Australian Competition and Consumer Commission v Thermomix in Australia Pty Limited

Pecuniary Penalties 10. TIA pay to the Commonwealth of Australia a pecuniary penalty in the amount of $4,608,500, in respect of the acts or omissions relating to TIA's contraventions of sections 29, 33 and 131 of the ACL, described in paragraphs 3, 4, 5, 7, and 9 above, in the following instalments: (a) In the amount of $1 million, within 30 days after the date this order is made by the Court; (b) In the amount of $1 million, within 60 days after the date this order is made by the Court; (c) In the amount of $1 million, within 90 days after the date this order is made by the Court; (d) In the amount of $1 million, within 120 days after the date this order is made by the Court; and (e) In the amount of $608,500, within 150 days after the date this order is made by the Court (the final instalment).

Compliance Program 11. TIA, at its own expense, establish a Consumer Compliance Program which meets the requirements and timeframes set out in Annexure A to this Order and maintain the compliance program for a period of three years from the date on which it is established.

Publication Orders 12. TIA, at its own expense, within 7 days after the date this order is made by the Court, prominently publish information on the homepage (or via a clearly visible hyperlink located in the top half of the homepage) of its website (www.thermomix.com.au) for a period of 90 days, which is in the terms and form (including font and formatting) of Annexure B (as amended by agreement in relation to a mobile version of the website). 13. TIA, at its own expense, within 7 days after the date this order is made by the Court, prominently publish, and pin for a period of 90 days, a post in the terms and form of Annexure B on its Facebook page.

Other Orders 14. TIA to file and serve on the ACCC, within three months after the date this order is made by the Court, an affidavit of its proper officer verifying that it has carried out its obligations under the orders of the Court in paragraphs 12 and 13 above, detailing what it has done, including: (a) In respect of paragraph 12 above, by providing a copy of: (i) A date stamped screen capture of the TIA homepage showing either: (A) The information published on its homepage; or (B) A clearly visible hyperlink located in the top half of the homepage; (ii) In the event of paragraph 14(a)(i)(B), a date stamped screen capture of the stand-alone web page containing the information. (b) In respect of paragraph 13 above, by providing a copy of a date stamped screen capture of its Facebook page showing the published and pinned post containing the information.

The ACCC's Costs 15. TIA pay to the Commonwealth of Australia the ACCC's costs of, and incidental to, this proceeding fixed in the sum of $230,000, at the same time as the payment of the final instalment of the pecuniary penalty amount, as set out at paragraph 10(e) above. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

