Amount of loss or damage caused and profit gained
42 The ACCC did not lead any direct evidence that consumers were misled by the contravening representations. It accepts that it is not able to quantify how many consumers might have acted differently and cannot quantify any losses caused by the contravening conduct.
43 In Singtel v ACCC at [58]-[59], the Full Court, approving Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at [77]-[80]; [2013] FCA 790 ("ACCC v MSY Technology"), indicated that in cases where it is easy to imagine detriment to consumers (as it is in this case), the absence of evidence of loss or damage to consumers constitutes a factor in mitigation of penalty. The rationale is that if any harm is likely to have been suffered, but no evidence is led that it was, the respondent is entitled to be sentenced on the basis that the conduct has not caused harm: Singtel Optus v ACCC at [58]; ACCC v MSY Technology at [79].
44 The ACCC submits that the Court should infer that consumers were induced by the contravening representations to purchase Keratin Complex and did suffer financial loss because the increase in sales over the period coincided with Dateline's intensive advertising campaign. In the 15 months prior to the publication of the advertisements, gross sales of Keratin Complex averaged $115,000 per month. In the period of the contravening advertisements gross sales averaged $370,000 per month. The ACCC submits that Dateline's average gross profit on sales was approximately 69%, which would yield an increase in gross profit of $350,000 for the two months or so of the campaign.
45 I accept that the advertisements are likely to have contributed to the increase in Dateline's sales and gross profit to some unknown extent. I draw that inference because Dateline's intention in including the representations in the advertisements must have been to increase sales: cf ACCC v TPG at [55]. However, I do not accept that any financial loss to consumers (whether hairdressing salons or their customers) has been demonstrated for two reasons.
46 There is no allegation that Keratin Complex did not work. The ACCC accepted as much in its opening at the trial. Mr Taylor's oral evidence was that Dateline had never received any complaint that Keratin Complex was not effective at smoothing hair and that, in fact, the position was quite the opposite. Therefore, even if customers were induced to purchase Keratin Complex by the contravening representations, they received a product that apparently gave them straight hair, which was the purpose for which they bought the product. There was no evidence that if the product contained 35% or 40% natural keratin, it would have worked better. This is not a case where it is alleged that the misrepresentations led consumers into buying a product that did not work or underperformed.
47 In addition, Dateline's voluntary recall included making refunds to hairdressing salons and customers and arranging for the collection of unused or partially used bottles of Keratin Complex at its own cost. The scope of the recall included placing posters in the hairdressing salons which stocked Keratin Complex. The ACCC widely publicised the recall, including on-line, on a national television program and at a Hair Expo held in June 2011.
48 The customers of hairdressing salons who requested a refund were refunded their money. The evidence does not indicate how many customers received refunds. The closest that the evidence comes to providing some indication is Mr Taylor's statement that the $460,937 identified as cash refunds was "mainly" paid to individuals who had paid for treatments in salons.
49 It has not been demonstrated that any consumer of Keratin Complex has suffered loss as a result of being misled by the contravening advertisements into purchasing the product.
50 The ACCC submitted that the advertising campaign conducted by Dateline was highly profitable, demonstrated by the gross sales figures over the 2½ month period of the campaign. Against this, the cost of those sales, including the cost of the product and the cost of the advertising campaign, must be taken into account. In addition, it is likely that the lurid nature of the advertisements and their dominant statements like "Smooth Shiny Hair in a Snap" and "45 minute in-salon service", rather than merely the contravening representations, contributed to the increased sales.
51 The question of whether Dateline made any profit from sales of Keratin Complex resulting from the contravening advertisements, as the ACCC contends it did, or whether it has made an overall loss, as Dateline contends it did, is in dispute.
52 In the 15 months prior to the publication of the contravening advertisements, gross sales of Keratin Complex were $1.73 million. For the period of the contravening advertising, gross sales were approximately $740,000.
53 On 27 October 2010, the ACCC wrote to Dateline stating that it was incumbent on Dateline to initiate a voluntary recall of Keratin Complex because it contained excessive amounts of formaldehyde, although the letter suggested that there could be a mandatory recall if it did not do so. Dateline then recalled the product voluntarily. The recall had nothing to do with the natural keratin representations. The cost of the recall to Dateline exceeded $3 million.
54 On 14 June 2013, Dateline entered into a written agreement with Copomon Enterprises LLC ("Copomon"), the supplier of Keratin Complex. Under the agreement, Dateline agreed to release Copomon from any liability to Dateline in respect of the subject matter of the ACCC's proceedings against Dateline. In return, Copomon agreed, inter alia, to pay all of Dateline's past legal expenses and 80% of both Dateline's future legal expenses and any penalty imposed. The agreement also provided that Dateline would be given a discount of 33.34% from Copomon's standard prices for its products until such time as Dateline receives a total of $3.1 million of discounts.
55 Mr Taylor deposed that Dateline has received total discounts of USD167,457 in respect of products ordered from Copomon since the date of the agreement. His evidence was that the quantity of products that Dateline is ordering from Copomon has declined significantly. He considered that it would take 15 to 20 years, if at all, before Dateline receives $3.1 million worth of discounts from Copomon.
56 The agreement makes no provision for interest, so that even if Dateline does eventually recover $3.1 million by way of discounts, that will understate the extent of its recovery. On the other hand, it did make a gross profit from the sale of Keratin Complex in 2009 and 2010, although the amount any net profit is not able to be determined from the evidence. It is impossible to say whether Dateline will ultimately make a profit or a loss from its overall sales of Keratin Complex in 2009 and 2010.
57 More significantly for present purposes, it is not possible to tell from the evidence whether Dateline has made or will ultimately make any net profit from its sales of Keratin Complex for the period during which the contravening advertisements were published. I therefore proceed on the basis that it has not been established that Dateline has profited or will profit from the contravening advertisements.
58 Dateline submits that its losses arising from the recall should be taken into account as a mitigating factor in assessing any penalty. For the reasons I have given, I do not accept that the evidence establishes that Dateline has suffered or will necessarily suffer any loss as a result of the recall. Even assuming such a loss, the recall was voluntary. It was open to Dateline to refuse to voluntarily recall the product and attempt to persuade the relevant Minister that a mandatory recall was not warranted. Further, while it is possible to be sympathetic to Dateline because it recalled a product that has not been shown, at least in this proceeding, to contain excessive amounts of formaldehyde, my task is to consider whether any, and if so what, pecuniary penalty should be imposed in respect of the natural keratin contraventions. As the recall and its costs are not related to the natural keratin contraventions, I would not take into account any loss resulting from the recall in mitigation of the penalty for the natural keratin contraventions.