
ACCC Responds to FoodLegal Bulletin By Joe Lederman FoodLegal Lawyers and Consultants © Lawmedia Pty Ltd, September 2009 Australia’s fair trading and consumer protection agency, the Australian Competition and Consumer Commission (ACCC), has written the following letter to the Editor of FoodLegal Bulletin in response to our article critiquing an inconsistent and subjective approach taken by the ACCC in relation to its new policy on prominent ingredients. The ACCC's Letter to the Editor of FoodLegal Bulletin can be read by clicking here ACCC response to JLederman 13 Aug 2009 The FoodLegal Editor comments on the ACCC’s viewpoints, as follows: 1. The ACCC’s lack of a transparent consultative process The ACCC says that it consulted with two organisations in the development of its June 2009 Food Labelling Guide: namely, Food Standards Australia New Zealand (FSANZ) and the Australian Food and Grocery Council (AFGC). However, this does not negate FoodLegal’s claim that the ACCC did not engage in a public consultation process. By comparison, when Food Standard 1.2.10 (Characterising Ingredients) was introduced, FSANZ had to provide industry and public stakeholders with the opportunity to comment. Although there is no question that consultation with bodies such as the AFGC and FSANZ is important, they do not represent a full cross-section of stakeholder interests. 2. Consent Orders In response to FoodLegal’s criticism of the improper use by the ACCC of consent orders as legal precedent, the ACCC contends that courts must still be satisfied that a contravention has occurred before authorising a consent order, and the ACCC maintains that such orders “have weight” and do not constitute a rubber stamp. FoodLegal has pointed out that consent orders are often arrived at through commercial negotiation or a decision by a company not to fight the ACCC, even where the ACCC’s legal position might not have been fully sustainable had the dispute proceeded to a full hearing by a judge. The ACCC now cites the Federal Court decision of ACMA v 2UE Sydney Pty Ltd [2009] FCA 754 in which the Federal Court rejected a penalty agreement between the two parties, illustrating the point that “the court will refuse an agreement if it feels the penalty is not adequate or appropriate”. FoodLegal says that while it is clear that it is open to a court to reject a consent order agreement on such grounds, consent orders cannot carry the same legal weight as fully-reasoned judgments, as noted by the High Court in Re Minister for Immigration and Multicultural Affairs [2002] HCA 48: “If the ratio decidendi of a case is not discernible, however, it still has precedential authority in respect of circumstances that ‘are not reasonably distinguishable from those which gave rise to the decision’.” In other words, as FoodLegal points out, the authority of a consent order is limited to factual circumstances that are not reasonably distinguishable from those which gave rise to the consent order. We note again the High Court’s decision in Ruddock v Taylor [2005] GCA 48 where the High Court held that: “However, a distinction must be drawn between a court’s reasons for judgment and the judgment (or order) itself. Following overruling [of a legal principle], the reasons for judgment are deprived of effect as a legal precedent. However, the validity and effect of the orders are not, as such affected”. The court’s reasons for an order – not the consent order itself – form the basis of precedent under our common law system. For example, almost any set of factual circumstances of a food label for any particular food will be “reasonably distinguishable” from the facts that were the subject of the consent orders applied against Arnott’s Biscuits Limited in the case ACCC v Arnott’s Biscuits Limited [2008] FCA 590. Unless the ACCC has the authority of judicial reasoning behind a court order, a party to any case where the facts are not identical to those of a consent order ought not to rely on the authority of that case as binding legal precedent. 3. The case-by-case approach: inconsistencies in the enforcement record In response to FoodLegal’s assertion that the ACCC has demonstrated an inconsistent record of enforcement of Section 53 of the Trade Practices Act, the ACCC contends that it “approaches each potential enforcement matter on a case-by-case basis, taking all relevant circumstances into account”. The ACCC cites its Compliance and Enforcement Policy in order to demonstrate a reasonable discretion-based approach. The publication of the ACCC’s Compliance Policy is important; however, given the number of factors that the ACCC considers to be relevant, it would be more helpful to have some detailed information, or perhaps - so far as is possible - objective guidelines as to how these factors are considered. Casting more light on how the ACCC will apply its enforcement policy will allow food suppliers or manufacturers, and their legal advisers, to know how the ACCC will determine the existence of ‘significant consumer detriment’ or when the facts justify ACCC action because it is likely to have a ‘worthwhile or educative effect’, for example. The discrepancies in enforcement can be seen through the ACCC’s position in relation to the examples used in the FoodLegal Bulletin article: 4. ‘Cherry Ripe’, ‘Corn Thins’ and ‘Saffron Rice’ illustrations The name ‘Cherry Ripe’ suggests that the cherries used in the product would not be glaceé cherries, the label prominently features pictures of fresh cherries, and the descriptor claims the product is made of “ripe cherries”. Moreover, the actual predominant