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

Citation:

Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791

Parties:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v DATELINE IMPORTS PTY LTD ACN 000 557 282 and DAVID TAYLOR

File number:

QUD 300 of 2012

Judge:

RANGIAH J

Date of judgment:

30 July 2014

Corrigendum:

12 November 2014

Catchwords:

TRADE PRACTICES – false representations – misleading or deceptive conduct – allegation that respondents contravened ss 52 and 53 of the Trade Practices Act 1974 (Cth) (“the TPA”) by publishing certain false, misleading or deceptive representations in respect of certain goods – whether the representations contravened the TPA

TRADE PRACTICES – representation as to a future matter – reliance on s 51A of the TPA – whether there were reasonable grounds to support the representation made

TRADE PRACTICES – allegation that the first respondent breached s 52 of the TPA by representing that it had reasonable grounds to make certain representations – representations as to past and present matters – representations not made in contravention of the TPA – whether there were reasonable grounds to make the representations

TRADE PRACTICES – accessorial liability – representation as to a future matter – whether the second respondent had actual knowledge that the representation was made – whether the representation was misleading or deceptive – whether there were reasonable grounds for making the representation – whether the second respondent was knowingly concerned in the contravention of the TPA

Legislation:

Federal Court of Australia Act 1976 (Cth) ss 37AF(1)(b) and 79
Trade Practices Act1974 (Cth) ss 52(1), 53(a) and (c)

Cases cited:

ACCC v Energy Watch Pty Ltd [2012] FCA 425 cited
Australian Securities and Investments Commission v Australian Property Custodian Holdings Limited (Receivers and Managers appointed) (in liquidation) (Controllers appointed) (No 3) [2013] FCA 1342 cited
Bodum v DKSH Australia Pty Ltd (2011) 280 ALR 639; [2011] FCAFC 98 applied
Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 cited
Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing and Allied Services Union of Australiav Australian Competition and Consumer Commission (2007) 162 FCR 466 cited
ConAgra Inc v McCain Foods (Aust)Pty Ltd (1992) 33 FCR 302 cited
Darwin Bakery Pty Ltd v Sully (1981) 51 FLR 90; 36 ALR 371 cited
Given v CV Holland (Holdings) Pty Ltd (1977) 29 FLR 212; 15 ALR 439 cited
Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 cited
Hansen Beverage Co v Bickfords (Aust) Pty Ltd (2008) 171 FCR 579 cited
Murphy v Farmer (1988) 165 CLR 19 cited
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 applied
Quinlivan v ACCC (2004) 160 FCR 1 applied
Ricegrowers Ltd v Real Foods Pty Ltd [2008] FCA 639 cited
Riley McKay Pty Ltd v Bannerman (1977) 31 FLR 129 cited
Seafolly Pty Ltd v Madden (2012) 297 ALR 337; [2012] FCA 1346 cited
Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177; ATPR 40-303 applied
TradePractices Commission v Vales WineCo Pty Ltd (1996) 66 FCR 336 cited
Unilever Australia Pty Ltd v Goodman Fielder Consumer Foods Pty Ltd [2009] FCA 1305 cited

Date of hearing:

2-4, 8-11, 14, 15, 17, 18 October 2013

Date of last submissions:

25 July 2014

Place:

Brisbane

Division:

GENERAL DIVISION

Category:

Catchwords

Number of paragraphs:

349

Counsel for the Applicant:

Mr J A Halley SC with Mr M Holohan

Solicitor for the Applicant:

Australian Government Solicitor

Counsel for the Respondents:

Dr B Kremer

Solicitor for the Respondents:

