Something to advertise or promote? Lessons from the Federal Court on misleading and deceptive conduct

The recent case of ACCC v Metricon Homes Qld Pty Ltd[1] reminds business owners that they must avoid false or misleading representations in advertising and promotional material. This article looks at:

  • Metricon Qld's offending advertising of its house and land packages; and
  • some key messages that small business owners can take from the Federal Court's decision.
 

Overview

The Federal Court recently ordered Metricon Homes Qld Pty Ltd (Metricon Qld) to pay $800,000 in penalties for making a number of false or misleading representations in advertising and promotional material.

The ACCC had sought penalties and declarations against Metricon Qld for promotions conducted between January 2009 and August 2011, including:

  • pictorial representations in a 'Resort Style Living' brochure;
  • an advertised 'Build Time Guarantee'; and
  • certain promotional pricing offers.

The parties agreed on a set of penalties, declarations and Court undertakings. The Court, in approving these, commented that the substantial penalties were justified by Metricon Qld's conduct which was egregious and intended to induce customers to make a substantial financial commitment to purchase homes from it.

You can read the full case here.

The offending advertising

'Resort Style Living'

Metricon Qld had produced a brochure labelled 'Resort Style Living', which was published in newspapers and distributed in Metricon Qld's display centres.

The brochures indicated that houses shown were available at or from a particular price. In fact the photographs depicted some substantial features and fittings that were not included in the advertised 'from' price and were not actually supplied by Metricon Qld at all.

For example, the ACCC was particularly concerned that houses were shown with swimming pools and Balinese huts adjacent to them, when these were neither included in the package nor supplied by Metricon Qld. Metricon Qld did not point out either of these facts in the brochures.

'Build Time Guarantee'

Metricon Qld had also advertised a 'Build Time Guarantee'. The brochures represented that, if the houses Metricon Qld supplied were not completed within a certain 'build time' (which ranged between 14 and 24 weeks), then it would compensate purchasers for rental costs up to $300 per week.

However Metricon Qld gave the guarantee subject to significant carve outs. As a result, most houses which Metricon Qld offered for sale over the relevant period were excluded from the guarantee.

Despite this, the brochures only had a fine print statement that conditions applied and that those conditions could be found on Metricon Qld's website. As a result, the Court's view was that readers of the brochures were misled into believing that the guarantee applied to all houses offered for sale by Metricon Qld.

Promotional pricing

Finally, Metricon Qld published brochures containing 'was/now' pricing in the form of price lists for each house design with a 'list price', a 'pay only price' and a statement of the saving consumers would make at the 'pay only price'.

In fact, Metricon Qld had either never offered the houses for sale at the list price, or had not offered them at the list price at any relevant time prior to the promotion.

An 'Upgrades Package' brochure similarly misled customers about the value of the features available with the houses and the savings available under the promotion.

The Court's findings

In approving the penalty regime, Justice Collier of the Federal Court found that Metricon Qld had:

  • engaged in conduct which was misleading and deceptive conduct or likely to mislead or deceive;
  • falsely represented that goods supplied were of a particular standard or quality;
  • made false or misleading representations with respect to the price of goods; and
  • made false or misleading representations concerning the existence of a condition and the exclusion of a guarantee or right.

Whilst acknowledging that $800,000 was a substantial penalty, Justice Collier noted that the penalty was considerably less than the total combined maximum penalty which could have been imposed in the circumstances.

In approving the declarations and penalties agreed by the parties, the Justice Collier also accepted a number of undertakings to the Court from Metricon Qld, including:

  • that it would not use the wording 'from [price]' in conjunction with a photo of a particular house design, unless the fixtures, fittings or features depicted (other than home decorator items or furniture) are included in that 'from' price;
  • that it would include a 'prominent and clear notice' in any brochure it published with photographs depicting fixtures, finishes or features that Metricon Qld did not supply, and would point out that any price excluded such items;
  • that it would not represent to consumers in a promotion that any house has a 'list price' unless that house was offered at that price for at least 2 months prior to the representation being made.

Key messages for small business owners

The Federal Court's decision reinforces some key advertising and promotion messages for small business owners including:

  • Advertised savings must be real savings: If an advertiser offers a discount to a 'standard' price, the advertiser must have actually offered the 'standard' price for a reasonable period of time before the promotion.
  • Fine print disclaimers will not cure a misleading representation: A promotion may be misleading if the advertiser includes terms and conditions which significantly affect the availability of the offer and does not spell out any qualifications clearly to potential purchasers.
  • Significant penalties can be imposed without any evidence of loss or damage: In this case, neither the ACCC nor Metricon Qld were aware of whether Metricon Qld's contraventions had actually caused any loss or damage.
  • It is not enough to have a competition and consumer compliance program in place, it must be followed: Whilst Metricon Qld had competition and compliance programs in place, the Court noted that, as was 'not uncommon', those programs had failed to prevent the contravening conduct.

More information from Maddocks

For more information, contact Maddocks on (03) 9288 0555 and ask to speak to a member of the Advertising, Brands and Marketing team.

More Cleardocs information on related topics

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[1] Australian Competition and Consumer Commission v Metricon Homes Qld Pty Ltd [2012] FCA 797