Labelling

The Australian Competition and Consumer Commission, in following up yeserday's Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited (No 2) [2018] FCA 1286, comments

The Federal Court of Australia has ordered H.J. Heinz Company Australia Ltd (Heinz) to pay penalties totalling $2.25 million for making a misleading health claim that its Little Kids Shredz products were beneficial for young children. 

In March 2018, the Federal Court found that Heinz had breached the Australian Consumer Law by claiming its Shredz products were beneficial to the health of children aged 1-3 years, when this was not the case. T 

he Court also found that Heinz nutritionists ought to have known that a representation that a product containing approximately two-thirds sugar was beneficial to health of children was misleading. The ACCC had sought a penalty of $10 million for Heinz. ... 

ACCC Chair Rod Sims said. “The ACCC wants to ensure that penalties for breaches of the consumer law are large enough to get the attention of the financial markets, boards and senior management." The ACCC is carefully considering the judgment. 

The Court also ordered Heinz to establish a consumer law compliance program and to pay the ACCC’s costs.

White J states at [17] through [20]

I propose to proceed on the basis that the ACCC has established that Heinz contravened s 29(1)(g) on at least 708,012 occasions by making the Berries Healthy Food Representation, on at least 459,054 occasions by making the Peach Healthy Food Representation, and on at least 40,494 occasions by making the Fruit and Chia Healthy Food Representation and that it is likely that the contraventions occurred on an indeterminate number of further occasions. 

The effect of the conduct

The ACCC accepted that the evidence did not indicate that any individual consumer had in fact suffered loss or harm as a result of Heinz’s contraventions. It submitted, however, that the contraventions had had two consequences of which the Court should take account. The first was the effect on consumer choice, by Heinz encouraging parents and carers, when making purchasing decisions, to select the Products on the basis that they would be beneficial for their child’s health, when that was not so. The cases recognise that the distortion of consumer choice is a nonmonetary effect of which the Court should take account (Reckitt Benckiser at [114]) and I accept this submission.

The second consequence was the potential for toddlers to suffer harm, whether by the development of obesity or dental caries, as a result of their consumption of excessive amounts of sugar, to which consumption of the Products may contribute. Heinz submitted that the findings in the Liability Judgment did not support the ACCC’s submissions that its conduct had had the potential to impact on the health and wellbeing of children. It noted the distinction drawn in the Liability Judgment between a finding that a product is not beneficial to a child’s health, on the one hand, and a finding that the product is detrimental to a child’s health, on the other.

In my opinion, this submission of Heinz involves an unduly narrow reading of the reasons in the Liability Judgment. I refer in this respect to the conclusions in [236] and [244] of the Liability Judgment. I based the conclusions in those paragraphs on the evidence summarised earlier in the Liability Judgment about the potential for adverse health effects associated with the consumption of free sugars.

White J goes on at [43] through [55] to state

Heinz is a subsidiary of the United States Kraft Heinz Company, which describes itself as “A Global Food Powerhouse”. The Kraft Heinz Company achieved global net sales in 2016 of US$26.5 billion operating in more than 40 countries. There is no difficulty in concluding that Heinz is a major company with substantial resources. That being so, the submission made on behalf of Heinz that the penalty of $10 million sought by the ACCC would be oppressive to it cannot be accepted. 

Heinz does not have any record of prior contraventions. This is to its credit, especially given the large number of products it markets. 

Deterrence 

The principal concern of the Court in fixing of an appropriate pecuniary penalty is the element of deterrence, both general and specific: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [55] (“the purpose of a civil penalty ... is primarily if not wholly protective in promoting the public interest in compliance”). The ACCC submitted that this means that the penalty must be set high enough to outweigh any potential gain to the contravenor by engaging in the conduct and sufficiently high that a business will not be prepared to treat the risk of such a penalty as a business cost. A penalty which is not sufficiently substantial may undermine the public interest in consumers being able to make decisions free from conduct that is liable to mislead and thus distort decisionmaking processes: Reckitt Benckiser at [164]. 

The ACCC submitted that specific deterrence is a particularly important consideration in the present case. It submitted, first, that the conduct of Heinz involved a high degree of contemplation and choice. It referred in this respect to the evidence indicating that Heinz had updated its packaging in 2013 with the intention of promoting the Products as both nutritious and healthy. This evidence was the subject of my findings in the Liability Judgment at [95][98]. 

The ACCC also referred to Heinz’s noncompliance with its own Toddler Snacking Guidelines and New Product Guidelines and the criteria contained in its document entitled “Heinz Little Kids Promise – Technical Criteria”. These were the subject of my findings at [295][311]. Having referred to those documents, I concluded that each of Heinz’s employed nutritionists ought to have known that a representation that a product which was approximately twothird sugar was beneficial to the health of children aged 13 years was misleading and that each ought to have known that consumption of a product with that level of sugar may have the effects which underpin the guidelines issued by the World Health Organisation. 

