Australian Consumer Law & Charitable Fundraising

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Note: The following is an abridged version of Andrew Lind’s Fundraising Regulation paper. To receive the full copy, please use the form below.

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Introduction

In its 2016 submission as a response to the Australian Consumer Law Review – Interim Report, Justice Connect called for the urgent reform of fundraising laws. This, it argued, could be achieved via the ACL with some minor changes. Their argument is that if NFP and charitable fundraising could be governed by the national ACL and outdated State and Territory laws could be repealed, this would simplify the system, create efficiency and remove red tape.

This Part II contemplates the already established relationship between fundraising laws and the ACL. Part III will address Justice Connect’s recommendations as to suggested further changes to the ACL.

Paper: Compliance in a Changing Landscape

Table of Contents

In October 2016 the Australian Government through Consumer Affairs Australia and New Zealand (‘CAANZ’) released the Australian Consumer Law Review – Interim Report (‘Interim Report’)  to seek the views of the ‘Australian community on options to improve the Australian Consumer Law’.[1] In relation to not-for-profit fundraising, the Interim Report noted that stakeholders have expressed a range of interpretations of the ACL’s scope and coverage, particularly in relation to ‘consumer protection with regard to fundraising activities’.[2]

Justice Connect argues that ultimately there is no definitive answer as to what extent consumer laws apply to fundraising.[3]

The main confusion stems from whether or not the threshold of engaging in ‘trade or commerce’ is being sufficiently met by entities which are fundraising.

Despite some clarification by CAANZ in the Interim Report, subsequent submissions made in response to the Interim Report argue that alterations to the ACL are still required to provide guidance to the extent that consumer laws apply to charity and NFP fundraising.

To what extent do consumer laws already apply to charitable fundraising?

The open Legal Advice by Mr Norman O’Bryan AM SC in a recent Statement on Fundraising Reform gets right to the heart of the matters:

 The ACL operates federally under the Competition and Consumer Act (Cth). The ACL is applied in all jurisdictions through the Australian Consumer Law Application Acts that exist in all States and Territories. … [T]he ACL has the potential to regulate every commercial and non-commercial activity in every Australian State and Territory, whether that activity is undertaken by person or a corporate entity

… [A] key provision of the ACL is section 18(1) which simply says: “A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. Section 2 defines “trade or commerce” very broadly, so as to include “any business or professional activity (whether or not carried on for profit)” and “business” includes “a business not carried on for profit”. Not-for-profits raising money are covered by section 18(1) because, in my view, fundraising is usually a “business or professional activity”, whether or not the not-for-profit is itself (in an overall sense) operating as a business or professional activity. It is the fundraising (the activity), rather than the not-for-profit (the organisation, whatever its legal structure may be) that is the focus.

Because of these broad definitions, the misleading and deceptive conduct provision of the ACL applies to many (if not all) not-for-profit fundraising activities.”[4]

‘In trade or commerce’

Central to the issue of ACL reform discussed in the Interim Report is whether the phase ‘in trade or commerce’ is clear enough for charities. For example, whether the ‘in trade or commerce’ threshold is met by entities:

  • engaging in conduct such as selling cupcakes are acting in ‘trade or commerce’ if the activity is not-for-profit;
  • receiving unsolicited donations;
  • subsidising activities (such as gardening for the elderly) and still receiving some profit; or
  • raising funds through a commercial third party provider.[5]

Re KuRingGai Cooperative Building Society (No 12) Ltd (1978) 36 FLR 134 held that the terms ‘trade’ and ‘commerce’ are ordinary terms and as such describe ‘the negotiations verbal and by correspondence, the bargain, the transport and the delivery which comprise commercial arrangements’ (emphasis added).[6] Therefore, to determine whether the conduct has occurred in trade or commerce, the court essentially looks for a commercial arrangement.