MURPHY J: 1 In this proceeding the applicant, the Australian Competition and Consumer Commission (ACCC), seeks declarations, pecuniary penalties and other relief for contraventions by the respondent, Thermomix Australia Pty Limited (Thermomix Australia), of ss 18, 29(1)(a) and (m), 33 and 131 of the Australian Consumer Law (ACL) being Schedule 2 to the Competition and Consumer Act 2010 (Cth) (the Act). Those provisions prohibit conduct that is misleading or deceptive or is likely to mislead or deceive, false or misleading representations that goods are of a particular standard or quality, conduct that is liable to mislead the public as to the characteristics or the suitability of goods for their purpose and mandatory reporting of consumer goods associated with the death or serious injury of any person. 2 The application was filed on 16 June 2017 and listed for hearing before me over four days commencing on 10 April 2018. On 28 March 2018 the parties informed chambers that Thermomix admits contraventions in respect of four categories of claim and that the parties had agreed proposed declarations and orders with respect to liability. 3 Thermomix Australia is a company incorporated in Australia which since 2001 has been the sole distributor of Thermomix appliances in Australia. Thermomix appliances are multi-purpose high-end kitchen appliances with a number of functions, including heating, blending, puréeing and weighing food. They are manufactured in France and Germany by a German company, Vorwerk Elektrowerke GmbH & Co KG (Vorwerk) and supplied throughout the world including to Thermomix Australia through a subsidiary of Vorwerk. 4 Most of the contraventions relate to a safety issue with the Thermomix appliance model TM31, which Thermomix Australia began selling in 2006. Production of that model ceased in August 2014 but a small number continued to be sold by Thermomix Australia after that date. By 6 September 2014 Thermomix Australia had sold approximately 200,000 TM31 appliances in Australia at a price of approximately $2,000 each. 5 In September 2014 Thermomix Australia commenced selling appliance model TM5. The proceeding does not include any allegations in relation to the safety of the TM5 model. 6 The parties have filed a Statement of Agreed Facts and Admissions (Statement of Agreed Facts) and Joint Submissions on Penalties, Other Orders and Costs (Joint Submissions), both dated 10 April 2018. They seek the following orders: (a) an order for payment by Thermomix Australia of pecuniary penalties totalling $4,608,500 pursuant to s 224 of the ACL, to be paid in instalments; (b) declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (FCA); (c) orders pursuant to ss 246 and 247 of the ACL requiring Thermomix Australia to establish a compliance program and to publish certain information; and (d) payment by Thermomix Australia of a contribution to the ACCC's costs in the amount of $230,000 pursuant to s 43 of the FCA. I thank the parties for the quality of the Statement of Agreed Facts and the Joint Submissions. I have directly relied upon them in providing the following reasons. 7 I will deal with the contraventions under the following headings: (a) the Safety Representations; (b) the Recall Representations; (c) the Late Submission of Mandatory Reports; and (d) the 'Conditional Refund' and the 'No Refunds or Replacements' Representations.

Relevant Principles 8 The principles relevant to imposition of a pecuniary penalty are well-established and I adopt the parties' submissions in that regard. I recently set them out in Director of Consumer Affairs Victoria v Manningham Property Group Pty Ltd [2017] FCA 1448 at [36]-[49] and it is unnecessary to reiterate them here. It is uncontentious that the principal object of a civil penalty is deterrence, directed both to discouraging repetition of the contravening conduct by the contravener (specific deterrence) and discouraging others who might be tempted to engage in similar contraventions (general deterrence). 9 I now consider the applicable principles in light of the Statement of Agreed Facts and their Joint Submissions.

