FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Lorna Jane Pty Ltd [2021] FCA 852

ORDERS

THE COURT ORDERS THAT:

1.    Between 2 July 2020 and 16 July 2020, by representing to consumers that:

(a)    LJ Shield makes the transfer of all pathogens, including COVID-19 to your activewear, impossible by eliminating the virus on contact with the fabric;

(b)    LJ Shield Activewear stops you from transferring viruses, including COVID-19 from the outside world, to home and beyond;

(c)    LJ Shield Activewear breaks through the membrane shell of any toxic diseases or germs, including COVID-19 that come into contact with it, not only killing that microbe but preventing it from multiplying into anymore;

(d)    with LJ Shield, infectious diseases like COVID-19 cannot be transferred to your activewear;

(e)    viruses that come into contact with LJ Shield particles on LJ Shield Activewear have their outer shells pierced such that they are eradicated;

(f)    with LJ Shield, infectious diseases like COVID-19 cannot be transferred to your activewear;

(g)    viruses that come into contact with LJ Shield particles on LJ Shield Activewear have their outer shells pierced such that they die;

(h)    viruses, including COVID-19, would be unable to adhere or transfer to or would otherwise be eliminated on contact with LJ Shield Activewear,

(the Elimination Representations),

in circumstances where:

(i)    in respect of the representation referred to in paragraph 1(a) above, LJ Shield did not make the transfer of all pathogens, including COVID-19, to the activewear impossible by eliminating the virus on contact with the fabric;

(j)    in respect of the representation referred to in paragraph 1(b) above, LJ Shield Activewear did not stop the transfer of viruses, including COVID-19 from the outside world, to home and beyond;

(k)    in respect of the representation referred to in paragraph 1(c) above, LJ Shield Activewear did not break through the membrane shell of toxic diseases or germs including COVID-19, that came into contact with it, neither killing the microbe nor preventing it from multiplying;

(l)    in respect of the representation referred to in paragraph 1(d) above, infectious diseases like COVID-19 could be transferred to LJ Shield Activewear;

(m)    in respect of the representation referred to in paragraph 1(e) above, viruses that came into contact with LJ Shield particles on LJ Shield Activewear did not have their outer shells pierced such that they were eradicated;

(n)    in respect of the representation referred to in paragraph 1(f) above, with LJ Shield, infectious diseases like COVID-19 could be transferred to LJ Shield Activewear;

(o)    in respect of the representation referred to in paragraph 1(g) above, viruses that came into contact with the LJ Shield particles on LJ Shield Activewear did not have their outer shells pierced such that they die; and

(p)    in respect of the representation referred to in paragraph 1(h) above, viruses, including COVID-19, would not be unable to adhere or transfer to or would not be eliminated on contact with LJ Shield Activewear.

the First Respondent has, in trade or commerce:

(q)    engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of s 18 of the ACL;

(r)    in connection with the supply, possible supply, or promotion of the supply of LJ Shield Activewear, made false or misleading representations that LJ Shield Activewear had particular performance characteristics, uses and benefits which it did not have, in contravention of s 29(1)(g) of the ACL; and

(s)    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for the purpose of LJ Shield Activewear, in contravention of s 33 of the ACL.

2.    Between 2 July 2020 and 23 July 2020, by representing to consumers that:

(a)    LJ Shield Activewear protects you from COVID-19;

(b)    LJ Shield Activewear protects against viruses, including COVID-19;

(c)    LJ Shield Activewear protects wearers against lethal viruses, including COVID-19;

(d)    LJ Shield keeps you protected against viruses, like COVID-19;

(e)    LJ Shield Activewear provides anti-virus protection;

(f)    LJ Shield protects you, including from COVID-19, with anti-virus activewear;

(g)    LJ Shield Activewear protects wearers against viruses, including COVID-19;

(h)    LJ Shield is a step you can take for further protection from spreading germs, including COVID-19;

(i)    LJ Shield is a step you can take for further protection from spreading germs, including COVID-19;

(j)    LJ Shield Activewear protected wearers against viruses, including COVID-19.

