Harvey Norman feels the sting of more penalties

Earlier this month, the ACCC added another $50,000 to its penalties piggy bank as a result of two further proceedings against Harvey Norman franchisees. This takes the total penalties ordered against Harvey Norman franchisees since December 2013 to $234,000 and is a reminder that the ACCC will continue to act where consumers are misled about their consumer guarantee rights. As temperatures drop and consumers bee-line to appliance stores for another heater or two, businesses should ensure that processes are in place to ensure compliance with the Australian Consumer Law (ACL).

In separate judgments handed down on 12 and 13 May 2014, the Federal Court ordered Mandurvit Pty Ltd and Gordon Superstore Pty Ltd, Harvey Norman franchisees located in Mandurah, WA and Gordon, NSW, to each pay $25,000 for making false or misleading representations to customers in relation to their consumer guarantee rights under the ACL.

This follows $184,000 in penalties that had already been ordered against seven Harvey Norman franchisees. The Federal Court made orders in respect of five franchisees in December 2013 and one franchisee on 7 March 2014 and the Federal Circuit Court made orders in respect of one franchisee on 27 February 2014.

The latest misrepresentations, made orally by store managers and salespersons, included that:

• the franchisee had no obligation to provide a refund where the goods comprised a large appliance;
• the franchisee had no obligation to provide a refund where an item was under warranty with the manufacturer; and
• the consumer was required to pay a fee for postage and handling charged by the manufacturer or repairer where a faulty item had to be sent to the manufacturer or repairer.

The franchisees were found to have contravened both the general prohibition on misleading or deceptive conduct (in section 18 of the ACL) and the more specific prohibition against making a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (section 29(1)(m) of the ACL), in this case, the guarantee that goods supplied would be of “acceptable quality” (section 54 of the ACL).

Where a failure to comply with this guarantee is major, or cannot be remedied, the supplier must (at the consumer’s election) either provide a refund or replace the goods with goods of the same type and of similar value.

Unfortunately, the Court did not provide any further clarity in these judgments as to the untested parameters of the substantive consumer guarantee provisions of the ACL. As the penalties were agreed by the parties, the Court did not grapple with any argument on how the provisions should be interpreted. Judicial guidance would assist businesses, consumers and legal practitioners to understand the meaning of concepts including what is a “major failure” and what is a “reasonable time” for goods to be remedied to make them fit for a particular purpose.

In addition to the penalty, both Mandurvit Pty Ltd and Gordon Superstore Pty Ltd are restrained from making the false and misleading representations for a period of three years. Gordon Superstore Pty Ltd was also ordered to display a summary of consumer rights under the ACL at every register in the store and implement a compliance program.  Mandurvit Pty Ltd ceased trading in May 2013 and so these additional orders were made only in respect of Gordon Superstore Pty Ltd.

ACCC Chairman Rod Sims emphasised in launching the ACCC’s 2014 Compliance & Enforcement Policy earlier this year that the ACCC will continue to enforce consumers’ guarantee rights under the ACL, with further proceedings to be launched in 2014 “in relation to consumer guarantee rights against some quite large companies which should know better.”