The High Court case of Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 placed caveats on this, noting that ‘in trade or commerce’ does not extend to the internal communications of a corporation. (The High Court did, however, note in its judgement that pursuant to Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 a company can sue another company over the first’s misleading or deceptive conduct towards customers).[7] In Concrete Constructions a worker suffered significant injuries as the result of falling down an air-conditioning shaft. The worker accused the appellant corporation of engaging in misleading or deceptive conduct within the section 52 definition of the then Trade Practices Act 1974 (Cth). The worker claimed that the misleading and deceptive conduct was constituted by the foreman’s misinformation about safe removal of grates on the shaft. In rejecting this claim and providing guidance to entities on what trade or commerce constitutes, the High Court accepted that ‘in trade or commerce’ should be read narrowly. The High Court emphasised that

[I]t is plain that s.52 was not intended to extend to all conduct, regardless of its nature, in which a corporation might engage in the course of, or for the purposes of, its overall trading or commercial business. Put differently, the section was not intended to impose, by a side-wind, an overlay of Commonwealth law upon every field of legislative control into which a corporation might stray for the purposes of, or in connection with, carrying on its trading or commercial activities. What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public.[8]

The Interim Report noted that this case had the effect that, when interpreting the ‘in trade or commerce’ threshold in relation to fundraising activities, focus has to be on the ‘particular activities or transaction in question, rather than whether the entity is generally engaged in trading or commercial activities’.[9] Thus, it is irrelevant whether profit is obtained from engaging in conduct.

What is relevant, however, is the nature of the relationship between the entity engaging in the conduct and the consumer or person to whom this is directed. Also important is the frequency of such conduct.

In considering this, the Interim Report stated that:

  • A not-for-profit selling cupcakes would be likely to be engaging in trade or commerce if the selling of the cupcakes was in exchange for payment as part of its fundraising activities;
  • A not-for-profit subsidising gardening services is likely to be engaging in trade or commerce as it is supplying a serviced to consumers in exchange for profit, even if this service is subsidised;
  • Where the not-for-profit has engaged a third party contractor then the third party fulfilling its contractual obligations would constitute the ‘in trade or commerce’ element. The Interim Report also suggested that where fundraising is being conducted by employees as opposed to volunteers, this would also meet the ‘in trade or commerce’ threshold; however
  • A not-for-profit receiving unsolicited donations would not likely be engaging in trade or commerce.

The Interim Report did however note that more case law is required in this area.

The Interim Report noted that the proposed changes submitted to CAANZ sought to remove ‘in trade or commerce’ or alter it as a threshold requirement to provide clarity to the not-for-profit sector.[10] The thrust of this argument was that without the ‘in trade or commerce’ requirement, not-for-profits would meet all of the threshold requirements for the ACL to apply to their activities. In turn, not-for-profits would have clarification that the ACL applies to fundraising in any capacity.

CAANZ rejected this suggestion. CAANZ argued that altering the ‘in trade or commerce’ threshold would have an overarching effect on not only not-for-profits, but also for-profit organisations as well.[11] Consequently, despite feedback that stakeholders support the operational scope and objectives of the ACL, these objectives would be altered should the legislature alter the ‘in trade or commerce’ threshold.[12]  Instead, in order to provide certainty over which charitable or not-for-profit activities are covered by the ACL, CAANZ suggested that guidance by regulatory bodies was more appropriate.[13]

Misleading or Deceptive Conduct: Section 18

Under section 18 of the ACL a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. As mentioned above, with the exception of unsolicited donations, most conduct engaged in for the purpose of fundraising appears to be ‘in trade or commerce’ in CAANZ’s view.[14] It is therefore essential that charities and NFPs understand how relevant provisions under the ACL operate, and also how they might apply to fundraising activities, so as to avoid penalty under the ACL.