(the Protection Representations),

in circumstances where:

(k)    in respect of the representation referred to in paragraph 2(a) above, LJ Shield Activewear did not protect consumers from COVID-19;

(l)    in respect of the representation referred to in paragraph 2(b) above, LJ Shield Activewear did not protect against viruses, including COVID-19;

(m)    in respect of the representation referred to in paragraph 2(c) above, LJ Shield Activewear did not protect wearers against lethal viruses, including COVID-19;

(n)    in respect of the representation referred to in paragraph 2(d) above, LJ Shield did not keep consumers protected against viruses, like COVID-19;

(o)    in respect of the representation referred to in paragraph 2(e) above, LJ Shield Activewear did not provide anti-virus protection;

(p)    in respect of the representation referred to in paragraph 2(f) above, LJ Shield did not protect consumers from viruses, including from COVID-19;

(q)    in respect of the representation referred to in paragraph 2(g) above, LJ Shield Activewear did not protect consumers against viruses, including from COVID-19;

(r)    in respect of the representation referred to in paragraph 2(h) above, LJ Shield was not a step that could be taken for further protection from spreading germs, including COVID-19;

(s)    in respect of the representation referred to in paragraph 2(i) above, LJ Shield Activewear was not a step consumers could take for further protection from spreading germs, including COVID-19;

(t)    in respect of the representation referred to in paragraph 2(j) above, LJ Shield Activewear did not protect wearers against viruses, including COVID-19,

the First Respondent has, in trade or commerce:

(u)    engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of s 18 of the ACL;

(v)    in connection with the supply, possible supply, or promotion of the supply of LJ Shield Activewear, made false or misleading representations that LJ Shield Activewear had particular performance characteristics, uses and benefits which it did not have, in contravention of s 29(1)(g) of the ACL; and

(w)    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for the purpose of LJ Shield Activewear, in contravention of s 33 of the ACL.

3.    Between 2 July 2020 and 23 July 2020, by representing to consumers that:

(a)    LJ Shield makes the transfer of all pathogens, including COVID-19 to your activewear impossible;

(b)    LJ Shield was a cure for the spread of COVID-19;

(c)    LJ Shield would stop the spread of harmful viruses, including COVID-19;

(d)    LJ Shield stops you from transferring viruses, including COVID-19 from the outside world, to home and beyond to safe guard yourself and your family;

(e)    LJ Shield completely eliminated the possibility of spreading any deadly viruses, including COVID-19;

(f)    with LJ Shield, infectious diseases like COVID-19 cannot be transferred to your activewear;

(g)    with LJ Shield, infectious diseases, like COVID-19 could not be transferred to your activewear;

(h)    when you leave your home in LJ Shield Activewear, no germs or viruses will stick to your garments;

(i)    when you go home in LJ Shield Activewear, once you’ve washed your hands, germs or viruses will not go from the outside world into your home;

(j)    LJ Shield Activewear makes it safer for you to move around the world, including the gym;

(k)    LJ Shield Activewear is another step you can take for further protection from spreading germs, including COVID-19;

(l)    the company’s testing shows that LJ Shield is an important part of stopping the spread of viral infections, including COVID-19;

(m)    wearing LJ Shield Activewear is another step you can take for further protection from spreading germs, including COVID-19;

(n)    wearing LJ Shield Activewear would eliminate, render impossible or otherwise stop the spread or transfer of viruses, including COVID-19, including in gyms and upon returning home from the gym,

(the Stop the Spread Representations),

in circumstances where:

(o)    in respect of the representation referred to in paragraph 3(a) above, LJ Shield did not make the transfer of all pathogens, including COVID-19 to the activewear impossible;

(p)    in respect of the representation referred to in paragraph 3(b) above, LJ Shield was not a cure for the spread of COVID-19;

(q)    in respect of the representation referred to in paragraph 3(c) above, LJ Shield did not stop the spread of harmful viruses, including COVID-19;

(r)    in respect of the representation referred to in paragraph 3(d) above, LJ Shield did not stop consumers from transferring viruses, including COVID-19 from the outside world, to home and beyond;

(s)    in respect of the representation referred to in paragraph 3(e) above, LJ Shield did not eliminate the possibility of spreading any deadly viruses, including COVID-19;

(t)    in respect of the representation referred to in paragraph 3(f) above, LJ Shield did not stop the transfer of infectious diseases like COVID-19 to the activewear;

