In Australia’s ever growing business economy, contracts are becoming more evident in enforcing promises between parties. From contracts involving informal agreements (buying food from your local supermarket) to written documents concerning a legally binding agreement (buying and selling a block of land), contracts are in practically every concordat. The legal restrictions in relation to contract law are unclear with regards to company advertisement campaigns.
The legal definition of misleading advertisements is undefined within the current Queensland Legislation, with businesses being unsure with how misleading differs from invitation to treat and puffery. This speech will therefore assess these legal terms, discuss how the punitive damages are inconsistent between cases and portray how the punishments aren’t deterring companies from producing misleading advertisement campaigns. Therefore portraying the inefficiencies within the Competition and Consumer Act (2010) (Cth), whilst providing a recommendation to improve the current contractual legislation.
The legislation in relation to misrepresentation has been a controversial topic for years, becoming more efficient only in recent times within Australia. With significant alterations to the Trade Practices Act (1974) (Cth), it was renamed under the title Competition and Consumer Act (2010) (Cth).
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Australian consumer law (Cth) is encompassed within the act under schedule 2, producing equality within terms of contract and consumer law within Australia. This new legislation is enforced by the Australian Competition and Consumer Commission (ACCC), an independent regulatory body put in place by the Government.
Covering the enforcement roles of the Competition and Consumer Act (2010) (Cth) and a range of additional legislations within Australia (About the ACCC, 2011).
The legislation covers all variations of advertisements including newspapers, television adverts and Internet sources to name a few. Amendments upon the Trade Practices Act (1974) (Cth) were enforced to produce a single, national law to protect consumers and ensure fair-trading in Australia. The ACL introduced new consumer protections, a national product safety system and a range of new enforcement powers for the ACCC.
Producing some clarity understanding of misleading advertisement laws for both Australian consumers and businesses. Implementing breaches of $1. 1 million dollars for corporations and $220 000 for individuals. Whilst at the same time, the ACL introduced new remedies involving public warning notices and infringement notices (Amending Legislation, 2011).
In return improving the overall effectiveness of misleading advertisement laws and regulations within Australia.
The first issue is in relation to consumers and business organisations being somewhat unclear as to the difference between the contract law terms: misleading advertisement, puffery and invitation to treat, causing the Competition and Consumer Act (2010) (Cth) to be unclear and inefficient. Invitation to treat originates from the Latin phrase invitatio ad offerendum meaning ‘inviting an offer’. In other words classified as an expression of willingness to negotiate. Puffery refers to the advertisements that rely upon exaggerations and opinions with little credible evidence to support its obnoxious claims.
Whilst misleading advertisement refers to the deliberate use of false or misleading material to negatively influence the public. These contract law terms are closely linked causing confusion within the courts, consumers and also business organisations. For example, there is no legal distinction between puffery and misleading advertisements, however puffery has received some latitude to advertisers and sellers (Advertising and Selling, 2007).
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However as the community has different beliefs and opinions, some puffery statements could be classed as misleading, causing conflicts within courts between the two parties.
Whilst at the same time, invitation to treat negotiations can be classed as misleading towards consumers causing conflict between the parties. More structure and clarity is required within the legislation to remove the controversy between contract law terms. The Second issue is in relation to punitive punishments being inconsistent between cases within Australia, causing inefficiencies within the Competition and Consumer Act (2010) (Cth).
Punishments awarded vary significantly for misleading advertisements, from $850 000 against Metricon Queensland to $3. 6 million upon the famous phone company Optus.
For a company as successful as Metricon Queensland, an $850 000 fine wouldn’t leave a dent on the company, due to the fact that each of the advertised houses were valued at $307 483 (Metricon QLD Nailed for Misleading and Deceptive Conduct, 2012).
Compared to a $3. 6 million fine which would be a wake up call for Optus, however the punishment is still less than 1% of the overall annual profit for the successful phone company (Battersby, 2012).
Both of these successful organisations were repeat offenders, with Optus offending 11 times and Metricon Queensland misleading consumers throughout various times in 2009 and 2011.
There are various cases where the punitive punishments are varied upon different companies similar to that of the Optus and Metricon Queensland cases, whilst at the same time enforcing insignificant punishments towards large businesses. The Competition and Consumer Act (2010) (Cth) needs to be amended to restrict inconsistencies between misleading advertisement cases. The third issue involves large organisations still receiving profit after large punitive punishments are implemented, causing the Competition and Consumer Act (2010) (Cth) to be ineffective with enforcing misleading advertisement regulations.
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This is evident with Nissan after they were ordered to pay $20 000 in penalties for making a number of misleading representations towards the public. A single car sold by Nissan Australia is generally worth more than $20 000, causing the fine to be miniscule towards the overall profit and wellbeing of the company. Causing Nissan Australia to benefit financially from the misleading conduct portrayed throughout their advertisement campaigns (McCowen, 2012).
Harvey Norman was also slammed with $1. 25 million in punishments for severe misleading advertisement campaigns in 2011 (Mallya, 2011).
However Harvey Normans profit rose 9% in the same year, totalling a profit of $252 million. Portraying that the $1. 25 million punishment is equivalent to less than 1% of Harvey Norman’s total earnings for the year (Harvey Norman Profits up 9 per cent, 2011).
Portraying that punitive punishments are not financially disadvantaging large organisations, forcing the Competition and Consumer Act (2010) to be inefficient in deterring misleading advertisement cases. Many methods can be implemented within the current legislation to improve and reduce misleading advertising cases within Australia.
With analysis of these three issues revolving around the Competition and Consumer Act (2010) (Cth), it is believed that for any reduction in misleading advertisement cases to occur, the following recommendations should be considered and implemented. Firstly, the contract law legislation in relation to misleading advertisements needs to become more clear and efficient with the contract law terms. Providing clarity in terms of invitation to treat and also speculating the difference between puffery and misleading advertisement.
Ensuring that business owners clearly understand that a ‘normal’ person viewing their advertisement campaign is required to fully understand the terms and conditions of any contractual agreement. Therefore reducing the significant amount of misrepresentation cases within Australia. Secondly, to enforce equity upon all misleading advertisement cases, a certain value or percentage of a company’s annual income should be implemented as punishment. This will create consistent punitive punishments across the board, creating not one single fine, which is either to, insignificant or too large.
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A figure around 5% of a company’s annual profit would be a stiff reminder to both small and large organisations to not mislead the public through means of advertisement campaigns. The only way to deter organisations from misleading the public, is to set significant penalties which will in return affect the net profit of large companies. This can be seen in Switzerland and Finland where the countries calculate there speeding fines by 5% of the defendants overall income. Causing reduction in speeding cases within these countries, due to the increased punitive punishments (Bellemare, 2013).
