C.3.5 Deliberateness or Recklessness
88 The ACCC's submission that Pental's conduct was deliberate for a not insignificant period was the subject of much focus at the hearing. In considering this submission, it is necessary to have regard to the chronology of events in a little more detail.
89 Upon the acquisition of the White King brand in September 2010, Pental, in effect, 'inherited' the representations that were then being made in relation to the wipes. Mr McLeish gave evidence, which I accept, that he did not consider it likely that there was a problem with the wipes in circumstances where a corporation the size of Sara Lee was making the representations and had provided the contractual warranties referred to at [9(a)] above.
90 In truth, what was being relied upon in making the representations, both prior to and after the acquisition of the White King brand, was the Chinese testing. The Chinese testing is, of course, problematical as although it purportedly shows that the wipes became fully biodegraded within 28 days, no comparative testing with toilet paper was undertaken and the testing provided no basis, let alone a reasonable basis, for any representations as to flushability.
91 It is apparent that by reason of the misguided comfort taken by senior executives of Pental from the pre-existing conduct of Sara Lee and the contractual warranties, neither prior to, nor upon, acquisition of the White King brand did Pental take any steps to verify the results independently or ascertain whether, if the Chinese testing was correct, 28 days was an appropriate time for biodegradation. Nor were any steps taken to determine the flushability of the wipes. Indeed, the evidence establishes that Pental did not have a copy of the relevant biodegradability standard in its possession and was not able to know what it actually measured.
92 What then changed?
93 Mr McLeish's evidence, which I have accepted, was that he was focused on other things. It is perhaps understandable, given his false sense of security occasioned by the Sara Lee warranties, that he was directing his attention to the interests of the Shepparton employees and repayment of the bank facility. This did not mean, however, that all was quiet within Pental on the wipes front: indeed, there were a number of flashing lights. In November 2013, a complaint was received from a customer who experienced a plumbing blockage, who revealed that the plumber who cleared the blockage, had conveyed his opinion that it was the wipes that had caused the blockage. In January 2014, another complaint was received which, importantly, not only referred to another blocked sewerage pipe, but also conveyed the information that the plumber called to fix the problem "also mentioned that he had seen the (sic) similar problems everywhere on a regular basis". Similarly, in May 2014, another customer referred to the representations and asserted that "the wipes do not break down 'like toilet paper'", and made an allegation that the representation on the packaging was "extremely misleading and unrepresentative of the product".
94 For whatever reason, these customer complaints were, with respect to Mr Butterfield (who had joined Pental in August 2013), not the subject of sufficient action within the corporation. On 15 October 2013, a customer noted as follows:
I am writing this email to let you know how disappointed I am in one of your products. I have recently started using your 'Power Clean Flushable Wipes'. Our toilet become blocked and overflowed with waste and created a HUGE mess and health hazard. The real estate agent I rent through organised a plumber asap and he discovered that the blockage was caused from wipes that were not breaking down. Because of this I am now left with not only the unimaginable mess but also a $130 bill. Your product is very misleading and obviously is not flushable as it does not break down once flushed, as it says on the packaging.
(Emphasis and errors in original)
95 In response, Mr Butterfield indicated that:
Our flushable wipes are put through extensive testing to ensure they meet biodegradable standards similar to that of toilet paper, so that we can make the claim they are flushable.
96 It is somewhat disturbing that a representation as to 'extensive testing' was made in response to a customer complaint, in circumstances where the only basis for the representations was the Chinese testing which, as I have explained, provided no basis for the Flushability Representations. Although no individualised case of misleading or deceptive conduct was relied upon in relation to the responses to the complainants, the responses are indicative of the way in which there was a lack of action and care in dealing with this issue. Indeed, Pental accepted that this lack of care amounted, relevantly, to recklessness.
97 What the evidence discloses is that things changed in mid-2014, when Mr McLeish became aware of media reports regarding problems with wipe-type products blocking sewerage systems. His evidence, which I accept, was that it was at about this time that he became aware of the idiosyncratic testing which had been conducted internally by Mr Anthonisz (who had ceased employment with Pental in January 2014). This testing showed that the wipes did not break up when placed in a bucket of water (although they were able to be flushed down the toilet at Pental's offices without causing a blockage).
98 At around the same time, on 30 July 2014, another complaint from a customer was received. This customer, happily describing herself as a real "White King girl" who had Pental's "products proudly on display", noted that she had an issue with the "power clean flushable wipes" and stated:
yes, they do flush, but they also clog up the pipes of my house's waste system! They don't "disintegrate in my sewage system like toilet paper" as you claim on the back of the package and as you can see from my attached photo your product remains whole, with little sign of breakdown of the product.