(u)    in respect of the representation referred to in paragraph 3(g) above, LJ Shield did not stop the transfer of infectious diseases, like COVID-19 to the LJ Shield Activewear;

(v)    in respect of the representation referred to in paragraph 3(h) above, LJ Shield did not prevent viruses sticking to LJ Shield Activewear;

(w)    in respect of the representation referred to in paragraph 3(i) above, LJ Shield Activewear did not prevent viruses from the outside world from coming into a consumer’s home via their activewear;

(x)    in respect of the representation referred to in paragraph 3(j) above, LJ Shield Activewear did not make it safer for consumers to move around the world, including the gym;

(y)    in respect of the representation referred to in paragraph 3(k) above, LJ Shield Activewear was not another step consumers could take for further protection from spreading COVID-19;

(z)    in respect of the representation referred to in paragraph 3(l) above, the First Respondent’s testing did not show that LJ Shield is an important part of stopping the spread of viral infections, including COVID-19;

(aa)    in respect of the representation referred to in paragraph 3(m) above, wearing LJ Shield Activewear was not further protection from spreading COVID-19;

(bb)    in respect of the representation referred to in paragraph 3(n) above, wearing LJ Shield Activewear would not eliminate, render impossible or otherwise stop the spread or transfer of viruses, including COVID-19, including in gyms and upon returning home from the gym,

the First Respondent has, in trade or commerce:

(cc)    engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of s 18 of the ACL;

(dd)    in connection with the supply, possible supply, or promotion of the supply of LJ Shield Activewear, made false or misleading representations that LJ Shield Activewear had particular performance characteristics, uses and benefits which it did not have, in contravention of s 29(1)(g) of the ACL; and

(ee)    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for the purpose of LJ Shield Activewear, in contravention of s 33 of the ACL.

4.    Between 2 July 2020 and 23 July 2020, by making each of the Elimination Representations, the Protection Representations and the Stop the Spread Representations, the First Respondent represented to consumers that it had a reasonable scientific or technological basis to make each of the Elimination Representations, the Protection Representations and the Stop the Spread Representations at the time they were made (the Reasonable Basis Representations), in circumstances where the First Respondent did not in fact have a reasonable basis to make each of the Elimination Representations, the Protection Representations and the Stop the Spread Representations, and by reason of this conduct, the First Respondent has, in trade or commerce:

(a)    engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of s 18 of the ACL;

(b)    in connection with the supply, possible supply, or promotion of the supply of LJ Shield Activewear, made false or misleading representations that LJ Shield Activewear had particular performance characteristics, uses and benefits which it did not have, in contravention of s 29(1)(g) of the ACL; and

(c)    engaged in conduct that was liable to mislead the public as to the nature, characteristics and suitability for the purpose of LJ Shield Activewear, in contravention of s 33 of the ACL.

THE COURT ORDERS BY CONSENT THAT:

5.    The proceeding as against the Second Respondent, Ms Clarkson, be dismissed.

6.    Pursuant to s 224(1)(a)(ii) of the ACL, the First Respondent pay to the Commonwealth of Australia a pecuniary penalty in the amount of $5,000,000 in the following manner:

(a)    $2,000,000 within 30 days of the date of this Order;

(b)    12 equal instalments per month of $250,000, with the first payment to be made 30 days after the payment made pursuant to Order 6(a), save that if any instalment is not paid on or before the due date, the entire balance remaining unpaid becomes immediately due and payable.

7.    Pursuant to s 232(1)(a) of the ACL, the First Respondent be restrained, whether by itself, its servants, agents or howsoever otherwise for a period of three years from the date of this Order, in connection with the supply, possible supply or the promotion of the supply of its activewear clothing, from making any false or misleading representations, including by using on any packaging, garment tags, website or other promotional and advertising material, the words “anti-virus” or words to the effect that the First Respondent’s activewear eliminates viruses and/or pathogens, including COVID-19, or protects consumers from, or prevents the spread of, viruses and pathogens, including COVID-19, unless it has a reasonable basis for doing so.

