ACCC’s appeal hopes flushed away in Kimberly-Clark wipes case
In a decision handed down last month, the Full Court of the Federal Court dismissed the Australian Competition and Consumer Commission’s appeal of the earlier single judge decision, re-confirming that Kimberly-Clark Australia did not mislead consumers by marketing a series of wipe products as ‘flushable’.
While the decision turned largely on the way the Australian Competition and Consumer Commission (ACCC) ran its case during the original trial, the Full Court suggested that, had the ACCC run its original case on a different basis, the outcome may well have been different. In doing so, the Full Court left open the possibility that similar cases may be decided differently in the future, potentially broadening the scope of what constitutes a misleading representation.
How did we get here?
As we reported earlier this year, the Federal Court held that the ACCC did not establish that KCA had engaged in misleading and deceptive conduct in connection with claims about its ‘flushable wipe’ products. In that decision, the Court found that the ACCC failed to prove that the flushable wipes caused actual harm to sewerage systems by causing blockages, and therefore could not establish that advertising the wipes as ‘flushable’ was misleading or deceptive.
In July 2019, the ACCC appealed this decision on eight grounds, most notably on the basis that the primary judge erred in requiring the ACCC to establish that the wipes had caused actual harm. The ACCC argued that if it was able to establish the wipes posed a ‘real risk of harm’, that should have been sufficient for the trial judge to find the claims to be misleading.
What did the Full Court say on appeal?
The Full Court dismissed the appeal in its entirety, finding that the ACCC had contended at the original trial that it needed to prove the relevant wipes caused actual harm to the sewerage system, in order for the claims of flushability to be considered misleading. The Full Court held that, as the ACCC had not run its original case on the basis that it only needed to show a ‘real risk of harm’, it was precluded from making the new argument on appeal. Interestingly, the Full Court also suggested that, if the ACCC had argued from the outset that it only needed to establish that the wipes posed ‘a real risk of harm’ to the sewer system for the Court to find that the representations were misleading, the outcome may well have been different.
What does this decision tell us about how the courts will assess similar claims in the future?
By running a case based on establishing actual harm, the ACCC set the bar at an extremely high level and was ultimately unable to prove that KCA’s flushable wipes, as opposed to wipes more generally, had actually contributed to sewer blockages and ‘fatbergs’ more than toilet paper and human waste. Against that standard, while the ACCC had significant comparative evidence of the differences between toilet paper and wipes, it had little chance of proving that the KCA wipes had caused such damage and that the wipes were, therefore, not ‘flushable’.
The Full Court rejected the ACCC’s argument on appeal that it only needed to show that the wipes presented ‘real risk of harm’ – as the ACCC had not run this case at the original trial – but, in doing so, implied that such an approach may have led to a different outcome. This suggestion in the Judgement raises the possibility that the Court might have accepted that the ‘flushable’ representation was misleading even if the evidence did not definitively prove that the wipes caused harm.
Such an approach is interesting, as it’s unclear whether the Judges of the Full Court were suggesting that the ‘flushable’ representation created the impression that the wipes did not cause a real risk of harm (which may well have been false) or whether they were stating that the ACCC would not have had to prove falsity in order for the representation to be misleading. If the latter approach was intended, then this could have serious implications for manufacturers, as it significantly lowers the bar for the test of when a product claim may be misleading and deceptive.
What else did the Full Court say?
The Full Court also provided some helpful commentary about the usefulness of industry self-regulation. Manufacturers of ‘flushable wipes’ have voluntarily developed a set of flushability guidelines and standards known as the ‘GD3’. KCA argued in the appeal that, as the wipes passed the flushability tests under the GD3 guidelines, it was reasonable for it to represent that the KCA wipes were flushable. The ACCC argued that the GD3 guidelines were not an appropriate framework for assessing flushability, because the scientists who designed the guidelines were employees of the manufacturers of flushable wipes.
The primary judge at the original trial, and the Full Court on appeal, found that GD3 guidelines were an ‘appropriate framework for assessing flushability’. In doing so, the Full Court confirmed that attempts by industries to self-regulate, even with the clear purpose of avoiding government regulation, should not be viewed as necessarily defective. All guidelines, regardless of whether they are developed by an industry participant or an external body, should be assessed objectively by whether they are appropriate for their purpose in all circumstances.
What does this mean for manufacturers?
While this decision is undoubtedly a win for KCA, manufacturers should continue to ensure that any claims made about their products are firmly evidence-based and should consider potential challenges to the legitimacy of such claims. Industry-created guidelines may be a useful assessment tool in assessing the legitimacy of a claim about a product, but any such guidelines should independent and objectively defensible in order to be relied on.
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