Last year substantial changes were made to the Trade Practices Act 1974 (Cth) (now known as the Competition and Consumer Act 2010 (Cth) (CCA)) as part of the Australian Consumer Law reforms. Those changes have brought about a raft of changes to consumer protection laws across Australia. Businesses in the fashion industry, particularly those in the retail sector, will be affected by these reforms. One significant change is the new powers given to the Australian Competition and Consumer Commission (ACCC) to carry out its enforcement duties. These new powers include the issuing of infringement notices and substantiation notices. The ACCC may issue infringement and substantiation notices where it has reason to believe that there has been a contravention of certain provisions of the Australian Consumer Law or, in the case of a substantiation notice, where it wishes to investigate claims being made to consumers. Businesses will need to be mindful of when these notices may be issued and what to do in the event that they receive an infringement or substantiation notice. Infringement notices The ACCC can issue an infringement notice if it has reasonable grounds to believe that there has been a contravention of certain consumer protection laws relating to: • unconscionable conduct; • certain unfair practices; or • product safety. Infringement notices will impose a penalty for payment. The amount of the penalty can vary but typically the amounts will be $66,000 for a listed corporation, $6600 for an unlisted corporation and $1320 for individuals. To be effective, the ACCC must issue an infringement notice within 12 months of the alleged contravention of the CCA. Compliance with infringement notices A business that receives an infringement notice has 28 days to comply with the notice by paying the penalty. An extension of time to comply of up to 28 days can be sought by making an application in writing to the ACCC. If an infringement notice is not complied with, the ACCC will not seek to enforce payment of the infringement notice penalty. Rather, non-compliance with an infringement notice may result in the ACCC issuing court proceedings in relation to the alleged contravention of the CCA. If that happens, the business may be exposed, amongst other things, to pecuniary penalties far exceeding the amount that would have otherwise been payable under the infringement notice, of up to $1.1 million for corporations and $220,000 for individuals. If an infringement notice is paid, then that will be the end of the matter. The ACCC keeps a public register of those infringement notices that have been complied with. Also, the payment of an infringement notice will not mean that the business paying the infringement notice penalty is considered to have actually committed the alleged contravention of the CCA. Infringement notice example A recent example in the fashion industry concerned M Webster Holdings Pty Ltd, trading as David Lawrence, Jigsaw and Marcs, which was issued with three separate infringement notices of $6600 each by the ACCC. David Lawrence, Jigsaw and Marcs displayed, for a period of time, refund policies on receipts and on signs which stated that the stores would not offer an exchange, refund or credit on sale goods. The ACCC was concerned that these policies amounted to a false or misleading representation about certain non-excludable consumer rights regardless of whether or not the goods are on sale. At the time the infringement notices were issued by the ACCC, those non-excludable rights were statutory warranties and conditions that were implied in all consumer contracts. From 1 January 2011, these statutory warranties and conditions were replaced by “consumer guarantees”, which provide consumers with a set of rights whenever they buy goods and services in Australia. Retail businesses will need to ensure that their refund and exchange policies do not contravene the new statutory guarantee system. Ultimately, all three infringement notices totalling $19,800 were paid. In addition, M Webster Holdings Pty Ltd also provided a court enforceable undertaking to the ACCC which included corrective notices being published and sent at its own expense and the implementation of a compliance program. Substantiation notices The ACCC may issue a substantiation notice requesting information or documents to substantiate a claim or representation relating to the supply of goods and services. They are used by the ACCC as a preliminary investigative tool to assess whether it may need to take further action with respect to a suspected breach of consumer protection laws. In issuing a substantiation notice, the ACCC may specifically request information or documents to substantiate the quantities and period for which a business that receives a substantiation notice is able to make a supply of goods or services. For example, if a business advertises a product for $50 and has stated that the product was originally sold for $100, the ACCC may request information or documents to substantiate the representation that the product was previously offered for sale at $100. It is important to note that substantiation notices do not require a business that receives a substantiation notice to prove that a claim or representation is true or not misleading. Of course, the amount and quality of information or documents that can be provided will only assist to put to rest any concerns of the ACCC. When might a substantiation notice be issued? The ACCC might typically issue a substantiation notice to businesses in the fashion industry if it has concerns about misleading advertising. Common examples include: • bait advertising; • two-part advertising; and • strikethrough advertising. Bait advertising Bait advertising occurs when a business uses advertisements as “bait” to draw customers into a store. Bait advertising occurs when a business knows that there is limited stock of the advertised product or that the products will not be available for a reasonable time at the advertised price. Consumers then come into a store to buy the advertised product only to find out that it is no longer available but the business then attempts to sell them another more expensive product which may not be on sale. Such advertising tactics are prohibited by the CCA. Two-part advertising Two-part advertising occurs when products are priced with a ‘was’ and ‘now’ price, or words to that effect. Two-part advertising can be misleading if there are doubts over whether the product was ever offered for sale at the original or “was” price or whether the product was offered at the “was” price for a reasonable length of time prior to being advertised at the “now” price. Strikethrough advertising Strikethrough advertising is very similar to two-part advertising. It occurs when a higher price is crossed out and replaced with a lower price. Again, this type of advertising can be misleading if there are concerns over whether the product was ever sold at the strikethrough price or whether the product was sold at the strikethrough price for a reasonable length of time. Compliance with substantiation notices A business that receives a substantiation notice has 21 days to provide the requested information and documents to the ACCC. Businesses that receive a substantiation notice may seek an extension of time to comply by making an application in writing to the ACCC. An individual, but not a corporation, may refuse to provide the requested information or documents to the ACCC if doing so may incriminate them or expose them to a penalty. Knowingly providing false or misleading information to the ACCC in response to a substantiation notice may result in the ACCC issuing an infringement notice. In that circumstance, the penalty imposed will be $5500 for corporations and $1100 for individuals. If a business that receives an infringement notice fails to comply with the infringement notice, the ACCC may issue court proceedings and seek a court order for payment of a pecuniary penalty for up to $27,500 for corporations and $5500 for individuals. Failure to comply with a substantiation notice may result in the ACCC issuing an infringement notice. If that happens, the penalty would be $3300 for corporations and $660 for individuals. Again, if a business that receives an infringement notice fails to comply with the infringement notice, the ACCC may issue court proceedings and seek a court order for payment of a pecuniary penalty of up to $16,500 for corporations and $3300 for individuals. Conclusion The new laws introduced last year as part of the Australian Consumer Law reforms have provided the ACCC with more comprehensive and effective enforcement powers than ever before. The ACCC has made it clear that it will use its new powers to issue infringement and substantiation notices. It has already issued many infringement notices and whilst the use of substantiation notices is treated confidentially, we can only presume that the ACCC has also exercised this new power. Businesses in the fashion industry, especially retailers, will therefore need to ensure that they understand their obligations under the new consumer laws to avoid being issued with an infringement or a substantiation notice. Businesses will also need to understand what they are required to do in the event that they are issued with such notices to avoid further sanctions and penalties being imposed.
