FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791
CORRIGENDUM
1. In line 4 of [114] of the reasons for judgment the word “was” should be removed the second time that word appears in the second sentence of that paragraph.
2. In line 5 of [190] of the reasons for judgment insert the word “a” before the word “different”.
3. In line 4 of [332] of the reasons for judgment the figure “7%” should be removed and replaced with “3%”.
4. In line 3 of [334] of the reasons for judgment the figure “7%” should be removed and replaced with the words “a little less than 3%”.
5. In line 2 of [338] of the reasons for judgment the words “only about 7% keratin” should be removed and replaced with the words “a little less than 3% natural keratin”.
I certify that the preceding five (5) numbered paragraphs are a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justice Rangiah. |
Associate:
Dated: 12 November 2014
TABLE OF CONTENTS
QUEENSLAND DISTRICT REGISTRY | |
GENERAL DIVISION | QUD 300 of 2012 |
BETWEEN: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
|
AND: | DATELINE IMPORTS PTY LTD ACN 000 557 282 First Respondent DAVID TAYLOR Second Respondent
|
JUDGE: | RANGIAH J |
DATE: | 30 JULY 2014 |
PLACE: | BRISBANE |
REASONS FOR JUDGMENT
1 The first respondent, Dateline Imports Pty Ltd (“Dateline”), is a seller of hairdressing products within Australia. The second respondent, David Taylor, is the managing director of Dateline.
2 In 2009 and 2010, Dateline imported and sold a product called Keratin Complex Smoothing Therapy (“Keratin Complex”), which was used to straighten frizzy or curly hair.
3 The applicant, the Australian Competition and Consumer Commission (“the ACCC”), alleges that Dateline contravened ss 52(1) and 53(a) and (c) of the Trade Practices Act 1974 (Cth) (“the TPA”) by publishing certain false or misleading or deceptive representations concerning the absence of formaldehyde and the presence of natural keratin in Keratin Complex. These representations may conveniently be described as “the formaldehyde representations” and “the natural keratin representations” respectively.
4 The representations relied on by the ACCC and the provisions of the TPA that Dateline is alleged to have contravened are as follows.
The formaldehyde representations
1. From late 2009 until at least 22 July 2010, Dateline claimed on its website that Keratin Complex “does not contain toxic or dangerous chemicals such as Formaldehyde” and thereby represented that:
(a) Keratin Complex did not contain any toxic or dangerous chemicals: ss 52(1), 53(a);
(b) Keratin Complex did not contain formaldehyde: ss 52(1), 53(a);
(c) persons using Keratin Complex could not be exposed to formaldehyde: ss 52(1), 53(c);
(d) Keratin Complex was safe for its recommended use: ss 52(1), 53(c).
2. On about 20 September 2010, Dateline distributed a letter which represented that:
(a) Keratin Complex did not contain formaldehyde: ss 52(1), 53(a);
(b) persons using Keratin Complex could not be exposed to formaldehyde: ss 52(1), 53(c);
(c) Keratin Complex was safe for its recommended use: ss 52(1), 53(c);
(d) Keratin Complex complies with all health and safety regulations in the world: ss 52(1), 53(c);
(e) the Ireland ban on Keratin Complex would be overturned: s 52(1);
(f) Dateline had reasonable grounds for making the representations at (a) – (e) above and for making the further representations that Keratin Complex contained no harmful chemicals and that formaldehyde could not be detected in Keratin Complex: s 52(1).
3. Between 27 September 2010 and 11 October 2010, Dateline caused advertisements to be published in magazines stating that “formaldehyde is not an ingredient in Keratin Complex” and thereby represented that:
(a) Keratin Complex did not contain formaldehyde: ss 52(1), 53(a);
(b) persons using Keratin Complex could not be exposed to formaldehyde: ss 52(1), 53(a);
(c) Keratin Complex was safe for its recommended use: ss 52(1), 53(c);
(d) Dateline had reasonable grounds for making the representations at (a)-(c) above: s 52(1).
The natural keratin representations
4. Between 30 August 2010 and 20 September 2010, Dateline caused magazine advertisements to be published that stated, “[w]ith its unique formulation [Keratin Complex] infuses over 35% natural keratin”, and thereby represented that:
(a) Keratin Complex was comprised of at least 35% natural keratin;
(b) whatever was infused into the hair by the use of Keratin Complex included natural keratin;
ss 52(1), 53(a) and (c).
5. Between 27 September 2010 and 5 November 2010, Dateline caused magazine advertisements to be published that stated, “Keratin Complex treatments contain 40% natural Keratin”, and thereby represented that Keratin Complex is comprised of 40% natural keratin;
ss 52(1), 53(a) and (c).
6. Between 4 October 2010 and 9 November 2010, Dateline caused magazine advertisements to be published stating that Keratin Complex “reduces frizz, curl and styling time for up to 6 weeks by infusing 40% natural keratin in to your hair”, and thereby represented that:
(a) Keratin Complex is comprised of at least 40% natural keratin; and
(b) whatever was infused into the hair by the use of Keratin Complex included natural keratin;
ss 52(1), 53(a) and (c).
5 The TPA has been repealed, but continues to apply to conduct that occurred before 1 January 2011.
6 Section 52 of the TPA provided, relevantly:
(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
7 In its opening, the ACCC stated that it relies only upon the words “likely to mislead or deceive” in s 52(1). However, in its address it indicated that it also relies upon “is misleading or deceptive”. I understand the ACCC’s case to be, not that consumers were in fact misled or deceived by Dateline’s representations, but that they were likely to be misled or deceived. In this circumstance, I do not think anything turns on the change of position.
8 Section 53 of the TPA provided, relevantly:
A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:
(a) falsely represent that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use;
…
(c) represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;
9 As to s 53(a), the ACCC alleges that Dateline falsely represented that Keratin Complex was of a “particular composition”. As to s 53(c), the ACCC alleges that Dateline represented that the product had particular “benefits” that it did not have.
10 The ACCC’s case against Mr Taylor relies on s 75B and s 76E of the TPA, and is that he was directly or indirectly, knowing concerned in, or a party to the contraventions, and aided, abetted, counselled or procured contraventions of the TPA by Dateline in relation to the letter of 20 September 2010.
11 The relief sought by the ACCC against Dateline and Mr Taylor includes orders that each of them pay pecuniary penalties in respect of contraventions of s 53(a) and (c). I have previously ordered that issues of liability be heard and determined separately from and prior to the issue of any penalty. However, the availability of pecuniary penalties does have relevance to the determination of questions of liability.
12 On 15 April 2010, the TPA was amended to include a new s 76E. This section was later repealed with effect from 1 January 2011. Section 76E(1) provided that if the Court is satisfied that a person has contravened a provision of Division 1 of Part V (other than s 52), the Court may order the person to pay a pecuniary penalty. It also provided that the Court may order a person who has aided, abetted, counselled or procured or has been in any way directly or indirectly, knowingly concerned in, or party to a contravention of such provision to pay pecuniary a penalty. Accordingly, Dateline and Mr Taylor may be ordered to pay pecuniary penalties in respect of conduct that occurred between 15 April and 31 December 2010 and which breached s 53(a) or (c) of the TPA.
13 Section 140 of the Evidence Act 1995 (Cth) provides:
(1) In a civil proceeding, the court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject matter of the proceeding; and
(c) the gravity of the matters alleged.
14 Although the Court need only be satisfied that the ACCC has proven its case on the balance of probabilities, that satisfaction must be reached by taking into account the nature of the cause of action, the nature of the subject matter of the proceeding and the gravity of the matters alleged. It has been held that Dixon J’s discussion in Briginshaw v Briginshaw (1938) 60 CLR 336 at 361-363 of how the civil standard of proof operates appositely expresses the considerations which s 140(2) of the Evidence Act now requires a Court to take into account: Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 at [31].
15 I accept that the allegations made against Dateline and Mr Taylor are serious and may have serious consequences for their reputations and their financial positions. These circumstances call for the application of the Briginshaw principle: see, for example, ACCC v Flight Centre Ltd (No 2) (2013) 307 ALR 209 at [8] per Logan J; Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342 at [33]-[36] per Murphy J. In particular, I will take the approach that the ACCC will not make out its case by inexact proofs, indefinite testimony or indirect references.
16 A number of tests were conducted in order to ascertain the levels, if any, of formaldehyde in Keratin Complex. Of those tests, three were conducted at the request of the ACCC and the persons who performed the tests were called to give evidence. Those tests are:
(a) a test conducted by SGS Leeder Consulting on 25 October 2010;
(b) a test conducted by SGS Leeder Consulting on 20 December 2011; and
(c) a test conducted by Chemical Analysis on 2 February 2012.
17 The parties agreed that in circumstances where a test was conducted and the person who performed the test was not called to give evidence, the test results are evidence that the test was carried out, but cannot be used to establish the truth of the results. Accordingly, at least the following tests are to be treated in this way:
(a) the air quality tests conducted by the University of Miguel Hernández;
(b) the Intertek interim NMR report; and
(c) the testing conducted by Dr Ballantini of the University of Pisa; and
(d) the testing conducted by Bruce Green and Chartered Associates, Consultant Formulation Chemists.
18 The ACCC’s case is, in substance, that Dateline made representations that were not true. If it succeeds in establishing that Dateline contravened s 53, then it will also succeed in its case under s 52. If it fails under s 53, it is difficult to see that it could succeed under s 52 in the circumstances. I therefore propose to focus principally on s 53.
19 In the context of the present case, s 53(a) requires consideration of the following issues:
(a) Was a representation made?
(b) What was the representation? This requires the Court to construe the representation to ascertain its meaning.
(c) Was the representation made in trade or commerce?
(d) Was the representation made by a corporation?
(e) Was the representation made in connection with the supply or possible supply of goods or in connection with the promotion by any means of the supply or use of goods?
(f) Was the representation that the goods in question were of a particular composition?
(g) Was the representation false?
20 Dateline submits that another issue arises under s 53(a), namely whether the maker of the representation knew that the representation was false. It points to reasoning of the High Court in Murphy v Farmer (1988) 165 CLR 19, that in some statutory contexts “false” can mean “purposely untrue”, and seeks to apply that construction to s 53(a). That argument may be dealt with shortly because a number of decisions of this Court have held that the maker of a representation need not know that it is false in order for s 53(a) to be breached: see Given v CV Holland (Holdings) Pty Ltd (1977) 29 FLR 212 at 217; Unilever Australia Pty Ltd v Goodman Fielder Consumer Foods Pty Ltd [2009] FCA 1305 at [37]; Riley McKay Pty Ltd v Bannerman (1977) 31 FLR 129 at 134; Darwin Bakery Pty Ltd v Sully (1981) 51 FLR 90 at 96; 36 ALR 371 at 376; Trade Practices Commission v Vales Wine Co Pty Ltd (1996) 66 FCR 336 at 346–7. I am not persuaded that this line of authority is wrong. I reject Dateline’s submission.
21 The first five issues arising under s 53(c) are the same as under s 53(a), but the sixth and seventh issues are:
(f) Was the representation that the goods have a benefit?
(g) Did the goods have the benefit represented?
22 Most of these issues are not in dispute. In particular, Dateline and Mr Taylor have admitted that Dateline published the statements alleged by the ACCC and have admitted that by those statements Dateline made the representations alleged by the ACCC, with two exceptions. The exceptions are that Dateline denies that it represented that persons using Keratin Complex could not be exposed to formaldehyde and denies that it represented that the Ireland ban would be overturned.
23 What remains in issue between the parties is:
(a) whether the representations, other than the representation that the Ireland ban would be overturned, have been proven by the ACCC to be false or misleading or deceptive or likely to mislead or deceive;
(b) in the case of the representation that the Ireland ban would be overturned, whether Dateline has proven that it had reasonable grounds for making the representation.
24 In respect of some of those representations, their truth or falsity depends upon what meaning or construction is to be attributed to those representations. In particular, a central issue concerns the meaning of formaldehyde in each context in which that expression was used by Dateline. The outcome of this case turns largely upon the determination of what meaning the representations conveyed to potential consumers and whether that meaning accords with the true facts.
the formaldehyde representations on Dateline’s website
25 Dateline operates the website www.datelinecity.com, where it advertises the products that it sells. Between late 2009 and July 2010, Dateline advertised Keratin Complex on its website. The advertisement contained the words “does not contain toxic or dangerous chemicals such as Formaldehyde”.
26 The ACCC alleges, and Dateline admits, that by those words Dateline represented that:
(a) Keratin Complex did not contain any toxic or dangerous chemicals;
(b) Keratin Complex did not contain formaldehyde; and
(c) Keratin Complex was safe for its recommended use.
27 Although Dateline admits that it represented that Keratin Complex did not contain formaldehyde, it disputes the ACCC’s allegation as to what meaning that representation conveyed.
28 The ACCC also alleges that the words represented that persons using Keratin Complex could be not exposed to formaldehyde, but Dateline denies that this was precisely what it represented.
29 Dateline denies that any of these representations has been proven by the ACCC to be false.
The meaning of the website representations
30 In a proceeding for breach of s 52 of the TPA, the question of whether conduct is misleading or deceptive or likely to mislead or deceive must be considered by reference to the class of consumers likely to be affected by the conduct: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 per Gibbs CJ, at 209 per Mason J. No conduct can mislead or deceive unless the person to whom the representation is made labours under some erroneous assumption: Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200. It must be determined what misconceptions or deceptions alleged to arise or to be likely to arise are properly to be attributed to the ordinary and reasonable members of the classes of prospective purchasers: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [105]. The question is whether a not insignificant number of reasonable persons within the class have been misled or deceived or are likely to be misled or deceived by the conduct, whether in fact or by inference: Hansen Beverage Co v Bickfords (Aust) Pty Ltd (2008) 171 FCR 579 at [46] per Tamberlin J, at [66] per Siopis J; ConAgra Inc v McCain Foods (Aust) Pty Ltd (1992) 33 FCR 302 at 380-381; Bodum v DKSH Australia Pty Ltd (2011) 280 ALR 639 at [205].
31 The question of what is the natural and ordinary meaning conveyed by a publication or conduct is to be ascertained by the Court applying an objective test of what ordinary or reasonable readers or consumers in the class would have understood as the meaning: Bodum v DKSH Australia Pty Ltd (2011) 280 ALR 639 at [203].
32 It follows that where the alleged contravention of s 52 of the TPA involves the making of a representation to the public or a class of the public, it is necessary for the Court to consider what ordinary persons in the class to which the representation is made would understand by the representation, and whether a not insignificant number of such persons would have that understanding.
33 The same questions arise in respect of allegations of contravention of s 53: Ricegrowers Ltd v Real Foods Pty Ltd [2008] FCA 639 at [112]; ACCC v Energy Watch Pty Ltd [2012] FCA 425 at [23]. The question of whether the representation was false must be judged by reference to that understanding.
34 It is necessary to identify the characteristics of the class of persons likely to have read the advertisement on Dateline’s website. The website was accessible by any member of the public. It was likely to have been read by hairdressers and owners of hairdressing salons interested in finding products to use in their businesses. It was also likely to have been read by people concerned about the appearance of their hair or wishing to change their appearance for reasons of fashion. The readers of the advertisement, in each category, are likely to have been interested in the question of whether the product was harmful to hair and to health more generally. That is, at least, because physical appearance is related to health. A wide cross-section of people is likely to have read the advertisement.
What would the representations mean to ordinary consumers?
35 The next question is what an ordinary person in the class of prospective consumers reading the advertisement would understand the words “does not contain toxic or dangerous chemicals such as Formaldehyde” to mean.
36 As to the first and third of the representations (see [26]), there is no dispute between the parties that those words represented that Keratin Complex did not contain any toxic or dangerous chemicals and that Keratin Complex was safe for its recommended use. Neither is there any issue as to the meaning to be attributed to those representations.
37 As to the second of the representations, while Dateline admits it represented that “Keratin Complex did not contain formaldehyde”, the meaning of that representation is contentious. The parties differ as to how ordinary members of the class of consumers reading the advertisement would understand the representation.
38 The text of the advertisements on the website appeared next to a picture of a bottle of Keratin Complex. It is similar in appearance to a shampoo bottle and a consumer would infer that it contains a liquid. The full text was as follows:
The Problem: Curly, frizzy, high-maintenance hair
Keratin Complex Smoothing Therapy is the No.1 straightening system worldwide. It won’t matter if hair is over processed, coloured or bleached as this simple to apply patented formula is guaranteed to make hair super straight, smooth, silky and absolutely resistant to humidity and frizz. Not to mention being much, much easier and faster to style for up to 5 months.
Benefits:
• Suits all hair types, in any condition
• Eliminates up to 95% of frizz and curl on natural and chemically treated hair
• Does not contain toxic or dangerous chemicals such as Formaldehyde, Propylene Glycol, Cetostearyl alcohols, Methylchloroisothiazolinone or Ether
• Quick, easy process
• Supported by a complete range of after care products and electricals
This is an in-salon treatment. For professional use only.
AS SEEN IN GRAZIA!
Contact us for price and availability
39 The ACCC submits that the representation that Keratin Complex did not contain formaldehyde would be understood by an ordinary person in the class to mean that:
(a) Keratin Complex did not contain formaldehyde in any form; and/or
(b) Keratin Complex did not contain the chemical called formaldehyde in any form; and/or
(c) Keratin Complex did not contain formaldehyde in either its gaseous form or in solution.