The ACCC also submitted that the need for specific deterrence was indicated by the fact that Heinz had continued its conduct even after it (the ACCC) had commenced its investigation. Heinz became aware of that investigation on 28 August 2015 by reason of the ACCC having served it with a notice pursuant to s 155 of the CC Act requiring the production of documents. The ACCC emphasised that, not only had Heinz continued sales of the Berries and Peach Products, it had also commenced sales of the Fruit and Chia Product in January 2016 using packaging with a similar content. This conduct evidenced, the ACCC submitted, a disregard by Heinz of “the fact that, at least insofar as the ACCC was concerned, its conduct was potentially in contravention of the law”. The ACCC submitted that, in this circumstance, the Court may readily infer that “in continuing to offer for sale in an unaltered form the Shredz Berries and Shredz Peach Products and [in] introducing the Shredz Fruit and Chia Product in a materially similar form”, Heinz had not been deterred by the risk of litigation. 

In addition, the ACCC referred to a report prepared by the Organisation for Economic Cooperation and Development (OECD) in 2018 entitled “Pecuniary Penalties for Competition Law Infringements in Australia” containing, at 68, the following statement:

"[I]f one observes continued lack of compliance by corporations falling within these two scenarios – in which the companies are not only aware of competition law, but also that they may be subject to special attention on the part of the authorities –, it is at least likely that those corporations regard the possible imposition of sanctions as a cost of doing business."

I would not regard the fact that a corporation has continued contravening conduct after coming under investigation by a regulator as necessarily indicating that it regarded the possible imposition of sanctions as a cost of doing business. There may no doubt be cases in which a corporation which becomes subject to regulatory investigation should recognise quickly the contravening nature of its conduct so that its continuation of the conduct may indicate recklessness or indifference to the requirements of the law. However, there may also be cases in which a corporation intending in a conscientious manner to be law abiding may reasonably take the view that a regulator’s concerns are unfounded or misplaced. Its continuation of the conduct in that circumstance would not support the inference which the ACCC submits. 

Three matters militate against the conclusion based on the OECD report for which the ACCC contends in the present case. First, the representations which the ACCC identified to Heinz in its s 155 Notices of 28 August 2015 and 4 April 2016 were not those which the ACCC pursued in the proceedings. It seems that the first notice Heinz had of the ACCC allegation concerning the Healthy Food Representation was when it was served with the proceedings (commenced on 16 June 2016). 

Secondly, the ACCC did not succeed with its allegation concerning two other representations Heinz was said to have made on the packaging of the Products. Neither of those representations had been alleged in the s 155 Notices. They serve to illustrate, however, that it may not be unreasonable for a corporation to take a different view about allegations by the ACCC than does the ACCC itself. 

Thirdly, Heinz voluntarily ceased sales of the Products with effect from 18 May 2016. That was one month before the ACCC commenced the present proceedings and two weeks after Heinz had provided its response to the second s 155 notice issued by the ACCC. Ms Fox, Heinz’s General Counsel, deposed that Heinz had withdrawn the Products from sale because of its appreciation that the ACCC had continuing concerns. The ACCC did not contest that evidence. 

Having regard to all these matters, I do not accept the ACCC’s submission that Heinz had regarded the possible imposition of sanctions with respect to its marketing of the Shredz Products as a cost of doing business. Nor do I accept the ACCC’s submission that the evidence shows that Heinz has a corporate culture marked by a lack of concern for compliance. Instead, the evidence suggests that the contraventions occurred by reason of Heinz’s failure to appreciate that the Healthy Foods Representations were conveyed by its packaging and that that representations were, in respect of each Product, false or misleading. 

I accept, however, that specific deterrence is pertinent because the imposition of an appropriate penalty should encourage Heinz to consider the effect of its packaging, considered in its entirety and the representations it conveys. I also accept the ACCC submission concerning the disregard by Heinz of its own Guidelines.

'Eco-Labeling' by Jason J. Czarnezki, Margot J. Pollans and Sarah Main comments 

Eco-labels, certifications, and seals of approval serve a variety of functions, including communicating to businesses and consumers the environmental attributes of a particular product or the dangers that product may pose. Eco-labels have the potential to improve environmental outcomes in a number of ways. This Chapter discusses the existing and emerging types of environmental labeling. Part II explores the range of types of eco-labels, laying out common label content and governance schemes (both public and private). Part III explores the challenges that successful labeling schemes must overcome, concluding that the best labels are whole process labels and that eco-labeling is best viewed as one component of a broader regulatory scheme. Part IV briefly concludes that continued work is needed to improve the effectiveness and legitimacy of eco-labeling schemes.