Australian Competition and Consumer Commission v Burden

Australian Competition and Consumer Commission v Burden - [2017] FCA 399 - FCA 2017 case summary — Zoe

[14]

From at least August 2015 to June 2016, the second respondent, Elusion Australia Limited (NZBN 942 903 115 8060) (In Liquidation) (Elusion), in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL; (b) in connection with the supply or possible supply of goods, and the promotion of the supply or use of goods, made false or misleading representations that the goods were of a particular composition, in contravention of s 29(1)(a) of the ACL; and (c) engaged in conduct that is liable to mislead the public as to the nature or characteristics of goods, in contravention of s 33 of the ACL, by representing to consumers on its website (Elusion website) that the e-cigarette products supplied by it did not contain harmful chemicals, cancer-causing chemicals or carcinogens, when that was not the case.
From at least August 2015 to June 2016, Elusion, in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL; (b) in connection with the supply or possible supply of goods, and the promotion of the supply or use of goods, made false or misleading representations that the goods were of a particular composition, in contravention of s 29(1)(a) of the ACL; and (c) engaged in conduct that is liable to mislead the public as to the nature or characteristics of goods, in contravention of s 33 of the ACL, by representing to consumers on the Elusion website that the e-cigarette products supplied by it did not contain harmful chemicals, cancer-causing chemicals or carcinogens found in tobacco cigarettes, when that was not the case.
From at least August 2015 to June 2016, Elusion, in trade or commerce: (a) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL; (b) in connection with the supply or possible supply of goods, and the promotion of the supply or use of goods, made false or misleading representations that the goods were of a particular composition, in contravention of s 29(1)(a) of the ACL; and (c) engaged in conduct that is liable to mislead the public as to the nature or characteristics of goods, in contravention of s 33 of the ACL, by representing to consumers on the Elusion Website that the e-cigarette products supplied by it did not contain any of the chemicals found in tobacco cigarettes, when that was not the case.
The first respondent, John Dennis Burden (Mr Burden), acting in his capacity as director of Elusion, and being responsible for authorising all content of the Elusion Website at all material times up to and including June 2016, and having knowledge of the essential elements of the contraventions of ss 18, 29(1)(a) and 33 of the ACL by Elusion referred to in paragraphs 1 to 3 above, was knowingly concerned in, or a party to, those contraventions for the purposes of s 224(1) and 232(1) of the ACL.

[21]

Jurisdiction 7 The third respondent (Elusion) is a company incorporated in New Zealand which at all relevant times carried on the business, in trade or commerce, of promoting and supplying e-cigarette products to consumers in Australia, including via its website (Elusion Website). 8 The ACL applies. I am satisfied that the Court has jurisdiction in relation to the impugned conduct because Elusion's conduct was "in Australia" and further, or in the alternative, Elusion was "carrying on business in Australia" at the relevant time. 9 Section 131(1) of the CCA provides that the ACL applies as a law of the Commonwealth to the conduct of corporations, and in relation to the contraventions of Chapter 2, 3 or 4 of Schedule 2 by corporations. 10 As the ACCC submits for the purpose of s 131(1), the relevant issue is whether Elusion's impugned conduct was conduct "in Australia" which contravened ss 18, 29(1)(a) and 33 of the ACL. The conduct involved representations made by Elusion on the Elusion Website: Australian Competition and Consumer Commission v Valve Corporation (No 3) (2016) 337 ALR 647, 681 at [161]. 11 The applicant refers to the following matters, any one of which I accept establishes that the conduct took place in Australia: (a) Elusion made the representations on the Elusion website, as noted in the SOAF at paragraphs 2, 5 and 7. (b) Elusion made the representations on the Elusion Website in connection with supply or possible supply of goods to consumers in Australia: Valve Corporation at 681 [163], 684, [178]-[179], by: (i) stating on the website "Welcome to Elusion Electronic Cigarettes. We ship e-cigarettes & accessories Australia-wide": SOAF, Attachment 1; (ii) displaying prices for its e-cigarette products on the Elusion website in Australia dollars: SOAF, Attachment 1; (iii) accepting payments from customers in Australian dollars: SOAF, Attachment 1. (iv) directing enquiries to an Australian telephone number (1800 241 939): SOAF, Attachments 1 and 2. (c) Elusion accepted purchases of e-cigarette products by customers in Australia through the Elusion website: SOAF, paragraph 7. Accordingly by the time a customer in Australia had purchased a product, if not earlier, the customer had a relationship with Elusion and the representations were made in Australia: Valve Corporation at 684 [181]. 12 Further or alternatively, the applicant relies on the extended application of the CCA to conduct outside Australia pursuant to s 5(1)(g) of the CCA. 13 Section 5(1)(g) provides that the ACL extends to the engaging in conduct outside Australia by "bodies corporate incorporated or carrying on business within Australia". 14 The applicant relies on the following matters which I accept establish that Elusion was carrying on business within Australia: Valve Corporation at 687-688, [199]-[205]. (a) Elusion did each of the matters referred to in 10(a) to (c) above; (b) Elusion marketed its e-cigarette products to consumers in Australia: SOAF, paragraphs 2 and 5 and Attachment 1. (c) Elusion supplied e-cigarette products through the Elusion website to customers in Australia: SOAF, paragraph 7. (d) Elusion derived revenue from customers in Australia: SOAF, paragraphs 5 to 7, and 24. 15 I am satisfied that a sufficient nexus is established based on the nature and extent of Elusion's business in Australia so as to give the Court jurisdiction in relation to the impugned conduct.