40 Dateline submits that an ordinary consumer in the class would not know what formaldehyde means and, so, the representation could not give rise to any misconception at all. It submits, in the alternative, that such a person would understand formaldehyde to be only a gas, and not any aqueous solution of which formaldehyde is a component.
41 The meaning that ordinary consumers would attribute to the representation pleaded and admitted falls to be determined in the context of the advertisement read as a whole. The advertisement shows the consumer that Keratin Complex is a liquid treatment that is applied to hair. It straightens curly or frizzy hair for up to five months. An ordinary consumer would understand that the product contains some chemicals which operate to achieve this effect. The advertisement reassures the consumer that the product does not contain toxic or dangerous chemicals, and it gives specific examples of toxic or dangerous chemicals that are not contained in the product. One of those examples is formaldehyde. It describes the absence of such toxic or dangerous chemicals as one of its “[b]enefits”. An ordinary consumer would draw the inference that those chemicals may be found in other hair-straightening products, but not in Keratin Complex. The consumer would draw the further inference that those chemicals could have been included in Keratin Complex, but were not.
42 In my opinion, a not insignificant number of ordinary consumers would understand the advertisement to represent that there is a chemical called formaldehyde, that formaldehyde is toxic and dangerous and that Keratin Complex does not contain the chemical called formaldehyde. Such persons would understand that formaldehyde is or can be in liquid form because Keratin Complex is a liquid and could have been manufactured to contain formaldehyde but was not. This understanding is consistent with the second formulation of the understanding relied on by the ACCC (see [39](b)).
43 In support of its argument that the representation would be understood by an ordinary person to mean that Keratin Complex did not contain formaldehyde in either its gaseous form or in solution, the ACCC relied upon dictionary definitions of formaldehyde as representing its ordinary meaning. The Oxford English Dictionary defines “formaldehyde” as:
A choking gas, CH2O, usually prepared as an aqueous solution, and used as a preservative, an antiseptic, and in large quantities as a raw material in the chemical and plastics industries.
44 The Macquarie Dictionary defines “formaldehyde” as:
[A] gas, methanal, HCHO, used most often in the form of a 40 per cent aqueous solution, as a disinfectant and preservative, and in the manufacture of various resins and plastics.
45 Those definitions indicate that formaldehyde is a gas, but is usually prepared or used as an aqueous solution.
46 I consider that if consumers within the group described in [34] were asked, “What is formaldehyde?”, some would give the further answer, “It is the chemical used to preserve biological specimens in glass jars”. Such an answer is likely to be given, at least, by persons who have done high school chemistry or biology or who work in the chemical industry or are otherwise generally familiar with chemicals. Such persons would understand that formaldehyde is a preservative which is or can be a liquid or solution. Such persons would also understand, at least from the advertisement, that formaldehyde is toxic or dangerous. In my opinion, this understanding would be the understanding of a not insubstantial group of ordinary consumers in the class. This understanding is consistent with the first formulation of the understanding contended for by the ACCC (see [39](a)).
47 I do not accept Dateline’s submission that ordinary consumers in the class would have no understanding of what formaldehyde was or would attribute no meaning to it.
48 Dateline’s alternative submission is that ordinary consumers would understand formaldehyde to only be a gas. It relies on Mr Taylor’s evidence that he understood formaldehyde to be a gas. It also argues that the dictionaries define formaldehyde as a gas only and then merely give examples of how it is usually prepared and used. It is true that the dictionaries define formaldehyde as a gas, but the definitions also indicate that formaldehyde is “usually prepared as an aqueous solution” and “used most often in the form of…[an] aqueous solution” (emphasis added). In my opinion, these definitions indicate that an aqueous solution containing formaldehyde may still be described as formaldehyde. In addition, the advertisement for Keratin Complex would suggest to an ordinary consumer that formaldehyde can be a component of a solution. I do not accept that ordinary consumers in the class would understand formaldehyde to only be a gas.
49 I find that there are two groups, each containing a not insignificant number of ordinary consumers, which would have a slightly different understanding of what formaldehyde meant in its context in the website advertisement. The first group would understand it to be a reference to a chemical called formaldehyde, and would understand that it is or can be in a liquid. The second group, a sub-group of the first, would have a more specific understanding of formaldehyde as a chemical that can be used as a preservative, and which is or can be a solution. Each group would understand that formaldehyde was not contained in Keratin Complex.
50 The fourth website representation alleged by the ACCC (see [28]) to have been made by Dateline is that persons using Keratin Complex could not be exposed to formaldehyde. Dateline denies that this was its representation. It argues that ordinary consumers would have understood the representation to mean that persons using Keratin Complex could not be exposed to formaldehyde in levels that posed a safety risk to humans. Dateline argues that the ACCC’s characterisation is not the natural meaning of the words actually used, judged in their context.
51 In my opinion, an ordinary consumer in the class would not read into the representation the qualifications asserted by Dateline. The words “does not contain toxic or dangerous chemicals such as Formaldehyde” are clear and absolute. The advertisement read as a whole does not suggest any qualification of those words. If the product did not contain formaldehyde, then ordinary consumers using the product would understand that they could not be exposed to formaldehyde. I accept that a not insignificant number of ordinary consumers in the class would understand the representation to be that persons using the Keratin Complex could not be exposed to formaldehyde.
52 In summary, I consider that a not insignificant number of ordinary consumers would understand the words “does not contain toxic or dangerous chemicals such as Formaldehyde” to mean that:
(a) Keratin Complex did not contain any toxic or dangerous chemicals;
(b) Keratin Complex did not contain formaldehyde, in the sense that:
(i) Keratin Complex did not contain a chemical called formaldehyde which is or can be in a liquid;
(ii) Keratin Complex did not contain formaldehyde, which is a chemical that can be used as a preservative and is or can be in a liquid;
(c) Keratin Complex was safe for its recommended use;
(d) persons using Keratin Complex could not be exposed to formaldehyde.
Whether the website representations were false
53 The question that must ultimately be answered for s 53(a) is whether the representations that the product was of a particular composition were false. For s 53(c), the question is whether the product did not have benefits that it was represented to have. For s 52(1), it is whether the representations were misleading or deceptive. In substance, however, the ACCC’s case is that the representations were false.
Whether the representation that “Keratin Complex did not contain formaldehyde” was false
54 It is convenient to begin with the representation that Keratin Complex did not contain formaldehyde because it is central to the disposition of this case. The question that must be answered is whether what was conveyed by the representation (set out at [52](b)] above) accorded with the true factual position.
55 The ACCC must prove that Keratin Complex did contain formaldehyde, but the first step is to identify what formaldehyde is. That is an issue very much in dispute.
56 It is common ground that formaldehyde is a chemical that is a gas in ambient conditions. It is not in dispute that if formaldehyde is only a gas, then the representation that Keratin Complex did not contain formaldehyde was true.
57 However, the ACCC pleads that formaldehyde is not only a gas, but that, “Formaldehyde…is known, inter alia, as hydrated formaldehyde when dissolved in water [and] when dissolved in water largely takes the form of methylene glycol”.
58 It should be noted that there was very little agreement between the parties about terminology. I will try to use neutral expressions where I can, although that will involve the repetition of some prolix phrases.
59 When formaldehyde gas is combined with water, molecules of formaldehyde are solvated by water molecules. The solvated formaldehyde readily reacts with water molecules to form a solution consisting of a compound called methylene glycol and some unreacted formaldehyde molecules (and methylene glycol may also polymerise to produce polymethylene glycol unless a stabiliser is added). It is the central plank of the ACCC’s argument that a solution consisting of methylene glycol and unreacted formaldehyde is a form of formaldehyde.
60 In a simple aqueous solution of methylene glycol and unreacted formaldehyde, about 99.96% of the solution will consist of methylene glycol and 0.04% will consist of unreacted formaldehyde. There was no consensus amongst the experts who gave evidence about the term that is used to describe these solvated but unreacted formaldehyde molecules. It is important to note that the ACCC disclaimed reliance upon this minute quantity of unreacted formaldehyde as being enough, of itself, to prove that Keratin Complex contained formaldehyde. It is the combination of methylene glycol and unreacted formaldehyde that the ACCC relies on as constituting formaldehyde.
61 The issues, then, are whether the ACCC has proven that:
(a) a solution of methylene glycol and unreacted formaldehyde in Keratin Complex is correctly described as a chemical called formaldehyde, or as a chemical called formaldehyde that can be used as a preservative;
(b) if it is, then whether Keratin Complex contained such a solution of methylene glycol and unreacted formaldehyde.
62 Dateline submits that the ACCC has not proven either of these matters.
63 In addressing the first of these issues, an appropriate starting point is the dictionary definitions of formaldehyde set out earlier, which indicate that formaldehyde can be an aqueous solution as well a gas. Those definitions are consistent with the ACCC’s argument that methylene glycol and unreacted formaldehyde is a form of formaldehyde because they indicate that formaldehyde is usually prepared as or used in the form of an aqueous solution. However, the dictionary definitions are not determinative: cf ACCC v Turi Foods Pty Ltd (No 4) [2013] FCA 665 at [95]. It is necessary to examine the other evidence, particularly the evidence of experts in chemistry, as to what formaldehyde is.
64 Oral evidence was given by six such experts. Professor Haddad and Dr Rowe were called by the respondents, and it is convenient to refer to them as “Dateline’s experts”. Associate Professor McGeary, Dr Cook, Mr Atkinson and Mr Wang were called by the ACCC, and it is convenient to refer to them as “the ACCC’s experts”.
65 Dateline’s experts considered that the term “formaldehyde” is confined to the gas and to unreacted formaldehyde molecules in an aqueous solution. In their view, once a formaldehyde molecule reacts with a water molecule, it is no longer formaldehyde. Instead, a different compound, methylene glycol, is produced.
66 The ACCC’s experts opined that the term “formaldehyde” also includes a simple aqueous solution consisting of methylene glycol and unreacted formaldehyde molecules. In their view, it also includes an aqueous solution of methylene glycol and unreacted formaldehyde with methanol added as a stabiliser, called formalin or formaldehyde solution.
67 All the experts agreed that formaldehyde (in the sense of the gas and unreacted formaldehyde in an aqueous solution) and methylene glycol are distinct chemical compounds. Formaldehyde gas comprises one carbon atom, one oxygen atom and two hydrogen atoms. It has been assigned the unique Chemical Abstract Service (“CAS”) registry number of 50-00-0 by the American Chemical Society (“the ACS”). Its molecular weight is 30.03 g mol.
68 Methylene glycol comprises one carbon atom, two oxygen atoms and four hydrogen atoms. Its molecular weight is 48.04 g mol. It has the CAS registry number 463-57-0.
69 The reaction of formaldehyde gas and water forms a solution consisting of methylene glycol and unreacted formaldehyde, and takes milliseconds. In a simple aqueous solution, methylene glycol and the unreacted formaldehyde molecules also undergo a reverse reaction to form water and formaldehyde. This is known as an equilibrium reaction. Forward and reverse reactions occur simultaneously. The system reaches equilibrium and although the forward and reverse reactions continue to occur, there is no net change in the quantity of the components of the solution. The equilibrium lies very much in favour of the formation of methylene glycol, so that the solution will consist of 99.96% methylene glycol and 0.04% unreacted formaldehyde.
70 Dateline’s experts argued that methylene glycol is not the same compound as formaldehyde. They also argued that a solution of methylene glycol and unreacted formaldehyde is not synonymous with formaldehyde. The ACCC’s experts agreed with the first of these propositions, but disagreed with the second.
71 As to the second proposition, Dateline’s experts considered that because formaldehyde and methylene glycol are distinct compounds in the sense of having different chemical structures and different CAS numbers, it is wrong to use methylene glycol as a synonym for formaldehyde. Professor Haddad described the synonymous use of the expressions as “loose terminology or industry speak, if you like, almost slang.”
72 The ACCC’s experts gave evidence that in the chemical industry, amongst both chemists and non-chemists, the term “formaldehyde” is used to describe both formaldehyde gas and an aqueous solution containing methylene glycol. This is so because of the constant interchange in which the unreacted formaldehyde molecules are converted into methylene glycol molecules and methylene glycol molecules are converted into formaldehyde molecules in the equilibrium reaction. Methylene glycol cannot be isolated from unreacted molecules of formaldehyde.
73 The ACCC’s experts also argued that the fact that formaldehyde encompasses a solution containing methylene glycol is recognised by the ACS, which has allocated the same registry number for formaldehyde and formaldehyde solution. Formaldehyde is not usually sold in its gaseous form, but is usually sold as formaldehyde solution or formalin. Formaldehyde solution consists of methylene glycol, unreacted formaldehyde and methanol.
74 The ACCC’s experts argued for these reasons that formaldehyde in an aqueous solution is commonly known as formaldehyde within the chemical industry, and sometimes even by some academic chemists.
75 I accept the opinions of Dateline’s experts that in strict academic terms formaldehyde only refers to the gas and to unreacted formaldehyde in an aqueous solution. However, I also accept the evidence of the ACCC’s experts, for the reasons indicated above, that formaldehyde has a broader meaning within the chemical industry. This “trade meaning” is consistent with the ordinary, or dictionary, meaning.
76 I find that formaldehyde includes the solution created when formaldehyde is combined with water; that is, a solution consisting of unreacted formaldehyde and methylene glycol. It is still called formaldehyde when methanol is added to create formalin or formaldehyde solution.
77 I find that formaldehyde is:
(a) a gas;
(b) dissolved but unreacted molecules of formaldehyde in an aqueous solution;
(c) a simple aqueous solution consisting of unreacted formaldehyde and methylene glycol; and
(d) formalin, or formaldehyde solution.
78 However, the evidence of the ACCC’s experts did not go so far as to indicate that more complex solutions of formaldehyde, water and other additives (other than formalin) are also called formaldehyde. The experts agreed that the reactions between formaldehyde and water and the equilibrium between unreacted formaldehyde and methylene glycol that they describe are representative of simple aqueous solutions. They agreed that those reactions and equilibrium cannot be applied to more complex solutions. Further, there was no suggestion that there are compounds or solutions apart from formalin that share the same CAS registry number as formaldehyde.
79 More complex solutions containing methylene glycol cannot necessarily be described as formaldehyde. To the extent that it is alleged that a particular more complex solution contains formaldehyde because it contains methylene glycol and unreacted formaldehyde, I would require evidence that it should be so regarded.
80 It follows that if the ACCC is able to prove that Keratin Complex is a simple aqueous solution which included methylene glycol and unreacted formaldehyde, then it will have demonstrated that Keratin Complex contained formaldehyde. On the other hand, if it can only demonstrate that Keratin Complex is a complex solution which contained methylene glycol and unreacted formaldehyde, then, in the absence of evidence that the solution or part of it is to be regarded as formaldehyde, it will not have proved that Keratin Complex contained formaldehyde.
Did Keratin Complex contain formaldehyde when manufactured?
81 In order to determine whether Keratin Complex contained formaldehyde in the form of an aqueous solution of methylene glycol and unreacted formaldehyde, it is necessary to start by examining its ingredients and the method of its manufacture.
82 Keratin Complex is manufactured by Keratronics Inc (“Keratronics”), which is based in Florida, USA. Its president and chief executive officer, Michael Anthony, gave evidence as to how Keratin Complex was manufactured in 2009 and 2010. I made a non-publication order in respect of that part of Mr Anthony’s affidavit which described the process and the ingredients pursuant to s 37AF(1)(b) of the Federal Court of Australia Act 1976 (Cth) because of the commercial sensitivity of that information. Accordingly, I will describe the process and the ingredients at some level of generality.
83 Keratronics commenced the process by mixing keratin powder with water. Cysteine powder was added. Formalin was added. The solution was left to allow a reaction between the cysteine and the formalin to take place. Another chemical called p-benzoquinone was added. The resulting product was called Tri-Ionic Keratin.
84 The next step in producing Keratin Complex was to combine Tri-Ionic Keratin with a number of other ingredients (Phase A). A number of different ingredients were separately mixed (Phase B). Timonacic acid crystals were added to either Phase A or Phase B. Phase A was then blended with Phase B.
85 Timonacic acid is a compound which can be prepared by reacting cysteine with formalin. Timonacic acid is also known as thiazolidine-4-carboxylic acid and thiaproliene. The reaction is reversible, so that methylene glycol and unreacted formaldehyde can be produced from timonacic acid.
86 Timonacic acid was used twice in the manufacture of Keratin Complex. First, it was produced in the process of making Tri-Ionic Keratin by combining cysteine and formalin. Mr Anthony’s evidence is that an excess of cysteine was present compared to the amount of methylene glycol, and unreacted formaldehyde was added so that there could be no remaining methylene glycol and unreacted formaldehyde in the solution. Second, pre-manufactured timonacic acid was added to Phase A or Phase B. Mr Anthony deposed that Keratin Complex contained 5.24% timonacic acid in total.
87 It may be seen that formaldehyde was not directly added to the mixture of chemicals that formed Keratin Complex. Rather, formalin was first converted to timonacic acid, and the timonacic acid was added to the mixture. Dateline claims that the timonacic acid “encapsulated” the methylene glycol and unreacted formaldehyde (such that the timonacic acid would not break down into its components during the normal use of Keratin Complex).