ingredient, the coconut, is not featured in the name or pictures on the label. As ‘coconut’ is clearly defined as a fruit under the Food Standards Code, this would put the ‘Cherry Ripe’ firmly within the ambit of other ‘fruit-based representation’ and ‘predominant ingredient’ cases such as Arnott’s case. However, responding to FoodLegal’s suggestion that applying the ACCC's new predominant ingredient test would result in the ‘Cherry Ripe’ product being legally obligated to become the ‘Cherry-flavoured ripe’, the ACCC contends that a reasonable consumer would not expect the predominant ingredient in the product to be ripe cherries on the basis that "the product is well known, iconic and has a traditional association which reduces the possibility of a consumer being misled or deceived". While the ACCC must clearly follow the tests laid out by the court precedent in order to apply Sections 52, 53 and 55 of the Trade Practices Act, this ACCC statement about an iconic product tends to suggest that should a food supplier with a new but less-well-known product engage in the exact same way as an established product, consumers would only be misled by the newer or less established product. Such a policy can hardly be described as encouraging the ACCC ethos of fair competition or contributing to a “level playing field”, which is the whole objective of the Trade Practices Act! Why should iconic products be afforded legal protection but newer products be prosecuted as misleadingly labelled? The ACCC further asserts that the point made by FoodLegal in relation to the Ricegrowers Ltd v Real Foods Pty Ltd [2008] FCA 639 misses the mark and that the ACCC does not rely on the particular name of a product to infer that it contains a certain proportion of ingredients. This statement seems to be at odds with a number of cases where the ACCC has intervened. In a letter addressed to FoodLegal from the ACCC on 17 June 2008, the ACCC advised that: “The ACCC has formed the view that, in many circumstances, when the names or ‘get-up’ of a product reflect an ingredient, without appropriate qualification, in circumstances where that ingredient is not the predominant ingredient of that type (and where the more prominent ingredients of that type are not so include [sic] in the name or ‘get-up’), consumers may be misled.” Furthermore, the ACCC considered that the reasonable consumer of a ‘saffron rice’ product would not expect much saffron to be in a product. Then why would the reasonable consumer have such expectations of, for example, blackberries when only a small proportion of blackberries are necessary for a product to taste, feel and look like it contains blackberries? The high proportion of apple in many products containing fruit is obviously for technical purposes (as apple pulp serves as a flavour-neutral carrier or provides texture), not out of any desire to mislead consumers. Yet the ACCC does not appear to recognise that fruits such as apple are an acceptable neutral carrier. Would the ACCC prefer that food manufacturers use fats or oils instead, just to avoid prosecution by the ACCC for not making sufficient mention of the existence of the apple content in the product name or descriptor? Bear in mind that the percentage apple composition is nonetheless usually mentioned in the ingredients list of the fruit components. Finally, in reference to a CHOICE article criticising the ACCC's position on Glaceau’s VitaminWater, the ACCC defends its position by saying the taste of the product would reveal to consumers that the product was not healthy, despite the claims made on the label. It is legally odd that the ACCC seems to be saying that a consumer would have to first purchase a product in order to not be misled by its marketing. 5. Certainty and reliability in the application of the law of misleading conduct The letter from the ACCC states that FoodLegal appears “to be recommending prescriptive food labelling standards”. This is by no means the case. What FoodLegal was advocating was for guidelines or systems by which food companies can be more certain when their conduct is not infringing the Trade Practices Act. The June 2009 Food Labelling Guide published by the ACCC does not do this as well as it might have. It is important to remember that at the heart of the issues in discussion in this dialogue is the need for a degree of certainty and reliability in the application of the law of misleading and deceptive conduct for businesses engaged in the expensive task of naming and marketing their food products. It is our view that the combination of enforcement decisions relied upon by the ACCC in the June 2009 Food Labelling Guide leaves an uncertain picture for businesses embarking on the branding and labelling of food products. The ACCC states in its letter that where appropriate it may pursue matters that “test or clarify” the law. However, FoodLegal considers the current system is especially unfair to smaller businesses that lack the financial resources to challenge the ACCC on a point of law, resulting in unfair undertakings or consent orders. We continue to suggest that the ACCC could perhaps provide ‘interpretative rulings’ in a manner similar to those supplied by the Australian Taxation Office. In light of the ACCC’s emphasis on education, such a move would assist businesses to confidently manage their compliance obligations under the Trade Practices Act without fear of unexpected prosecution by the ACCC. This is general information rather than legal advice and is current as of 14 Sep 2009. 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.

