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11 April 2016

Foreign corporations selling in Australia can be caught by the ACL

The Federal Court has found that foreign corporations can be found to have engaged in misleading or deceptive conduct when supplying goods or services to Australian consumers.

The Federal Court has found that foreign corporations can be found to have engaged in misleading or deceptive conduct when supplying goods or services to Australian consumers.

The Federal Court of Australia decision in Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 (delivered on 24 March 2016) confirms that the Australian Consumer Law (ACL) can apply to transactions involving the sale of products to Australian consumers by a foreign corporation.

The respondent, Valve Corporation (Valve), is based in the United States. Valve, as operator of the online game distribution network Steam, has in excess of 2 million Australian subscribers.

The Australian Competition and Consumer Commission (ACCC) brought proceedings against Valve claiming that the company had contravened the ACL by making misleading or deceptive representations about the acceptable quality guarantee under section 54. One example of the alleged misrepresentations was the statement made by Valve that, ‘ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART’.

In defending the proceedings, Valve argued that the ACL did not apply to the company and therefore that the guarantees of acceptable quality did not apply.

Valve relied on three lines of reasoning to support their argument; however all of these submissions were rejected by the Court.

First, Valve argued its conduct did not occur in Australia and that it did not carry on business in Australia. However, after considering that representations were made to consumers who were agreeing to Steam’s terms and conditions and downloading Valve’s software in Australia, and that representations had been made to individual Australian consumers in online chats, the Court found that Valve acted in Australia.

Moreover the Court held that, even if Valve’s conduct had not occurred in Australia, there was no doubt that Valve carried on business in Australia considering that Valve had:

  • a large number of Australian customers from whom it earned significant revenue;
  • servers and personal property located in Australia valued at $1.2 million; and
  • relationships with Australian businesses and contracted with parties in Australia to facilitate the delivery of content.

Second, Valve relied on section 67 of the ACL – a conflict of laws provision – to argue that the guarantee under section 54 did not apply where the supply of goods or services occurs under a contract where the proper law of the contract is not the law of Australia. While it was held that the proper law of the contract was the law of Washington State (USA), the Court did not accept that section 67 provided an exception for foreign corporations that are governed by the contract law of another jurisdiction. It was noted by the Court that, if this exception did exist, it would mean that, where Valve contracted with Australian consumers through an Australian subsidiary, the guarantees would not apply even though an Australian consumer received ‘Australian goods from an Australian subsidiary in Australia’.

Third, Valve argued that, while the definition of ‘goods’ under the ACL includes ‘computer software’, Valve argued that it did not supply ‘goods’ but was instead providing a ‘service’ – the licence agreement – with the supply of computer software being part of this service. The Court dismissed this argument, noting that, under the ACL, a reference to the supply of goods can include where goods are supplied with services. Further, it was held that a contractual licence to use goods could be equated to a hire without bailment, and that this fell within the inclusive definition of ‘supply’ under the ACL.

After finding that the ACL could apply to the supply, the Court went on to consider whether the representations made by Valve contravened provisions of the ACL that prohibit misleading or deceptive conduct. It held that certain terms and conditions in Valve’s Steam Subscriber agreements and statements in its refund policies contravened these sections, as they contained misleading representations about the availability of refunds.

However it was held that representations made in online chats between three Australian consumers and Steam Support representatives were not misleading, as there was no absolute representation that a refund would not be available.

While the Court ultimately found that Valve had made representations that were misleading or deceptive, the significance of this case rests with the fact that the Court did not accept that Valve could side-step the consumer protection provisions under the ACL merely because it was a foreign corporation.

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