88 It is not clear whether the ACCC alleges that timonacic acid can be regarded as a form of formaldehyde. Such an allegation was not pleaded. Associate Professor McGeary indicated in oral evidence that he would include within the term “free formaldehyde” any species that can produce formaldehyde rapidly and make it available for a chemical reaction. He said that he would include timonacic acid in that category if it could produce formaldehyde rapidly.
89 However, there is no evidence that timonacic acid is called formaldehyde in the chemical industry or elsewhere. Timonacic acid is quite a different compound from both formaldehyde gas and methylene glycol, with a different chemical structure. Dr Cook expressed the view in an affidavit that free formaldehyde does not encompass formaldehyde that has reacted reversibly with cysteine (although his oral evidence was less clear on the issue). The general view of the ACCC’s experts was that methylene glycol and unreacted formaldehyde in a solution is formaldehyde is confined to simple aqueous solutions, but there is no evidence that timonacic acid can be classified as a simple aqueous solution. In addition, Mr Wang’s evidence is that the reverse reaction to break down timonacic acid does not occur readily, requires heat and strong acid and takes hours to complete. For these reasons, I find that timonacic acid is not formaldehyde.
90 In order to prove that Keratin Complex contained formaldehyde, it is not sufficient for the ACCC to prove that it contained timonacic acid. It is necessary for the ACCC to prove that:
(a) Keratin Complex contained a solution of methylene glycol and unreacted formaldehyde; and
(b) the methylene glycol and unreacted formaldehyde was contained in an aqueous solution, the properties of which allow the solution to still be called formaldehyde.
91 The ACCC had three tests performed on samples of Keratin Complex which, it contends, detected the presence of formaldehyde in the form of methylene glycol and unreacted formaldehyde. The ACCC argues that these results show that the alleged “encapsulation” of methylene glycol and unreacted formaldehyde in Keratin Complex through the use of timonacic acid was either ineffective, or only of temporary and transient effect. It argues, in other words, that the presence of formaldehyde in Keratin Complex can be explained by either the incomplete conversion of the methylene glycol and unreacted formaldehyde found in the formalin when mixed with cysteine, or the timonacic acid decomposing within the bottle of Keratin Complex and reverting to methylene glycol and unreacted formaldehyde.
92 The ACCC’s argument concerning incomplete conversion is based upon the opinions of Associate Professor McGeary and Dr Cook that the method used would involve an excess of formalin not converted into timonacic acid. Those opinions were based upon Mr Anthony’s description in his first written statement of the process of manufacture of Tri-Ionic Keratin and the quantities of cysteine and formalin used. Associate Professor McGeary calculated that on the basis of Mr Anthony’s first statement as to the quantity of formalin used and that the formalin was a “34-38% buffered formalin solution”, that a 100 kg batch of Tri-Ionic Keratin would contain 0.73 - 1.01 kg of unreacted formaldehyde in the form of methylene glycol.
93 However, in a further statement Mr Anthony explained that what he meant by a “34-38% buffered formalin solution” is that the 34-38% formalin solution is heavily diluted with water. In his second statement, Mr Anthony gave the precise quantities of cysteine and buffered formalin that are used when manufacturing each 400 or 800 gallon batch of Tri-Ionic Keratin. I accept that evidence. Associate Professor McGeary and Dr Cook proceeded on an incorrect premise and did not produce any further reports in response to the second statement of Mr Anthony. Neither did they did give oral evidence to the effect that they were still of the opinion that there would be an excess of methylene glycol. In the absence of such evidence, the ACCC has not shown that Keratin Complex, when it was manufactured and bottled, contained a methylene glycol and unreacted formaldehyde solution.
94 The ACCC’s case then depends upon the proposition that the timonacic acid in bottles of Keratin Complex breaks down over time to produce formaldehyde in the form of methylene glycol and unreacted formaldehyde. The experts agreed that it is extremely difficult to predict whether timonacic acid would decompose to form methylene glycol and cysteine in Keratin Complex. However, an inference that it did so decompose could be drawn if the ACCC can demonstrate that the samples of Keratin Complex it had tested contained methylene glycol, which would be accompanied by unreacted formaldehyde.
95 One qualification should be mentioned at this stage. In my opinion, ordinary consumers viewing the website advertisements for Keratin Complex would not expect the advertised qualities or properties of the product to represent the position forever. They would expect a product containing organic and chemical components to deteriorate over time. They would expect that the product had a “use by” or “best before” date, although they would not know from the advertisement what that date is. For example, most ordinary consumers would not expect that Keratin Complex would necessarily continue to straighten frizzy or curly hair after it had reached its “use by” or “best before” date. Similarly, they would not expect the other representations made in the website advertisement to necessarily hold after the product reached that date. The representations, including the representation that Keratin Complex did not contain formaldehyde, would be understood as being temporally limited to some unspecified “use by” or “best before” date.
96 The experts gave evidence that Keratin Complex would deteriorate over time after being opened and exposed to oxygen. Mr Anthony’s evidence was that the “lifetime” of Keratin Complex was guaranteed for a period of no more than two years because of oxidation. That period was not marked on the bottles as the “use by” or “best before” date, but I accept that two years was the effective life of the product.
97 If the ACCC is to succeed, it is not enough to demonstrate that the samples of Keratin Complex that it had tested did contain formaldehyde in the form of methylene glycol. It must also show either that the Keratin Complex that was tested was manufactured and bottled no more than two years before the testing, or that its age would not affect the results. Otherwise, it will not have shown that the representation was false.
The testing of Keratin Complex for the presence of formaldehyde
98 I turn to the question of whether the testing of the samples of Keratin Complex carried out by the ACCC showed that the samples did contain methylene glycol and unreacted formaldehyde. As there was evidence that if methylene glycol is present unreacted formaldehyde molecules will inevitably be present as well, it is convenient to refer to only methylene glycol from here onwards, except where the context requires otherwise.
99 The ACCC had three separate laboratory tests conducted on Keratin Complex for the presence of formaldehyde by three different methods.
100 The first test was conducted by Mr Wang, who is employed as a senior chemist at SGS Leeder Consulting, on 25 October 2010, using a testing method known as pre-column High Performance Liquid Chromatography (“HPLC”). That testing showed that the sample of Keratin Complex contained 2.2% formaldehyde (in the form of methylene glycol) by weight.
101 The term “liquid chromatography” is used to describe a variety of techniques for the separation, purification and quantification of chemical substances. A quantity of a sample solution is applied onto a chromatographic system. The system separates the sample into its component parts on the basis of the physical and chemical properties of the individual chemical substances in the sample so that each separated component can then be identified, measured and collected. HPLC is a form of liquid chromatography that was used in this case to identify the presence of formaldehyde in the sample and quantify the formaldehyde that was present.
102 In the first HPLC test, a chemical called 2,4-dinitrophenylhydrazine (“DNPH”), was reacted with the analyte (the chemical constituent being measured). This process is called “derivatisation” and is designed to improve the detectability of formaldehyde and methylene glycol using UV light. Derivatisation can be performed in two ways.
103 The first test used “pre-column derivatisation” in which the reaction of the analyte with the derivatising agent was performed before the sample was introduced into the HPLC separation column and separated into its various chemical substances. The experts, in their joint report, agreed that when HPLC testing using pre-column derivatisation is conducted on an aqueous sample containing timonacic acid, the unreacted formaldehyde present in the sample will react with the DNPH and will then encourage the formation of formaldehyde molecules from any methylene glycol, polymethylene glycol and timonacic acid present in the sample. In other words, the DNPH acts as a “sink” for unreacted formaldehyde and causes the timonacic acid to decompose and produce more formaldehyde molecules. The experts agreed that pre-column derivatisation with DNPH is not an accurate method for the measurement of the individual concentration of methylene glycol that was originally in the sample. It measures the combined total concentrations of methylene glycol derived from all sources, including timonacic acid, in the sample.
104 It follows that the first HPLC test does not demonstrate that the sample contained methylene glycol before it was tested. All or part of the timonacic acid that was present in the sample decomposed to release formaldehyde molecules during the derivatisation process. The test does not prove that any part of the timonacic acid had decomposed in the bottle prior to the testing process. The first test fails to prove the ACCC’s allegation that Keratin Complex contained formaldehyde.
105 The second test was performed by Mr Wang on 20 December 2011. The method used was post-column HPLC testing. That testing showed that the sample contained 2.4% formaldehyde (in the form of methylene glycol) by weight.
106 In the second test, post-column derivatisation was used. A derivatising reagent, acetyl acetone, was reacted with the analyte after separation. The experts agreed that, similarly, this test can only provide a measure of the total amount of methylene glycol from all sources in the sample. The addition of a derivatising reagent when timonacic acid is present means that the test cannot be used for the individual measurement of any methylene glycol present in the sample before the reagent was added. Therefore, the second HPLC test does not prove that methylene glycol was present in the sample before it was tested. This test does not prove the ACCC’s allegation that Keratin Complex contained formaldehyde.
107 At this stage, I will return to the question of the age of the samples tested by the two HPLC tests. Keratin Complex, once bottled, has a shelf life of no longer than two years. Mr Wang conducted the first HPLC test on 25 October 2010. He tested a sample from a bottle of Keratin Complex that had been allocated a batch number of 0026KT and a lot number of 112009 by the manufacturer. That batch, according to the evidence of Mr Anthony, expired on 20 November 2011. Accordingly, the testing was carried out within the two year window for which the representation that Keratin Complex did not contain formaldehyde held. However, as I have said, the first test did not demonstrate that the sample, before it was tested, contained formaldehyde in the form of methylene glycol.
108 The second HPLC test was conducted by Mr Wang on a sample of Keratin Complex from the bottle that had been labelled with batch number 0026KT and lot number 112009 by the manufacturer. The testing was carried out on 20 December 2011. I have already found that the representation that Keratin Complex does not contain formaldehyde would be understood by most ordinary consumers to hold only until the expiration of the “use by” or “best before” date. According to Mr Anthony, the batch from which the sample was taken expired on 20 November 2011. That testing was not carried out within the two year window for which the representation held. There is no evidence that the test results for the sample would have been similar if it had been tested within that window. I find, for this additional reason, that the second HPLC test does not prove the ACCC’s allegation that Keratin Complex contained formaldehyde.
109 The third test of a sample of Keratin Complex was conducted by Dr Marcel Kling on 2 February 2012 and was verified by Dr Cook. The method used was Nuclear Magnetic Resonance (“NMR”) spectroscopy. The sample was found to contain 2.51 ± 0.07% by weight of methylene glycol. Dr Cook indicated that at a 95% confidence level, the concentration of methylene glycol was likely to be 2.45 ± 0.5% by weight. The sample was also found to contain 0.18 ± 0.01% by weight of methylene glycol dimer and 0.15% ± 0.01% by weight of methylene glycol methyl ether.
110 The experts agreed that, in contrast to HPLC testing, NMR spectroscopy is able to differentiate between methylene glycol, timonacic acid and other formaldehyde producers present in a sample. NMR spectroscopy is another analytical technique used for determining the structure of organic compounds. NMR refers to the natural ability of the nuclei of certain elemental isotopes to spin in a magnetic field. The slight differences in the magnetic properties of these nuclei are used to determine the chemical structures of the molecules in which they are contained. NMR spectroscopy involves the application of electromagnetic radiation of a specified frequency (“resonance frequency”) to compounds containing these isotopes by measuring the different frequencies emitted when electromagnetic radiation in the resonance frequency range is applied. A characteristic spectrum can be recorded showing the intensity of energy absorption across the resonance frequency range. The precise frequency required for the nuclei to be “in resonance” with the applied radiation enables these nuclei, as well as those to which they are connected in each molecule, to be identified. The precise frequency required for the nuclei to be “in resonance” also helps to identify the arrangement of atoms in a structure.
111 I accept that NMR testing can accurately detect and quantify the methylene glycol present in an aqueous solution and is not affected by the presence of timonacic acid. It remains to be considered whether the NMR spectroscopy did accurately identify and quantify the presence of methylene glycol in the testing carried out in this case.
112 Dateline, relying upon its thorough cross-examinations of Dr Kling and Dr Cook, submits that the results of the NMR test are too unreliable to accept. The presence of methylene glycol was detected using a type of NMR test called a carbon-13 NMR spectrum. Dr Kling agreed that that spectrum showed no unreacted molecules of formaldehyde where they would be expected at the 197 region of the spectrum. Dr Kling had also performed another type of NMR test called a proton NMR test, but did not include the results in his report or affidavit. He accepted that the proton NMR test was more sensitive than carbon NMR. He accepted that the proton NMR spectra that he ran in producing that report, but which were not included in that report, did not detect unreacted formaldehyde molecules where they could be expected at the 9.7 region of the spectrum. Dr Cook stated that the proton NMR test gave no useful information to be able to quantify the amount of unreacted formaldehyde molecules, but doubted that he had expanded the spectra in the area of 9.7 to see if there was a peak for formaldehyde there. Dateline submits that no unreacted molecules of formaldehyde were detected.
113 However, Dr Kling maintained his opinion that the results of the NMR test were valid. The carbon-13 NMR testing he performed did detect the presence of methylene glycol. Dr Cook verified the NMR test and it was not put to him that his opinion was invalidated by the discrepancies identified by Dateline’s counsel. Importantly, the opinions of Dr Kling and Dr Cook were uncontradicted by any evidence called by Dateline. In these circumstances I find that the results of the NMR testing are valid and sufficiently reliable to accept. It shows the presence of a significant quantity of methylene glycol in the sample that was tested. There was evidence that methylene glycol is inseparable from unreacted molecules of formaldehyde (although the equilibrium constant may change in complex solutions) and I infer that such molecules must have been present although not detected.
114 Despite this finding, I do not accept, for two reasons, that the ACCC has proved that Keratin Complex did contain formaldehyde. The first reason is that the NMR testing was carried out more than two years after the batch of Keratin Complex from which the sample was taken was manufactured and bottled. Although the testing established that Keratin Complex did contain methylene glycol some four months after the end of the two year window, there is no evidence that it was present within that window. I have already found that in order for the ACCC to prove that the representation that Keratin Complex did not contain formaldehyde was false, it must prove that it contained formaldehyde within two years after it was bottled. That has not been proved. Further, there was no evidence that the result would have been the same or similar if the testing had been carried out within the two year window.
115 For completeness, I reject Dateline’s submission that the fact that the bottles from which the samples were taken had been opened several times before the NMR testing and that there was little evidence as to the conditions under which the bottles were stored invalidates the test results. It is necessary to test the truth of the representations by reference to the conditions under which the product was actually used. It could be expected that the product would be opened and used over a period of time. I draw this inference because bottles of Keratin Complex came in three significantly different sizes, suggesting that it would not all be used after one treatment. It would probably be stored at room temperature, which could fluctuate. Therefore, an ordinary consumer in the class would expect the representations to hold until the “use by” date despite being opened a number of times and being stored at fluctuating room temperatures. It was not necessary to conduct the testing only upon a sample taken from a pristine, unopened bottle.
116 The second reason is that the ACCC has not proved that Keratin Complex is a simple aqueous solution. For reasons I have set out earlier, I accept that formaldehyde includes a simple aqueous solution consisting of methylene glycol and unreacted formaldehyde. I accept that Keratin Complex is an aqueous solution. I accept that it did contain methylene glycol when the NMR testing was done more than two years after it was bottled.
117 However, the experts’ unanimous opinion was that Keratin Complex is a complex solution and I do not accept that the combination of methylene glycol and unreacted formaldehyde in a complex solution is necessarily formaldehyde. The experts agreed in their joint report that they do not know whether the equilibrium between methylene glycol and unreacted formaldehyde in a simple aqueous solution applies in a complex mixture like Keratin Complex because it is a “different chemical and physical environment”. When the chemical species comprising Keratin Complex are mixed, there is considerable uncertainty regarding the specific composition of the product. While some dynamic equilibria may exist between chemical component species of Keratin Complex, it is impossible to identify all those equilibria, their equilibrium constants or their equilibrium concentrations.
118 In his oral evidence, Associate Professor McGeary appeared to retreat to some extent from his opinion expressed in the joint experts’ report and suggested that changes in Keratin Complex are not likely to be significant. Both Dr Rowe and Professor Haddad disagreed with Associate Professor McGeary’s opinion. Associate Professor McGeary’s opinion was based on a degree of speculation, given that no testing had been conducted on Keratin Complex to establish the nature of the equilibrium.
119 The evidence does not satisfy me that a combination of methylene glycol and unreacted formaldehyde molecules is necessarily formaldehyde when it is in a complex solution. I am not persuaded that persons in the chemical industry would refer to the combination of methylene glycol and unreacted formaldehyde as formaldehyde when found in Keratin Complex. For that additional reason, I find that the ACCC has not proved that Keratin Complex contained formaldehyde.
120 I find that Dateline’s representation that Keratin Complex did not contain formaldehyde has not been proved to be false and, therefore, that Dateline did not breach s 53(a) of the TPA by making that representation. I find that the ACCC has not proved that the representation was misleading or deceptive or likely to mislead or deceive and, therefore, has not proved that Dateline breached s 52(1) by making that representation.
Whether the representation that Keratin Complex did not contain any dangerous or toxic chemicals was false
121 Next it falls to be considered whether Dateline’s representation that Keratin Complex did not contain any toxic or dangerous chemicals was false. The ACCC alleges that the representation was false because Keratin Complex did contain a dangerous chemical, namely, formaldehyde in the form of a solution of methylene glycol and unreacted formaldehyde molecules. The ACCC does not allege that Keratin Complex contained any other toxic or dangerous chemicals. Accordingly, there is a substantial overlap between this representation and the representation that Keratin Complex did not contain formaldehyde.
