Australia’s consumer legislation: NOT girt by sea

By Jack Newton, Lawyer, MST Lawyers

The Australian Consumer Law (“ACL“) and Competition and Consumer Act 2010 (Cth) (“Act“) are enforceable against foreign-domiciled companies, according to a recent decision of the Federal Court of Australia.

In an article published in July 2015, we look at proceedings that had been issued by the Australian Competition and Consumer Commission (“ACCC“) in the Federal Court against Valve Corporation (“Valve“) claiming Valve had contravened the ACL by making misleading representations regarding the ACL’s consumer guarantees (largely based around Valve’s refund policy) (see www.mst.com.au/is-australias-consumer-legislation-girt-by-sea).

In 2016, the ACCC succeeded in most of its case against Valve and in December 2016 ordered the entertainment software and technology company to pay a pecuniary penalty of $3,000,000.

The Court made the following key findings:

• Valve’s contract, which stated that the law governing the contract was the law of Washington, USA, was found to be insufficient and ineffective because of a section of the ACL. Broadly, the ACL prevents businesses from relying on terms that impose the law of jurisdictions other than Australia on the parties
• The supply of computer games through an online subscription service constituted the supply of goods and services to which the ACL applies
• Valve’s online conduct occurred in Australia. The terms and conditions were downloaded by consumers in Australia and therefore Valve’s conduct did not only occur in the state of Washington, USA
• Valve carried on a business in Australia
  • Valve had over 2,000,000 subscribers in Australia;
  • Valve owned property in Australia (being its servers that serviced Australian consumers) and incurred expenses associated with those servers (for example, power and rack space)

By reason of these findings, the Court held that Valve had contravened the ACL by misrepresenting:

• consumers’ rights to refunds or replacements in any circumstance;
• consumers’ rights to refunds or replacements once the goods or services had been used;
• the ACL’s statutory consumer guarantees did not apply to goods or services purchased from Valve; and
• the “acceptable quality” consumer guarantee had been modified by Valve.

One of Valve’s key arguments was that because the contract included a term that stated that various sections would “apply to the maximum extent permitted by applicable law”, the statements (irrespective of how incorrect they were), could not be misleading or deceptive.

The lesson to be noted here is that even if a contract or agreement contains such a term, unless the specific representations regarding refunds are qualified in a way that ensures a reasonable consumer would understand the qualification (for example, by specifying the ACL instead of “applicable law”), the term may still be found to be misleading or deceptive.

It should also be noted that after consumers complained and sought refunds, which complaints included specific references to the ACCC and the ACL (including quoting from various ACCC documents), Valve continued to represent (through email responses) that refunds were not available.

There are a number of key points for businesses to take from this case:

• Irrespective of whether the business operates in Australia or both in Australia and overseas, compliance with the ACL should always be taken seriously;
• Contracts and terms and conditions of trade should be carefully drafted by competent lawyers familiar with local laws to ensure terms relating to the ACL are dealt with lawfully;
• Consumer claims do not need to be significant. The value of the goods. in this case. was very small – the cost of each product subject to the ACCC’s claims was approximately $15;
• Staff who have direct contact with consumers must be trained in how to respond to questions regarding consumer rights; and
• In the relevant period, Valve received 21,124 tickets which contained the word “refund” from consumers with Australian IP addresses – notwithstanding that, Valve never sought legal advice on the application of the ACL to Valve’s business, which indicated to the Court that it had a “very poor” culture of compliance (together with a lack of support and staff training on ACL rights and responsibilities).

Businesses must ask themselves, using the language of the Court: is your attitude to compliance one of a culture of proactive compliance?  If the answer is no, then more needs to be done.

For more information or to discuss your regulatory and compliance concerns, please contact our Franchising or Corporate Advisory team by email at franchising@mst.com.au or corporate@mst.com.au or by telephone +61 3 8540 0200.