[22]

Background 16 The following background as well as relevant legal principles which I accept are correctly stated, is drawn from the written submissions of the ACCC. They are not controversial. The conduct occurred between the period of at least August 2015 to June 2016, and involved the promotion and sale of e-cigarette products to consumers in Australia, including to consumers via the Elusion website. 17 In particular, the ACCC alleged that: (a) Elusion, in trade or commerce: (i) engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL; (ii) in connection with the supply or possible supply of goods, and the promotion of the supply or use of goods, made false or misleading representations that the goods were of a particular composition, in contravention of s 29(1)(a) of the ACL; and (iii) engaged in conduct that was liable to mislead the public as to the nature or characteristics of goods, in contravention of s 33 of the ACL, by representing to consumers that the e-cigarette products supplied by it did not contain harmful chemicals, cancer-causing chemicals or carcinogens by publishing statements to that effect, namely the representations at paragraph 5 of the Concise Statement (Representations). (b) Mr Burden had knowledge of Elusion's conduct, and was, directly or indirectly, knowingly concerned in or a party to the contraventions by Elusion referred to at 17 above, within the meaning of ss 224(1)(e) and 232(1)(e) of the ACL. 18 Elusion and Mr Burden have admitted these allegations in the SOAF dated 28 January 2017. 19 While recognising that the question of relief remains at the discretion of the Court, the parties seek by consent the orders set out in the minutes of proposed final orders (the Proposed Final Orders) namely: (a) declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), in the form set out in paragraphs 1 to 4 of the Proposed Final Orders; (b) injunctions pursuant to s 232 of the ACL, in the form set out in paragraphs 5 to 7 of the Proposed Final Orders; (c) payment by Elusion of a pecuniary penalty in the amount of $40,000 pursuant to s 224 of the ACL, in the form set out in paragraph 8(a) of the Proposed Final Orders, and a further order that the pecuniary penalty be paid in instalments in the form set out in paragraph 9(a) of the Proposed Final Orders; (d) payment by Mr Burden of a pecuniary penalty in the amount of $15,000 pursuant to s 224 of the ACL, in the form set out in paragraph 8(b) of the Proposed Final Orders, to be paid within 30 days as set out in paragraph 9(b) of the Proposed Final Orders; (e) a publication order to be made in the form set out in paragraph 11 of the Proposed Final Orders; (f) a non-punitive order pursuant to s 246 of the ACL requiring Mr Burden to undertake training, in the form set out in paragraph 12 of the Proposed Final Orders; (g) payment by Elusion of a contribution to the ACCC's costs pursuant to s 43 of the Federal Court Act, in the form set out in paragraph 14(a) of the Proposed Final Orders, to be paid within 30 days as set out in paragraph 15(a) of the Proposed Final Orders; and (h) payment by Mr Burden of a contribution to the ACCC's costs pursuant to s 43 of the Federal Court Act, in the form set out in paragraph 14(b) of the Proposed Final Orders, to be paid within 30 days as set out in paragraph 15(b) of the Proposed Final Orders. 20 The ACCC and the respondents have agreed the factual basis for the orders sought, which is set out in the SOAF and materials referred to in the SOAF which I have admitted under s 191 of the Evidence Act 1995 (Cth). I also admitted additional evidence in the nature of expert evidence which underpins the technical facts admitted by the respondents. 21 The principles generally applicable in such maters where orders and declarations are sought by consent as well as those generally applicable to the determination of civil penalties are to be found in a recent decision in another e-cigarette proceeding almost on all fours with the present case: ACCC v Social-Lites Pty Ltd [2017] FCA 398. It is unnecessary to rehearse all of those principles here.