122 I have already found that the ACCC has not proved that Keratin Complex contained formaldehyde in the form of methylene glycol and unreacted formaldehyde. For the same reasons, I find that the ACCC has not proved that Keratin Complex contained any dangerous or toxic chemicals.
123 For completeness, I will deal with another aspect of Dateline’s argument. It relied upon the opinion of Dr Robert Golden, an expert in toxicology, that methylene glycol, at least in the quantity found by the NMR test to be contained in Keratin Complex, is not toxic or dangerous.
124 Dr Golden started his reasoning by acknowledging that exposure to formaldehyde gas in sufficient quantities may cause sensory irritation and upper respiratory tract cancers in humans. Dr Golden distinguished the potential health effects of formaldehyde gas from those posed by methylene glycol. Dr Golden noted that humans naturally have approximately 2.485 parts per million of methylene glycol in their blood and 0.015 parts per million of formaldehyde. He pointed out that it is difficult to study the effects of methylene glycol alone since, by definition, it is always in equilibrium with trace levels of formaldehyde in an aqueous solution. Consequently the only data from which potential health effects of methylene glycol can be inferred are those studies in which formalin is administered to animals or used by humans. Dr Golden stated that there have been a number of incidents of ingestion of formalin which have produced severe corrosive injuries of the oesophagus and stomach and metabolic acidosis. In each of those incidents, a large quantity of formalin seems to have been ingested. Dr Golden attributed these symptoms to the formaldehyde component of formalin “with no evidence or suggestion that methylene glycol played an etiological role”. He said that, based on this data, it would appear that methylene glycol is not toxic, particularly in comparison with formaldehyde. He did not suggest that methanol played any role in causing the corrosive injuries. Dr Golden’s reasoning seems to be that if an injury caused by ingestion of formalin is consistent with an injury that can be caused by formaldehyde, the injury caused by formalin must be attributed entirely to the formaldehyde component of the solution and not to methylene glycol. The joint experts’ report also concluded that methylene glycol is not toxic.
125 However, the ACCC’s case is not that methylene glycol is, by itself, toxic or dangerous. It is that formaldehyde is an aqueous solution of methylene glycol and unreacted formaldehyde molecules, and formaldehyde in this form is toxic or dangerous. Dr Golden’s evidence was that formalin can be toxic and dangerous, and this is consistent with the ACCC’s case.
126 Dr Golden also stated that, assuming that the NMR test is correct in its conclusion that the test sample contains 2.45% by weight methylene glycol, he does not consider that the level of methylene glycol poses a toxicological risk. There was no evidence as to the equilibrium of methylene glycol and unreacted formaldehyde in Keratin Complex, but even assuming that there is the same equilibrium as in a simple aqueous solution, Keratin Complex would contain only 0.00098% free formaldehyde. Dr Golden indicated that at that level, the concentration of formaldehyde is far below the concentration that might pose any toxicological risk. That opinion was not contradicted by other evidence.
127 Despite my view that a solution of methylene glycol and unreacted formaldehyde can be toxic, I accept Dr Golden’s opinion that the concentration of any such solution in Keratin Complex would not be toxic or dangerous if ingested or applied to hair.
128 I find that Dateline’s representation that Keratin Complex did not contain any toxic or dangerous chemicals has not been proved to be false and, therefore, does not constitute a breach of s 53(a). In addition, that representation has not been shown to be misleading or deceptive or likely to mislead or deceive and, therefore, there is no breach of s 52(1).
Whether the representation that Keratin Complex was safe for its recommended use was false
129 The ACCC alleges that the representation made by Dateline on its website that Keratin Complex was safe for its recommended use was false. The parties agreed that the recommended use of Keratin Complex involves using a brush to apply the product to a person’s hair from the scalp to the ends and straightening the hair using a flat iron with the temperature of the iron between 180ºC – 210ºC for some types of hair, but ranging up to 230ºC for other types of hair. The ACCC alleges that heating the Keratin Complex will cause it to release formaldehyde gas in quantities that are unsafe to the hairdresser or the person to whose hair the product is being applied.
130 The joint experts’ report provides an answer to the question, “If a liquid containing methylene glycol were subjected to the ‘recommended use’…would formaldehyde be released”. The answer is as follows:
The experts hold differing opinions. McGeary, Atkinson, Wang and Cook consider that gaseous formaldehyde would be formed and released. Haddad…and Rowe consider that there are major uncertainties surrounding the physical conditions to which a solution of methylene glycol would be subjected during the “recommended use” and that these uncertainties make it very difficult to predict the extent of release of gaseous formaldehyde.
131 Two points may be made about this passage. Firstly, Professor Haddad and Dr Rowe did not suggest that gaseous formaldehyde would not be released, but only that the extent of the release was difficult to predict. Secondly, the question was directed at the release of methylene glycol from “a liquid”, not Keratin Complex. In a later document prepared jointly by the experts, they stated that the term “liquid” had been interpreted to mean a simple aqueous solution and that the various reactions and equilibria they had described were representative of simple aqueous solutions. The experts considered that Keratin Complex is a more complex solution within a different chemical and physical environment. Further, the experts agreed that it is extremely difficult to predict in a complex sample such as Keratin Complex whether timonacic acid would decompose to form formaldehyde and cysteine. The evidence does not go far enough to demonstrate that gaseous formaldehyde was likely to be released from Keratin Complex when it was used and heated in accordance with its recommended use.
132 The experts gave evidence that an air test could have been used to ascertain whether there was any formaldehyde gas released when the product was used as recommended and its quantity, but the ACCC did not commission such a test. Such tests would rely on HPLC testing, so may have been ineffective in any event.
133 I am not satisfied on the evidence available to me that formaldehyde gas was likely to be released when Keratin Complex was used in accordance with its recommended use. Even if I were so satisfied, there was no evidence concerning the quantity of formaldehyde that would be released. The evidence was that not all exposure to formaldehyde gas would create a risk to safety. For example, formaldehyde gas is found naturally in the air at about 14 parts per billion. Therefore, I could not conclude merely from evidence that formaldehyde gas was released, that such release would create a risk to safety.
134 I find that the ACCC has not proved that Dateline represented Keratin Complex had a benefit that it did not have. It did not breach s 53(c). I also find that the representation has not been proved to be misleading or deceptive or likely to mislead or deceive and did not breach s 52(1).
Whether the representation that persons using Keratin Complex could not be exposed to formaldehyde was false
135 The ACCC alleges that Dateline’s representation on its website that persons using Keratin Complex could not be exposed to formaldehyde was false because Keratin Complex contained formaldehyde. It also alleges that formaldehyde was released when the product was used in accordance with its recommended use. The findings that I have made earlier that the ACCC has not proved that Keratin Complex did not contain formaldehyde and has not proved that formaldehyde would be released when the product was used in accordance with its recommended use are sufficient to dispose of this allegation.
136 I find that the ACCC has not proved that Dateline represented that the product had a benefit that it did not have in breach of s 53(c). I also find that the representation was not misleading or deceptive or likely to mislead and deceive and did not amount to a breach of s 52(1).
the FORMALDEHYDE representations in dateline’s letter of 20 september 2010
137 The next set of representations is contained in a letter written by Dateline’s managing director, Mr Taylor, on 20 September 2010. Mr Taylor provided the letter to Dateline’s sales representatives and to about 20 retailers or potential retailers of Keratin Complex.
138 Dateline’s letter included the following:
KERATIN COMPLEX
TOTALLY SAFE – NO HARMFUL CHEMICALS
Keratin Complex has been confirmed as being totally safe and compliant with every health and safety regulation, worldwide.
Tests just to hand prove once and for all that formaldehyde is not an ingredient and cannot be detected in Keratin Complex.
The situation is:
1) Formaldehyde is not an ingredient in Keratin Complex.
2) There are no symptoms of formaldehyde whatsoever because there is no formaldehyde emitted by Keratin Complex…
3) The 40 year old test (HPLC) used to detect formaldehyde here and in Ireland is the incorrect test. The EU Scientific Committee on Cosmetic Products and Non-food Products Intended for Consumers (SCCNFP/586/02) stated on 17/12/02 that the HPLC test is not appropriate for products with a Keratin Complex type formulation. The Irish authority also concedes this. The HPLC test cannot distinguish a harmless aldehyde (Thiazolidine 4 Carboxylic Acid) from formaldehyde so it records it as being formaldehyde. This test is so inaccurate that it can record formaldehyde as being zero right up to any figure you would like to make it by simply adding more or less timonacic to the test.
4) The correct, and only, valid test is the Nuclear Magnetic Test (NMR) test which detects the signature of an ingredient. These tests clearly show that formaldehyde is not detectable in Keratin Complex.
5) The tests confirming Keratin Complex has no formaldehyde issues are:
A) Intertek…who certified formaldehyde in Keratin Complex was below LOD (level of detection). That is, cannot be detected. This test will be available through Intertek Australia.
B) Dr Valter Ballatini, EU accredited chemist, who proved that the HPLC test was totally inappropriate for testing a product with a Keratin Complex type encapsulation formulation and also proved that formaldehyde was below the LOD in Keratin Complex.
C) Keratronics Inc who confirmed zero formaldehyde in Keratin Complex.
D) The Unit of Toxicology and Chemical Security at the University of Miguel Hernández who performed two tests using a different technology for each test and concluded that Keratin Complex had no formaldehyde issue.
E) Bruce Green and Chartered Associates, Consultant Formulation Chemists in the UK, who certified Keratin Complex as safe and compliant with all regulations for sale in the UK.
All these tests are available for inspection. We have attached the first two pages of the Intertek report. The report is a lengthy report with many diagrams but is available to anybody who wishes to see it.
6) Every decision made anywhere in the world to the contrary and specifically in Ireland, will be over-turned. All tests carried out here using the HPLC test and showing Keratin Complex contains formaldehyde will be recalled.
7) You may have been subjected to a malicious fear campaign of anonymous and non anonymous faxes, SMS messages, leaflets and telephone calls. Legal action is being taken against all these people.
Keratin Complex is the leading keratin system in the world, including Australia. It didn’t become the No. 1 keratin system other than by being entirely truthful and accurate as to which ingredients were in its products and, also, by being by far the best and safest keratin treatment in the world.
139 The “Intertek report” referred to in the letter was entitled “Interim NMR Report on the analysis of keratin products to assess the presence of free formaldehyde” and dated 15 September 2010 (“interim NMR report”). Under the heading “Results”, the report stated:
Free formaldehyde was not detected…although the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde. Un-hydrated free formaldehyde is extremely reactive in aqueous solutions and predominantly exists as methylene glycol. The equilibrium highly favours the formation of methylene glycol and so in this case the free formaldehyde level is below the LOD [level of detection].
140 The ACCC alleges that the letter represented that:
(a) Keratin Complex did not contain formaldehyde;
(b) persons using Keratin Complex could not be exposed to formaldehyde;
(c) Keratin Complex was safe for its recommended use;
(d) Keratin Complex complied with all health and safety regulations in the world;
(e) the Ireland ban on Keratin Complex would be overturned;
(f) Dateline had reasonable grounds for making:
(i) the representations at (a) – (e) above; and
(ii) further representations that Keratin Complex contained no harmful chemicals and that formaldehyde could not be detected in Keratin Complex.
Background to 20 September 2010 letter
141 In order to place Dateline’s 20 September 2010 letter into context, it is necessary to set out some of the events leading up to it.
142 Dateline’s supplier of Keratin Complex was Copomon Enterprises LLC (“Copomon”), a company based in the USA. Copomon is also known as “Keratin Complex”, which appears to be a business name, and was sometimes referred to in emails as “KC”. Mr Taylor’s dealings were principally with Mr Rick Gerstein, one of Copomon’s executives.
143 Dateline began regularly importing Keratin Complex into Australia from June 2009. Mr Gerstein told Mr Taylor that any aldehydes in the product were “encapsulated” and “did not pose a safety risk to humans”. The Material Safety Data Sheet (“MSDS”) supplied by Copomon did not refer to the presence of formaldehyde or formalin as an ingredient.
144 Copomon provided Dateline with a document entitled “Keratin Complex: How it Works”, which stated:
Unlike the Keratin Complex technology, other hair treatments that exist in the market today use a high concentration of formaldehyde.
…
This formulation is completely safe!
The formulation has no effluent aldehydes such as formaldehyde that will affect the operators of the Clients. Formaldehyde is a very reactive gas and CANNOT hide. If it is effluenting (omitting noxious odours) during the hot iron process, the operator will sense it. No such effect is present and observed with the Keratin Complex formulation.
145 On 10 October 2009, Mr Gerstein sent an email to Mr Taylor stating:
Quinones are used to [suppress] any aldehyde formation and the technology used actually encapsulates all aldehydes as part of the [cysteine] matrix in the form of 4-[thiazolidine-4-carboxylic] acid. When aldehydes are reacted with a reacted with our form of the [cysteine] peptide it form[s] a locked acid that has no aldehydes.
146 The email goes on to state that even though cysteine may break up to produce aldehydes when the hair is heated, the use of heating irons heated to 230ºC would not cause the “breaking point of the product” to be reached. The email attached a letter from Bruce Green, a consultant formulation chemist, which stated that Keratin Complex would be approved for sale in the United Kingdom.
147 On 17 March 2010, Mr Gerstein sent documents which Mr Taylor understood to indicate that Keratin Complex did not contain any chemicals that were toxicologically unsafe or prohibited in the European Union or the USA.
148 Mr Taylor stated that he believed, based on Copomon’s representations, that formaldehyde was not an ingredient in Keratin Complex and that the product was safe when it was used in accordance with its recommended use.
149 In about late May 2010, Mr Taylor became aware of rumours that tests had been conducted on Keratin Complex and had apparently detected formaldehyde. Mr Taylor spoke to Mr Gerstein by telephone and Mr Gerstein said words to the effect:
Formaldehyde is not an issue for Keratin Complex. It is only dangerous when it is a gas. All the aldehydes in Keratin Complex are encapsulated and therefore can’t be emitted when the product is used.
150 Following that conversation, Mr Taylor sent an email to Mr Gerstein asking for “an update on the formaldehyde situation”. Mr Taylor sent a further email to Mr Gerstein on 1 June 2010 saying:
The allegation is that KC has formaldehyde in it as an ingredient which isn’t listed on the MSDS or in the UK/EU report…we know formaldehyde is in the product when used and there is no question that formaldehyde is required to make these systems work but?
151 Mr Taylor said that his statement that, “we know formaldehyde is in the product when used” is a reference to his understanding at the time that there was “bound” or “encapsulated formaldehyde” within the product. On 1 June 2010, Mr Gerstein replied saying, “We do create a [formol] with the process but it is encapsulated”. Mr Taylor said he understood the notion of encapsulation to mean that formaldehyde was contained within a “ring”, such that it did not escape when used in accordance with its recommended use.
152 On 1 June 2010, Mr Taylor sent an email to an employee and directors of Dateline saying:
We basically are saying that formaldehyde isn’t an ingredient in KC but with the application of 230ºC heat part of the perfume which is an aldehyde, as all perfumes are, converts to formaldehyde but as it’s encapsulated, and doesn’t emit formaldehyde in gas form, the product is safe…
Competitors will provide all sorts of lab test stating KC has formaldehyde in it in an effort to discredit KC. We don’t deny that it has formaldehyde in it when heated but we do say it’s never released in gas form…
153 Mr Taylor sent an email to Mr Gerstein on 8 June 2010 saying:
There are two lab tests and both show that KC has formaldehyde in it which means the MSDS and EU and UK reports are incorrect…the only way out is to show that some other ingredient in KC is responding to the formaldehyde test but which is unlikely as the test is quite simple..
154 Mr Taylor said he was referring to the rumours that were circulating in the hair industry at the time about tests for formaldehyde in Keratin Complex and other hair straightening products. At that time he had not seen any test results.
155 On 10 June 2010, Mr Gerstein emailed to Mr Taylor a document he had obtained from Keratronics. The document said:
Keratin Complex smoothing treatment contains encapsulated aldehydes Thiazolidine-4-carboxylic Acid is a condensate product of cysteine and formaldehyde. It is a detoxification pathway for formaldehyde (Debey et al 1958). It will absorb formaldehyde.
…
HPLC, CZE and NMR studies have shown that the test solution contains several entities and has not been established whether all molecules present in a test solution are decomposition products of the parent compound or the parent compound itself is a mixture of isomers. In any case, several of these molecules will contain formaldehyde. Decomposition of the primary solution due to instability of the formaldehyde bonds will indicate the presence of formaldehyde by decomposition. Thiazolidine-4-carboxylic Acid is a weak condensate product of cysteine and formaldehyde.
…
Head space test will indicate the amount of free-formaldehyde. Head space tests show extremely little or no presence of free formaldehyde in Keratin Complex tests.
156 The studies referred to in the document are not identified. Mr Taylor deposed that he understood the authors of the document to be questioning the validity of HPLC testing on Keratin Complex, as well as confirming that formaldehyde was not an ingredient in Keratin Complex.
