When the Mighty Fall: Will the ACCC Sink Its Teeth Into Dick Smith?

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Table of Contents

• Basis of an Investigation
• Potential Outcomes
• In Short

Iconic Australian electronics store, Dick Smith, recently fell into receivership leaving consumers and employees who now join a long line of unsecured creditors asking, “what next?”

The Australian Competition and Consumer Commission (ACCC), Australia’s consumer protection watchdog can investigate Dick Smith for misleading and deceptive conduct under section 18 of the Australian Consumer Law. The retailer enticed thousands of Australian consumers to purchase the gift cards. Aware of its dire financial position, noting in October 2015 that its profit for the year could fall by as much as 15%, Dick Smith offered consumers a 10% bonus scheme. Receivers are now refusing to honour the gift cards, leaving Coles, online retailer Kogan, and Australian startup, Prezzee to come out and say that they will swap the value of the Dick Smith card. But what can the ACCC do?

Basis of an Investigation

Under Australia’s Consumer Law, the 10% bonus scheme offered to Dick Smith gift card purchasers during the lead up to Christmas may be seen as misleading and deceptive conduct. Thousands of Australian consumers were enticed to buy these gift cards during the sales period before Christmas, with Dick Smith writing down almost $60 million in price slashing aimed at clearing unwanted stock. This bonus offer, also sold throughout Coles and Woolworths stores, was a Dick Smith initiative. Coles have since stated they will exchange Dick Smith gift cards for Coles gift cards of equal value. It is yet unclear if Woolworths will do the same.

Dick Smith was aware of its financial position, noting in October that its profit for the year could fall by as much as 15%. Enticing consumers to purchase gift cards by using a 10% off bonus scheme knowing that it could not honour those cards could lead to the court finding that Dick Smith engaged in misleading and deceptive conduct. 

This type of conduct includes anything a business states in the course of trade or commerce including any advertisements or promotions. This can include misleading consumers about the following:

• Price;
• Value or quality of the goods; or
• What goods or services are actually available.

Potential Outcomes

While a company is operating, the ACCC can use several enforcement procedures if it determines that a business has likely contravened the Competition and Consumer Act (CCA). It can use administrative resolutions to seek commitment from a business, and set out terms and conditions addressing what actions the business will take to rectify their breach. An administrative resolution typically requires the business to cease the infringing conduct and compensate consumers. Where the ACCC considers that a more formal remedy is required, they can consider the following:

• Issuing an infringement notice;
• Requiring court enforceable undertakings from the business under s 87B of the CCA; or
• Commencing legal action.

With Dick Smith in voluntary administration and receivership, the ACCC will face difficulties determining whether any actions will be of benefit to consumers until the fate of the electronics retailer is decided.

Until the receivers decide Dick Smith’s fate, it will be difficult for the ACCC to determine whether any enforcement procedures will benefit consumers. In similar circumstances, the ACCC commenced legal proceedings against Advanced Medical Institute (AMI) for unconscionable conduct in promoting medical services to men suffering from sexual dysfunction. The company went into administration the day after the ACCC commenced proceedings in late 2010 with judgment handed down in early 2015. The Federal Court determined that AMI had engaged in unconscionable conduct and ordered AMI (which had been sold to NRM Trading Pty Ltd) to compensate certain patients.

In Short

If the ACCC commences legal action against Dick Smith, a court will need to determine whether Dick Smith’s actions fall under section 18 of the ACL. If so, it may require the retailer to pay damages to consumers as well as impose pecuniary penalties due to the significant consumer detriment. Unfortunately for consumers, as can be seen with the case of AMI, these proceedings can take time, and could see frustrated consumers left in the lurch.

Questions? Get in touch on 1300 544 755.