Large Australian fashion retailer, Mosaic Brands Pty Ltd (Mosaic), continues to be embroiled in a dispute with the Australian Competition and Consumer Commission (ACCC). In Part 1 we covered the ACCC’s allegations that Mosaic misled consumers about expected or likely delivery times for goods ordered on its various websites, failed to deliver goods within advertised times, and wrongfully accepted payments for goods. Part 2 of this article focuses on the ACCC’s allegations that Mosaic provided consumers with information that was inconsistent with their rights under the Australian Consumer Law (ACL) and, if that allegation is proved, how an undertaking previously provided by it to the ACCC may increase the severity of the conduct and any penalty.

ACCC allegations

In March 2024, the ACCC initiated proceedings against Mosaic in the Federal Court, alleging multiple contraventions of the ACL. Mosaic, known for fashion brands like Millers, Noni B, and Rivers, is one of Australia’s largest specialty retailers, offering consumers a range of fashion clothing and footwear online. The ACCC is concerned that Mosaic published terms and conditions on its various websites stating that Mosaic would only provide a refund for faulty products within six months of the purchase date. The ACCC alleges that this statement by Mosaic constitutes a warranty against defects, which the ACL requires to conform to certain specific wording requirements proscribed by regulation.

The relevant statement made by Mosaic on its various websites was that:

In the event that you receive a faulty Product, we recommend that as soon as you discover fault, or if you received an incorrect item, please use the Contact Us form and send us a picture of the item and include a brief description of the fault. Once assessed and approved by our team or Third Party Seller, and it is within six months from the purchase date, we will refund you back to the original tender type. Items deemed as general wear and tear and not due to a manufacturing fault will not be refunded.

The ACCC alleges that Mosaic’s publication of the Refund Statement breached the ACL as it did not comply with the Regulations. The Regulations provide that a warranty against defects must include the following text:

Our goods come with guarantees that cannot be excluded under the Australian Consumer Law. You are entitled to a replacement or refund for a major failure and compensation for any other reasonably foreseeable loss or damage. You are also entitled to have the goods repaired or replaced if the goods fail to be of acceptable quality and the failure does not amount to a major failure.

The ACCC also alleges that the Refund Statement was misleading and deceptive as it misrepresented the consumer’s rights to a refund was limited to 6 months. Specifically, the ACCC alleges that Mosaic represented to consumers that their right to a refund was limited to 6 months when the true position is that consumers are entitled (under the ACL) to make a claim for defective goods for a reasonable period after the date on which the goods were purchased. Essentially, the ACCC alleges that the reference to a fixed period of 6 months that Mosaic promoted was not a reasonable period for the goods sold and that consumers could reasonably have expected that fashion items would last longer than that period.

Mosaic’s response

Mosaic has responded to the allegations, admitting that the websites contained the Refund Statements (as alleged by the ACCC). However, it has defended the allegations of unlawful conduct on the following grounds:

1. The Refund Statement did not constitute a warranty against defects because it was not communicated to the consumer at the time of supply. Mosaic argues that the Refund Statement was published in the ‘terms and conditions’ section of its websites and not when the consumer clicked on a specific product or when the consumer elected to purchase a product through the check-out process.
2. The purpose of the Refund Statement was to inform consumers of the process for notifying Mosaic of any faults with its product, not in connection with the promotion of the supply or use of goods. Mosaic supports this point by emphasising that the refund information was published in the terms and conditions section of the Website, not at the time of supply.
3. Mosaic’s terms and conditions do not state that the consumer was not entitled to a refund for a faulty Product if the refund is sought 6 months from the day of purchase, nor does it purport to exclude, restrict or modify the consumer’s rights – namely, the right to receive a refund due to a breach of the consumer guarantees relating to the supply of goods.
4. Mosaic did provide refunds to consumers for faulty products after 6 months from the date of purchase.

Key legal issues: Mosaic's defence

In considering Mosaic’s defences to the ACCC’s allegations, the Court will need to determine the following issues:

Does the location of the Refund Statement in the terms and conditions (and not directly part of the purchasing process) meet the test of a ‘warranty against defects’?