157 On 12 June 2010, Mr Gerstein forwarded an email from Mr Anthony of Keratronics which said:
Thiazolidine-4-carboxylic Acid absorbs (neutralises) formaldehyde plus it’s encapsulated so that it never becomes evident even when it breaks down with heat. Formaldehyde is pre-reacted with keratin to produce the acid and does not exist as a separate free ingredient.
…
The HPLC test isn’t valid because it’s measuring a decomposing solution and so will indicate a positive.
Head space test will not indicate any or no significant free formaldehyde.
158 On 27 July 2010, Mr Taylor provided a document entitled “The Facts” to Dateline’s sales representatives and staff intending that it should be used to answer customer questions about the rumours that Keratin Complex contained formaldehyde. The document said relevantly:
There is no formaldehyde in Keratin Complex. The test for formaldehyde is actually sensing harmless Thiazolidine-4-carboxylic Acid which is an ingredient in Keratin Complex.
Formaldehyde is easily detectable by the odour…it’s unpleasant and irritates eyes/nose and skin…there’s no such odour from Keratin Complex which is why operators don’t wear masks. It’s also worth bearing in mind that the active ingredients in Keratin Complex are exclusively encapsulated (that is, contained in capsules) and are not released into the atmosphere.
159 In about mid 2010, the Irish authorities issued a recall notice for Keratin Complex. On 1 September 2010, Ms Bronwyn Davies, the merchandise and marketing manager for Hairhouse Warehouse sent an email to Mr Taylor referring to the recall. The email contained a link to a website known as The Rapid Alert System for Non-Food Products (“RAPEX”) which indicated that the withdrawal of Keratin Complex from the market had been ordered in Ireland. The stated basis of the withdrawal was, “The product poses a chemical risk because it contains a high level of free Formaldehyde (1.9% and 1.7% whereas the allowed limit is 0.2%)”. Mr Taylor stated that he then became aware of an actual test which had purportedly detected formaldehyde in Keratin Complex, as opposed to rumours of such tests.
160 On 1 September 2010, Mr Gerstein of Copomon provided Mr Taylor with a press release that Copomon had issued. The press release said that:
With respect to tests performed in Ireland by the EU labs on the Keratin Complex Treatments, there exists some controversy as to the validity of the tests. In accordance with protocols for test[s] for formaldehyde, the EU has no valid procedure to determine whether the formaldehyde is released as a result of the testing process itself, which inadvertently releases reactants to their natural components.
The Irish authorities (Padriag Burke) stated that they recognise the need to develop new testing procedures for products that are constituted with formaldehyde reactions to form new compounds that are benign. For example, the Keratin Complex smoothing treatment contains Thiazolidine-4 carboxylic Acid (TCA) which is a condensate product of Cysteine, (and other proteins contained in a special form of Keratin) and formaldehyde.
…
In addition Copomon Enterprises LLC DBA Keratin Complex has hired Intertek Analytical Services an EU approved testing facility to test our products to refute the testing methods used by the Ireland authorities.
161 Mr Taylor stated that he was of the view, upon reading the press release, that the HPLC test was not appropriate for a product such as Keratin Complex as it could not distinguish between unbound and encapsulated formaldehyde and, as such, the testing itself decomposed the product and gave a false reading for formaldehyde.
162 Mr Gerstein’s email also enclosed a copy of an air quality test conducted by the University of Miguel Hernández in Spain measuring the amount of formaldehyde found in the air after testing samples of Keratin Complex. The results of five tests showed levels of formaldehyde of 0.253, 0.034, 0.017, 0.013 and 0.010 mg/cubic metre respectively, compared to what the report stated to be the regulatory limit of 0.37 mg/cubic metre. Mr Taylor stated that he relied on what he understood from the results of the test to be a measurement of effectively zero formaldehyde for long term exposure to Keratin Complex reinforcing his view that Keratin Complex was safe to use in accordance with its recommended use.
163 On 1 September 2010, Mr Taylor sent an email to Mr Mel Howard of Copomon, saying:
We had been advised by KC that formaldehyde was not an ingredient in the treatment but independent tests here show that it has 1.7% free formaldehyde which we had advised KC of months ago.
We were supplied with a scientific report showing that the tests for formaldehyde were either inaccurate or inapplicable and that the Thiazolidinecarboxylic acid absorbed formaldehyde anyway. Also, certification of compliance for the UK and EU which apparently isn’t the case. KC also advised that formaldehyde didn’t need to be listed as an ingredient in the treatment (the MSDS doesn’t include it in the ingredients).
164 Mr Taylor stated that the “independent tests here” that he referred to were his earlier conversations and communications to Mr Gerstein about rumours of the tests on Keratin Complex.
165 On 2 September 2010, Mr Taylor sent Mr Gerstein two emails asking a series of questions. One of those questions was, “If Keratin Complex contends that [formaldehyde is not an original ingredient in Keratin Complex] … then why wasn’t the Irish authority legally challenged”? He also asked:
What chance is there of having the Irish…authorities reverse or qualify the recall? Have never heard of this happening before. Gov departments don’t usually admit they are wrong and are always very thorough with their analysis and decision making to avoid any legalities.
166 Mr Taylor’s questions were not answered. He also said:
If the German test shows there is no formaldehyde as an ingredient we would have a slim chance of beating a recall. If formaldehyde is an ingredient, however small, a recall would be unavoidable.
167 The reference to the German test was to the testing by Intertek that Copomon had foreshadowed that it would have conducted.
168 Mr Taylor said that he wanted Copomon to provide him with a statement from Keratronics confirming that formaldehyde was not an ingredient, a test from an independent laboratory showing that there was no formaldehyde in Keratin Complex and a test or report confirming the difficulties associated with HPLC testing. He said that he wanted this information to ensure that Keratin Complex was safe to distribute in Australia and for Dateline to continue to make representations in its advertising that there was no formaldehyde in the product.
169 Mr Taylor then started communicating directly with Mr Anthony of Keratronics. On 3 September 2010, he sent an email asking a series of questions. Mr Anthony replied on the same day. In response to the question, “Is formaldehyde an ingredient in the manufacture of the treatment??”, Mr Anthony said:
Yes, it is used to manufacture Thiazolidine 4 carboxylic acid by reacting it with Keratin (high [cysteine] content) and other proteins.
170 Mr Anthony denied that formaldehyde was produced with heat and referred to the Spanish air test which he said showed that no formaldehyde was found. Mr Anthony referred to the problems of HPLC testing producing formaldehyde.
171 In response to the question, “What is the likelihood of the formaldehyde problem being overcome and would it be possible to overturn the recall in Ireland?”, Mr Anthony responded that his company was creating stabilisers for the product that would solve the problem and which were being tested. He said he expected, if it were possible, that the problem should be overcome in the next month.
172 On 3 September 2010, Mr Taylor also sent an email to Mr Gerstein asking whether Dateline should stop selling the treatments and advise customers that a new formula was coming in, or whether there was a chance that retesting using some other method would change the situation with the Irish authorities. Mr Gerstein said that they were working on a new product and had been doing the testing that would show that they had not lied about the encapsulation, but he was unsure how long it would take to overturn the Irish ban.
173 On 3 September 2010, Ms Davies of Hairhouse Warehouse sent an email to Mr Taylor enclosing a copy of an analytical report which stated that Keratin Complex contained 1.56% formaldehyde. Mr Taylor responded on the same day, asking whether the testing had been carried out using the HPLC method and stating that HPLC testing could not distinguish between encapsulated ingredients.
174 On 4 September 2010, Mr Taylor sent an email to Copomon and Keratronics asking, “Can we be comfortable in saying that the MSDS and listed ingredients on the bottle are 100% correct and do not need to list formaldehyde?” The email went on to say:
I’m assuming, in simple language, that the test currently used by the authorities everywhere (HPLC) is incapable of testing the qty of formaldehyde when it is mixed (encapsulated?) with other another [sic] ingredient and is reading the whole mixture as formaldehyde. Is that basically the problem.
175 Mr Larry Solomon, the president of Copomon, responded by saying that the second part of Mr Taylor’s email was correct. Mr Solomon said that the labelling was 100% correct as to what was in the bottle and the ingredients. He said that the HPLC test had an “accelerator” added that actually created a formol from the timonacic acid. He said that Copomon had contracted a company called Intertek to do NMR testing in the coming week.
176 Mr Solomon sent another email on 4 September 2010, saying:
F is a gas is it not an ingredient, it is the result of the reaction. Formaldehyde in liquid form is called FORMALIN
WE do not use formalin we use a [cysteine] that is not formalin or formaldehyde
177 Mr Taylor stated that he understood the email to confirm that formaldehyde and formalin were not ingredients in Keratin Complex.
178 On 4 September 2010, Mr Taylor wrote to Mr Solomon, Mr Gerstein, Mr Howard and to Mr Anthony indicating that he would need, inter alia, the full explanation as to how thiazolidine-4-carboxylic acid works in the treatment, a definitive statement the HPLC test is unable to measure bonded formaldehyde other than as free formaldehyde and a statement that formalin is not an ingredient of Keratin Complex. On 5 September 2010, Mr Taylor again wrote an email setting out what the information he thought was needed to fight an automatic recall in Australia. The email added, amongst other things, that Copomon and Keratronics needed to state that the Irish decisions were being contested and that new tests were being carried out.
179 On 5 September 2010, Mr Anthony provided Dateline with a statement signed by him that said, inter alia:
[Methanal] is not an added active ingredient in the formulation of Keratin Complex Treatment. The product is formulated with 2.0 to 2.5% Thiazolidine-4 carboxylic Acid, a condensate of Keratin proteins and formaldehyde as a solution. The reaction of formaldehyde with cysteine proteins results in Thiazolidine-4 carboxylic Acid. The reaction can be reversible if the solution is diluted due to competing saturation of dilutant and the cysteine proteins. However, under normal use, and if undiluted, the reaction is stable.
…
Problems arise when tests are performed to determine the presence of formaldehyde. These tests have indicated the presence of the chemically bound formaldehyde as a donated product of the acid.
180 On 6 September 2010, Mr Anthony provided results of testing he had performed by Valter Ballantini of the University of Pisa. The method of testing used as described by Dr Ballantini as “not so different from that used by Ireland authorities”. There were three different results each showing the presence of formaldehyde, one below the maximum concentration allowed of 2,000 mg/kg, one above and one at about the maximum concentration. Mr Taylor states that he understood these tests to confirm that the HPLC test was unreliable when testing for formaldehyde in a sample of Keratin Complex.
181 On 8 September 2010, Mr Taylor sent an email to Mr Gerstein saying:
Any news…we’re sweating on the German report..if it comes back negative the Irish decision is going to remain forever which ain’t going to help!!
182 On 10 September 2010, Mr Anthony forwarded an email from Dr Ballantini in which he had indicated that it was possible that derivatisation needed in the formaldehyde analysis through the use of DNPH could be the problem. Mr Taylor replied on 10 September 2010, indicating that his understanding was that one of the ingredients used for the formaldehyde test may well be the cause of the false readings, and Mr Anthony confirmed that Mr Taylor’s understanding was correct.
183 On 15 September 2010, Mr Anthony forwarded another email from Dr Ballantini. That email suggested that carbon-13 NMR spectroscopy did show a strong signal that belonged to a compound that could not belong to formaldehyde, that Dr Ballantini thought it belonged to a keratin molecule, but that if it were some formaldehyde, the signal would not be distinguishable from that of keratin. He had decided to give up on that method. He thought there was more chance using a proton NMR test. The email said they had done some tests and found that in none of these was there a signal for free formaldehyde, but there was a signal for formic acid.
184 Mr Taylor wrote to Mr Anthony asking, “If it’s formic acid we would be off the hook wouldn’t you say??” Mr Anthony replied, “Yes”.
185 On 17 September 2010, Mr Gerstein sent Mr Taylor another email from Dr Ballantini which said:
As you have seen, I did a lot of work on Keratin Complex product and yesterday I finished my research. I’ve found a result that can be used to unmistakably detect the level of formaldehyde in products like ours where there are different compounds that could release formaldehyde or react in a manner that could erroneously confused [sic] with free formaldehyde. I’m writing a document to explain what I did and the details on how to conduct the analysis. I think that this document could be used to be sent to HSE in order to obtain the withdrawal of the RAPEX.
186 Mr Taylor stated that he understood Dr Ballantini’s email to confirm that any formaldehyde readings and tests for Keratin Complex were being erroneously confused with other ingredients such as timonacic acid.
187 It will be recalled that Copomon had commissioned NMR testing by Intertek (“the interim NMR test”). On 16 September 2010, Mr Gerstein forwarded to Mr Taylor an email chain which included an email from Mr Anthony stating in relation to Intertek:
They have found a small amount of methylene glycol which is an indication of a reversible reaction of the [timonacic acid] disassociating to free formaldehyde in water. However it is tiny and should meet the spec. They need to get the exact amount for a final report.
188 Mr Taylor said he understood this email to mean that the interim NMR test had not detected free formaldehyde, but had detected a compound known as methylene glycol, and the detection of methylene glycol was the result of timonacic acid disassociating or decomposing. He understood that this meant that there was no formaldehyde in Keratin Complex. Mr Taylor said that his belief was reinforced by a document provided to him on 18 September 2010 by Mr Gerstein, which he understood to be a draft press release by Copomon. That document said that:
We adamantly refute the findings that came out of Ireland…
Three renown [sic] chemists in Spain, England and Italy have also refuted the findings of the Irish Agency and we are awaiting the documented proof that states “NO FREE FORMALDEHYDE WAS FOUND” in Keratin Complex Smoothing Therapy.
Ireland refuses to acknowledge these laboratories, thus unfairly continuing to support their antiquated tests that date back several decades.
The problem arose when tests in Ireland were performed using a 17 year old HPLC test that was “grandfathered in” to determine the presence of Formaldehyde. The Irish authorities concede that the tests are inadequate but can do nothing about it, as they have never changed their methods of testing that have existed for many years, going back into the ‘70s.
189 Another email in the chain forwarded to Mr Taylor on 16 September 2010 was from Sophie Rothwell of Intertek to Mr Anthony. Ms Rothwell said:
[P]lease could you confirm (for our records) that you require further analysis to quantify the free formaldehyde based on the levels of methylene glycol present.
190 On 20 September 2010, Mr Anthony sent Mr Taylor the interim NMR report prepared by Intertek. Mr Taylor stated that he understood from the interim NMR report that any formaldehyde in the samples of Keratin Complex tested was below the level of detection and therefore, effectively, there was no formaldehyde in the product. He said that what he understood to be detected was methylene glycol, which he understood to be different molecule to formaldehyde.
191 Mr Taylor stated that he relied on the information and assurances provided to him up until 20 September 2010 by Copomon and Keratronics in writing the letter of 20 September 2010. Mr Taylor had earlier prepared drafts of the letter, which had been amended with input from Mr Anthony.
192 Mr Taylor provided the letter to Dateline’s sales’ staff to distribute to customers, but the evidence does not reveal whether they did distribute it. The evidence does show that the letter was distributed directly by Dateline to approximately 20 customers or potential customers and to competitors. The recipients included: Mr Sam Jarred, the buying manager for Price Attack; Mr Formica and Mr Caccamo, whom Mr Taylor understood were in the hair straightening business; Ms Davies of Hairhouse Warehouse; Mr Elio Natta, the owner of a salon called Oz Hair; AMR Hair, a customer of Dateline; and Mcarthur Supplies Pty Ltd, a competitor.
Ordinary consumers and the meaning of the representations in the letter of 20 September 2010
193 Dateline admits that in its letter of 20 September 2010, it made all except two of the representations alleged by the ACCC.
194 The first exception is that Dateline again claims that it did not represent that persons using Keratin Complex could not be exposed to formaldehyde, but instead represented that they could not be exposed to levels that would provide a risk to safety. The letter stated, “Formaldehyde is not an ingredient in Keratin Complex” and “there is no formaldehyde emitted by Keratin Complex”. The language used to express the absence of formaldehyde was absolute. In my opinion, ordinary persons reading the letter would not read into the representation the qualification asserted by Dateline.
195 The second exception is that Dateline denies the allegation that it represented that the Ireland ban would be overturned. Dateline contends it represented that it was its opinion that the ban would be overturned. In deciding whether the representation that the Ireland ban would be overturned was a statement of fact or of opinion, the approach taken by French CJ in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 at [32] is instructive:
Was it a statement of opinion? That is to say was it a statement of “judgment or belief of something as probable, though not certain or established”?
196 The letter of 20 September 2010 said, “Every decision made anywhere in the world to the contrary and specifically in Ireland, will be over-turned.” The basis for this statement is set out elsewhere in the letter, namely that the Irish authorities had used HPLC testing, that HPLC was not the correct testing methodology and that NMR testing showed that Keratin Complex did not contain formaldehyde. The context suggests that the Irish authorities would be persuaded to see the error of their decision by seeing the results of the interim NMR test and by evidence that the HPLC tests were not correct.
197 In order for the ban to be overturned, the Irish authorities would have to be persuaded that it was appropriate to do so. Any decision to overturn the ban would have to be based on the authorities’ assessment of the relevant regulations and the scientific evidence. Such a decision was one that, patently, Dateline and others associated with Keratin Complex might be able to influence, but could not control. The statement in the letter amounted to a strident and emphatic way of saying that Dateline believed that the Ireland ban would be overturned. In my view, ordinary persons who read the letter would regard the statement that the Ireland ban would be overturned as an expression of opinion, not a statement of fact.
