ACCC v RL Adams Pty Ltd [2015] FCA 1016 – Federal Court cracks down on falsely advertised “free range eggs”

Do you like your eggs free range? Do you care about the wellbeing of laying chickens but worry the “free range” eggs you buy aren’t really free range? There is good news on the horizon. The ACCC has recently started prosecuting false representations of free range standards. In the most recent free range egg misrepresentation case, Australian Competition and Consumer Commission v RL Adams Pty Ltd [2015] FCA 1016, the Federal Court found several instances of misleading and deceptive conduct in the way eggs were advertised as “free range” when they were not, and imposed large (but arguably not large enough) penalties on the offending company.

Facts:

RL Adams Pty Ltd is an Australian company which produces and sells chicken eggs. RL Adams’ main farm is Wingrave Farm in Queensland. About 83% of the eggs from Wingrave Farm are marketed as free range. The company use brand names Mountain Range Eggs and Drakes Free Range Eggs on its cartons. RL Adams represented on their free range cartons and on their website www.fresheggs.com.au that laying hens were able to move around freely on open range pastures on an ordinary day and on most days. The reality was that the laying hens were unable to and did not move freely on an open range in the relevant period. In the relevant 9 month period, the hens were kept locked in barns.

Example of Mountain Range Eggs carton packaging making the "free range" claims (image taken from the judgment):

What were the sections contravened?

Three sections of the Competition and Consumer Act were contravened:

1.       Section 18 of the Australian Consumer Law being Schedule 2 of the Competition and Consumer Act 2010 (Cth) which provides a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.

2.       Section 29(1)(a) of the Australian Consumer Law which provides a person must not, in trade or commerce, in the connection or supply of goods, make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use.

3.       Section 33 of the Australian Consumer Law which provides a person must not, in trade or commerce, engage in conduct that is liable to mislead the public about the nature of the goods.

RL Adams Pty Ltd admitted to the contraventions, so most of Justice Edelman’s judgment concerns appropriate penalties.

Previous pecuniary penalties imposed in free range egg misrepresentation cases include:

·         No penalty imposed on the company, penalties of $30,000 and $20,000 were imposed on Directors – ACCC v CI & Co Pty Ltd [2010] FCA 1511;

·         $100,000 penalty imposed (suggested by parties) on the company - ACCC v Turi Foods Pty Ltd (No 2) [2012] FCA 19;

·         $50,000 penalty imposed on an individual – ACCC v Bruhn [2012] FCA 959;

·         $400,000 joint pecuniary penalty imposed on the companies responsible for “Steggles” products – ACCC  [2013] FCA 1109;

·         $375,000 penalty imposed on Luv-A-Duck – ACCC v  [2013] FCA 1136;

·         $300,000 penalty imposed on Pirovic Enterprises. This penalty was large considering the annual profits of Prirovic from free range eggs in NSW was $380,000 -  [2014] FCA 1028.

These cases show penalties imposed have varied greatly. In earlier cases, the ACCC often did not pursue a pecuniary penalty against the company. In more recent years, the ACCC has sought and successfully obtained pecuniary penalties against companies, in some instances by consent. The ACCC has never come close to awarding the maximum penalty of $1.1 million on a company. In the RL Adams Case, the Federal Court stated that pecuniary penalties imposed in previous cases provide little assistance (at [51]):

“With contraventions of the nature of those in this case, the breadth and variety of the many factors involved in an assessment of pecuniary penalties has the effect that any range of penalties derived from previous cases can only ever be stated in very broad terms. Indeed, the well-established term “range” can sometimes be misleading. It might be more accurate to say that an assessment of the general run of cases, including the cases mentioned in the introduction to these reasons, has so far revealed that penalties for contraventions by corporations have varied from $100,000 to $400,000”.

What pecuniary penalty did RL Adams have to pay?

RL Adams was ordered to pay $250,000 for its contravention. The Federal Court characterised the conduct as one contravention under the totality principle, but warned it should not be assumed that a series of related infringements will always be treated as a single contravention [10]. The amount was reached after considering the factors in s.224(2):

 “(2)  In determining the appropriate pecuniary penalty, the court must have regard to all relevant matters including:

(a)  the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)  the circumstances in which the act or omission took place; and

(c)  whether the person has previously been found by a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct.”

In particular, the Federal Court considered:

1.       Mitigating factors

RL Adams admitted to the contraventions early on, and completely cooperated with the ACCC in their investigations, including disclosing all relevant information requested by the ACCC.

2.       Deterrence

General deterrence is an important consideration in the imposition of pecuniary penalties [10]. Given penalties in previous “free range” misrepresentation cases have not deterred other companies in the industry making false representations about eggs, it could be argued that the pecuniary penalty needs to be raised for the sake of general deterrence.

3.       Size of RL Adams, its financial position and profits made by its representations

The additional profits obtained if eggs labelled “barn laid” had been sold as “free range” was $102,198 [62]. This profit was at the expense of purchasers. While other sellers of free range eggs may have made a loss, this loss is unquantifiable. RL Adams operations are of a small size compared to other producers.

4.       Infringement was not intentional

RL Adams confined the free range hens to barns at the time due to biosecurity issues. RL Adams had received advice about an outbreak of H7 avian influenza and about outbreaks of infectious laryngotracheitis [68]. Despite this motivation, RL Adams knew it had made free range representations and knew its hens were not free range.

5.       Previous contraventions

This was RL Adams first contravention [76].

6.       Extent of contraventions

The eggs were supplied to 63 retail locations in the relevant period across Queensland, NSW and the Northern Territory, where consumers paid premium price for the eggs despite the eggs not being free range eggs.

7.       Lack of compliance program

RL Adams did not have a compliance program to meet obligations under the Australian Consumer Law [79].

What other orders were made?

As well as the pecuniary penalty of $250,000, the following orders were made:

1.       Publication orders

a.       That RL Adams publish a correction notice on website within 14 days; and

b.      That RL Adams publish a corrective advertisement in each major metropolitan newspaper in each State or territory RL Adams supplies eggs

2.       Compliance orders

a.       appointment of compliance officer;

b.      requirements for officer training, staff training, and complaints handling;

c.       reporting obligations on progress to the ACCC; and

d.      the maintenance and administration of the ACCC compliance program for a period of 3 years.

3.       Costs orders

a.       RL Adams was ordered to pay the ACCC’s costs to the sum of $25,000.

What does this mean for the future of the free range egg industry?

The case shows the ACCC continues to be willing to investigate and prosecute companies and individuals making “free range egg” misrepresentations. While Justice Edelman discussed the importance of general deterrence in several sections of the judgment, the pecuniary penalty of $250,000 is in line with other recent cases, and is unlikely to deter other perpetrators. This aspect of the judgment is disappointing, as Justice Edelman seemed to set himself up to make a larger pecuniary penalty before settling with $250,000 which RL Adams had submitted was an appropriate penalty.