8.    Within ten days of the date of these Orders, at its own expense, the First Respondent must prominently publish for a period of 30 days a corrective notice pursuant to s 246(2)(d) of the ACL in the form set out in Annexure A to these Orders:

(a)    on the homepage of its website (https://www.lornajane.com.au) and on the “First Wear Initiative & LJ Shield” (https://www.lornajane.com.au/our-products.html) or similar webpage of its website;

(b)    in an email to be sent to all consumers subscribed to the First Respondent’s electronic direct mailing list;

(c)    on the First Respondent’s Facebook page;

(d)    on the First Respondent’s Instagram page (@lornajaneactive) and Ms Clarkson’s Instagram page (@ljclarkson);

(e)    in each of the First Respondent’s retail stores in Australia by displaying an A4 poster in each store in a location readily able to be seen by members of the public visiting the store.

9.    Pursuant to s 246(2)(b) of the ACL, that the First Respondent, at its own expense, engage a suitably qualified person with experience in Australian Consumer Law, to establish a program which has the purpose of ensuring compliance with the ACL, and that program be administered and complied with by the First Respondent’s officers and employees, for a period of three years following the date of this Order.

10.    The First Respondent pay the Applicant’s costs in the amount of $370,000 within 14 days of the making of this Order.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

Following action from the Australian Competition and Consumer Commission (ACCC), the Federal Court of Australia has declared that Lorna Jane Pty Ltd (the Company) contravened the Australian Consumer Law regarding claims made about its LJ Shield Activewear products published on the Company’s website, Instagram account, in-store, by way of media releases and emails to consumers. Certain claims were also published on Ms Clarkson’s Instagram account.

The Company has admitted that, between 2 July 2020 and 23 July 2020 it falsely represented for example but not limited to the following representations:

    viruses, including COVID-19, would be unable to adhere or transfer to or would otherwise be eliminated on contact with LJ Shield Activewear, when this was not the case;

    LJ Shield Activewear protected wearers against viruses, including COVID-19, when this was not the case;

    wearing LJ Shield Activewear would eliminate, render impossible or otherwise stop the spread or transfer of viruses, including COVID-19, including in gyms and upon returning home from the gym, when this was not the case; and

    there was a reasonable scientific or technological basis for the above representations at the time they were made, when that was not the case.

By making these false or misleading representations and engaging in this conduct, the Court found that the Company contravened sections 18, 29(1)(g) and 33 of the Australian Consumer Law.

The Court ordered (amongst other orders) that: the Company pay a pecuniary penalty to the Commonwealth of $5,000,000, the Company be restrained (by way of injunction) from engaging in similar conduct, and ordered the Company to publish this corrective notice.

Further information about the Court’s decision can be found on the website of the Federal Court of Australia and in the ACCC’s media release at (LINK).

This corrective notice has been published by the Company pursuant to an Order of the Federal Court of Australia in an action commenced by the Australian Competition and Consumer Commission.

REASONS FOR JUDGMENT

(DELIVERED EX TEMPORE AND REVISED)

RANGIAH J:

1    In this proceeding, the applicant, the Australian Competition and Consumer Commission, alleges that the first respondent, Lorna Jane Pty Ltd (Lorna Jane), contravened ss 18, 29(1)(g), and 33 of the Australian Consumer Law (ACL). The applicant does not press its claim against the second respondent, Lorna Jane Clarkson.

2    Lorna Jane has admitted the allegations. The parties have made joint submissions concerning the admissions and the orders they propose.

3    The allegations concern a marketing campaign conducted by Lorna Jane to promote its products known as “LJ Shield Activewear”, which were treated with a spray known as “LJ Shield”.

4    The marketing campaign was conducted in July 2020 in the midst of the COVID-19 pandemic. The campaign was conducted through Instagram stories, media releases, advertising on Lorna Jane’s website, direct emailing of customers, and in-store advertising.

5    The number of representations made by Lorna Jane cannot be ascertained. The representations can be described in four categories.

6    The first category consists of representations that LJ Shield eliminated or killed pathogens or viruses including COVID-19. An example is a media release of 3 July 2020, which stated:

This weekend we launch Lorna Jane Shield, a bacteria and virus killing non-toxic mist that permanently adheres to our fabrics to give you activewear that stops harmful pathogens in their tracks.

…

With Lorna Jane Shield on our garments it meant that we were completely eliminating the possibility of spreading any deadly viruses.

7    The second category consists of representations that LJ Shield Activewear protects wearers against COVID-19. An example is an Instagram story stating that LJ Shield, “protects against bacteria, viruses, mould and fungus”.