198 While Dateline admits that the letter of 20 September 2010 represented that “Keratin Complex did not contain formaldehyde”, what was conveyed by that representation is in dispute. It is necessary to consider what meaning ordinary persons who received the letter would attribute to the word formaldehyde.
199 The persons who received the letter of 20 September 2010 were engaged in the hairdressing business or in the business of selling hairdressing products. They were more knowledgeable about hairdressing products and their ingredients than ordinary members of the public. The letter was written to those persons because Mr Taylor knew or believed they had received information that Keratin Complex contained formaldehyde, or contained formaldehyde in levels that breached regulatory limits. If they were not aware of that information before, they certainly were as a result of receiving the letter. A not insignificant number of ordinary persons receiving the letter were likely to have known, at least from the letter, that formaldehyde was a chemical sometimes used in hair straightening products. They would understand that formaldehyde is or can be in a liquid, because Keratin Complex was a liquid and the inference is that it could have contained formaldehyde but did not. They would be aware, from the letter if from no other source, that regulatory standards either banned or limited the quantity of formaldehyde in hair straightening products. They would therefore be aware that formaldehyde was a dangerous or potentially dangerous chemical.
200 I conclude that a not insignificant number of ordinary persons in the group who received the 20 September 2010 letter would understand formaldehyde to be a chemical called formaldehyde, which is or can be in a liquid.
201 I have already found that a simple aqueous solution of methylene glycol and unreacted formaldehyde is formaldehyde, but that the ACCC has not proved that this combination is still formaldehyde when in a more complex solution like Keratin Complex.
202 A not insignificant number of ordinary persons to whom the letter was sent would understand Keratin Complex to contain organic and chemical components and to have a limited life. Suppliers of hairdressing products and hairdressers would be familiar with the concept of such products having a limited “shelf life”. They would understand the representations concerning the properties of the product to hold only for the shelf life of the product. Based on the evidence of Mr Anthony, the shelf life of Keratin Complex was two years.
Whether the representations in the letter of 20 September 2010 were false
Whether the representation that Keratin Complex did not contain formaldehyde was false
203 The letter of 20 September 2010 stated that formaldehyde “is not an ingredient and cannot be detected in Keratin Complex”. Dateline accepts that it represented that Keratin Complex did not contain formaldehyde.
204 I have already found that the NMR test carried out on 2 February 2012 demonstrated the presence of methylene glycol. However, that evidence does not prove that methylene glycol was found in Keratin Complex within its two year shelf life. In addition, I have already found that methylene glycol and unreacted molecules of formaldehyde in a complex solution like Keratin Complex cannot be regarded as formaldehyde without adequate evidence that it is to be so regarded.
205 I therefore find that the ACCC has not proved that the representation in the letter that Keratin Complex did not contain formaldehyde was false or misleading or deceptive or likely to mislead or deceive. The making of that representation did not contravene s 53(a) or s 52(1).
Whether the representation that persons using Keratin Complex could not be exposed to formaldehyde was false
206 I have already found that the ACCC has not proved the allegation that the website representation that persons using Keratin Complex could not be exposed to formaldehyde was false. For the same reasons, I find that the ACCC has not proved that the same representation in the letter was false.
207 I therefore find that Dateline’s representation in the letter that persons using Keratin Complex could not be exposed to formaldehyde did not contravene s 53(c) or s 52(1).
Whether the representation that Keratin Complex was safe for its recommended use was false
208 For reasons I have set out earlier, I find that the ACCC has not proved that the representation in the letter that Keratin Complex was safe for its recommended use was false or misleading or deceptive or likely to mislead or deceive.
209 I therefore find that the making of this representation did not contravene s 53(c) or s 52(1).
Whether the representation that Keratin Complex complies with all health and safety regulations in the world was false
210 Dateline’s letter of 20 September 2010 said, “Keratin Complex has been confirmed as being totally safe and compliant with every health and safety regulation, worldwide.” The ACCC alleges, and Dateline admits, that the letter represented that “Keratin Complex complies with all health and safety regulations in the world”.
211 The ACCC alleges that Keratin Complex did not comply with all health and safety regulations in the world at the time the representation was made. It points to the fact that Keratin Complex was banned from sale in the Republic of Ireland as indicating that it did not comply with Irish health and safety regulations.
212 I do not accept that the ACCC has proved that Keratin Complex did not comply with the Irish regulations. The evidence establishes that the product was banned in Ireland, and it may be inferred that the Irish authorities considered that the product did not comply with the relevant regulations. However, that does not establish that Keratin Complex did not in fact comply with such regulations. It is not uncommon for public authorities to take action on the basis that legislation has been breached, only for the decision to later be shown to be wrong. Copomon and Keratronics vigorously disputed the action taken by the Irish authorities on the basis that HPLC testing was inadequate. The ACCC has not attempted to demonstrate what the Irish regulations were and in what way Keratin Complex did not comply with them. The fact that Keratin Complex was banned from sale in Ireland proves only that the authorities were of the opinion that the regulations were breached, not that they were in fact breached.
213 The ACCC argues next that the level of formaldehyde in Keratin Complex exceeded that permitted by Australian health and safety regulations. The ACCC attempted to make good this submission by reference to the Queensland regulatory framework.
214 Section 132 of the Health Act 1937 (Qld) permits regulations to be made about matters including prohibiting or restricting the sale of poisons.
215 Regulation 271(1)(a) of the Health (Drugs and Poisons) Regulation 1996 (Qld) (“the Health Regulation”), as in force at the time the letter of 20 September 2010 was distributed, relevantly provides that:
A person must not …sell…a regulated poison unless the person…sells…the regulated poison under an approval.
216 There is no suggestion that any “approval” was in place for Keratin Complex. The expression “regulated poison” is defined in Appendix 9 of the Health Regulation as, “a poison in Appendix 7 of this regulation”. Appendix 7 defines a number of specific items and included as the ninth item, “a poison included in Appendix C of the standard”. The word “standard” is, in turn, defined in Appendix 9 to mean, “the Standard for the Uniform Scheduling of Drugs and Poisons” set out in Schedule 1 of the Poisons Standard 2009 (Cwlth).”
217 Schedule 1 of the Poisons Standard 2009 (Cth) is headed, “Standard for the Uniform Scheduling of Drugs and Poisons No. 23 published by the National Drugs and Poisons Scheduling Committee in 2009”. Appendix C to the Poisons Standard includes this entry:
FORMALDEHYDE (excluding its derivatives)
(a) in oral hygiene preparations containing more than 0.1 per cent of free formaldehyde;
(b) in aerosol sprays for cosmetic use containing 0.005 per cent or more of free formaldehyde;
(c) in nail hardener cosmetic preparations containing 5 per cent or more of free formaldehyde; or
(d) in all other cosmetic preparation 0.05 per cent or more of free formaldehyde except in preparations containing 0.2 per cent or less of free formaldehyde when labelled with the warning statement:
CONTAINS FORMALDEHYDE.
218 The allowable formaldehyde content in Keratin Complex is governed by paragraph (d) of the relevant entry in Appendix C, as a cosmetic preparation that did not fall within paragraphs (a) – (c).
219 It may be seen that cosmetic preparations containing “free formaldehyde” could fall within the meaning of “regulated poison”, but that cosmetic preparations which contained only a “derivative” of formaldehyde could not.
220 The effect of reg 271(1) was that the sale of a cosmetic product that paragraph (d) of the entry for formaldehyde in Appendix C applied to was:
(a) prohibited, without an approval, if it contained more than 0.2% of free formaldehyde;
(b) permitted if it contained between 0.05% and 0.2% of free formaldehyde and was appropriately labelled;
(c) permitted if it contained less than 0.05% of free formaldehyde.
221 The NMR test carried out on behalf of the ACCC did not detect the presence of formaldehyde gas. It did detect methylene glycol, which means that some quantity of unreacted formaldehyde molecules must also have been present.
222 Two questions arise. The first is whether the combination of methylene glycol and unreacted formaldehyde is “free formaldehyde”. The second is whether methylene glycol is a “derivative” of formaldehyde.
223 It is significant that the Poisons Standard uses “free formaldehyde”, as well as “formaldehyde”. That suggests that the expressions are not synonymous.
224 The expression “free formaldehyde” was not defined until a definition was inserted with effect from 1 September 2012 to specifically include methylene glycol. Both parties claimed the amendment supported their respective cases, but my opinion is that the amendment does not assist in construing the meaning of “free formaldehyde” prior to the amendment.
225 I consider that where “formaldehyde” is used by itself in the Poisons Standard, it bears its ordinary, or dictionary, meaning. It refers to methylene glycol and unreacted molecules of formaldehyde and to formaldehyde gas.
226 The ACCC’s experts considered that free formaldehyde has the same meaning. Associate Professor McGeary stated that formaldehyde molecules can react irreversibly with some compounds, and says that this type of formaldehyde is sometimes referred to as “bound formaldehyde”. In contrast, with methylene glycol the reaction is readily reversible. Dateline’s experts considered that “free formaldehyde” refers only to gaseous formaldehyde and unreacted formaldehyde, but does not include methylene glycol.
227 Ultimately, the question is what the drafters intended “free formaldehyde” to mean in the Poisons Standard. That question must be determined by reference to the language and the context in which the expression appears. In determining the meaning of “free formaldehyde”, the words “excluding its derivatives” are useful. Paragraphs (a) – (d) do not apply to derivatives of formaldehyde.
228 Professor Haddad gave oral evidence during a session of concurrent evidence given by the experts that methylene glycol is a derivative of formaldehyde. The ACCC submits that this was just a “passing reference” and should not be given any weight. However, Professor Haddad made this statement quite deliberately. It was made in the presence of the other experts, and none of the others demurred. Professor Haddad was not cross-examined on the point. That aspect of his evidence was uncontested.
229 The Macquarie Dictionary defines “derivative”, in chemistry, as “a substance or compound made from, or structurally related to, another substance or compound”. The Oxford English Dictionary defines “derivative”, relevantly, as “[a] compound obtained from another e.g. by partial replacement”. The evidence is that when formaldehyde and water are combined, methylene glycol is obtained. The dictionary definitions support Professor Haddad’s view and probably explain why the other experts did not dissent.
230 Once it is seen that paragraphs (a) – (d) of the formaldehyde entry in Appendix C of the Poisons Standard do not apply to methylene glycol, it may be seen that “free formaldehyde” was unlikely to refer to methylene glycol prior to the amendment. The expression “free formaldehyde” referred only to formaldehyde gas and to dissolved but unreacted molecules of formaldehyde in a solution. The evidence is that formaldehyde is readily released from a solution of methylene glycol and unreacted formaldehyde, but, in my view, prior to the amendment formaldehyde became “free formaldehyde” only when it was released.
231 The NMR testing of Keratin Complex relied on by the ACCC only detected the presence of methylene glycol. Keratin Complex has not been shown to exceed the regulatory limit, at the relevant times, for “free formaldehyde”. In addition, that limit could not apply to methylene glycol because it is a derivative of formaldehyde.
232 The ACCC has not proved a breach of the Queensland regulatory standards. It did not suggest that those standards are different elsewhere in Australia or elsewhere in the world.
233 Therefore, the ACCC has not proved that the representation that Keratin Complex complies with all health and safety regulations in the world was a representation that Keratin Complex had a benefit that it did not have. Neither has the ACCC proved that the representation was misleading or deceptive or likely to mislead or deceive. I therefore find that the ACCC has not proved that Dateline contravened s 52(1) or s 53(c) by making that representation.
Whether the representation that the Ireland ban would be overturned was made on reasonable grounds
234 The ACCC alleges that Dateline’s letter of 20 September 2010 represented that the Ireland ban on Keratin Complex would be overturned. I have found that the representation was that it was Dateline’s opinion that the Ireland ban would be overturned. It was a representation with respect to a future matter.
235 Section 51A of the TPA provided:
(1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
236 It is implicit in s 51A(1) that where a corporation does have reasonable grounds for making a representation with respect to a future matter, then there will be no contravention of s 52(1): Quinlivan v ACCC (2004) 160 FCR 1 at [14].
237 Section 51A(2) imposes an evidential burden on the respondent to adduce evidence on the issue of whether there were reasonable grounds for making the representation, but no persuasive onus falls upon the respondent to prove that it had reasonable grounds: North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR 217 at [28]. Once the respondent adduces evidence of reasonable grounds, the applicant must satisfy the dispositive burden of showing that the respondent did not have reasonable grounds for making a representation: North East Equity at [30].
238 A breach of s 52(1) will not be proven if the evidence demonstrates that there are:
(a) some facts or circumstances;
(b) existing at the time of the representation;
(c) on which the representor in fact relied;
(d) which were objectively reasonable;
(e) which support the representation made:
Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 per Heerey J.
239 In Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82, the Full Court said at 88:
A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or by implication) that the maker of the statement had a particular state of mind when the statement was made and, commonly at least, that there was basis for that state of mind. If the meaning contained in or conveyed by the statement is false in that or in any other respect, the making of the statement will have contravened s 52(1) of the Act
…
[T]he incorrectness of an opinion (assuming that can be established) does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any, or any adequate, foundation.
The applicants argued that, nevertheless, the statement of an incorrect opinion is misleading or deceptive or likely to mislead or deceive merely because it misinforms or is likely to misinform. An expression of opinion which is identifiable as such conveys no more than that the opinion expressed is held and perhaps there is basis for the opinion. At least if those conditions are met, an expression of opinion, however erroneous, misrepresents nothing.
240 The letter of 20 September 2010 expressly set out two matters upon which Dateline’s representation that the Ireland ban would be overturned were based. The first matter was that HPLC testing could not determine whether Keratin Complex contained formaldehyde. The second was that Keratin Complex did not in fact contain formaldehyde. The opinion expressed implies that these matters were sufficient to result in the ban being overturned.
241 As to the first of these matters, by 20 September 2010, Mr Taylor had been told repeatedly by the distributor and manufacturer of Keratin Complex that HPLC testing could not detect whether Keratin Complex contained formaldehyde, or whether formaldehyde was created by the testing process. They relied upon plausible scientific evidence to make that assertion. In addition, Dr Ballantini of the University of Pisa had confirmed that derivatisation during the testing process could be the problem. Mr Taylor was also informed that the Irish authorities believed that HPLC testing was inadequate, and there was nothing to demonstrate the contrary. Under the circumstances, I consider that there was a reasonable basis for Mr Taylor to form the view and state that the HPLC testing used by the Irish authorities could not detect whether Keratin Complex contained formaldehyde.
242 The second matter to consider is whether there was a reasonable basis for Mr Taylor’s statements that Keratin Complex did not in fact contain formaldehyde. He had been told repeatedly by the distributer and manufacturer that formaldehyde was not an ingredient in Keratin Complex. Mr Taylor understood from Mr Anthony’s statement of 5 September 2010 that the reaction of formalin with cysteine produced timonacic acid and that under normal use, and if undiluted, the reaction was stable. If this was as far as the information went, I would consider that Mr Taylor had reasonable grounds for his opinion that Keratin Complex did not contain formaldehyde.
243 However, there was other information available to Mr Taylor by the time he wrote the letter. The interim NMR report prepared by Intertek on 15 September 2010 said:
Free formaldehyde was not detected…although the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde. Un-hydrated free formaldehyde is extremely reactive in aqueous solutions and predominantly exists as methylene glycol.
244 The interim NMR report indicated that methylene glycol was a form of formaldehyde. It indicated that what was absent was free formaldehyde, not that there was no formaldehyde in Keratin Complex. Mr Taylor stated that he understood the interim NMR report to indicate that there was effectively no formaldehyde in Keratin Complex. But that was not what it said. Dateline’s letter misrepresented the effect of the report when it stated that formaldehyde was not detected in Keratin Complex.
245 Mr Taylor stated that his understanding was reinforced by the draft press release prepared by Copomon which said that scientists from three countries had that stated that “NO FREE FORMALDEHYDE WAS FOUND in Keratin Complex”. However, that draft press release also ignored the presence of methylene glycol.
246 Mr Taylor stated that he understood that methylene glycol was a different molecule to formaldehyde. In his oral evidence, he said that he understood that formaldehyde was a gas only. However, if that was Mr Taylor’s understanding, then it depended upon a selective reading of the interim NMR report. That report plainly indicated that methylene glycol was a form of formaldehyde. It is true that the question of whether methylene glycol is a form of formaldehyde is controversial and was the subject of considerable debate among the experts in this case. However, Mr Taylor was prepared to rely upon the expertise of the author of the interim NMR report to claim in the letter that Keratin Complex did not contain formaldehyde, but apparently not for her opinion that methylene glycol is a form of formaldehyde. Mr Taylor has no qualifications or expertise in chemistry and, in my opinion, on the material available to him at the time he wrote the letter, there were not reasonable grounds for him to conclude that Keratin Complex did not contain formaldehyde. I emphasise that I have taken the interim NMR report into account, not as to the truth of its contents, but for the purpose of assessing whether Dateline had reasonable grounds for making the representation.
247 The ban imposed by the Irish authorities on Keratin Complex was based on the product containing free formaldehyde in excess of the maximum allowable limit. Whether the ban would be overturned was likely to depend, not only upon demonstrating that the HPLC test was inappropriate, but also upon NMR testing showing that Keratin Complex did not contain free formaldehyde in excess of the limit, and upon the Irish authorities being persuaded that the NMR testing was accurate and that the presence of methylene glycol did not contravene the Irish regulations. In light of the interim NMR test, it was logical that the ban might not be overturned unless the Irish authorities could be persuaded that methylene glycol was not a form of formaldehyde and was not covered by the Irish regulations. There is no evidence that Mr Taylor sought any advice as to whether methylene glycol would be regarded as a form of formaldehyde for the purposes of the Irish regulations.
