COMPETITION LAW NEWS - AUSTRALIA
07 Oct 2020 No predictions here: Full Court confirms Woolworths' "Biodegradable and Compostable" claims were not representations with respect to future matters
Australian Competition and Consumer Commission v Woolworths Group Limited [2020] FCAFC 162
What you need to know
- On 29 September 2020 the Full Court of the Federal Court unanimously upheld the decision of the primary judge in favour of Woolworths that labelling its W Select Eco picnicware range as "Biodegradable and Compostable" did not amount to a representation as to a future matter, as this was an inherent characteristic of the products and a fact that could be ascertained at the time the representation was made.
- The Full Court also confirmed the primary judge's finding that the representations were true – Woolworths did not mislead or deceive customers by making the "Biodegradable and Compostable" representation.
- A representation will only be with respect to a future matter if it is in the nature of a promise, forecast, prediction or other like statement about something that will only transpire in the future.
- This decision is one of a number of proceedings the ACCC has recently brought before the courts testing the meaning of the phrase, "with respect to any future matter". The Full Court refused to apply an unnecessarily broad interpretation of "future matter" beyond the scope of the original mischief the provision was intended to address.
What you need to do
- Before releasing product packaging or advertising material containing adjectival descriptions, manufacturers and retailers should consider whether the representations likely to be conveyed to consumers are "knowable and testable" at the time they are made, or whether they are in the nature of a prediction, promise or forecast (or both).
- If the representations conveyed by product packaging or advertising material cannot be proven to be true or false at the time they are made, businesses must ensure they are in a position to adduce evidence to establish that they had reasonable grounds for making such statements. This may require businesses to rethink their record keeping and internal checks in support of marketing claims.
Background
In addition to the well-known and general prohibition on misleading or deceptive conduct, found in section 18 of the Australian Consumer Law (ACL), the ACL also contains a number of other prohibitions that may operate on representations alleged to be misleading. For example:
- section 29 prohibits specific false or misleading representations in connection with the supply of goods or services;
- section 33 prohibits conduct that is liable to mislead the public as to the nature, characteristics, the suitability for their purpose or the quantity of goods or services; and
- there are others (see for example, sections 31, 34, 37).
Each prohibition is cast in slightly different terms. Section 4 of the ACL does not create a further prohibition like those listed above, but rather is an evidentiary provision which operates on "representations with respect to any future matter". The term "future matter" is not defined in the ACL, nor does it appear in any other section of the ACL or the Competition and Consumer Act 2010 (Cth).
Section 4(1) provides that a representation is taken to be misleading for the purpose of the ACL if a person makes a representation with respect to any future matter and the person does not have reasonable grounds for making the representation. Where section 4(1) applies, section 4(2) has the effect of placing an obligation upon the representor to adduce some evidence that it "had reasonable grounds" for any representation that it in fact made. If such evidence is adduced, the applicant is required to establish an absence of reasonable grounds for making the representation.
While courts have considered that a representation which is, by virtue of section 4(1), taken to be misleading will contravene section 18 of the ACL, it has not been decided whether a representation can be one to which section 4(1) applies, and also contravenes other provisions of the ACL, such as sections 29 and 33.
The predecessor to section 4 of the ACL, section 51A of the Trade Practices Act 1974 (Cth) (TPA), was enacted to address the difficulty of establishing the state of mind of a representor in relation to a prediction, promise or similar statement about the future, to prove that the representation was misleading. A typical example cited in the Explanatory Memorandum for the enactment of section 51A is a "promise or prediction as to the performance or profitability of a business opportunity". Section 4 of the ACL and section 51A of the TPA are in near identical terms. Nothing in the language or context of section 4 departs in any relevant sense from its predecessor, yet, the ACCC has recently sought to bring a number of cases which, inter alia, test whether particular representations outside of the context for which the provision was enacted (promises, forecasts, predictions) are, in fact, representations as to future matters:
- December 2016: ACCC brought proceedings against Kimberly-Clark Australia Pty Ltd and Pental Products Pty Ltd in relation to alleged representations that wipes would not cause or contribute harm to household and sewerage systems and were compatible with sewerage systems;
- March 2018: ACCC brought proceedings against Woolworths Group Limited in relation to alleged representations that disposable picnicware was biodegradable and compostable;
- July 2019: ACCC brought proceedings against Samsung Electronics Australia Pty Ltd in relation to alleged representations that Galaxy phones would be suitable for use in, or exposure to, all types of water, and the useful life of a Galaxy phone would not be adversely affected if the phone were used in, or exposed to, all types of water; and
- July 2020: ACCC brought proceedings against Google LLC in relation to an alleged representation that Google could not or would not reduce an account holder's rights under Google's Privacy Policy without obtaining explicit consent.
In the first two proceedings, the ACCC has been unsuccessful in establishing that the alleged representations were with respect to future matters, and the latter proceedings remain undecided.
We consider below the ACCC's proceedings against Woolworths at first instance and on appeal in further detail.