[24]

Declarations 24 By consent, the ACCC, Elusion and Mr Burden seek the declarations in paragraphs 1 to 4 of the Proposed Final Orders. The Court has a wide discretionary power to make declarations under s 21 of the Federal Court Act 1976 (Cth). In Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, Gibbs J held at 437-8 that the following three threshold requirements should be satisfied before a declaration will be made: (a) the question must be a real and not a hypothetical or theoretical one; (b) the applicant must have a real interest in raising it; and (c) there must be a proper contradictor. 25 Each of these requirements is satisfied in this case: (a) the proposed declarations relate to conduct that contravenes the ACL and the matters in issue have been identified and particularised by the parties with precision; (b) it is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made as: (i) there is a significant legal controversy in this case, which is being resolved, and (ii) the ACCC is the public regulator under the CCA and has a genuine interest in seeking the declaratory relief; and (c) the respondents are proper contradictors (notwithstanding their consent) because each is a person who contravened, or was involved in contraventions of, the ACL and is the subject of the declarations, therefore having a genuine interest in resisting the granting of the declarations: as to this last point see ACCC v Sampson [2011] FCA 1165 at [13]-[18]. 26 Nonetheless it remains a matter for the Court as to whether it has the power and whether it is, in all the circumstances, appropriate to make the declarations sought. I accept the submission made by the ACCC without demur on the part of the respondents that the declarations sought are appropriate because they serve to: (a) record the Court's disapproval of the contravening conduct; (b) vindicate the ACCC's claim that Elusion contravened, and Mr Burden was involved in Elusion's contraventions of, the ACL; (c) assist the ACCC in the future in carrying out the duties conferred on it by the CCA; (d) assist in clarifying the law; and (e) act as a deterrent to other persons and corporations from contravening the ACL: ACCC v Construction, Forestry, Mining and Energy Union [2007] ATPR 42-140 at [6]. 27 The proposed declarations contain sufficient indication of how and why the conduct complained of contravenes the ACL: Rural Press Ltd v ACCC (2003) 216 CLR 53 at 91.

[25]

Injunctions 28 By consent, the parties seek injunctions restraining Elusion and Mr Burden from engaging in conduct, the terms of which are set out in paragraphs 5 to 7 of the Proposed Final Orders. 29 The ACCC submits that it is appropriate for the Court to order the proposed injunctions. The respondents do not oppose this course. The liquidator of Elusion has been served with all of the papers in this matter and is thus aware of the injunctive relief sought. 30 In my view, whilst Elusion is in liquidation, injunctive relief ought to be ordered. Elusion may not always be in liquidation. Section 250 of the Companies Act 1993 (NZ) permits the Court to terminate a liquidation on an application made by a liquidator or, among others, a director or shareholder of the company. 31 Section 232(1)(a) of the ACL empowers the Court to grant an injunction, in such terms as it considers appropriate, if the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes, or would constitute, a contravention of a provision of Chapter 2 (which includes s 18) or Chapter 3 (which includes ss 29 and 33) of the ACL. 32 Pursuant to s 232(4)(a) of the ACL, the Court may grant an injunction whether or not there is a likelihood of the conduct being repeated. 33 The injunctive relief sought in this proceeding is within the Court's power and I am satisfied is appropriate because, as the ACCC submits, the relief: (a) is designed to prevent: (i) Elusion from making false or misleading representations similar to those that are the subject of the proceeding; and (ii) Mr Burden from having any further involvement in the making of such false or misleading representations; (b) is expressed in terms that are closely tied to the terms in which the respondents have admitted their respective contraventions of the ACL; and (c) arises in the circumstances of this proceeding, which has been appropriately issued in this Court. 34 I am satisfied that the proposed injunctions, which are intended to have application for a period of three years, are appropriate to deter repetition of the contravening conduct. 35 The terms of the proposed injunctions are framed in accordance with the admitted facts are clearly expressed and will not require any supervision by this Court.