248 The representation made by Dateline was that it was its opinion that the Ireland ban would be overturned, not that it could be. Not even Copomon and Keratonics went that far.
249 When Mr Taylor asked Mr Anthony on 3 September 2010 about the likelihood of the formaldehyde problem being overcome and whether it would be possible to overturn the recall in Ireland, Mr Anthony said that the formaldehyde problem should be able to be overcome in the next month, but did not address the question of whether the recall could be overturned. Mr Gerstein had said that HPLC testing was mandated in Ireland, so when he said in his email of 3 September 2010 that he was unsure how long it would take to overturn the Irish ban it could not be read as any form of unequivocal statement that his opinion was that it would be overturned.
250 Mr Taylor’s email of 2 September 2010 indicated that he was not confident that the Ireland ban would be overturned. Mr Taylor said:
What chance is there of having the Irish…authorities reverse or qualify the recall? Have never heard of this happening before. Gov departments don’t usually admit they are wrong and are always very thorough with their analysis and decision making to avoid any legalities.
251 An email from Dr Ballantini on 17 September 2010 said, “I think that this document could be used to sent [sic] to HSE in order to obtain the withdrawal of the RAPEX”. Mr Taylor, in an email to Mr Anthony, interpreted Dr Ballantini’s email as saying, “their decision could be overturned”
252 It is true that the Irish ban on Keratin Complex was stated to have been imposed because of its free formaldehyde content and the interim NMR test said that no free formaldehyde could be detected. However, the mere absence of free formaldehyde in the interim NMR test would not necessarily mean that the authorities would overturn the ban.
253 It was far from clear that the Irish authorities would overturn the ban based on the interim NMR report. Their scientists might query the precise methodology used and the reliability of the result. The authorities might wish to commission independent testing. The fact that the interim NMR report indicated that methylene glycol was present, even if free formaldehyde was not, might affect the consideration of the authorities as to whether to overturn the ban.
254 The final report remained to be provided. An email from Ms Rothwell, the Intertek analyst, asked whether further analysis was required “to quantify the free formaldehyde based on the levels of methylene glycol present”. While it may not have been clear to Mr Taylor exactly what this meant, it ought to have raised in his mind the possibility that methylene glycol might be converted to free formaldehyde in Keratin Complex under some conditions.
255 Further, it is striking that the body of Dateline’s letter of 20 September 2010 referred only to the absence formaldehyde, not free formaldehyde. It was the absence of formaldehyde that was represented to form the basis of Dateline’s opinion that the ban would be overturned. Dateline may have had grounds for representing that the ban could be overturned because of the interim NMR report’s finding that no free formaldehyde could be detected. However, the letter, even read in the context of the attached extract of the interim NMR report, based the opinion that the ban would be overturned upon the absence of any form of formaldehyde.
256 The confidence expressed by Dateline in stating that the Ireland ban would be overturned was not justified by the information that Mr Taylor received and was not reflected in his own correspondence to Copomon and Keratronics. The representation was not qualified. It did not indicate merely that the ban could be overturned or, even, that it was likely to be overturned.
257 Statements by Copomon that Keratin Complex did not contain formaldehyde, the tests at Miguel Hernández University and the report of Bruce Green were insufficient, by themselves, to provide reasonable grounds for making the representation in light of the detection of methylene glycol by the recent interim NMR test and opinion stated that methylene glycol was a form of formaldehyde. It was not reasonable for Dateline to rely on those opinions without, at least, ascertaining whether the presence of methylene glycol would affect those opinions.
258 I do not accept that Dateline had reasonable grounds for making the representation that the Ireland ban would be overturned. Therefore, pursuant to s 51A(1) of the TPA, the representation is taken to be misleading. I find that the making of this representation breached s 52(1).
Whether there were reasonable grounds for making the other representations
259 The ACCC alleges that Dateline represented in its letter of 20 September 2010 that it had reasonable grounds for making representations (which I will call “the primary representations”) that:
(a) Keratin Complex did not contain formaldehyde;
(b) persons using the product could not be exposed to formaldehyde;
(c) Keratin Complex was safe for its recommended use;
(d) it complied with all health and safety regulations in the world;
(e) Keratin Complex contained no harmful chemicals;
(f) formaldehyde cannot be detected in Keratin Complex.
260 Dateline admits that it made the representations (subject to the question of the meanings of those at (a) and (b), which I have already dealt with).
261 The ACCC alleges that Dateline did not have reasonable grounds for making the primary representations and, therefore, the representations were misleading or deceptive or likely to mislead or deceive. Dateline asserts that it did have reasonable grounds.
262 The ACCC’s pleading and the admission by Dateline are curious. The ACCC seems to assert, and Dateline seems to accept, that Dateline may have breached s 52(1) by making the primary representations without reasonable grounds even though the primary representations were ultimately proved to be true. In the absence of the admission, there might have been a real issue as to what an ordinary consumer would have understood the primary representation to mean. Further, if the parties are correct, it would mean that the kind of consequence imposed by s 51A(1) in relation to a representation about a future matter can be imported into representations about past or present matters.
263 In Quinlivan v ACCC (supra), the Full Court said at [14]:
[I]n the case of a misleading representation where no future matter is involved it does not matter whether the corporation had reasonable grounds or not.
264 In support of that proposition, the Full Court cited Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513-514 which indicates that the making of a representation may be misleading or deceptive even if the maker had reasonable grounds for making it. The passage from Quinlivan v ACCC (supra) is expressed more widely. It may suggest that if a representation as to a past or present matter is true, the making of the representation will not be misleading or deceptive conduct even if the maker did not have reasonable grounds for making it. That position would be consistent with its clearly established corollary that if a representation as to a past or present matter is untrue, then it irrelevant that there were reasonable grounds for making the representation.
265 I have already found that the ACCC has not proved the falsity of the representations in the letter that Keratin Complex did not contain formaldehyde, that persons using Keratin Complex could not be exposed to formaldehyde, that Keratin Complex was safe for its recommended use and that Keratin Complex complied with all health and safety regulations in the world.
266 I find that the ACCC has not proved that the representation in the letter that Keratin Complex contained no harmful chemicals was false because Keratin Complex has not been demonstrated to have contained formaldehyde. Further, Dr Golden’s evidence demonstrated that methylene glycol is not a harmful or dangerous chemical in the quantity found by the ACCC’s NMR test to exist in Keratin Complex.
267 As to the representation that formaldehyde could not be detected in Keratin Complex, I consider that, in the context, the meaning that the people who received the letter would attribute to the representation is that the interim NMR test carried out by Intertek did not detect formaldehyde. Methylene glycol was apparently detected in Keratin Complex by the Intertek interim NMR test, but, by agreement of the parties, I cannot take the results of the test as evidence of the truth of those results. The ACCC has not proved that the interim NMR test detected formaldehyde and has not proved that the representation was untrue.
268 I consider that a reasonable ground for making a representation is that the representation is true. A representation may be made that, objectively, seems outlandish or fanciful; but, sometimes such a representation proves to be true. Dateline claims that its primary representations were true. There is an onus on the ACCC to prove that the representations were not true. That has not been proved.
269 The only case I was referred to on this issue was ACCC v Jones (No 5) [2011] FCA 49. In that case, Logan J considered allegations that were similar to those in the present case in that the ACCC alleged that the respondent made representations that were untrue and, further, that he had no reasonable grounds to make the representations. Logan J held both that the representations were untrue and that there were no reasonable grounds for making them. The circumstances of that case are, in my opinion, distinguishable from those in the present case because here I have found that the ACCC has not proved the falsity of the representations.
270 In case I am wrong in my view that a reasonable ground for making a representation is that it is true, I will proceed to otherwise consider the reasonableness of the ground for making the representations by reference to the information available to Mr Taylor when he wrote the letter.
271 On that basis, I would consider that the ACCC has demonstrated that Dateline did not have reasonable grounds to make the representation that Keratin Complex did not contain formaldehyde. The Intertek interim NMR test showed the absence of free formaldehyde, but the presence of methylene glycol which was described as the “hydrated form of formaldehyde”. In these circumstances, there was no reasonable basis for the representation in the letter of 20 September 2010 that Keratin Complex does not contain formaldehyde.
272 For the same reason, I would find that Dateline did not have reasonable grounds for making the representation that persons using Keratin Complex could not be exposed to formaldehyde. In the face of the interim NMR report, there was no warrant for that emphatic representation.
273 I would not accept that Dateline had reasonable grounds for making its representation that Keratin Complex was safe for its recommended use. Earlier, the distributor and the manufacturer had assured Dateline that the product was safe for its recommended use. That view was based upon the proposition that timonacic acid would not break down. However, the interim NMR report revealed that methylene glycol was present, suggesting that timonacic acid had broken down. Mr Taylor did not seek advice from Copomon or Keratronics as to whether the presence of methylene glycol affected their view of the safety of the product. A reasonable person in Mr Taylor’s position ought to have concluded that, at least, Keratin Complex might not be safe for its recommended use. There was no reasonable basis for his emphatic and unequivocal representation that Keratin Complex was safe for its recommended use.
274 I would consider that Dateline did not have reasonable grounds for making the representation that Keratin Complex complied with all health and safety regulations in the world. It was plain that the Irish authorities considered that Keratin Complex did not comply with the Irish regulations. It was not apparent whether methylene glycol was considered to be formaldehyde under the Irish regulations. There is no evidence that Mr Taylor was aware of precisely what the Irish regulations said. I would consider that Dateline did not have reasonable grounds for making this representation.
275 I would consider that Dateline did not have reasonable grounds for making the representation that Keratin Complex contained no harmful chemicals. The Intertek interim NMR report described methylene glycol as a form of formaldehyde. Mr Taylor believed methylene glycol and formaldehyde to be different chemical compounds when he wrote the letter, but he did not give evidence that he believed methylene glycol to be harmless. Later evidence was obtained from Dr Golden that suggested that methylene glycol is harmless, but Mr Taylor did not have that evidence at the time. In these circumstances, I would consider that there were not reasonable grounds for the representation that Keratin Complex contained no harmful chemicals.
276 However, for the reasons I have given earlier, I conclude that Dateline did not contravene s 52(1) by representing that it had reasonable grounds for making the primary representations.
Accessorial liability of David Taylor
277 The ACCC case against Mr Taylor relies on ss 75B and 76E of the TPA. It is that he was directly or indirectly, knowingly concerned in, or a party to the contraventions and aided, abetted, counselled or procured Dateline’s contraventions of ss 52, 53(a) and (c) by reason of the representations made in the letter of 20 September 2010.
278 I have found that the only representation made in Dateline’s letter of 20 September 2010 that contravened the TPA was its representation that it was its opinion that the Ireland ban would be overturned. This was a contravention of s 52(1). Section 76E has no application, as there was no contravention of s 53(a) or (c).
279 Section 75B of the TPA provided, relevantly:
(1) A reference in this Part to a person involved in a contravention of a provision of Part…V…shall be read as a reference to a person who:
(a) has aided, abetted, counselled or procured the contravention;
…
(c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention;
280 There is a lack of particularity in the ACCC’s allegation of accessorial liability in relation to the contravention that I have found to be proved. The ACCC’s case seems to be that Mr Taylor did all of aiding, abetting and counselling and procuring the contravention and that he was knowingly concerned in and a party to the contravention. Precisely how he is said to have done each of these things is not clear from the pleadings or the submissions. In particular, it is not apparent how Mr Taylor is said to have counselled or procured the contravention.
281 However, it is sufficient for present purposes to focus on the allegation that Mr Taylor was knowingly concerned in the contravention. That is because the relief sought against Mr Taylor in the originating application is a declaration to the effect that he was knowingly concerned in Dateline’s contravention.
282 A person cannot be knowingly concerned in a contravention unless he or she has knowledge of the essential facts constituting the contravention: Yorke v Lucas (1985) 158 CLR 661 at 670. It is unnecessary for the ACCC to prove that Mr Taylor knew that his participation was in breach of the TPA. All that is required is actual knowledge of the essential elements of the contravention and intentional participation in it: Yorke v Lucas at 666-669. A combination of suspicious circumstances and failure to make an inquiry may sustain an inference of knowledge of the actual or likely existence of the relevant matter: Pereira v Director of Public Prosecutions (1988) 82 ALR 217, cited in Compaq Computer Australia Pty Ltd v Howard Merry [1998] FCA 968 at p 4.
283 Where accessorial liability is in issue in relation to a representation in respect of a future matter, the ACCC must show that the respondent had actual knowledge that the representation was made and that either it was misleading or the respondent had no reasonable grounds for making it: Quinlivan v ACCC (supra) at [15].
284 The material I have set out at [234]-[258] is relevant to the issue of accessorial liability.
285 Mr Taylor was the author of the letter of 20 September 2010. It was Mr Taylor who caused the letter to be sent to approximately 20 retailers or potential retailers. Accordingly, he knew that the representation was made.
286 I have found that the representation made by Dateline was that it was its opinion that the Ireland ban would be overturned. Mr Taylor’s statement does not go so far as to indicate that he held the opinion that the Ireland ban would be overturned. The representation does not match Mr Taylor’s belief, on the evidence of his own email of 17 September 2010, that the ban could be overturned. He believed, on the basis of the new tests developed by Dr Ballantini, that the ban could be overturned. Mr Taylor must obviously have known that the representation did not accord with his belief or opinion. I therefore find that Mr Taylor knew that the representation was misleading.
287 Further, I consider that Mr Taylor knew that Dateline did not have reasonable grounds for making the representation. I have already set out the reasons why there were no such reasonable grounds. The view that underlay the representation was that methylene glycol was not a form of formaldehyde, but this was quite inconsistent with the plain statement in the interim NMR report that methylene glycol was a form of formaldehyde. It was a report that Mr Taylor sought to rely on to demonstrate the absence of free formaldehyde; yet he ignored the description of methylene glycol as a “hydrated form of formaldehyde”. In addition, none of the other sources of information that he was relying on, including Copomon, Keratronics and Dr Ballantini, made any statement that could justify a statement that the Ireland ban would be overturned, rather than merely that it could be overturned. The submission that Mr Taylor did not know that he had no reasonable grounds for making the representation in the letter of 20 September 2010 that the Ireland ban would be overturned is not consistent with the evidence.
288 I find that Mr Taylor was knowingly concerned in Dateline’s contravention of s 52 of the TPA. Having reached this conclusion, it is unnecessary for me to deal with the ACCC’s other allegations concerning s 75B of the TPA.
The magazine formaldehyde representations
289 The next set of representations were contained in advertisements for Keratin Complex that Dateline caused to be published in various magazines between 27 September 2010 and 10 October 2010.
290 On 27 September 2010, an advertisement for Keratin Complex appeared in a magazine called Grazia. The advertisement consisted of a large photograph of a model with straight hair, smaller “before” and “after” shots of the model, a picture of a bottle of Keratin Complex and text.
291 The text read, relevantly:
A revolution in HAIR SMOOTHING AND CONDITIONING
No matter how frizzy, curly or unruly your hair is Keratin Complex will straighten and condition your hair beyond your wildest dreams. Keratin Complex will make your hair straight, smooth, silky and resistant to humidity and frizz…and much easier to style. Keratin Complex treatments contain 40% natural Keratin for far superior and long lasting results.
Keratin Complex is the No. 1 Keratin system in the world and is perfectly safe to use. Formaldehyde is not an ingredient in Keratin Complex.
292 The same advertisement was published in OK! magazine on 1 October 2010. On 3 October and 10 October 2010, the advertisement was published in a magazine called Sunday Magazine which is distributed with the Sunday Herald Sun newspaper in Victoria.
293 The ACCC alleges that the statement in each of the advertisements that “Formaldehyde is not an ingredient in Keratin Complex” represented that:
(a) Keratin Complex did not contain formaldehyde;
(b) persons using Keratin Complex could not be exposed to formaldehyde;
(c) Keratin Complex was safe for its recommended use; and
(d) Dateline had reasonable grounds for making the representations set out at (a) to (c).
294 My findings upon the formaldehyde magazine representations should be read in the context of my earlier discussion of and findings upon the website representations and the representations arising from the letter of 20 September 2010.
The magazine representation that Keratin Complex did not contain formaldehyde
295 Dateline, once again, submits that ordinary readers of the advertisements would not attribute any meaning to formaldehyde, or, alternatively, would regard it only as a gas.
296 It is necessary to identify the class or classes of readers of the magazines.
297 Grazia, judging from its covers, seems to consist principally of stories about celebrities, fashion and beauty. The language and content of its covers suggest that it is aimed principally at young women.
298 OK! appears to be almost exclusively about celebrities. It also seems to be directed principally towards young women.
299 Sunday Magazine has a range of articles about celebrities, cooking and stories relevant to motherhood and family life. It appears to be directed principally towards a slightly older female demographic, particularly women who have children. While Sunday magazine was targeted to an older group than the demographic of Grazia and OK!, I do not think that this would affect the meaning that ordinary readers of advertisements in the various magazines would attribute to the representations.