The Safety Representations 10 I consider this group of contraventions is the most serious of the admitted contraventions. In summary the ACCC alleges, and Thermomix Australia now admits, that between 7 July 2014 and 23 September 2014 (the relevant period) it was aware that the mixing bowl in some TM31 appliances might move and lift during use and following the processing of hot food or liquid. By reason of this knowledge, Thermomix Australia knew that during this period there was a potential risk of serious injury to users caused by the lid lifting and hot food and/or liquid escaping from the mixing bowl before that food and/or liquid had settled, thereby causing burning or scalding (the safety issue). 11 Thermomix Australia admits that its knowledge of the safety issue did not arise from a single event but from the accumulation of information about incidents causing serious burn injuries to users of the TM31 appliance. Amongst other things: (a) it was aware of five incidents involving serious burn injuries suffered by consumers on 21 March 2013, 26 April 2013, 7 February 2014, 19 May 2014 and 1 July 2014 caused by the escape of hot fluid from TM31 appliances. The Statement of Agreed Facts also shows that there was also an earlier incident in June 2012 and other incidents in January and April 2014; (b) service reports prepared by staff in Thermomix Australia's service department recorded problems with the lid or seal of 527 TM31 appliances including "lid keeps unlocking", "lid popping open (and won't lock)", "lid coming open", "lid opening during use" and "lid moving into unlocked position during use". Thermomix Australia's response to most of these service jobs recording these problems was to replace the lid; and (c) correspondence, both internally within Thermomix Australia and with the German manufacturer, Vorwerk, shows that by 7 July 2014 the staff in Thermomix Australia's service department alerted senior managers to their concerns in relation to TM31 lids, senior managers themselves expressed concerns to Vorwerk about TM31 lids and drew Vorwerk's attention to related burn incidents, and that it was not clear to senior managers what was causing the issues with the lids. Thermomix Australia made attempts to obtain information from Vorwerk in that regard. On 7 July 2014 Thermomix Australia sent an email to Vorwerk with three videos showing issues with the appliance lids. One of those videos showed a lid moving towards the open position while the TM31 appliance was in use. In the email Thermomix Australia expressed concern about the possibility of consumers being injured if the lid released unexpectedly. 12 Thermomix Australia admits that it had knowledge of the safety issue from 7 July 2014. In my view, although the judgment does not turn on this, Thermomix Australia knew or should have known about the safety issue earlier than that. Notwithstanding the admission that it had knowledge of the safety issue from 7 July 2014 Thermomix Australia continued to supply and promote the TM31 appliance between 7 July 2014 and 6 September 2014. During that period of knowledge Thermomix Australia sold 9,443 TM31 appliances to Australian consumers. 13 It did not disclose the safety issue to consumers until 23 September when it posted a notification on its Facebook page stating that Vorwerk had identified that the sealing ring on a small number of TM31 appliances within a specified service number range might not function properly. 14 Thermomix Australia admits that its conduct in continuing to supply and promote the TM31 between 7 July 2014 and 6 September 2014 and in not disclosing the safety issue to consumers until 23 September 2014 impliedly represented to consumers who purchased a TM31 appliance during the relevant period that it was not aware of any safety risk with the TM31 that had the potential to cause injury (other than the other risks disclosed in its instruction manuals, product labelling and safety videos) (the Safety Representation). 15 Thermomix Australia admits its conduct in representing to consumers that it was not aware of any safety risk with the TM31 that had the potential to cause injury was false or misleading and liable to mislead the public in contravention of sections 18, 29(1)(a) and 33 of the ACL. 16 Where a product supplier knows that there is a safety issue with the product that has the potential to cause serious injury to users, there is a reasonable consumer expectation that the supplier will either stop selling the potentially dangerous product or will at least warn consumers of the safety issue. That is particularly so in the circumstances of the present case. The TM31 appliance is expensive and it is marketed as a premium appliance of German design. It is designed to heat and blend food at high temperatures and high speeds and the integrity of the lid and the seal is a critical and important feature of the appliance. If the lid and seal did not function as they should, then there is a risk of serious burns to users of the appliance. Consumers were entitled to expect that Thermomix Australia would have informed them of any known safety risk with the lid or seal. 17 With these facts in mind, I note the following in relation to assessing the appropriate penalty for these contraventions. 18 First, this group of contraventions is both significant and serious. This is so because: (a) Thermomix Australia's failure to inform consumers about the safety issue exposed the relevant consumers to a risk of serious injury. There can be no question that the risk of harm to consumers is a factor to be taken into account in assessing penalty: Australian Competition and Consumer Commission v Safe Breast Imaging (No 2) [2014] FCA 998 at [63]-[64] per Barker J; Australian Competition and Consumer Commission v Apple Pty Ltd [2012] FCA 646 at [35] per Bromberg J; (b) its conduct exposed a large number of consumers to a potential risk of injury through serious burns. The potential risk to consumers existed over a period of almost three months between 7 July and 23 September 2014; and (c) the contravening conduct allowed Thermomix Australia to generate profits from the sales of TM31 appliances which resulted in $16.6 million in revenue and $3.74 million in after-tax profit. 19 Second, Thermomix Australia's conduct was deliberate in the sense that the contravening conduct involved it promoting and supplying appliances to consumers which it knew may be affected by the safety issue without informing them of that fact and, thereby, exposing them to the potential risk of serious injury. 20 Third, Thermomix Australia's size and financial position is relevant. As I have said, in the relevant period it generated total sales revenue of $16.6 million and a net profit after tax of $3.74 million. In the financial year ended 30 June 2017 Thermomix Australia's total sales revenue was $104 million, and it made a net profit after tax of $10.84 million. As at 31 December 2017, Thermomix Australia had net assets of $29.7 million. 21 Fourth, the conduct involved Thermomix Australia's senior management. Thermomix Australia admits that its senior management was aware of the safety issue from 7 July and that, although they continued to make inquiries of and seek guidance from Vorwerk and tested TM31 appliances, they made a deliberate decision not to inform consumers of the safety issue. 22 It is perhaps also worth noting that although Vorwerk is not a party and its conduct is not directly the subject of the admissions, Vorwerk also did not cover itself with glory in the way it addressed the safety concerns raised. I should be cautious in reaching any conclusions when Vorwerk has not made submissions but it appears to have been insufficiently attentive to the concerns raised and too slow in its response. 23 Each of those matters points to a requirement for a high pecuniary penalty in order to achieve specific and general deterrence. The parties submitted that $2.5 million is appropriate for this category of contraventions but having regard to the matters above I consider a higher penalty of $3.1 million is necessary.