[28]

Additional considerations 45 As the ACCC submitted s 224 of the ACL was preceded by, and is in substantially identical terms to, s 76E of the Trade Practices Act 1974 (Cth) (TPA). The Court has confirmed, with some exceptions, the application to s 76E of the TPA of the principles relevant to the imposition of a civil penalty under the former s 76 of the TPA (relating to restrictive trade practices): ACCC v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at 624. Accordingly, given the similarities between s 224(2) of the ACL and s 76E(2) of the TPA, both of which require the penalty to be deemed "appropriate" by the Court, the guiding principles developed for s 76 of the TPA are also of relevance to the power contained in s 224 of the ACL: ACCC v Pepe's Ducks Ltd [2013] FCA 570 at [16]. 46 The principles applicable to agreed penalty submissions in civil penalty proceedings remain those in NW Frozen Foods (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993. In NW Frozen Foods, Burchett and Kiefel JJ outlined a checklist of matters that judges have regarded as of assistance in the assessment of a pecuniary penalty under s 76 of the TPA. In considering the imposition of a penalty under s 76E of the TPA, Perram J in ACCC v Singtel Optus Pty Ltd (No 4) (2011) 282 ALR 246 at [11] set out an updated checklist of relevant considerations, which was referred to without demur on appeal: Singtel Optus v ACCC (2012) 287 ALR 249 at [37]. That checklist has been considered by this Court in ordering pecuniary penalties under s 224 of the ACL: see Pepe's Ducks at [17] and ACCC v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 at 544 [8] where it was also noted at [9] that the factors did not exhaust relevant considerations. 47 The guiding considerations identified by Perram J were: (a) the size of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management of the contravener or at some lower level; (d) whether the contravener has a corporate culture conducive to compliance with the ACL, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; (e) whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of the ACL in relation to the contravention; (f) whether the contravener has engaged in similar conduct in the past; (g) the financial position of the contravener; and (h) whether the contravening was systematic, deliberate or covert. 48 Each of these considerations is addressed below.

[33]

Nature, extent and duration of conduct, and circumstances in which it took place 58 Elusion made the Representations, which were false or misleading in contravention of ss 29(1)(a) and 33 of the ACL. The Representations were made on the Elusion Website, which was accessible to the general public. The Representations purported to consumers that Elusion's e-cigarette products: (a) did not contain harmful chemicals, cancer-causing chemicals or carcinogens; (b) did not contain harmful chemicals, cancer-causing chemicals or carcinogens found in tobacco cigarettes; and (c) did not contain any of the chemicals found in tobacco cigarettes. 59 Elusion did not have scientific or other evidence to support the Representations. 60 The conduct occurred from at least August 2015 to June 2016, in respect of the Representations made on the Elusion Website. 61 As set out at paragraph 3 of the SOAF, Mr Burden was personally responsible for authorising the content of the Elusion Website. 62 The contraventions are serious. The conduct was in respect of serious matters concerning public health. The conduct was directed to the general public and the medium of communication was the internet, which is far-reaching. 63 The Representations had the potential to mislead a wide range of consumers about the health effects of non-nicotine e-cigarettes. Consumers were not in a position to ascertain the falsity of the Representations. The misrepresentations deprived consumers of the opportunity to make properly informed decisions. 64 Consumers of Elusion's e-cigarette products were misled, or were likely to have been misled, into believing that the use of those products would not expose them to harmful chemicals, cancer-causing chemicals or carcinogens, like those contained in conventional tobacco cigarette smoke. The exposure to those harmful chemicals, cancer-causing chemicals or carcinogens may have caused harm to the health of those consumers who, if they had been informed of the presence of these chemicals in the e-cigarettes, may have chosen not to purchase and use them.

