the cost of doing business’ that involves a breach of the ACL may just amount to a whole lot more.