ACCC publishes new food labelling update - but is the policy supported by Court case law?

By Joe Lederman
FoodLegal Lawyers and Consultants
© Lawmedia Pty Ltd, June/July 2009

The Australian Competition and Consumer Commission (ACCC) has released an update on its earlier guide for the food industry in relation to compliance with the Trade Practices Act. Our article examines what new positions the ACCC has taken concerning the marketing of food by reference to a particular ingredient or component.

A policy statement

Calling the document (which was published on 18 June 2009) a Food Labelling Guide may well be a misnomer. While it does provide statements as to how Part V of the Trade Practices Act 1974 (Cth) works, the legal tests for “overall impression”, “target audience” and “fine print disclaimers” were all previously mentioned in a Food Descriptors Guideline, published in 2006 by the ACCC.

The Food Labelling Guide has been prepared with the help of Food Standards Australia New Zealand (‘FSANZ’) as the body responsible for setting the standards in the Australia New Zealand Food Standards Code. The motivation to publish this new document appears to be directed principally towards the ACCC’s new policy on the marketing of “characterising ingredients” in food.

The “characterising ingredient” policy of the ACCC

In 2008, the ACCC initiated enforcement actions against various food companies, alleging that these companies were engaging in misleading and deceptive conduct and thereby breaching Part V of the Trade Practices Act. These food companies had promoted a particular ingredient in their labelling and marketing when those food products had contained other ingredients of the same food type in higher proportions. For example, the Arnott’s Biscuits Ltd product “Apple and Blackberrry Fruit Pillow” promoted the blackberry content through the product names and graphic images of blackberries on the label whilst only containing 1.7% blackberry content and 40% sultana content.

However, the instances where representations as to a particular ingredient (whether in words or pictures) may constitute misleading or deceptive conduct are not always abundantly clear. The ACCC guide itself acknowledges the inherent inconsistency and subjectivity in the ACCC policy:

The ACCC approaches each potential enforcement matter on a case-by-case basis, taking all relevant circumstances into account.

This subjective approach could adversely affect some common marketing techniques which are unlikely to mislead or deceive the reasonable consumer. For example, consider:

  • A product called ‘Saffron Rice’, whose label features pictorial images of saffron strands, but may in fact only contain less than 1% saffron. The product will look, feel and taste like it contains saffron. Furthermore, any such product would likely contain ingredients of a similar category (i.e. other herbs, spices and flavouring substances) in much higher quantities. For example, the product may contain 4% black pepper and 8% salt. Applying the new ACCC policy could result in this product being legally required to be renamed ‘Salt, Pepper and Saffron Rice’ or ‘Saffron-flavoured Rice’ or ‘Spiced Rice’ in order to avoid the threat of legal action with the ACCC on the basis of ‘misleading or deceptive conduct’ under Section 52 of the Trade Practices Act.
  • Cadbury’s ‘Cherry Ripe’ has a label that predominantly features images of cherries. ‘Cherry Ripe’ also has a legal descriptor which states ‘Ripe Juicy Cherries and Coconut in Old Gold Rich Dark Chocolate’. In the Arnott’s Apple & Blackberry Fruit Pillow example, the product label and marketing gave its description as: ‘a delicious golden biscuit crammed with apples, blackberries and sultanas’. Furthermore, in the Go Natural example cited by the ACCC, the ACCC said that the phrase ‘apricot pieces’ suggested whole unrefined pieces of fruit. Yet if the new ACCC policy were to be consistently applied, the result would require that the Cherry Ripe packaging and descriptor be changed. Cherry Ripes contain more chocolate and coconut (coconut would fall within the definition of a "fruit" in the Australia New Zealand Food Standards Code) than cherries and the cherries are not ‘ripe juicy cherries’ but rather glace cherries. For the Cherry Ripe packaging not to be misleading or deceptive under the new ACCC policy, it would have to be renamed a ‘Coconut-Cherry Ripe’ or a ‘Cherry-Flavoured Ripe’!

The respective roles of FSANZ and the ACCC

It must be noted that all of the products claimed by the ACCC to be misleading did in fact comply with Characterising Ingredient labelling requirements in Standard 1.2.10 of the Australia New Zealand Food Standards Code (‘the Foods Standards Code’). This Standard requires that where a product label emphasises in some way a particular ingredient or component of a food, the label must include the percentage composition of that category of ingredient. Therefore, in the Arnott’s example, any consumer who was interested in knowing the exact fruit content of the product could simply have looked at the ingredients list.

Furthermore, Standard 1.2.10 was developed through the FSANZ standards development process which requires public consultation. As the Food Labelling Guide itself states, one of the goals of both FSANZ and the Food Standards Code is to prevent misleading and deceptive conduct. Therefore Standard 1.2.10 was developed through public consultation in order to prevent misleading and deceptive conduct.

Yet, the ACCC’s new position (developed in-house without any public consultation process) is imposing the ACCC’s own view that compliance with Standard 1.2.10 is not sufficient to prevent misleading and deceptive conduct:

To reduce the possibility of misunderstanding, your product labels and packaging should be designed on the basis that some consumers may make their purchasing decisions on the basis of the product’s labelling and packaging rather than by consulting the ingredients list on the back or side of the package.