300 I consider that a broad cross-section of readers, principally women, is likely to have read the advertisements. Unlike the website advertisements, the vast bulk of the readers of the magazines are likely to have been people in the general population, rather than hairdressers or persons in the hairdressing industry or consumers looking specifically for hair treatment products. Despite this, I consider that ordinary consumers in the class reading the magazine advertisements would have a similar understanding of formaldehyde to those viewing the website. That is, there would be two groups, each containing a not insignificant number of ordinary potential consumers, with a slightly different understanding of what formaldehyde in its context in the magazine advertisements, meant. The first group would understand it to be a reference to a chemical called formaldehyde. That group would understand that Keratin Complex is a liquid since the advertisement has pictures of a bottle and would understand that formaldehyde is or can be in a liquid. The second group, a subgroup, would have a more specific understanding of formaldehyde as a chemical that can be used as a preservative, and which is or can be a liquid. Each group would understand that formaldehyde was not contained in Keratin Complex.
301 I have found that the ACCC has not proved that Keratin Complex contained formaldehyde. I find that the representation in each of the magazine advertisements that Keratin Complex did not contain formaldehyde has not been shown to be false or misleading or deceptive or likely to mislead or deceive. I rely on my reasoning in relation to the same representation appearing on Dateline’s website.
302 I find that the ACCC has not proved that the making of this representation breached ss 53(a) or 52(1).
The magazine representation that persons using Keratin Complex could not be exposed to formaldehyde
303 Dateline again denies that it represented that persons using Keratin Complex could not be exposed to formaldehyde and argues that ordinary consumers would have understood the representation to mean that persons using Keratin Complex could not be exposed to formaldehyde at levels that posed a safety risk to humans. For the reasons I have set out earlier, I reject that argument.
304 I find that the ACCC has not proved that Keratin Complex contained formaldehyde. I find that the ACCC has not proved that the representation that persons using Keratin Complex could not be exposed to formaldehyde made in each of the magazine advertisements was false or misleading or deceptive or likely to mislead or deceive. I rely on my reasoning in relation to the same representation on Dateline’s website.
305 I find that the ACCC has not proved that the making of the representation in the magazines breached ss 53(a) or 52(1).
Whether the magazine representation that Keratin Complex was safe for its recommended use was false
306 I have dealt earlier with the representation, in the context of the website representation, that Keratin Complex was safe for its recommended use.
307 For the same reasons, I find that the ACCC has not proved that Dateline represented in the magazine advertisements that Keratin Complex had a benefit that it did not have or that the representation was misleading or deceptive or likely to mislead or deceive. I find that the ACCC has not proved that the representation breached ss 53(c) or 52(1).
Whether Dateline had reasonable grounds for making the magazine representations
308 The ACCC again alleges that Dateline represented that it had reasonable grounds for making the magazine representations that Keratin Complex did not contain formaldehyde, that persons using Keratin Complex could not be exposed to formaldehyde and that Keratin Complex was safe for its recommended use. Again, subject to disputes about the meaning of the first two representations, Dateline admits that it represented that it did have reasonable grounds for making those representations.
309 For the same reasons that I gave in relation to the same allegation made about the letter of 20 September 2010, I find that this allegation cannot succeed in relation to the magazine advertisements.
310 I therefore find that the making of representations by Dateline that it had reasonable grounds for making its primary representations does not breach s 52(1).
The natural keratin representations
Magazine advertisements between 30 August 2010 and 20 September 2010
311 Dateline caused an advertisement for Keratin Complex to be placed in Grazia magazine on about 30 August 2010, Sunday magazine on about 5 September 2010, OK! magazine on 10 September 2010 and Cleo magazine on about 20 September 2010. The advertisement has a large photograph of a model who has straight hair and the text read, relevantly:
KERATIN COMPLEX
EXPRESS Blow Out
THE HOTTEST NEW KERATIN SERVICE
SMOOTH SHINY HAIR IN A SNAP!
KERATIN COMPLEX EXPRESS BLOW OUT
Redefines and expands Keratin treatments
As you know them
This 45 minute in-salon service reduces frizz, curl, and styling time for up to 6 weeks AND washes out the same day. With its unique formulation Express Blow Out infuses over 35% Natural Keratin in the shortest amount of time!
Get the hair you’ve always dreamed of with the Keratin Complex Express Blow Out! Available from salons everywhere.
312 The extract from the advertisement does not adequately reflect the colour and style of the various fonts used, which create an air of hyperbole.
313 The ACCC alleges that the words, “With its unique formulation [Keratin Complex] infuses over 35% Natural Keratin” represented that:
(a) Keratin Complex was comprised of at least 35% natural keratin; and
(b) whatever was infused into the hair by the use of Keratin Complex included natural keratin.
The meaning of the representations
314 I have already set out my view as to the class of consumers who would read Grazia, OK! and Sunday. Cleo appears to be aimed principally at young women. I do not see any reason to differentiate the readers of Cleo magazine from the readers of the other magazines.
315 It is convenient to begin with the second representation alleged by the ACCC, namely that whatever was infused into the hair by the use of Keratin Complex included natural keratin. The ACCC alleges that ordinary readers of the advertisement would understand natural keratin to mean keratin in its natural or unchanged state. It then argues that, having regard to the form of the keratin contained in Keratin Complex and the processing it undergoes, the representation was false.
316 On the other hand, Dateline argues that a consumer would not have any understanding at all of what keratin meant or, alternatively, that ordinary consumers in the class would consider that the representation meant that Keratin Complex contained keratin derived from natural sources.
317 I reject the first part of Dateline’s argument. I consider that it is a word that is not uncommonly used and that many, if not most, consumers in the class would understand keratin to be a substance that occurs in hair and nails. Anyone who studied science or biology at any level at high school is likely to have that understanding.
318 The Macquarie Dictionary’s first definition for “natural” is “existing in or formed by nature; not artificial”. The Oxford English Dictionary relevantly defines “natural” as, “constituted by nature; having a basis in the normal constitution of things.” I consider that ordinary consumers in the class would understand the representation to mean that keratin is a substance that is natural; in other words, that keratin is a substance that exists in or is formed or found in nature.
319 I reject the ACCC’s submission that a not insignificant number of ordinary consumers would regard the advertisement as representing that Keratin Complex contained keratin in its natural or unchanged state. That would be contrary to common sense. Consumers would not expect, for example, shaving of nails or hair to be in the product. Rather, they would expect that a natural substance that contains keratin would be treated or processed to extract the keratin. In addition, I think that they would have an expectation that the keratin that was extracted might undergo some form of treatment or processing to make it usable in the product.
320 Therefore, I accept Dateline’s submission that the statement that, “With its unique formulation [Keratin Complex] infuses over 35% Natural Keratin” meant, in part, that Keratin Complex contained keratin derived from natural sources.
321 The other aspect of the ACCC’s allegation is that Dateline represented that Keratin Complex was comprised of at least 35% natural keratin. Dateline initially argued that ordinary consumers would understand the representation to mean that Keratin Complex contained an ingredient which contained natural Keratin and that at least 35% of that ingredient consisted of Keratin Complex. It was not clear whether Dateline maintained that submission by the end of the trial, but I will proceed on the basis that it does.
322 I consider that the natural meaning of the representation to ordinary consumers in the class is that when Keratin Complex is used, it is infused into the hair and that at least 35% of what is infused is natural keratin. Ordinary consumers in the class would infer that Keratin Complex consists of least 35% natural keratin. I consider that a not insignificant number of ordinary consumers would construe the representation in accordance with the meaning attributed to it by the ACCC; that is, Keratin Complex was comprised of at least 35% natural keratin. I do not think that ordinary consumers would give the representation the rather artificial construction that Dateline contends for.
Whether the representation that whatever was infused into the hair included natural keratin was false
323 Dateline submits that it was provided with materials from the supplier, Copomon, that demonstrated that Keratin Complex contained 40% natural keratin and that this formed the basis for its representation. It does not, of course, matter whether Dateline believed the representation to be true, or whether it had reasonable grounds for making the representation.
324 It is necessary to examine the evidence as to the composition of Keratin Complex in order to ascertain whether the representations have been shown to be false.
325 Mr Anthony of Keratronics, the manufacturer of Keratin Complex, gave evidence that keratin for use in cosmetic and hair products is supplied as “hydrolysed keratin”. Hydrolysed keratin is used in a variety of products used to care for skin, nails and hair. Keratronics purchased its hydrolysed keratin from a company called Roxlor LLC (“Roxlor”). The general manager of Roxlor, Robert Veghte, gave evidence that Roxlor sells hydrolysed keratin under the name “Cynatine”.
326 Mr Veghte’s evidence was that sheep’s wool is used to manufacture Cynatine, as it is comprised almost entirely of keratin. The wool is put through a water extraction which results in the production of keratin proteins in solution. The keratin proteins are enzymatically hydrolysed using a natural enzyme derived from a bacterium to break down the proteins and create peptides with a particle size of between 400 and 800 daltons. Mr Veghte’s evidence was that there is no difference in the amount of amino acids at the end of the hydrolysis or in the ratio of amino acids from protein to peptide. The only difference is the reduction in the molecular size. After the product is hydrolysed, impurities are removed and the product can have water added to it to create a liquid finished product, or it can be freeze dried or spray dried to create a powder. Mr Veghte was not cross-examined, and I accept his evidence.
327 Mr Anthony’s evidence was that in 2009 and 2010, Cynatine powder was used in the manufacture of Tri-Ionic Keratin. The Cynatine powder was added to water. A mild electrical current was applied to the solution to ensure that certain amino acids were dissolved.
328 I consider that the evidence of Mr Veghte and Mr Anthony is consistent with the representation that the keratin used in Keratin Complex was “natural keratin”, in the sense that it comes from a source in nature. Further, the evidence does not demonstrate that the keratin that is ultimately found in Keratin Complex is so altered from keratin in its natural form that can be described as “artificial”, rather than “natural” keratin. The fact that the Keratin is extracted and treated or processed to break it down to a usable form does not mean that it ceases to be natural keratin.
329 The ACCC submits that the representation that whatever was infused into the hair included natural keratin was false. I accept that Keratin Complex contained natural keratin. It is not in dispute that Keratin Complex was infused into the hair when used. I accept that part of what was infused into the hair was natural keratin. The ACCC has not proved that the representation that whatever was infused into the hair included natural keratin was false or misleading or deceptive or likely to mislead or deceive.
Whether the representation that Keratin Complex was comprised of at least 35% natural keratin was false
330 The next question concerns the falsity of the representation that Keratin Complex was comprised of at least 35% natural keratin. It will be recalled that Keratronics would use Cynatine to manufacture Tri-Ionic Keratin. There is no evidence that Cynatine or another form of keratin was added at any other stage during the process of manufacturing Keratin Complex. The Tri-Ionic Keratin was combined with a number of other ingredients, called Phase A. Phase A was then blended with another mixture of ingredients called Phase B to produce Keratin Complex.
331 Mr Anthony’s evidence was that Keratronics usually manufactures Tri-Ionic Keratin in 400 gallon or 800 gallon batches. When making an 800 gallon batch, about 200 kg of Cynatine powder was used and half that amount was used when making a 400 gallon batch. There are about 3.79 litres to a gallon, so 800 gallons is about 3,030 litres. The first step in making Tri-Ionic Keratin was to add Cynatine powder to water. One litre of water weighs 1 kg, so Tri-Ionic Keratin contained approximately 6.6% keratin. This is broadly consistent with the evidence given by Mr Anthony that in the first step in making Tri-Ionic Keratin is to add one part (by weight) of Cynatine powder to, at the most, 12 parts (by weight) of water. It is also consistent with the MSDS for Tri-Ionic Keratin produced by Keratronics which showed that it consisted of 6.61% natural keratin.
332 The MSDS published by Keratronics for Keratin Complex indicated that it contained 40% Trionic-Keratin Protein. I consider that Tri-Ionic Keratin cannot itself be described as natural keratin. Rather, one of the ingredients of Tri-Ionic Keratin was natural keratin. Keratin Complex contained a little less than 7% natural keratin.
333 I therefore find that the representation in the magazine advertisements that Keratin Complex was comprised of at least 35% natural keratin was false and misleading or deceptive or likely to mislead or deceive. I find that the making of that representation breached s 53(a) and s 52(1) of the TPA.
334 I also find that the representation represented that Keratin Complex had a benefit that it did not have. The benefit represented was that at least 35% natural keratin would be infused into the hair. In fact only about 7% natural keratin was available to be infused. I find that the making of that representation breached s 53(c) of the TPA.
Magazine advertisements between 27 September 2010 and 5 November 2010
335 Dateline caused advertisements stating that “Keratin Complex treatments contain 40% natural Keratin” to be published in Grazia magazine on about 27 September 2010, OK! magazine on about 1 October 2010, Sunday Magazine on about 3 October and 10 October 2010 and Who magazine on about 5 November 2010. I have already set out the text of this advertisement in the context of ruling upon the representation contained in the same advertisement that “Formaldehyde is not an ingredient in Keratin Complex” (see [291]).
336 I have not previously discussed Who magazine. It is a magazine that appears to be similar to Grazia and OK! in that its stories are principally about celebrities and it appears to be directed towards young women. I do not consider that the class of consumers who would read Who magazine can be distinguished from those consumers who read OK! or Grazia and I consider that ordinary consumers who read Who magazine would have the same understanding of the representation as those who read OK!, Grazia and Sunday Magazine.
337 The ACCC submits that the words “Keratin Complex treatments contain 40% natural keratin” represented that Keratin Complex was comprised of 40% natural keratin.
338 I accept the ACCC’s submission for the reason that I have given earlier, namely that Keratin Complex was comprised of only about 7% keratin. Therefore, I find that the representation that Keratin Complex was comprised of 40% natural keratin was false and misleading or deceptive or likely to mislead or deceive. The advertisement also represented that Keratin Complex had a benefit that it did not have. I find that the making of that representation breached s 53(a) and (c) and s 52(1) of the TPA.
Magazine advertisements between 4 October 2010 and 9 November 2010
339 Dateline caused an advertisement for Keratin Complex to be placed in Madison magazine on about 4 October 2010, Grazia magazine on about 11 October 2010, OK! magazine on about 22 October 2010, Vogue magazine on about 3 November 2010 and InStyle Professional magazine on about 9 November 2010. The advertisement contained a photograph of a model with straight hair and the text read:
KERATIN COMPLEX
EXPRESS BLOW OUT
THE HOTTEST NEW KERATIN SERVICE
45 MINUTE SALON SERVICE
LAST UP TO 6 WEEKS
CREATES SMOOTH, SILKY, MANAGEABLE HAIR
VOLUME, CURLS, STRAIGHT…ALL WITHOUT FRIZZ
This 45 minute in-salon service reduces frizz, curl and styling time for up to 6 weeks by infusing 40% natural keratin into your hair in the shortest amount of time! Ideal for all hair types. Get the hair you have always dreamed of with the Keratin Complex Express Blow Out.
340 Again, this extract does not adequately reflect the colour and style of the various fonts used and air of hyperbole that is created.
341 Madison magazine appears to be about celebrities and fashion. Vogue magazine is also about celebrities and fashion, with a greater emphasis on fashion. Both seem to be aimed at a young female readership. I see no reason to distinguish the class of consumers who would read these magazines from those who would read OK! or Grazia. I also see no reason to distinguish between them in terms of their understanding of the advertisement.
342 InStyle Professional magazine describes itself as “The Magazine for the Hairdressing Professional”. Despite its different readership, I do not think that the understanding of the representation contained in the advertisement by ordinary hairdressing professionals of the representation would differ from the understanding of ordinary readers of the other magazines.
343 The ACCC alleges that the words “by infusing 40% natural keratin into your hair” represented that:
(a) Keratin Complex was comprised of at least 40% natural keratin; and
(b) whatever was infused into the hair by the use of Keratin Complex included natural keratin.
344 For the reasons I have given earlier, I accept the first of the ACCC’s submissions, but reject the second.
345 I find that the representation in the advertisement that Keratin Complex was comprised of at least 40% natural keratin was false and misleading or deceptive or likely to mislead or deceive and that it represented that Keratin Complex had a benefit that it did not have. I find that the making of that representation breached s 53(a) and (c) and s 52(1) of the TPA.
346 In summary, I have found that by making the following representations, Dateline breached the following provisions of the TPA:
(a) the representation in its letter of 20 September 2010 that it was its opinion that the Ireland ban on Keratin Complex would be overturned: s 52(1);
(b) the representation published in magazines between 30 August 2010 and 2 September 2010 that Keratin Complex was comprised of at least 35% natural keratin: ss 52(1), 53(a) and (c);
(c) the representation published in magazines between 27 September 2010 and 5 November 2010 that Keratin Complex was comprised of 40% natural keratin: ss 52(1), 53(a) and (c);
(d) the representation published in magazines between 4 October 2010 and 9 November 2010 that Keratin Complex was comprised of at least 40% natural keratin: ss 52(1), 53(a) and (c).
347 I have found that the ACCC has not otherwise proved that Dateline breached ss 52(1) or 53(a) or (c) of the TPA.
348 I have found that Mr Taylor was knowingly concerned in Dateline’s breach of s 52(1) involving the making of the representation that it was Dateline’s opinion that the Ireland ban would be overturned.
349 I will hear the parties as to relief and costs.
I certify that the preceding three hundred and forty-nine (349) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rangiah. |
Associate:
