Penalties on the rise for Australian Consumer Law infringements

The Australian Competition and Consumer Commission (ACCC) will soon be revealing its new compliance and enforcement priorities for the coming year, but one trend we are expecting to see continue into 2022 is increasing penalties for breaches of the Australian Consumer Law (ACL).

Last year we saw some record-breaking penalties for breaches of the ACL – most recently in the ACCC’s proceedings against the Australian Institute of Professional Education Pty Ltd (AIPE). In that case, the Federal Court awarded an unprecedented $153 million penalty against the private college for engaging in unconscionable conduct when enrolling consumers into online diploma courses, which targeted vulnerable members of the community.

The AIPE decision is one of a number of recent decisions showing the trajectory of higher penalties for ACL breaches over 2021, including notably:

• Jump Swim, which was ordered to pay $23 million in penalties for making false or misleading representations to franchisees and for wrongly accepting payments from its franchisees. The company’s managing director was also ordered to pay a penalty and compensation to franchisees. 
• Telstra, which was ordered to pay $50 million in penalties for engaging in unconscionable conduct when it sold mobile contracts to indigenous consumers, who did not understand or could not afford those contracts.
• Volkswagen, which was ordered to pay $125 million in penalties for making false or misleading representations about the emissions of certain diesel vehicles. In 2021, Volkswagen was unsuccessful in its appeal of the penalty decision to the Full Federal Court and was later denied leave to further appeal to the High Court.

ACCC Chair, Rod Sims, has publicly stated that one of the goals of the agency is to build on higher ACL penalties, which have been available since 2018. The penalty regime introduced in 2018 increased the maximum penalty for a contravention of the ACL by corporations to the greater of $10 million, three times the value of any benefit, or where the benefit cannot be calculated, 10% of annual turnover in the preceding 12 months – up from a previous maximum of $1.1 million per contravention. Penalties for individuals were also increased to a maximum of $500,000 per breach (previously $220,000). Rod is retiring as the ACCC Chair on 21 March 2022 after a decade in the role and will be replaced by Gina Cass-Gottlieb.  Given Gina’s background as a high-profile competition litigator, we expect the enforcement focus of the ACCC may well increase.

So what are some of the lessons can be learnt from the ACCC’s recent ACL penalty successes?

• Breaches of the ACL cannot be considered as a ‘cost of doing business’ – in each of the above cases, the level of penalty imposed was designed to send a strong signal to the business community that breaches of the ACL cannot be treated as a ‘cost of doing business’ and that the penalty should exceed the benefit gained from the illegal conduct. Deterrence of ACL infringements is likely to remain high on the ACCC’s agenda.
• Big businesses can expect big penalties – in the Telstra and Volkswagen cases, the size and financial resources of these companies were key considerations in the scale of the penalties imposed, together with the deliberate and/or systemic nature of the conduct engaged in.
• Ensure that appropriate ACL governance and compliance systems are in place – a general theme emerging from recent cases was a lack of a culture of compliance within the relevant organisations, or otherwise, a lack of appropriate governance or senior management oversight. Ensuring that appropriate compliance processes are in place to vet proposed sales strategies and marketing materials for ACL risks, and reporting systems to readily detect and take action to rectify such risks, are key to ensuring that companies and individuals do not land themselves in hot water.
• Cooperation matters – cooperating with an investigation by the ACCC and taking appropriate remedial action once ACL compliance issues have been identified can assist in obtaining substantial discounts to penalties which may otherwise be imposed.
• Individuals can be personally liable – individuals can also face significant penalties. In Jump Swim, the Managing Director was personally ordered to pay a penalty of $400,000, in addition to contributing $500,000 to compensate franchisees and orders restraining him from carrying on business as a franchisor for three years.

This update was prepared by Zoe Lonard, Special Counsel, assisted by Victoria Hoon, Lawyer.