Home building company Metricon Homes Qld Pty Ltd (Metricon Qld) has been ordered to pay $800,000 in penalties for making a number of false or misleading representations in its advertising and promotional material.

Background

Metricon Qld builds and sells residential houses in south east Queensland and northern New South Wales. At various times between January 2009 and August 2011, Metricon Qld made representations in its advertising and promotional material that the Australian and Consumer Commission (ACCC) considered to be misleading and deceptive or likely to mislead or deceive.

Metricon Qld admitted to engaging in the conduct claimed by the ACCC. The parties reached agreement on the appropriate penalties and other consequences for this conduct and, in June 2012, the ACCC filed an application with the Brisbane Federal Court, seeking an order reflecting this agreement.

What were the misleading representations?

(a) Resort Style Living … without the pool

Metricon Qld produced over 1 million copies of a brochure called “Resort Style Living”, which was distributed in newspapers and in Metricon Qld’s display centres. The brochures represented that the houses shown were available at or from a particular price, when in fact the photographs depicted some substantial features and fittings that were not included in the advertised “from” price and were not actually supplied by Metricon Qld at all.

For example, the ACCC was particularly concerned that houses were shown with swimming pools and Bali huts adjacent to them, when these were neither included in the package nor supplied by Metricon Qld (and this was not made clear in the brochures).

(b) The elusive “Build Time Guarantee”

For two and a half years, Metricon Qld advertised a “Build Time Guarantee” in all of its promotional brochures. The brochures stated that, if the houses Metricon Qld supplied were not completed within a certain “build time” (which ranged between 14 and 24 weeks), it would compensate purchasers for rental costs of up to $300 per week.

The guarantee was however subject to significant carve outs. For example, it didn’t apply to split level houses, houses purchased with promotional offers, houses with upgrades, houses with structural or cosmetic variations or houses requiring retaining walls. As a result, the majority of houses offered for sale by Metricon Qld over the relevant period were excluded from the guarantee.

Despite this, the brochures only had a fine print statement that conditions applied, and that those conditions could be found on Metricon Qld’s website. As a result, readers of the brochures were misled into believing that the guarantee applied to all houses offered for sale by Metricon Qld.

(c) ‘Was/now’ pricing … or was it?

Metricon Qld published around 45,000 brochures containing promotions (eg the “Home Expo Promotion”), which offered “was/now” pricing in the form of price lists for each house design with a “list price”, a “pay only price” and a statement of the saving consumers would make at the “pay only price”. However, although the “list price” was represented to be the price at which the houses had been genuinely offered for sale prior to the relevant promotion, the houses had in fact either never previously been offered for supply by Metricon Qld, or were not offered at the “list price” immediately prior to the promotion (instead, most had previously been offered at the “pay only” price). This was intended to make customers think they had made substantial savings, when they had not.

Similarly, an ‘Upgrades Package’ brochure was published, offering a ‘promotional price’ for each of the features and fittings included in the package. This was represented as being a discount on the ‘standard price’ or ‘RRP’ of those features and fittings, despite the fact that most of them were not sold at the ‘standard price’ or 'RRP’ immediately prior to the commencement of the promotion (and the remainder had only been sold at those prices only on very few occasions). As a result customers were misled about the value of the features and the savings available if they purchased the Upgrades Package.

What provisions were breached?

The Court declared that Metricon Qld had breached a number of specific provisions of the Trade Practices Act (in relation to conduct prior to 1 January 2011) and the Australian Consumer Law (in relation to conduct on or after 1 January 2011). These included:

• engaging in conduct which is misleading and deceptive conduct or likely to mislead or deceive (section 52/section 18)
• falsely representing that goods supplied were of a particular standard or quality (section 53(a)/section 29(1)(a))
• making a false or misleading representation with respect to the price of goods (section 53(e)/section 29(1)(i))
• making a false or misleading representation concerning the existence of a condition and the exclusion of a guarantee or right (section 53(g)/s29(1)(m)).

Why such a big penalty?

Justice Berna Collier described Metricon Qld’s conduct as egregious, given that:

• it continued over an extended period of time
• Metricon Qld admitted the offending conduct was intended to induce consumers to purchase a home from it
• houses sold during the relevant period represented a substantial financial commitment for the consumers involved (the average price of a Metricon Qld price sold over the relevant period was $307,483).

In imposing what she described as a “significant penalty”, Justice Collier also took into account that:

• senior management of Metricon Qld had participated in the contravening conduct (with all promotions requiring sign off by the General Manager of Metricon Qld and the material included in promotional material being provided by the General Manager and the Sales, Purchasing, Estimating, Marketing and Drafting Managers)
• while the company had competition and consumer compliance policies and programs in place, these had failed to prevent the contravening conduct occurring.

Justice Collier did note however that $800,000 was considerably less than the total combined maximum penalty that the Court could have imposed (that is, $1.1M for each offence). In this context, she observed that Metricon had co-operated with the ACCC to reach an agreed resolution and that the ACCC had submitted that Metricon was entitled to “real credit for its contrition and co-operation”.

Metricon Qld was also ordered to pay $50,000 towards the ACCC’s legal costs.

Court enforceable undertakings

The Court accepted a number of very specific undertakings from Metricon Qld in relation to its promotional activity over the next 3 years. For example, Metricon Qld undertook that it would:

• not use the wording “from [price]” in conjunction with a photo of a particular house design, unless the fixtures, fittings or features depicted (other than home decorator items or furniture) are included in that “from” price
• include the following ‘prominent and clear notice’ in any brochure it publishes with photographs depicting fixtures, finishes or features that Metricon Qld is not itself able to supply (excluding home decorator items and furniture):

Photographs in this brochure may depict fixtures, finishes and features not supplied by Metricon such as landscaping and swimming pools. Accordingly, any prices in this brochure do not include the supply of any of those items. For detailed home pricing, please talk to a sales consultant

• not represent to consumers in a promotion that any house has a ‘list price’ unless that house was offered at that price for at least 2 months prior to the representation being made.

What does this case mean for builders and developers?

The ACCC described this case as “a serious warning” to home building companies. ACCC Chairman Rod Sims said that “photographs and glossy brochures that promote products should be of what the consumer will be supplied at the advertised price, not an upgraded package that would ultimately cost the consumer much more”.

The case also reinforces a number of important messages for all advertisers:

• Advertised savings must be real savings. For example, the “was” price in “was/now” pricing promotions must have been offered for a reasonable period of time before the promotion.
• Fine print disclaimers are not an antidote to misleading headline representations.
• Significant penalties can be imposed without any evidence of loss or damage. In this case, the Court noted that the parties were not aware of whether any loss or damage was caused as a result of Metricon Qld’s contraventions.
• Just having a competition and consumer compliance program is not enough. You need to make sure you are actually complying with it. The Court in this case noted that “unfortunately, not uncommonly”, such programs fail to prevent contravening conduct occurring.