ACCC v Woolworths
Between November 2014 and November 2017, Woolworths sold certain disposable dishes and cutlery (the Products) in its W Select Eco line online and in its stores. The Products were sold in packaging branded with the word "Eco" and featured a green colour scheme, with graphics of grass and butterflies around the label. The packaging contained the statement, "Biodegradable and Compostable".
The ACCC took action against Woolworths in March 2018. The ACCC contended that by offering for sale and selling the Products in this packaging, Woolworths represented to consumers that the Products would biodegrade and compost within a reasonable period of time when disposed of:
- using domestic composting; or
- in circumstances ordinarily used for the disposal of such products, including conventional Australian landfill.
(the Environmental Representations).
It alleged that:
- the Environmental Representations Woolworths made about the Products were representations as to future matters for the purpose of section 4 of the ACL, which Woolworths did not have reasonable grounds to make; and
- alternatively, regardless of whether the Environmental Representations were as to future matters, they were false, misleading or deceptive, in contravention of sections 18, 29 and 33 the ACL.
At first instance
The Court held that the ACCC was unable to prove the allegations it made and that the application should be dismissed.
Representations as Found
Justice Mortimer found that the labelling did not convey the Environmental Representations alleged by the ACCC, but that the Products were "capable of breaking down in landfill" and were "capable of being turned into compost" (the Representations as Found). In support of this finding, Her Honour considered the meaning of the terms "biodegradable" and "compostable", identified the relevant section of the public to whom the representations were made, being a cross-section of consumers both in store and online, and made findings as to the attributes of that class of consumers.
The Court held that the reasonable consumer would have understood the phrase "Biodegradable and Compostable" to be a description of the capacity of the Products to be disposed of in a particular way because of their inherent quality of being capable of biodegrading and capable of composting. A comparison was drawn to products labelled as "recyclable": if a product is not, in fact, recycled in a recycling facility, it can still be considered "recyclable".
"Biodegradable and Compostable" not representations as to future matters
The Court rejected the ACCC's claim that the representations that the Products were biodegradable and compostable were representations as to future matters within the meaning of section 4 of the ACL.
The parties' submissions diverged regarding the width of the phrase "representation with respect to any future matter" in section 4. The ACCC contended for a broad interpretation– alleging that there were two aspects of prediction that attached to the labelling:
- viewed in the context of the packaging as a whole, the labelling contained an "element of prediction" about the "likely performance" of the Products, or the ability of the Products "to do something in the future" depending on how they were treated or disposed of. Essentially, biodegrading and composting could only occur at some time in the future, therefore representations to that effect had to be future matters; and
- there was an implied representation that the Products would biodegrade and compost within a reasonable period of time .
Woolworths successfully argued that a key feature of a future matter is that it is capable of being proven to be true or false at the time the representation is made. This interpretation was consistent with the history, purpose and text of section 4 of the ACL as an evidentiary provision to address the difficulty of establishing the state of mind of a representor in relation to a prediction, promise or similar statement. The Representations as Found were not in the nature of a prediction, forecast or projection about a future event because it was an inherent characteristic of the Products. The Court accepted Woolworths' submissions that, like analogous adjectives often used on packaging such as "recyclable", "flammable", "poisonous" or "non-toxic", "Biodegradable and Compostable" dealt with a present state of affairs that could be ascertained as a matter of fact, even if the features or characteristics described may take some time to manifest; the Products were capable of biodegrading and composting at the time the representation was made, as a result of their inherent characteristics or consistent ingredients.
The fact that the testing or proof of the capacity of a product to do something in the future (ie when the product is used or disposed of) was found not to alter the nature of the representation, but rather that is how the representation about the features of the product is fulfilled (or not fulfilled, if that is the case).
The Court also found there was no objective basis for the ACCC's claim that the representations had a temporal aspect. This was reinforced by the absence of any qualifying words or explanations on the packaging. Even if such a representation was conveyed, it was still a representation as to "knowable and testable" characteristics of the Products.
In any event, were the representations false or misleading?
The ACCC argued an alternative case that in any event, the Environmental Representations were false or misleading or deceptive because the Products were not biodegradable and compostable within a reasonable period of time when disposed of using domestic composting; or in circumstances ordinarily used for the disposal of such products.
Justice Mortimer found that the ACCC had failed to establish that the alleged Environmental Representations had been made, and even if they had been, the ACCC failed to prove that they were misleading or deceptive. Based on the expert evidence adduced by Woolworths at trial (and absence of equivalent testing conducted by the ACCC), her Honour was satisfied that, if made, the Environmental Representations were true – the impugned Products would biodegrade in landfill within a reasonable period of time and were compostable within a reasonable period of time using domestic composting.
It followed then that the allegations that Woolworths contravened sections 29(1)(a), 29(1)(g) and 33 of the ACL should fail for the same reasons as the section 18 allegations failed. The ACCC made brief submissions on the alleged contraventions of these provisions. The Court determined that no representations were made by Woolworths as to the standard, quality or value of the Products, and the ACCC did not specifically allege what "performance characteristics" or "benefits" Woolworths represented the impugned Products had.