By producing this policy document, the ACCC appears to be rejecting the ability of consumers to read a label as well as the ACCC casting doubt over the public consultation process conducted by Australia’s food standards agency precisely in relation to preventing misleading and deceptive conduct concerning characterising ingredients.

The ACCC’s “precedents”

The new 2009 Food Labelling Guide states in a number of places that this new policy is “supported by a number of recent Federal Court of Australia decisions”. Yet this statement could well be misleading in itself. All but one of the cited Federal Court ‘decisions’ were consent orders, entered into by negotiation with the alleged offender. In the one Federal Court case which provides the judicial reasons, the 2004 Cadbury Schweppes ('the Cottees case') decision, the argument of "prominent ingredients" was not considered by the Court. The ACCC Food Labelling Guide merely cites this case as an example of overall impression giving rise to a misleading representation.

Companies deciding to enter into consent orders may do so for reasons other than the strength of their legal position, such as economic considerations or negative publicity. Therefore, the ACCC policy is still open to be tested by a court of law and is not as "supported" by Court precedents as the ACCC guide appears to claim.

As reported in May 2008 article “Latest Federal Court decision offers more practical solution than ACCC approach to fruit-based representations” (in our May 2008 issue), this current ACCC policy is directly contradicted by several Federal Court cases which were heard and decided upon by a judge as opposed to being merely negotiated between the ACCC and a threatened food company.

For example in Ricegrowers Ltd v Real Foods Pty Ltd [2008] FCA 639, in the context of Section 52 of the Trade Practices Act, one party alleged that the name “New Corn Thins” suggested that the product contained 99% maize or corn. Yet, Justice Rares stated:

There is no evidence that the words "Corn Thins" have some secondary meaning conveying that they consist of 99% maize or corn. […]

The name was given to an artificial product. The ordinary reasonable consumer would know it was a manufactured product not a pure vegetable. The ordinary reasonable consumer would understand that many artificial food products are not pure composites of a descriptive term in a name such as "Corn Thins". The name did not mislead or deceive the ordinary reasonable consumer. Nor did it falsely assert a composition which was misleading or deceptive or otherwise inaccurate. […]

The ingredients were listed on the new product’s packaging just as they were on the other product’s. There was no evidence that the "Corn Thins – original" name had acquired a secondary or other meaning known to the public, let alone that the name conveyed that a "Corn Thin" was 99% maize, or had any other particular composition.

The “reasonable consumer’s” point of view

The Food Labelling Guide does refer to the legal position that conduct is only in breach of the Trade Practices Act if the reasonable consumer in the potential target audience for the product would be misled or deceived.

This is also the position argued by the ACCC when it apparently rejected a complaint by consumer advocacy group CHOICE in relation to the marketing of Glaceau’s VitaminWater. The ACCC stated that the reasonable consumer of these VitaminWater products would be able to tell from the product’s label, colour, taste and smell that the products were high in sugar and not a healthy product.

However it appears that the ACCC is hedging its bets and choosing its targets in a discriminatory and unpredictable manner. As mentioned above, the Food Labelling Guide itself admits:

Therefore, this guideline should not be used in place of legal advice about a business’s particular circumstances. The ACCC approaches each potential enforcement matter on a case-by-case basis, taking all relevant circumstances into account.

This subjective nature of the ACCC’s enforcement policy provides little comfort to the food industry as a whole. The above examples illustrate the benefits of having prescriptive food labelling standards that enable food technologists and food marketers to abide by the law with greater certainty. Whilst food industry organisations and lobby groups often laud the concept of "deregulation", the practical result in the labelling field is an enforcement body with the discretion to be selective and subjective in its approach.

Possible options to achieve a better result for the food industry might include the following:

  1. The ACCC ought to accept that some of the prescriptive labelling requirements of the Australia New Zealand Food Standards Code (as developed through public consultation) adequately protect consumers from being misled and deceived (e.g. Standard 1.2.10 discussed above) instead of the ACCC developing its own subjective, untested policies.
  2. The ACCC ought to work more closely with the Implementation Sub-Committee of the Food Regulation Ministerial Council that has the appropriate level of understanding of food law enforcement as opposed to FSANZ (which is not an enforcement body and lacks the day-to-day experience in practical application of food laws).
  3. The system ought to allow for interpretative rulings, in a manner similar to the Australian Taxation Office tax ruling system, which can nonetheless be tested in a Court.
  4. A test case funding system would be possible from the ACCC which has the resources to address principles of law that need to be verified by the Courts. The ACCC should not be determining the law by media release in reference to a negotiated consent order.
  5. A further option might be to provide the ACCC with non-exclusive powers (alongside the concurrent powers of existing food safety regulatory bodies such as municipal councils and health departments or State food authorities) to enforce the labelling provisions of the Australian New Zealand Food Standards Code, especially where national enforcement action is required. If the ACCC is not the appropriate national body to enforce provisions in the Australia New Zealand Food Standards Code, then consideration ought to be given to a US FDA model where the food standards regulator also has its own enforcement powers to be exercised on a nationally consistent basis.

This is general information rather than legal advice and is current as of 12 Dec 2015. We therefore recommend you seek legal advice for your particular circumstances if you want to rely on advice or information to be a basis for any commercial decision-making by you or your business.