ACCC Responds to FoodLegal Bulletin

By Joe Lederman
FoodLegal Lawyers and Consultants
© Lawmedia Pty Ltd, September 2009

Australia’s fair trading and consumer protection agency, the Australian Competition and Consumer Commission (ACCC), has written the following letter to the Editor of FoodLegal Bulletin in response to our article critiquing an inconsistent and subjective approach taken by the ACCC in relation to its new policy on prominent ingredients.

The ACCC's Letter to the Editor of FoodLegal Bulletin can be read by clicking here ACCC response to JLederman 13 Aug 2009

The FoodLegal Editor comments on the ACCC’s viewpoints, as follows:

1. The ACCC’s lack of a transparent consultative process

The ACCC says that it consulted with two organisations in the development of its June 2009 Food Labelling Guide: namely, Food Standards Australia New Zealand (FSANZ) and the Australian Food and Grocery Council (AFGC). However, this does not negate FoodLegal’s claim that the ACCC did not engage in a public consultation process. By comparison, when Food Standard 1.2.10 (Characterising Ingredients) was introduced, FSANZ had to provide industry and public stakeholders with the opportunity to comment. Although there is no question that consultation with bodies such as the AFGC and FSANZ is important, they do not represent a full cross-section of stakeholder interests.

2. Consent Orders

In response to FoodLegal’s criticism of the improper use by the ACCC of consent orders as legal precedent, the ACCC contends that courts must still be satisfied that a contravention has occurred before authorising a consent order, and the ACCC maintains that such orders “have weight” and do not constitute a rubber stamp. FoodLegal has pointed out that consent orders are often arrived at through commercial negotiation or a decision by a company not to fight the ACCC, even where the ACCC’s legal position might not have been fully sustainable had the dispute proceeded to a full hearing by a judge.

The ACCC now cites the Federal Court decision of ACMA v 2UE Sydney Pty Ltd [2009] FCA 754 in which the Federal Court rejected a penalty agreement between the two parties, illustrating the point that “the court will refuse an agreement if it feels the penalty is not adequate or appropriate”.

FoodLegal says that while it is clear that it is open to a court to reject a consent order agreement on such grounds, consent orders cannot carry the same legal weight as fully-reasoned judgments, as noted by the High Court in Re Minister for Immigration and Multicultural Affairs [2002] HCA 48:

“If the ratio decidendi of a case is not discernible, however, it still has precedential authority in respect of circumstances that ‘are not reasonably distinguishable from those which gave rise to the decision’.”

In other words, as FoodLegal points out, the authority of a consent order is limited to factual circumstances that are not reasonably distinguishable from those which gave rise to the consent order. We note again the High Court’s decision in Ruddock v Taylor [2005] GCA 48 where the High Court held that:

“However, a distinction must be drawn between a court’s reasons for judgment and the judgment (or order) itself. Following overruling [of a legal principle], the reasons for judgment are deprived of effect as a legal precedent. However, the validity and effect of the orders are not, as such affected”.

The court’s reasons for an order – not the consent order itself – form the basis of precedent under our common law system. For example, almost any set of factual circumstances of a food label for any particular food will be “reasonably distinguishable” from the facts that were the subject of the consent orders applied against Arnott’s Biscuits Limited in the case ACCC v Arnott’s Biscuits Limited [2008] FCA 590. Unless the ACCC has the authority of judicial reasoning behind a court order, a party to any case where the facts are not identical to those of a consent order ought not to rely on the authority of that case as binding legal precedent.

3. The case-by-case approach: inconsistencies in the enforcement record

In response to FoodLegal’s assertion that the ACCC has demonstrated an inconsistent record of enforcement of Section 53 of the Trade Practices Act, the ACCC contends that it “approaches each potential enforcement matter on a case-by-case basis, taking all relevant circumstances into account”. The ACCC cites its Compliance and Enforcement Policy in order to demonstrate a reasonable discretion-based approach.

The publication of the ACCC’s Compliance Policy is important; however, given the number of factors that the ACCC considers to be relevant, it would be more helpful to have some detailed information, or perhaps - so far as is possible - objective guidelines as to how these factors are considered. Casting more light on how the ACCC will apply its enforcement policy will allow food suppliers or manufacturers, and their legal advisers, to know how the ACCC will determine the existence of ‘significant consumer detriment’ or when the facts justify ACCC action because it is likely to have a ‘worthwhile or educative effect’, for example.

