In a decision handed down in September last year, the Full Court of the Federal Court (Full Court) dismissed an appeal by the Australian Competition and Consumer Commission (ACCC) on its earlier loss against Woolworths. The Full Court confirmed Woolworths did not mislead consumers by marketing a series of disposable crockery products as ‘biodegradable and compostable’ and clarified how courts should assess marketing claims regarding product characteristics. The decision will significantly affect the ACCC’s future prosecution of such claims and require the ACCC to abandon one of its favoured strategies in pursuing manufacturers for alleged misleading product claims.

How did we get here?

Traditionally, in these types of proceedings, the ACCC has alleged a product claim also gives rise to a prediction concerning the future use of, or benefit arising from, the product. The benefit to the ACCC in adopting this approach is that (under the Australian Consumer Law (ACL)) a representation ‘with respect to future matters’ effectively shifts the burden of substantiating that claim, to the person that made it. The maker of such a predictive claim must establish that they had reasonable grounds for doing so. If they cannot do so, then the conduct will be misleading and deceptive under the ACL.

In 2019, the Federal Court handed down two significant judgements on the ACCC’s approach to such claims in ACCC v Woolworths and ACCC v Kimberly-Clark Australia. The Federal Court held that Woolworths’ and Kimberly Clark’s descriptions of their products as ‘biodegradable and compostable’ and ‘flushable’, respectively, were not descriptions ‘with respect to future matters’ – meaning these were not predictive claims. The ACCC appealed both decisions.

In June 2020, the Full Court dismissed the Kimberly-Clark appeal primarily on the basis of procedural issues and without clarifying how the courts assess what constitutes a representation ‘with respect to future matters’. We provided an update on the ACCC v Kimberly-Clark Australia appeal decision and its implications last year. The ACCC’s appeal of the decision in its case against Woolworths was handed down in September 2020 and has provided some much-needed clarity on the Federal Court’s approach in this regard.

What did the Full Court say on appeal?

In dismissing the ACCC’s appeal, the Full Court agreed with the trial judge’s finding that a claim ‘with respect to future matters’ is one that:

• makes ‘predictions, promises, forecasts and other like statements’ about circumstances that may or may not happen in the future; but
• is ‘not capable of being proven to be true or false when made.’

In coming to its decision, the Full Court placed particular emphasis on the history of the relevant section and how it came to be introduced into the ACL. The Full Court also:

1. reiterated the primary judge’s linguistic analysis on the suffix ‘able’, finding that the words ‘biodegradable’ and ‘compostable’ referred to the ‘capacities and inherent qualities’ of the products that allowed them to biodegrade or be composted, in the same way, that ‘recyclable’ refers to a product’s capacity to be put through a recycling process
2. relied on the policy considerations of the primary judge in ACCC v Kimberly-Clark Australia, in which Her Honour held that upholding the ACCC’s interpretation of ‘with respect to future matters’ would result in any representation made about a product’s intended use after-sale being considered to be ‘with respect to a future matter’, effectively shifting the evidentiary burden onto manufacturers en masse and altering how claims of misleading and deceptive conduct are assessed.

While the Full Court found that a statement could contain a representation of both present and future matters, it suggested that such statements need to be clearly ‘double-barrelled’. For example, a statement such as ‘this product is compostable and will compost in your household compost bin’ is likely to be considered double-barrelled.

To consider

It appears the Full Court ignored the ordinary meaning of the future matters provision in favour of policy considerations and, in doing so, significantly and unreasonably narrowed the scope of that section of the ACL.

Suppose a product is marketed as ‘biodegradable’: in that case, we believe that it is a reasonable and necessary implication that not only does the material of the product have the ability to biodegrade (as the Full Court found), but it should biodegrade when disposed of at some time in the future and will do so within a reasonable amount of time. To suggest that only the first representation is made, as the Full Court has done, is to draw an artificial distinction.

Further, while the Full Court placed significant weight on public policy considerations, we think that the Full Court’s public policy analysis was misguided. Requiring manufacturers to have reasonable grounds to make an advertising claim, in our view, would benefit consumers. The manufacturer (as the maker of a statement) should bear the responsibility substantiating its claims. We believe that the Full Court’s decision weakens the ACCC’s ability to protect consumers against false and misleading marketing claims.

For these reasons, we respectfully disagree with the Full Court on this issue.

What does this mean for manufacturers and the ACCC?

In light of this decision, manufacturers should consider how they market their products and emphasise the capabilities of their products in the present tense, using suffixes such as ‘able’, rather than making statements about what a product will do. This approach will reduce the risk of the ACCC taking action regarding the product and protect manufacturers against having an evidentiary burden placed upon them if the ACCC (or a competitor) alleges their marketing claims are misleading. Of course, statements as to the characteristics of a product must still be true if they are to avoid breaching the ACL.

The ACCC will need to reconsider its strategy of shifting the evidentiary burden onto the maker of a claim by using the ‘future matters’ provision of the ACL. This change in strategy is already evident in the ACCC’s approach to its ongoing matters. Earlier this year, in its proceeding against a phone manufacturer concerning representations about its phones being waterproof, the ACCC dropped its allegations that the representations were ‘with respect to future matters’ and that the manufacturer did not have reasonable grounds for making them. While the ACCC is continuing the proceeding on other grounds, this represents a significant setback for the ACCC.

However, the ACCC also possesses the power to issue a substantiation notice, requiring the maker of a representation to provide information and documents to the ACCC to validate the representation. Historically, the ACCC has rarely used this power (with only three notices issued by the ACCC in FY2020). In light of these recent decisions, we suspect that the ACCC will, in the future, choose to use this power more frequently.