In order for section 18 to apply, the first three elements – person, in trade or commerce and engaging in conduct – must be fulfilled before considering whether an entity’s behaviour has been misleading or deceptive. Once these three thresholds have been met, the approach to determining misleading or deceptive conduct becomes an objective one. It involves asking whether the impugned conduct viewed as a whole has a tendency to lead a person into error.[15] The initial question which must be asked is ‘whether the misconceptions, or deceptions, alleged to arise or to be likely to arise are properly attributed to the ordinary or reasonable members of the classes of prospective purchasers’.[16]

A leading Australian case on misleading or deceptive conduct is Taco Company of Australia Inc & Anor v Taco Bell Pty Ltd (1982) 42 ALR 177. This case provides a four step test to determining whether particular conduct is misleading or deceptive. This involves:

  1. Identifying the relevant section (or sections) of the public whom the question of whether conduct is, or is likely to be, misleading or deceptive;
  2. Considering the matter by reference to all who come within it, including the astute and gullible, the intelligent and the not so intelligent, the well-educated as well as the poorly educated, men and women of various ages pursing a variety of vocations;
  3. Adducing evidence that some person has in fact formed an erroneous conclusion. This however is not essential;
  4. Establishing a causal connection between the conduct of the offending party and the misconception by consumers.[17]

Essentially, there has to be conduct which causes misconception or deception. This misconception or confusion does not have to be deliberate, however. In Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd [1984] FCA 167, 88 the majority noted that:

Whether or not s. 52(1) is contravened does not depend upon the corporations intention or its belief concerning the accuracy of such statement, but upon whether the statement in fact contains or conveys a meaning which is false; that is to say whether the statement contains or conveys a misrepresentation.[18]

An example of misleading or deceptive conduct within the charity and NFP sector is discussed below in Director of Consumer Affairs Victoria v Gibson [2017] FCA 240 [127] (‘Belle Gibson Case’). Here his Honour Mortimer J held that statements to the effect that everything raised by book sales would go to charities was misleading as only a fraction of roughly $250 000 profit was directed to charities. The implications of this are also discussed below.

Unconscionable Conduct: Section 21

Under section 21 of the ACL, a person must not, in trade or commerce, in connection with:

  1. the supply or possible supply of goods or services to a person (other than a listed public company); or
  2. the acquisition or possible acquisition of goods or services from a person (other than a listed public company);

engage in conduct that is, in all the circumstances, unconscionable.

Section 22 provides that considerations the court must take into account when assessing an alleged contravention of section 21. It states that, ‘In determining whether unconscionability whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:

  1. the relative strengths of the bargaining positions of the supplier and the customer; and
  2. whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
  3. whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
  4. whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
  5. the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
  6. the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and
  7. the requirements of any applicable industry code; and
  8. the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
  9. the extent to which the supplier unreasonably failed to disclose to the customer:
    1. any intended conduct of the supplier that might affect the interests of the customer; and
    2. any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
  10. if there is a contract between the supplier and the customer for the supply of the goods or services:
    1. the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
    2. the terms and conditions of the contract; and
    3. the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
    4. any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
  11. without limiting paragraph(j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
  12. the extent to which the supplier and the customer acted in good faith’.[19]

In the Belle Gibson case Mortimer J cited ASIC v National Exchange Pty Ltd [2005] 148 FCE 132 at [33] in noting that prohibitions of section 21 involve questions of conscience. Here, ‘“unconscionability” means something not done in good conscience’.[20]

ACL Penalties

A breach of the ACL for Misleading or Deceptive Conduct may result in the following enforcement provisions:

  • Undertakings;[21]
  • Substantiation Notices, which generally involve having statement makers substantiating their claims;[22]
  • Public Warning Notices;[23]
  • Injunctions;[24]
  • Damages, when any person has knowingly participated in particular conduct;[25]
  • Compensation and other orders;[26]
  • Orders to redress loss or damage suffered by non-party consumers;[27]
  • Other orders (such as voiding any contract);[28]
  • Non-punitive orders such as corrective advertising.[29]

The section, however, is not a pecuniary penalty provision.