[37]

Participation of senior management 75 Mr Burden was, at all relevant times, a director of Elusion, the controlling mind of Elusion, and responsible for authorising the content of the Elusion website. 76 Mr Burden has admitted his involvement gave rise to Elusion's contraventions of the ACL. 77 However Mr Burden has said that the responsibility as to the final content of Elusions advertisements lay with his daughter and that she failed in this respect. I do not accept this attempt to entirely shift the responsibility for the conduct of the Company to his daughter. Mr Burden has admitted he knew of the content of the web-site advertisement and that no scientific support for these representations had been obtained. 78 As to the pressure of Acrolein, Acetaldehyde and Formaldehyde, Mr Burden made the following submissions: Regarding each of the 3 chemicals, namely acrolein, acetaldehyde and formaldehyde, there is no known scientific or provable NOEL (No Observable Effect Limit) regarding their carcinogenicity. No minimum concentration limits of these 3 chemicals have been pleaded that would make any of the 3 chemical carcinogenic per se. It cannot be argued then that, taken to the nth degree even a single atom or molecule of these chemicals is actually harmful or carcinogenic to a normal user of same which the applicant has not pleaded to, proved or in fact is ever capable of proving. Mr. BURDEN admits that the e-vapor does in fact contain these chemicals, but it is not known to what extent and in what concentrations they are formed in the tested cigarettes. This is relevant for sentencing given that the extent of the concentration of the various chemicals are materially relevant to the causative processes (one would have thought) that lead to carcinogenesis. That consideration is, in turn, relevant to the question whether it had been established to the requisite degree that, Mr. BURDEN knew that his actions were likely to endanger life. 79 In fact, whatever be the precise position concerning the harmful effects of these chemicals in Elusion's e-cigarettes it was never submitted by the ACCC that they were life threatening. Indeed the ACCC did not attempt, in any qualitative sense, to establish just how harmful those chemicals were. It is important to note, however, that the ACCC did not allege and did not attempt to demonstrate the degree of carcinogenicity of the chemicals in e-cigarettes. Accordingly the ACCC did not allege or seek to prove just how harmful exposure to the chemicals from smoking the e-cigarettes was. 80 Mr Burden also made submissions to the effect that his conduct had not been reckless. However the ACCC did not invite such a finding and I do not make one.

[42]

Parity principle 88 The parity principle requires that when penalties are imposed, "there should not be such an inequality as would suggest that the treatment meted out has not been even handed": NW Frozen Foods at 295. 89 Similar contraventions should incur similar penalties. However, the Court has emphasised that caution needs to be exercised in comparing penalties imposed in different cases, as every case necessarily turns on its own facts. In Singtel Optus Pty Ltd v ACCC, the Full Court observed that: …the Court is not assisted by…citation[s] of penalties imposed in other cases, where the combination of circumstances were different from the present, as if that citation is apt to establish a "range" of penalties appropriate in this case. 90 The Full Court endorsed the following passage of Middleton J in Australian Competition and Consumer Commission v Telstra Corporation Ltd: It is apparent that there are many difficulties in simply referring to penalties previously imposed for contraventions of legislation in widely differing circumstances or in circumstances where some of the factors are similar but others dissimilar to those of the present proceeding. In each case, the court must take into account the deterrent effect of the penalty and the fact that the penalties "should reflect the will of Parliament that the commercial standards laid down in the Act must be observed but not be so high as to be oppressive": see Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] ATPR at 40-091 at 17,896. 91 I am informed by senior counsel for the ACCC that there are, at present, no cases of breach of the ACL involving similar circumstances with which to compare this case. 92 The mandatory and discretionary factors to which the Court is to have regard provide sufficient guidance as to the appropriateness of the proposed penalties. Further, the proposed penalties are significant enough to achieve general deterrence without being oppressive to the respondents.

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