The Recall Representations 24 The contraventions in this group are also serious. 25 Although in my view it should have been done earlier, Vorwerk issued a voluntary recall notice headed "Product Safety Recalls Australia" which was published on the ACCC's website on 7 October 2014. The recall - if that is the right term - involved Thermomix Australia supplying customers with new sealing rings for the lids of their TM31 model appliances. 26 In October 2014 Thermomix Australia commenced distributing new sealing rings to customers who had purchased a TM31 appliance within the initial range of appliances identified as possibly having a defect, and then extended the distribution to customers who had purchased a TM31 appliance in an expanded range of service numbers. In the period between October 2014 and early 2015 Thermomix Australia distributed a new sealing ring to more than 104,000 of its customers around Australia. 27 Then, I infer because Thermomix Australia was suffering in the marketplace as a result of bad publicity regarding burns suffered by consumers and the recall notice, it made a serious error. On 4 March 2016, through a public relations agency, it caused a media statement to be published which represented that: (a) there had been no recall of the TM31 appliance; (b) the TM31 appliance was absolutely safe providing it was used in line with the manufacturer's instructions; and (c) there was no safety issue involving the seal of the lid of the TM31 appliance that required consumer action; (collectively the Recall Representations). Portions of the media statement were then reported in online news articles and other media and were viewed by an unknown but potentially large number of consumers. Thermomix Australia admits that by making those representations and causing them to be made in media publications it contravened sections 18, 29(1)(a) and 33 of the ACL. 28 I turn now to the relevant considerations for assessing the appropriate penalty in relation to these contraventions. 29 First, this group of contraventions is again significant and serious. The Recall Representations falsely conveyed that the TM31 appliance had never been the subject of a product recall, the TM31 appliance was absolutely safe, and there was no safety issue involving the seal of the TM31 that required consumer action in circumstances where: (a) the TM31 appliance was the subject of a voluntary recall action under section 128 of the ACL which required replacement of the sealing ring; and (b) that Thermomix was aware of 35 serious injuries suffered by consumers caused by the use, or foreseeable misuse, of the TM31 appliance for which it was mandatory to submit a report to the relevant minister under section 131 of the ACL. 30 The Recall Representations also potentially undermined the instruction given in the recall notice issued by Vorwerk, which stated that potentially affected consumers should immediately replace their sealing rings. The Recall Representations represented only that, as a precaution, the seal should be replaced every two years. This points to a need for a significant penalty, in order to deter suppliers of consumer goods from making public statements that undermine the purpose and efficacy of voluntary recall notices. 31 Second, Thermomix Australia made a deliberate decision to cause a media statement to be published which contained false and misleading representations, in circumstances where it was fully aware of recall action that had been taken by Vorwerk in October 2014 and extended in November 2015. Although Thermomix Australia had received legal advice that what occurred October and November 2014 was not a recall, the risk of injury to consumers indicated this was not a time for fine legal distinctions, if such a distinction is available. 32 Third, the Recall Representations were authorised by senior management. At the time they did so senior management were aware of the safety issue and aware that the voluntary recall notice issued by Vorwerk recommended the immediate replacement of the sealing ring in affected TM31 appliances, and that the affected TM31 appliance might not be safe to use without replacing it. 33 Having regard to those matters, I accept the parties' submission that a penalty of $1 million is appropriate.