(Errors in original)
99 Mr James Blackmore, the R&D Technical Manager of Pental Ltd, promptly raised this complaint with Ms Nilmini Rajapakse, the Quality Assurance Manager for Pental Products. He noted, correctly, that this was not the first time this had occurred and asked whether Ms Rajapakse was able to check how many complaints had been received and whether or not the problem identified as a "common occurrence". The response of Ms Rajapakse was to say:
For long term, we need to think about the words 'just as toilet paper'; Eventhough we have test reports etc. they don't do a comparison breakdown speeds; all it says is that it is bio degradable.
(Errors in original)
100 Mr Blackmore responded, noting that:
We are in agreement on everything including the claim "just as toilet paper" I might get a competitors pack and review.
(Errors in original)
101 It is common ground that Mr Blackmore (who replaced Mr Anthonisz as the R&D Technical Manager) was part of the leadership team. Although Mr Blackmore did not give evidence, I infer that it was at this time, which was around the time that Mr McLeish became aware of the media reports, the issue became escalated within Pental.
102 This appears to have been the catalyst for the 100-wipes pack being renamed in September 2014 as the "White King Flushable Bathroom Power Wipes" (as part of the brand refresh) and the accompanied packaging changes to the 100-wipes pack, including removal of the statement that the wipes disintegrated like toilet paper.
103 The ACCC relied on the brand refresh not only for what happened, but also for what did not happen. A decision was made in September 2014 not to amend the packaging of the 40-wipes pack. The rationale given by Mr McLeish was that Pental made a decision not to amend the packaging on the 40-wipes pack because Pental was contemplating whether to discontinue supply of this product due to poor sales. In effect, a conscious decision was made by Pental to keep the Disintegration Representations, because the wipes market was a very competitive market and was not highly profitable. It appears the contemplation of discontinuing supply continued to sometime after September 2014 (the precise timing does not emerge with clarity from the evidence), when a conscious decision was finally made to delete the product. Whenever that final decision was made, it was made well before December 2015 when the 40-wipes pack was no longer available for purchase from Pental. Doing the best that I can, it appears that perhaps a final decision was made in relation to the 40-wipes pack in mid-2015 (see T 34), but the evidence on this point was not pellucid.
104 In any event, when challenged about the deliberateness of this conduct, Mr McLeish suggested that cost had nothing to do with the decision to continue to engage in contravening conduct, notwithstanding that by this time Pental had recognised that there was no basis whatever for the Disintegration Representations. As I foreshadowed at [26] above, this is one aspect of Mr McLeish's evidence that I had difficulty accepting. It appears to me that the only available conclusion on the evidence is that there was a contemplation at around the time of the brand refresh that the 40-wipes pack could be phased out, which solidified into a final determination at some stage, probably in mid-2015. Against that commercial background, a decision was made not to change the packaging, because this would have been wasted effort and cost for a product that was likely to no longer be supplied.
105 In this sense, the conduct of making at least the Disintegration Representations from the time of the brand refresh was a deliberate decision in the sense that there was conscious attention paid by senior management of Pental to whether or not the representations, which must at that stage have been known as lacking in foundation, should continue to be conveyed. This continued for a period which, on any view, was unacceptable, with the last of the 40-wipes packs being sold by Pental in December 2015.
106 Having said this, I do not characterise what occurred as a deliberate decision to set out to mislead consumers in the sense of engaging in contravening conduct to increase market share or denigrate the products of a competitor. Hence, although it was deliberate, the conduct must be viewed contextually, including in the context of the product being phased out.
107 Despite this, as well as being serious, the conduct throughout the Relevant Period was reckless. At least at the early stages, there is some explanation of the conduct by reference to the relatively small part of the business that the wipes represented and the fact that Mr McLeish had a rational basis for being surprised that Sara Lee, given its standing, and the contractual warranties it provided, would have made representations apparently on the basis of testing which did not bear them out. I hesitate in being critical of a corporation which has not been heard, but I am required to assess Pental's conduct in circumstances where they had 'inherited' the product and made claims not materially different to those made prior to the acquisition. At the very least, this background provides some possible explanation as to why Mr Anthonisz, who had come on board following the acquisition from Sara Lee, did not immediately raise problems with senior management of Pental.
108 As will already be appreciated, I consider that there is substance in the ACCC's submission that the brand refresh cuts both ways, in the sense that although it did result in the rectification of some representations, it did not amount to a catalyst for Pental commissioning its own further formalised testing (which testing was not commissioned until November 2015) and, as explained above, did not prevent Pental continuing to supply the 40-wipes pack with the Disintegration Representations until December 2015.
109 The customer complaints to which I made reference above, while relatively few in number, do, fairly read, contain an indication of a broader problem and support the conclusion that there was recklessness in Pental's approach to the problem.