On appeal
The Full Court of the Federal Court (Foster, Wigney, Jackson JJ) unanimously rejected the ACCC's appeal and ordered the ACCC to pay Woolworth's costs.
The ACCC advanced four grounds of appeal:
- Ground 1: the primary judge erred in failing to find that the Representations as Found were, in whole or in part, representations with respect to a future matter;
- Ground 2: on the assumption the ACCC was successful on appeal ground 1, the primary judge ought to have found that Woolworths did not have reasonable grounds for making the Representations as Found and the representations were misleading by reason of section 4(1) of the ACL;
- Ground 3: in the alternative to appeal ground 1, the primary judge erred in failing to find that Woolworths made Environmental Representations pleaded by the ACCC, and that they were with respect to a future matter; and
- Ground 4: on the assumption that the ACCC was successful on Ground 3, the primary judge ought to have found that the Environmental Representations were misleading by reason of section 4(1) of the ACL.
But in essence, the issues in the appeal turned on two critical issues: what is the meaning of the phrase "…with respect to any future matter" in section 4 of the ACL, and were the representations as found or as pleaded by the ACCC representations with respect to future matters?
The ACCC's primary case at trial resurrected (and dismissed)
The Court dealt first with grounds 3 and 4 of the appeal, which it observed amounted to the ACCC's primary case at trial based on the pleaded Environmental Representations. In the course of rejecting these grounds of appeal, the Court affirmed both the orthodox approach taken by Mortimer J in determining which representations were made by Woolworths in connection with the Products, and her Honour's finding that labelling conveyed the Representations as Found (as opposed to the Environmental Representations). The Full Court found that there was no reason to engraft onto the words on the labels any requirement as to time, and the ACCC's submissions in this regard were:
"…a strained attempt to re-cast the messages actually conveyed … into language of the future in order to create uncertainty as to the key qualities represented (biodegradability and compostability) when, in truth, there was no such uncertainty".
The Representations as Found were not as to future matters
With regards to grounds 1 and 2, the Full Court rejected the ACCC's argument that the Representations as Found were as to future matters because the key message conveyed concerned a process (of biodegradation) or result (compost) that would happen in the future, once a number of steps and conditions had been met.
In doing so, the Court traced the legislative history of section 4 of the ACL and section 51A of the TPA, to ascertain the mischief the provision was designed to address. The Court agreed that the purpose of the provision was to address the difficulty of establishing the state of mind of a representor in relation to a prediction, promise or similar statement about the future and accepted Woolworths' submission at paragraphs 129-30 that section 4 (and its predecessor) was not designed:
"…to reverse the onus in relation to conventional representations of fact already actionable under existing provisions. Such representations did not, and do not, give rise to difficulties of providing a state of mind".
Following this analysis, the Full Court confirmed that a representation will only be with respect to a future matter if it is the nature of a promise, forecast, prediction or other like statement about something that will only transpire in the future. Generally speaking, a representation about the nature, quality, character or capability of a product based upon its inherent characteristics is not a representation with respect to a future matter. In support of this interpretation, the Full Court accepted that the line of authorities including ACCC v Samsung [2015] FCA 227, Ackers v Austcorp International Limited [2009] FCA 432 and most recently, ACCC v Kimberly-Clark [2019] FCA 992 correctly stated the law on the interpretation of the phrase "a representation with respect to a future matter" for the purpose of section 4 of the ACL.
The Full Court, however, recognised the difficulty in applying section 4. - their Honours acknowledged there may be instances where a representor makes a "double-barrelled representation" or representations as to existing facts and future matters "in more or less the same breath", but determined that the Representations as Found did not fall within either of these examples. The line of "future matters" therapeutic goods authorities relied on by the ACCC that often involved representations that a promised benefit would only manifest after the product was taken in accordance with stated instructions, were also found not to be analogous to the present case.
The Full Court found that the primary judge was correct to find that the ACCC did not make out the asserted contraventions of sections 29(1)(a), 29(1)(g) and 33 of the ACL, for the same reasons the section 18 case was rejected.
Where to from here?
The time for the ACCC to appeal the judgment has not yet expired and the ACCC has reported that it is considering the decision closely.
This decision is relevant for businesses who seek to make claims about the inherent properties of their products. The Full Court's articulation of the meaning of the phrase "representations to future matters" provides clear guidance. This decision is particularly important at this time when businesses are increasingly considering and marketing sustainable and environmental initiatives and practices.
Note that the court considered that representations in the pharmaceutical / therapeutic goods space might be in a different category.
Businesses wishing to make a representation about a future matter need to consider the grounds upon which they make such claims and what evidence they could point to if the claim was challenged. The Full Court was not required to address this issue and accordingly businesses will need to continue to self-assess their record keeping practices and internal checks ahead of making such claims.
Authors: Melissa Fraser, Partner, Jessica Apel, Lawyer and Veronica Murdoch, Graduate.
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