8    The third category consists of representations that LJ Shield stops the spread of COVID-19. An example is found in two Instagram stories which claimed:

LJSHIELD is a groundbreaking technology that makes transferal (sic) of all pathogens to your Activewear (and let’s face it, the one we’re all thinking about is Covid-19) impossible by eliminating the virus on contact with the fabric.

9    The fourth category consists of representations that Lorna Jane had a reasonable scientific or technological basis upon which to make its other categories of representations.

10    Lorna Jane admits that, by making the representations, it:

(a)    engaged in conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the ACL;

(b)    in connection with the supply or possible supply of goods and the promotion of LJ Shield Activewear, made false or misleading representations that LJ Shield Activewear had particular performance characteristics, uses and benefits which it did not have in contravention of s 29(1)(g) of the ACL; and

(c)    engaged in conduct that is liable to mislead the public as to the nature, characteristics and suitability for purpose of LJ Shield Activewear in contravention of s 33 of the ACL.

11    The parties have agreed upon a series of declaratory, injunctive, penalty and other orders. It is necessary for the Court to consider whether it is appropriate to make such orders.

12    The focus of the parties’ submissions was upon the appropriate level of pecuniary penalty for the contraventions of ss 29(1)(g) and s 33. The parties have agreed that a penalty of $5 million should be imposed upon Lorna Jane.

13    It is necessary for the Court to consider whether the penalty proposed by the parties is appropriate. If the Court is persuaded of the accuracy of the parties’ agreement as to facts and consequences and that the agreed penalty jointly proposed is an appropriate remedy in all the circumstances, it is highly desirable in practice for the Court to accept the parties’ proposal and impose the proposed penalty: Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 at [58]; Volkswagen Aktiengesellschaft v ACCC [2021] FCAFC 49 at [125]-[129].

14    The parties’ joint submissions describe the principles relevant to the imposition of pecuniary penalties. It is unnecessary to repeat them.

15    Section 224(2) of the ACL requires the Court to have regard to all relevant matters in determining the appropriate penalty. The provision specifies a number of non-exhaustive statutory factors to which the Court must have regard.

16    From 1 September 2018, the maximum penalty for a corporation for each contravention became the greater of:

    $10 million; or

    if the Court can determine the value of the benefit obtained from the contravention, three times the value of that benefit; or

    if the Court cannot determine the value of the benefit, 10% of the annual turnover of the corporation.

17    The most significant factors in the present case are the nature and seriousness of the contraventions, the need for deterrence of such conduct, and the admissions of the contraventions and agreement to the orders by Lorna Jane.

18    The advertising campaign was conducted in July 2020 at a time of considerable uncertainty, fear, and concern amongst the public about the consequences and spread of COVID-19. At that time, there had been at least 8,000 reported cases and 104 deaths in Australia. On 16 July 2020, there were 315 new cases of COVID-19 reported in Australia.

19    Lorna Jane sought to exploit the fear and concern of the public through the use of misleading, deceptive, and untrue representations about the properties of LJ Shield Activewear. The behaviour of Lorna Jane can only be described as exploitative, predatory, and potentially dangerous. Lorna Jane’s contraventions of ss 29(1)(g) and 33 of the ACL must be regarded as very serious. There is a need to impose a substantial penalty to reflect the seriousness of the conduct and to demonstrate that exploitative conduct of this kind will not pay.

20    It is appropriate to note, however, that the applicant does not allege that Lorna Jane actually knew that the representations it was making were false. It is also relevant that Lorna Jane has not been shown to have actually profited from its conduct, nor that the contraventions actually caused harm to consumers.

21    It must be taken into account that the making of the representations was directed by Ms Clarkson, so that the conduct emanated from a very high managerial level within the company.

22    An appropriate allowance should be made for the fact that Lorna Jane admitted the contraventions, although only a short time prior to the commencement of the trial. It should also be taken into account that Lorna Jane has agreed to the orders proposed by the applicant.

23    Taking into account all the circumstances, I am satisfied that the penalty of $5 million proposed by the parties is appropriate. I am otherwise satisfied as to the appropriateness of the other orders proposed by the parties.

24    I will make orders in terms of the draft orders submitted by the parties.

Associate:    

Dated:    29 July 2021