Tag: legal updates

  • That’s a lot of beans! Heinz ordered to pay $2.25 million for contravening the Australian Consumer Law

    28 August 2018:

    Up to May 2016 Heinz sold a “Little Kids Shredz” brand of products (pictured in body of article). The products were displayed in the children’s sections of major supermarkets and sold to parents and carers of children aged 1 to 3 years.

    Justice White of the Federal Court found that Heinz had, in respect to the sale of the products, conveyed representations that were misleading or deceptive, and which thereby contravened the Australian Consumer Law.

    On 24 August Heinz was ordered to pay the Commonwealth of Australia $2.25 million by way of a penalty and, within 3 months, establish a consumer protection law compliance program, to be maintained and administered for 3 years.

    Background facts

    In addition to “nutrition information”, the packaging of the products contained the word “nutrition” and its cognates four times.

    The text on the products’ packaging stated “[o]ur range of snacks and meals encourage your toddler to independently discover the delicious taste of nutritious food. With our dedicated nutritionists who are also mums, we aim to inspire a love of nutritious food that lasts a life time” and “[o]ur wide range of snacks and meals is packed with the tasty goodness of vegetables, fruits, grains, meat and pasta to provide nutritious options for your toddler”.

    The ACCC alleged that the packaging of the products as a whole – including the repeated use of the word “nutritious” – conveyed a representation that the products contained nutritious food that was beneficial to the health of children aged 1 to 3 years.

    The ACCC also argued that the representations, if made, were false or misleading because the products were, in fact, high in sugar and kilojoules, had a low moisture content and satiety value, and had a sticky texture (which was likely to increase the risk of poor dental health).

    Heinz broadly opposed every limb of the case sought to be proved by the ACCC.

    It argued, for example, that ordinary reasonable consumers would observe and take account of the products’ “nutritional information” and an “ingredients panel” on the products’ packaging, would understand that a serve of the products contained on average 68.7% sugar, and would not have understood the word “nutritious” as conveying a representation that the products were a “nutritious food and beneficial to the health of children aged 1 to 3 years”.

    The Trial

    Heinz led expert evidence from three witnesses, and evidence from five of its employees who were involved in the development of the products and the products’ packaging, (all of whom had qualifications in nutrition and, or, dietetics).

    The ACCC led expert evidence from two witnesses, Dr Rosemary Stanton, a highly qualified nutritionist, and Professor David Manton, the Elsdon Storey Chair of Child Oral Health at the University of Melbourne.

    There was also, in evidence, internal Heinz documentation.

    An internal “comms briefing”, for example, reported, under the heading “What’s Working”, “… [t]ree symbolising strong benefits; natural, health, slow growth, freshness, healthy outdoor lifestyle (aspiring to mums who are fighting to get their kids outside); [e]arthy colouring dialing up organic cues (natural) … [t]he new pack is emotionally engaging (telling a story) and strongly delivers on natural product benefits …”.

    The decision of the Court

    Justice White was satisfied that the products’ packaging did convey the representation alleged by the ACCC, because a not insignificant number of ordinary reasonable consumers would have understood this to be the case, particularly because such consumers would likely “pass over” the nutritional information and ingredients panels on the products’ packaging (especially in a busy supermarket isle, and given that the information was displayed in the nature of “fine print”), and because many consumers would respond in a more impressionistic way to the dominant message conveyed by more prominent words and imagery.

    Justice White also found there was no logic or principle why the ACCC could not prove the falsity of a representation concerning the quality of the products by resorting to expert evidence concerning features of the products about which a consumer might have been unaware or overlooked. It was decided that it is commonly the case that features of a product which make representations about it misleading are revealed only by expert investigation or analysis.

    Regarding the expert evidence, Justice White accepted (and it seemed to be common ground between the parties), that the products contained a high level of sugar – whereby the products contained two-thirds sugar.

    Justice White concluded that the high levels of sugar in the products was not beneficial to the health of toddlers, having regard to the potential to cause dental caries, and because it was not easy to accept that consumption of a high amount of sugar could be regarded as beneficial to the health of children ages 1 to 3 years, especially given that excess weight and obesity is a significant problem among Australian children.

    Justice White found that the representations were false or misleading, in breach of the Australian Consumers Law, and that Heinz nutritionists ought to have known that a representation that a product containing approximately two-thirds sugar was beneficial to the health of children ages 1 to 3 years was false or misleading.

    Penalty and other Orders

    The ACCC sought a penalty of $10 million, whereas Heinz contended that a single penalty of $400,000 was appropriate.

    It was found that there were serious aspects to Heinz conduct and that the conduct was extensive; Justice White accepted that Heinz had made the false or misleading representations at least 1,207,560 times on every packet of the products sold.

    Yet, it was decided that whilst it would not be appropriate to fix the aggregate of penalties to be imposed on Heinz at an amount which went no further than negating the profit Heinz derived from the sale of the products, penalties totaling $10 million would be inappropriate.

    It was ordered that Heinz pay the Commonwealth of Australia $2.25 million by way of a penalty and, within 3 months, establish a consumer protection law compliance program, to be maintained and administered for 3 years.

    [1] Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited [2018] FCA 360

    [2] Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited (No 2) [2018] FCA 1286

  • Beware: Construction Contracts and Ipso Facto Insolvency Reforms

    1 July 2018:

    Where a contractor, such as a builder or sub-contractor, suffers from an event of insolvency or is actually insolvent, most standard building contracts currently grant a principal, such as an owner or head-contractor, “ipso facto” rights, such as the rights to suspend building works, call upon and enforce any security given by the contractor, and terminate the building contract.

    Insolvency reforms to take effect on 1 July 2018 will instead prevent the enforcement of ipso facto rights, to provide opportunities for insolvent companies to restructure.

    The reforms will affect a range of commercial contracts, not just construction contracts.

    The policy intent of the reforms is to maintain the continuity of a contractor’s business and the value of the business, to provide a better potential for the contractor’s business to be restructured, for example, by “trading out” of insolvency.

    The enforcement of ipso facto rights will be stayed where a right arises because a company has an administrator appointed, a managing controller is appointed to the whole or substantially the whole of the company’s assets, or a scheme of arrangement is made or announced.

    Exceptions or proposed exceptions include rights under “set-off” and “step-in” clauses and exceptions to permit a party to enforce certain rights with the consent of an administrator, receiver, scheme administrator, or the Court.

    The reforms will only apply to contracts entered into after 30 June 2018. The reforms will not apply to contracts entered into before 1 July 2018, including amendments to contracts where the underlying contract was formed before 1 July 2018.

    The result of the reforms is that principals may need to be more risk averse when doing business, including as to whom they contract with, how they exercise their contractual rights, and which contracts they utilise.

    If a principal were to purport, for example, to terminate a contract utilising a stayed right, the purported termination could open the principal up to a raft of problems, including contractual repudiation and breach of contract, termination for repudiation, and, or, a claim for contractual damages.

    Therefore, principals will need to ensure that they do not fall afoul of the reforms by, for instance, purporting to terminate a contract in reliance upon a stayed right. Principals should also start reviewing existing contracts to ensure that the contracts do not fall afoul of the reforms by, for example, containing “self-executing” ipso facto clauses.

    You can read more on The Treasury’s website at www.treasury.gov.au