The Late Submission of Mandatory Reports 34 In my view the third group of contraventions is troubling, but less serious than the first two groups of contraventions. 35 Section 131 of the ACL provides that suppliers of consumer goods must report to the relevant Minister within two days of becoming aware of any incident or accident involving death, serious injury or illness that was caused or may have been caused by the use or foreseeable misuse of consumer goods. Section 2 of the ACL provides that "serious injury or illness" means "an acute physical injury or illness that requires medical or surgical treatment by, or under the supervision of, a medical practitioner or a nurse." 36 In this group of contraventions Thermomix Australia admits that on 14 occasions between June 2012 and July 2016 it failed to give written notice to the Minister within two days of it becoming aware either directly or through its agents of a serious injury suffered by an individual being, in each case, burns caused by the use or foreseeable misuse of a TM31 appliance and, in one instance, a TM5 appliance. The times over which it delayed reporting range from more than three years in relation to a March 2013 incident, about one and a half years in relation to incidents in April 2013 and December 2014, 286 days in relation to an incident in September 2015, 106 days in relation to an incident in June 2012 and nine other incidents in which its delay was much shorter, some as little as one day. Thermomix admits that it thereby contravened section 131 of the ACL. 37 I turn now to the considerations relevant to assessing the appropriate penalty. 38 Where Thermomix Australia failed to make a report to the Minister for a significant period I consider that to be a serious contravention, but the occasions when it only just failed to meet the two day deadline are much less serious. The purpose of section 131 is to ensure that all participants in the supply chain of a consumer good which has been associated with serious injury or relevantly serious injury are required to report details from relevant incidents or accidents upon becoming aware of them. This assists to ensure that information regarding a potentially unsafe product is communicated to the ACCC to help prevent similar incidents or accidents occurring in the future. 39 Being late with such reports by one or two days is not a matter of great significance, but the lengthy periods over which Thermomix Australia delayed in providing reports left consumers at risk. It is crucial that regulators have timely access to information that may help identify potential safety issues and actions that can be taken to prevent consumers being exposed to those safety issues in the future. Thermomix Australia's delay in reporting highlights a need for a penalty which provides for specific and general deterrence. 40 However these contraventions were not deliberate. They arose from Thermomix Australia's failure to implement policies and procedures for accurate and timely reporting. 41 I accept the parties' submission that a total penalty for these contraventions of $108,000 is appropriate, with the penalty for each contravention ranging from $2,000, where the delay was only a day or so, up to $14,000 for the delays of more than a year and up to $16,500 for the delay of more than three years. I adopt the table set out in the Joint Submissions in that regard.

The 'Conditional Refund' and the 'No Refunds or Replacements' Representations 42 The fourth group of contraventions relates to representations made by Thermomix to four customers in the course of dealing with requests for refunds, three instances in relation to TM5 appliances and one instance in relation to a TM31 appliance.

The Conditional Refund Representation 43 Thermomix Australia admits that in 2015 one of its customers, MV, sought a refund or replacement from it for her TM5 appliance, due to issues with the appliance. Thermomix Australia unsuccessfully attempted to repair the appliance three times, including by replacing parts. MV sought a refund or replacement on multiple occasions over a period of approximately three months. It offered MV a refund but only if she signed a proposed settlement deed which contained a confidentiality clause (preventing MV from disclosing the terms of the settlement) and a non-disparagement clause (preventing MV from commenting negatively about Thermomix Australia or Vorwerk or taking any action to harm the reputation of those companies). Thermomix Australia admits that by its conduct it represented to MV that she did not have an unqualified right to a refund of her faulty TM5 appliance and that it had a discretion to only provide a refund if she agreed to the conditions in the proposed settlement agreement (the Conditional Refund Representation). After executing the settlement deed MV received a payment of $1,989 from Thermomix Australia. 44 Thermomix Australia admits that representation was false because MV was entitled to the remedy of a refund in accordance with the consumer guarantee provisions in Division 1 of Part 3-2 of the ACL. It admits that its conduct in making these representations constitutes misleading or deceptive conduct or conduct which is likely to mislead or deceive in breach of s 18 of the ACL and that it made false or misleading representations to MV concerning the existence or effect of the rights or remedies available under ss 259(1)(b), 260(a) and 263(4) of the ACL in contravention of s 29(1)(m) of the ACL.

