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In March 2016, the Federal Court ruled in ACCC v Valve Corporation (No 3) [2016] FCA 196 that foreign online companies are also subject to the Australian Consumer Law (ACL) guarantees. In that case, Valve Corporation (Valve) was held liable for misleading consumers by stating they were not entitled to a refund and excluding any guarantees relating to the quality of the goods. 

The Federal Court finally brought the case to a close by giving orders for Valve to pay $3 million in penalties for breaching the ACL in ACCC v Valve Corporation (No 7) [2016] FCA 1553. Below, we examine the lessons learned and potential consequences from the long-running court case.

Facts of Case

Valve is an American company and an online game retailer. It supplies and sells most of its online games to consumers through a game distribution platform called Steam. The ACCC commenced proceedings against Valve in 2014, claiming that the company had notably breached Australian Consumer Law by stating in its Steam Subscriber Agreement that: 

  • Valve had no obligation to offer a refund for any digitally downloaded video games purchased; and
  • any statutory guarantees that goods would be of an acceptable quality were excluded, restricted or modified.

Both of the above statements contravene various sections of the ACL, including:

  • Sections 259(3) and 263(4) which states consumers have an entitlement to a refund in the event of a major failure in complying with the consumer guarantee of acceptable quality;
  • Section 64 which states that consumer guarantees and the rights that it gives consumers could not be excluded, restricted or modified by contract; and
  • Section 18 which states businesses cannot mislead or deceive.

The Court examined three key issues Valve raised and found in favour of the ACCC on all three points:

  1. That the ACL applied to the Subscription Agreement even though the proper law of contract was Washington State since the Subscription Agreement purported to substitute Washington State law for ACL’s consumer guarantees;
  2. That the supply of games and software constituted a supply of goods under the ACL; and
  3. That Valve was carrying on a business in Australia and as such, fell under Australian jurisdiction and that of the ACL.

As a result, the Court held that Valve had breached the relevant sections of the ACL and was liable under Australian law, despite being a foreign online company.

Orders by the Court

Under the ACL, the Court can order a variety of remedies including pecuniary and non-pecuniary remedies. The ACCC had initially sought relief in seven different categories, including remedies in the form of declarations, costs, injunctions and the establishment of a non-party consumer redress system. However the Federal Court, with Justice Edelman presiding, ultimately made four orders in relation to Valve’s liability, as follows:

  1. Valve is to pay to the Commonwealth $3 million in pecuniary penalties;
  2. For a period of three years, Valve is to be restrained from representing to Australian Consumers that it was under no obligation to offer refunds, that it was not subject to the consumer guarantees of the ACL or that it could restrict or exclude consumer guarantees;
  3. For a period of 12 months, for the benefit of Australian consumers, the company must publish on Valve’s website a notice on consumer rights; and
  4. Within 90 days, Valve is to establish and implement an Australian Consumer Law Compliance Program for any employees involved in the business’s deals with Australian consumers and maintain and continue to implement this program for a period of 3 years.

In a separate administrative hearing, the Federal Court also held that Valve was to pay 75% of the ACCC’s costs.

Court’s Reasoning

In coming to its decision on the reasons for its orders, the major contentious issue was the most suitable amount to order in pecuniary penalties. Valve had submitted that the appropriate amount was $250,000 whereas the ACCC argued for $3 million.

In ultimately favouring the ACCC’s amount, Justice Edelman stated that Valve’s proposed penalty was “next to nothing”. Section 224 of the ACL sets out the factors the court must take into account to determine the appropriate pecuniary penalty, including:

  • nature and extent of the act or omission and any loss or damage suffered;
  • circumstances in which the act or omission took place; and
  • whether the person had previously been found to have engaged in similar conduct.

In this case, Justice Edelman also specifically considered:

  • Valve’s culture of compliance;
  • the deliberateness of Valve’s contraventions and involvement of senior management;
  • the size of Valve, market share, and its financial position; and
  • Valve’s co-operation with the ACCC, admission of culpability, compensation and contrition.

In his judgment, Justice Edelman went through each of the factors in detail. He found that ultimately:

  • Valve’s contravention was of a significant nature,
  • there was a causal loss to the consumer in failing to get a refund,
  • Valve had a “very poor” culture of compliance and lacked a written compliance policy;
  • Valve had not obtained legal advice as to Australian consumer law and its incautious approach suggested even if it had, it may not have appropriately followed it anyway;
  • Valve’s size and revenue meant that a penalty of $250,000 would “barely be noticed” and a pecuniary penalty must be set at a “meaningful level” to specifically deter the company from repeating its breach; and
  • Valve did not co-operate with the ACCC and contested liability on “almost every imaginable point”.

Taking into account the above factors and findings, Justice Edelman concluded that the pecuniary penalty of $3 million was more appropriate for Valve.

Key Takeaways

As seen from the Federal Court’s orders, a breach by a company (including international companies carrying on a business in Australia) can result in heavy consequences. When determining the appropriate amount of penalties for breaching ACL consumer guarantees, courts will take into account a number of factors including:

  • the nature of the breach,
  • circumstances surrounding the breach,
  • whether it is a repeat offence, and
  • the size, revenue, culture and attitude of the offending business.

So, just because a company is foreign, if it conducts business in Australia and supplies goods to Australian consumers, the ACL can apply, and a breach of the consumer guarantees may result in very significant damages.

Questions about consumer guarantees for your business? Get in touch with our consumer lawyers on 1300 544 755.

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