In addition to the above enforcements, a breach of the ACL for Unconscionable Conduct may result in the following enforcement provisions:

  • Pecuniary penalties;[30]
  • Adverse publicity orders;[31]
  • Disqualification orders;[32]
  • Infringement notices.[33]

Belle Gibson Case Study

In March 2017 the Director of Consumer Affairs Victoria brought an action against Annabelle (Belle) Gibson for breaching sections 18, 21 and 29 of the Australian Consumer Law, Schedule 2 of the Competition and Consumer Act 2010 (Cth) adopted by the ACL (Vic) – misleading or deceptive conduct, unconscionable conduct, and false and misleading representations.

Facts of the Case

On 17 July 2013 Ms Gibson incorporated a company called ‘Belle Gibson Pty Ltd’. Ms Gibson was also the registered holder of the business named ‘the Whole Pantry’. It was under this title that Ms Gibson sold iOS Apps, Android Apps and a book known as The Whole Pantry. The concept of The Whole Pantry was based on Ms Gibson’s alleged ‘experience’ of being diagnosed with terminal brain cancer in 2009, which she claimed to have cured through pursuing natural remedies.

All of these representations were made across Gibson’s Facebook and Instagram accounts, during media interviews and in her apps and book. For context, the excerpt from Ms Gibson’s book provided:

Belle Gibson is an inspirational young mother… Diagnosed with terminal brain cancer at the age of twenty, she found herself without support and out of sync with conventional medicine. So began a journey of self-education that resulted in her getting back to basics, as she set out to heal herself through nutrition and lifestyle changes.

Ms Gibson also made representations on a number of occasions that portions of revenue derived from her book and app sales would be given to charity. The Director of Consumer Affairs noted, however, that of all the representations made, only three donations were made to charities. These were:

  • A $5,000 donation made to the Bumi Sehat Foundation;
  • A $4,823.53 donation made to the Vestal Water on behalf of Kinfolk Café; and
  • A $1,000.00 donation made to One Girl.

It was later discovered that Ms Gibson did not, nor did she ever, have cancer. The Director of Consumer Affairs Victoria brought an action against Gibson for contraventions of the ACL not only in relation to the representations made about Belle Gibson having cancer, but representations made about her company’s charitable giving.

Issues

The issues before the court were whether Ms Gibson had contravened sections 18 of the ACL for misleading or deceptive conduct, 21 for unconscionable conduct and 29 for false or misleading representations.

Findings by the Court

Ms Gibson’s Company met the Thresholds for the ACL to apply

Her honour Mortimer J held that all of the conduct that occurred did so in trade or commerce. At 117 she noted that:

The promotion, marketing and sales of The Whole Pantry book and apps were commercial activities. The conduct of the launches of the apps was part of the promotion of the commercial activity.

Section 18 Misleading or Deceptive Conduct

After laying out the relevant principles, Mortimer J found Ms Gibson had contravened section 18 of the ACL and ACL (Vic) on numerous counts.

In relation to the Cancer Representation, Mortimer J held that Ms Gibson had made representations and statements that she had brain cancer. Along with other confirmations that Ms Gibson was not suffering from cancer, her Honour also noted that Ms Gibson had undergone a brain scan performed at the Alfred Hospital in Melbourne in 2011 which confirmed she did not have a brain tumour. As such her Honour held that

I am satisfied that, in the context the statement were made, members of the community reading those statements would be erroneously led to believe that Ms Gibson was suffering from terminal brain cancer and this was never the case.

Mortimer J also held that Ms Gibson had contravened section 18 with the Treatment Representation. Ms Gibson had claimed that she had tried chemotherapy and radiotherapy but removed herself from these cancer treatments in favour or natural therapies. In her 60 Minutes interview, Ms Gibson had claimed that Dr Johns had treated her with this in Perth. Like the Cancer Representation, Mortimer J held that the false statements made in Ms Gibson’s The Whole Pantry cookbook and app would lead reasonable members of the community to believe that she had undergone conventional cancer treatment.

Based on all of these findings, Mortimer J held that Ms Gibson had contravened s 18 of the ACL and the ACL (Vic) based on these Health Representations.

Misleading and Deceptive Conduct in Relation to Charitable giving

Perhaps most pertinent to charities and NFPs, Mortimer J held that Ms Gibson had misled and deceived consumers by making representations about the company’s charitable giving.