The No Refund or Replacement Representations 45 Thermomix Australia admits that between at least October 2014 and January 2016 it represented to three other customers, CC, JB and WM, that refunds and/or replacements were not available in respect of their TM5 appliances (in the case of CC and JB) and a TM31 appliance (in the case of WM) at any time (the No Refunds or Replacements Representations). 46 Thermomix Australia admits that those representations were false and misleading because consumers are entitled to the remedy of a refund or replacement in accordance with the consumer guarantee provisions in Division 1 of Part 3-2 of the ACL if there has been a major failure to comply with the consumer guarantee. It admits that its conduct in making these representations constitutes misleading or deceptive conduct or conduct which is likely to mislead or deceive in breach of s 18 of the ACL and that it made false or misleading representations concerning the existence or effect of the rights or remedies for consumers under Division 1 of Part 3-2 of the ACL in contravention of s 29(1)(m) of the ACL. 47 I now turn to the considerations relevant to penalty. 48 First, Thermomix Australia accepts that these misrepresentations are serious. It is established that misrepresentations about consumer rights are serious and warrant a penalty that will achieve the purpose of general deterrence: see Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609; [2011] FCA 382 at [96] per Perram J. There is a need for a penalty sufficient to achieve the purpose of specific deterrence and to deter others from similar conduct. 49 Second, senior management was aware of and authorised the provision of a settlement deed to MV which contained a confidentiality clause and a non-disparagement clause. In my view such confidentiality clauses are often intended to and, in fact, operate to hide wrongs from public view. History is littered with examples where the use of such clauses has left the public unaware of their rights and allowed further loss and damage to occur. For example, although I do not suggest the present case is equivalent, I consider the use of confidentiality clauses in settlements of common-law damages claims for asbestos-related injuries in the 1970s and 1980s played a part in hiding from public view the growing epidemic of such injuries. 50 Third, the contraventions are limited to four consumers but I would be surprised if they were not more than four customers who sought refunds in relation to their Thermomix appliances in light of the safety issue with the TM31 appliance and the resultant negative publicity. It is unnecessary to decide, and I do not do so, but it seems likely that Thermomix sought to contain the commercial damage it suffered by denying consumers remedies to which they were entitled, and it was wrong to do so. 51 Fourth, the contraventions did not occur solely by reason of mistakes by individual staff members. While senior management did not make the representations, they were aware of the negotiations in relation to and the terms of the settlement agreement that Thermomix entered into with MV. The representations were made during a time that Thermomix Australia did not have any ACL compliance programs, training and policies. 52 The parties submitted that a penalty of $250,000 for each contravention is sufficient to achieve specific and general deterrence. I have no doubt that is so, but in my view specific and general deterrence from engaging in such misrepresentations in relation to consumer rights can be achieved by penalties of $100,000 for each of the four contraventions. Such penalties should be sufficient to deter Thermomix Australia and others from similarly misstating the remedies available under the ACL. 53 I accept the parties' submission that is appropriate to impose a total pecuniary penalty of $4,608,500, and to allow Thermomix Australia to pay the penalty by instalments. I also make orders for the declarations, the adverse publicity orders, the compliance program, and for Thermomix to pay a contribution to the ACCC's costs in the sum of $230,000, as the parties seek. Such orders are in accordance with well-established principles as set out in the Joint Submissions. I certify that the preceding fifty-three (53) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.