The discrepancies in enforcement can be seen through the ACCC’s position in relation to the examples used in the FoodLegal Bulletin article:

4. ‘Cherry Ripe’, ‘Corn Thins’ and ‘Saffron Rice’ illustrations

The name ‘Cherry Ripe’ suggests that the cherries used in the product would not be glaceé cherries, the label prominently features pictures of fresh cherries, and the descriptor claims the product is made of “ripe cherries”. Moreover, the actual predominant ingredient, the coconut, is not featured in the name or pictures on the label. As ‘coconut’ is clearly defined as a fruit under the Food Standards Code, this would put the ‘Cherry Ripe’ firmly within the ambit of other ‘fruit-based representation’ and ‘predominant ingredient’ cases such as Arnott’s case.

However, responding to FoodLegal’s suggestion that applying the ACCC's new predominant ingredient test would result in the ‘Cherry Ripe’ product being legally obligated to become the ‘Cherry-flavoured ripe’, the ACCC contends that a reasonable consumer would not expect the predominant ingredient in the product to be ripe cherries on the basis that "the product is well known, iconic and has a traditional association which reduces the possibility of a consumer being misled or deceived".

While the ACCC must clearly follow the tests laid out by the court precedent in order to apply Sections 52, 53 and 55 of the Trade Practices Act, this ACCC statement about an iconic product tends to suggest that should a food supplier with a new but less-well-known product engage in the exact same way as an established product, consumers would only be misled by the newer or less established product. Such a policy can hardly be described as encouraging the ACCC ethos of fair competition or contributing to a “level playing field”, which is the whole objective of the Trade Practices Act! Why should iconic products be afforded legal protection but newer products be prosecuted as misleadingly labelled?

The ACCC further asserts that the point made by FoodLegal in relation to the Ricegrowers Ltd v Real Foods Pty Ltd [2008] FCA 639 misses the mark and that the ACCC does not rely on the particular name of a product to infer that it contains a certain proportion of ingredients. This statement seems to be at odds with a number of cases where the ACCC has intervened. In a letter addressed to FoodLegal from the ACCC on 17 June 2008, the ACCC advised that:

“The ACCC has formed the view that, in many circumstances, when the names or ‘get-up’ of a product reflect an ingredient, without appropriate qualification, in circumstances where that ingredient is not the predominant ingredient of that type (and where the more prominent ingredients of that type are not so include [sic] in the name or ‘get-up’), consumers may be misled.”

Furthermore, the ACCC considered that the reasonable consumer of a ‘saffron rice’ product would not expect much saffron to be in a product. Then why would the reasonable consumer have such expectations of, for example, blackberries when only a small proportion of blackberries are necessary for a product to taste, feel and look like it contains blackberries? The high proportion of apple in many products containing fruit is obviously for technical purposes (as apple pulp serves as a flavour-neutral carrier or provides texture), not out of any desire to mislead consumers. Yet the ACCC does not appear to recognise that fruits such as apple are an acceptable neutral carrier. Would the ACCC prefer that food manufacturers use fats or oils instead, just to avoid prosecution by the ACCC for not making sufficient mention of the existence of the apple content in the product name or descriptor? Bear in mind that the percentage apple composition is nonetheless usually mentioned in the ingredients list of the fruit components.

Finally, in reference to a CHOICE article criticising the ACCC's position on Glaceau’s VitaminWater, the ACCC defends its position by saying the taste of the product would reveal to consumers that the product was not healthy, despite the claims made on the label. It is legally odd that the ACCC seems to be saying that a consumer would have to first purchase a product in order to not be misled by its marketing.

5. Certainty and reliability in the application of the law of misleading conduct

The letter from the ACCC states that FoodLegal appears “to be recommending prescriptive food labelling standards”. This is by no means the case. What FoodLegal was advocating was for guidelines or systems by which food companies can be more certain when their conduct is not infringing the Trade Practices Act. The June 2009 Food Labelling Guide published by the ACCC does not do this as well as it might have.

It is important to remember that at the heart of the issues in discussion in this dialogue is the need for a degree of certainty and reliability in the application of the law of misleading and deceptive conduct for businesses engaged in the expensive task of naming and marketing their food products. It is our view that the combination of enforcement decisions relied upon by the ACCC in the June 2009 Food Labelling Guide leaves an uncertain picture for businesses embarking on the branding and labelling of food products.

The ACCC states in its letter that where appropriate it may pursue matters that “test or clarify” the law. However, FoodLegal considers the current system is especially unfair to smaller businesses that lack the financial resources to challenge the ACCC on a point of law, resulting in unfair undertakings or consent orders. We continue to suggest that the ACCC could perhaps provide ‘interpretative rulings’ in a manner similar to those supplied by the Australian Taxation Office. In light of the ACCC’s emphasis on education, such a move would assist businesses to confidently manage their compliance obligations under the Trade Practices Act without fear of unexpected prosecution by the ACCC.

This is general information rather than legal advice and is current as of 14 Sep 2009. 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.