Who: The Australian Competition and Consumer Commission (“ACCC“) and Derodi Pty Ltd and Holland Farms Pty Ltd (trading together as “Free Range Egg Farms“)
When: 15 April 2016
Law stated as at: 17 May 2016
Free range eggs crackdown
In its third case against an egg producer, the ACCC claimed that Free Range Egg Farms sold eggs labelled as “free range” under the Ecoeggs brand between January 2012 and December 2014, which were in fact not free range. The eggs were also advertised online, on social media and in magazine advertising using various claims that the eggs were free range, including “Our hens… spend their days roaming lush grassy fields” and “taste freedom“. Evidence presented by the ACCC showed that the hens were kept indoors until they were 14 months old, despite laying eggs from the age of 4 months.
The Australian Federal Court found that the two companies had breached Australian Consumer Law because the eggs were not actually free range. The court held that: the advertisements were “representations upon which consumers were heavily reliant“; and that the “words ‘free range’ are now very well known… They involve a representation with real content which, in this case, was coupled with powerful pictorial and verbal imagery“. In addition, the court stated that consumers and competitors were likely to have suffered significant losses, for example, consumers would have paid a premium based on the belief that the eggs were free range.
Free Range Egg Farms were fined A$300,000 as a result and ordered to place corrective ads in three major Australian newspapers within 21 days.
Can a UK court order corrective advertising in similar cases?
Australian courts have ordered corrective advertising for many years, from Dell in 2002 to Coles (a major Australian supermarket) in 2014.
In the US, the Federal Trade Commission has had powers to order the publication of corrective advertising in cases of misleading advertising since 1977.
In the UK, somewhat surprisingly the principal public law measure governing misleading advertising, the Consumer Protection from Unfair Trading Regulations 2008, does not confer on the courts a power to order corrective advertising.
However the criminal courts do have such a power in cases where Regulations 3, 4 or 5 of the Control of Misleading Marketing Regulations 2008 (“CMMRs”) have been breached and the court grants an injunction preventing the further publication of the advertising in question.
Regulation 3 deals with advertising which misleads traders, not consumers. Regulation 4 deals with comparative advertising aimed at consumers or traders. Regulation 5 deals with the promotion of codes of conduct which promote either misleading advertising contrary to Regulation 3 or comparative advertising which is contrary to Regulation 5.
None of these would be engaged if a case such as this were to come before the UK courts, and although it is technically possible that corrective advertising could be ordered under s.217 (8) of the Enterprise Act 2002, the courts have to date shown little appetite for using this power.
Therefore in a UK case on similar facts, the principal potential penalties would be fines and/or imprisonment of consenting, conniving or negligent company officers or senior managers or those holding themselves out as such.
Is it likely that fines of a similar magnitude would be meted out? As the sterling equivalent would be roughly £150,000 at prevailing exchange rates, this would seem unlikely as financial penalties in such cases in the UK have struggled to move out of four figures.
Why this matters:
The case is a reminder of how important food descriptions are to consumers that heavily rely on them in order to make choices over what to purchase. ACCC chairman Rod Sims stated, “When you advertise birds as free range you are charging double what you charge for barn laid eggs, so there are serious consequences for consumers, and also you are gaining an advantage over your competitors“.