One of Mosaic's key defences is that this information was only available in the terms and conditions section of its website, not when the consumer clicked on the product or during the checkout process. This distinction is crucial because a warranty against defects is defined as a representation communicated to the consumer at or near the time of supply.

Would the ordinary reasonable consumer interpret the Refund Statements to mean that they are excluded from making a claim for a warranty against defects after 6 months?

Mosaic argues that the Refund Statement does not explicitly state that a consumer is not entitled to a refund after 6 months and had the ‘objective purpose’ (whatever that means in this context) of informing the consumer of the process for making a claim.

Key legal issues: Our observations

In our view, although Mosaic is correct that the Refund Statement does not explicitly state that the consumer is not entitled to a refund after 6 months, the way in which the information was presented to consumers likely conveys to them that they only have 6 months to exercise their rights to a refund for a faulty product. As consumers have a ‘reasonable period’ (having regard to factors such as the cost and nature of the good), the Refund Statement is likely to mislead consumers as to their consumer rights.

Mosaic’s second argument is more interesting: since consumers must actively click on these terms to access them (and they don’t simply ‘pop up’ at the time of the purchase), the Court may be open to Mosaic’s argument that the Refund Statement was not provided ‘at the time of supply’ of goods sold and, therefore, cannot constitute a warranty against defects. So far as we are aware, this is the first case to consider this issue.

Finally, the reference to Mosaic’s ‘objective purpose’ goes nowhere in terms of establishing a defence to the ACCC’s claim that Mosaic’s conduct was misleading or deceptive, as the relevant test is not what Mosaic intended, but what the ordinary, reasonable consumer would understand from the relevant conduct.

Mosaic’s undertaking to the ACCC

The ACCC’s allegations are compounded by Mosaic’s undertaking to the ACCC on 31 March 2021. That undertaking related to conduct engaged in by Mosaic in advertising that certain products were ‘non-refundable’ in circumstances where consumers had a statutory right to a refund due to the consumer guarantee remedies. Mosaic resolved that matter by giving an undertaking that it would not make any representation to consumers to the effect that the consumer was not entitled to a refund for a product in circumstances where the consumer was entitled to a refund under the consumer guarantee regime. In short, the earlier undertaking relates to conduct of a similar nature with which this new ACCC prosecution is also concerned.

When a party breaches an undertaking to the ACCC, in the eyes of both the ACCC and (in most instances) the court, the party’s conduct is regarded as being significantly more serious increases. The conduct is viewed as more serious as it (effectively) amounts to a breach of a court order, which (in the right circumstances) may involve a contempt of court and attract separate sanctions. Further, it would amount to a prior breach of the ACL, which would be relevant to any determination of penalty for any subsequent breach. In the case of Mosaic, if it is found in these new proceedings to have engaged in misleading or deceptive conduct in connection with the availability of refunds, it could be in contempt. It would also likely face a much higher penalty for this more recent conduct.

Key takeaways

• Clear and compliant communication: This matter offers valuable lessons for businesses, particularly regarding compliance with consumer protection laws. One key takeaway is the importance of clear and compliant communication with consumers about their rights under the ACL. The ACCC's allegations that Mosaic misrepresented refund terms show that businesses must ensure that any statements about refunds or warranties against defects fully align with legal requirements. Vague or misleading terms, even if unintentionally communicated, can result in legal scrutiny and damage to consumer trust and the risk of ACCC proceedings.

• Location and timing of important consumer information: Another significant lesson is that the location and timing of important consumer information is critical. Mosaic's defence hinges on the fact that its refund policy was buried in its website's terms and conditions rather than communicated at the point of sale. This raises an important consideration for businesses about how and when they present essential information to consumers. Merely placing key terms in hidden or less accessible parts of a website may not be sufficient to meet legal obligations under the ACL, as consumers could be misled even if the business did not intend it.

• Undertakings increase the risk for businesses: The case highlights the heightened risk for businesses that have previously provided undertakings to regulatory authorities like the ACCC. Breaching such undertakings can significantly amplify the consequences of future misconduct. Companies must be particularly cautious after entering such agreements, ensuring that their practices and representations to consumers are rigorously reviewed and updated to avoid repeat violations, which could lead to more severe penalties and lasting reputational harm.

Mosaic entered into voluntary administration on 28 October 2024.