On numerous occasions Ms Gibson had promoted that a ‘large part of everything’ the company earned was ‘donated to charities and organisations which support global health and wellbeing, protect the environment and provide education to those who otherwise wouldn’t have the opportunity.’[34] Moreover, Ms Gibson had also stated that the profits from her app sales would be directed to four charities or charitable causes.[35]  In all instances, Ms Gibson’s representations fell far short of reality. Out of $420,000.00 made and received through book and app sales, Ms Gibson donated roughly $10,000.00.[36]

As such Mortimer J held that reasonable consumers would have been misled into purchasing Ms Gibson’s products for the purpose of raising funds for particular charities and made a finding of breach of s18 of the ACL (Vic).

Section 29 Misleading Representations

Mortimer J rejected the Director’s allegation of misleading representations made in Ms Gibson’s book and app. Here, Mortimer J considered that not enough evidence had been adduced by the Director to disprove ‘whether the representations … made that activities of that kind promoted – diet, health, exercise and “wellness” … could cure, or stabilise, cancer – were false or misleading claims’.[37]

Section 21 Unconscionable Conduct

Mortimer J held that there was simply not enough evidence adduced by the Director to establish that Ms Gibson had acted against her conscience in promoting her wellness cookbook after discovering she did not have cancer.[38]

In relation to the misrepresentations and deception over charitable giving, however, her Honour held that Ms Gibson had engaged in unconscionable conduct within the meaning of section 21. Mortimer J particularly focussed on Ms Gibson’s false representations being used as a way to bolster the image of the company and therefore reap the benefit of extra sales.[39]

Continue to next section

References

  • [1] Consumer Affairs Australia and New Zealand, Australian Consumer Law Review (2016) 1.
  • [2] Ibid 12.
  • [3] Justice Connect, Submission to Consumer Affairs Australia and New Zealand, Australian Consumer Law Review – Interim Report, 9 December 2016.
  • [4] Mr Norman O’Bryan AM SC, in Statement of Fundraising Reform, 10 August 2016 as part of the #fixfundraising campaign.
  • [5] Ibid 16 – 17
  • [6] Re KuRingGai Cooperative Building Society (No 12) Ltd (1978) 36 FLR 134, 139.
  • [7] Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17, [4].
  • [8] Ibid [8].
  • [9] Consumer Affairs Australia and New Zealand, Australian Consumer Law Review (2016) 17.
  • [10] Ibid 15.
  • [11] Ibid 17.
  • [12] Ibid 12.
  • [13] Ibid 13.
  • [14] Ibid 17.
  • [15] Director of Consumer Affairs Victoria v Gibson [2017] FCA 240, [121].
  • [16] Campbell v Backoffice Investments Pty Ltd [2009] 238 CLR 304 [26].
  • [17] Taco Company of Australia Inc & Anor v Taco Bell Pty Ltd (1982) 42 ALR 177.
  • [18] See also Google Inc v Australian Competition and Consumer Commission (2013) 249 CLR 435 [9].
  • [19] Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’) s 22.
  • [20] Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90 [41].
  • [21] Competition and Consumer Act 2010 (Cth) sch 2 (‘Australian Consumer Law’) s 218.
  • [22] Ibid s 219.
  • [23] Ibid s 223.
  • [24] Ibid s 232.
  • [25] Ibid s 236; s 2(3).
  • [26] Ibid s 237.
  • [27] Ibid s 239.
  • [28] Ibid s 243.
  • [29] Ibid s 246.
  • [30] Ibid s 224.
  • [31] Ibid s 247.
  • [32] Ibid  s 248.
  • [33] Competition and Consumer Act 2010 (Cth) s 134A.
  • [34] Director of Consumer Affairs Victoria v Gibson [2017] FCA 240, [213]
  • [35] Ibid [206] – [212].
  • [36] Ibid [233].
  • [37] Ibid [182].
  • [38] Ibid [184] – [196].
  • [39] Ibid [238] – [242].