King & Wood Mallesons

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

THE REPRESENTATIONS........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .......	[4]
The formaldehyde representations........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[4]
The natural keratin representations........ ........ ........ ........ ........ ........ ........ ........ ........ .	[4]
THE LEGISLATION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[5]
THE ISSUES IN DISPUTE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .	[18]
THE FORMALDEHYDE REPRESENTATIONS ON DATELINE’S WEBSITE........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[25]
The meaning of the website representations........ ........ ........ ........ ........ ........ ........ ....	[30]
Objective test........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[30]
The class of consumers........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[34]
What would the representations mean to ordinary consumers?........ ........ ........ .......	[35]
Whether the website representations were false........ ........ ........ ........ ........ ........ .....	[53]
Whether the representation that “Keratin Complex did not contain formaldehyde” was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[54]
What is formaldehyde?........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[55]
Did Keratin Complex contain formaldehyde when manufactured?....	[81]
The testing of Keratin Complex for the presence of formaldehyde...	[98]
Whether the representation that Keratin Complex did not contain any dangerous or toxic chemicals was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[121]
Whether the representation that Keratin Complex was safe for its recommended use was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[129]
Whether the representation that persons using Keratin Complex could not be exposed to formaldehyde was false........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[135]
THE FORMALDEHYDE REPRESENTATIONS IN DATELINE’S LETTER OF 20 SEPTEMBER 2010........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[137]
Background to 20 September 2010 letter........ ........ ........ ........ ........ ........ ........ ........ .	[141]
Ordinary consumers and the meaning of the representations in the letter of 20 September 2010........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[193]
Whether the representations in the letter of 20 September 2010 were false........ .	[203]
Whether the representation that Keratin Complex did not contain formaldehyde was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[203]
Whether the representation that persons using Keratin Complex could not be exposed to formaldehyde was false........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[206]
Whether the representation that Keratin Complex was safe for its recommended use was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ....	[208]
Whether the representation that Keratin Complex complies with all health and safety regulations in the world was false........ ........ ........ ........ ........ ........ ........ ........ ..	[210]
Whether the representation that the Ireland ban would be overturned was made on reasonable grounds........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[234]
Whether there were reasonable grounds for making the other representations.......	[259]
ACCESSORIAL LIABILITY OF DAVID TAYLOR........ ........ ........ ........ ........ ......	[277]
THE MAGAZINE FORMALDEHYDE REPRESENTATIONS........ ........ ........ ...	[289]
The magazine representation that Keratin Complex did not contain formaldehyde........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .....	[295]
The magazine representation that persons using Keratin Complex could not be exposed to formaldehyde........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[303]
Whether the magazine representation that Keratin Complex was safe for its recommended use was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[306]
Whether Dateline had reasonable grounds for making the magazine representations........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...	[308]
THE NATURAL KERATIN REPRESENTATIONS........ ........ ........ ........ ........ ......	[311]
Magazine advertisements between 30 August 2010 and 20 September 2010.......	[311]
The meaning of the representations........ ........ ........ ........ ........ ........ ........ ........ ........ .	[314]
Whether the representation that whatever was infused into the hair included natural keratin was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[323]
Whether the representation that Keratin Complex was comprised of at least 35% natural keratin was false........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ..	[330]
Magazine advertisements between 27 September 2010 and 5 November 2010....	[335]
Magazine advertisements between 4 October 2010 and 9 November 2010........ ..	[339]
CONCLUSION........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ......	[346]

IN THE FEDERAL COURT OF AUSTRALIA
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 Act1974 (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.

   THE REPRESENTATIONS

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).

   THE LEGISLATION

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 Australiav Australian Competition and Consumer Commission (2007) 162 FCR 466 at [31].

1. 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.

2. 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.

3. 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.

   THE ISSUES IN DISPUTE

4. 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.

5. 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?

6. 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.

7. 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?

8. 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. 

9. 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.

10. 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

11. Dateline operates the website 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”. 

12. 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.

13. 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.

14. 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.

15. Dateline denies that any of these representations has been proven by the ACCC to be false. 

    The meaning of the website representations

    Objective test

16. 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].

17. 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].

18. 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.

19. 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.

    The class of consumers

20. 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?

21. 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.

22. 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.

23. 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.

24. 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:

    ŸSuits all hair types, in any condition

    ŸEliminates up to 95% of frizz and curl on natural and chemically treated hair

    ŸDoes not contain toxic or dangerous chemicals such as Formaldehyde, Propylene Glycol, Cetostearyl alcohols, Methylchloroisothiazolinone or Ether

    ŸQuick, easy process

    ŸSupported 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

25. 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.

26. 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.

27. 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.

28. 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)).

29. 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. 

30. 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.

31. Those definitions indicate that formaldehyde is a gas, but is usually prepared or used as an aqueous solution.

32. 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)).

33. 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. 

34. 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.

35. 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.

36. 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.

37. 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.

38. 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

39. 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

1. 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.

   What is formaldehyde?

2. 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.

3. 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.

4. 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”.

5. 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.

6. 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. 

7. 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.

8. 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. 

9. Dateline submits that the ACCC has not proven either of these matters. 

10. 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.

11. 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”. 

12. 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.

13. 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. 

14. 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. 

15. 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. 

16. 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.

17. 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. 

18. 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.”

19. 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. 

20. 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.

21. 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. 

22. 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.

23. 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.

24. 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. 

25. 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.

26. 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.

27. 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?

28. 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. 

29. 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.

30. 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.

31. 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.

32. 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. 

33. 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.

34. 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). 

35. 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.

36. 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. 

37. 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.

38. 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. 

39. 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. 

40. 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. 

41. 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. 

42. 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.

43. 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. 

44. 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

45. 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.

1. The ACCC had three separate laboratory tests conducted on Keratin Complex for the presence of formaldehyde by three different methods.

2. 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.

3. 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. 

4. 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. 

5. 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.

6. 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. 

7. 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. 

8. 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. 

9. 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.

10. 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.

11. 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.

12. 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.

13. 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.

14. 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.

15. 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.

16. 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.

17. 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.

18. 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. 

19. 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. 

20. 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. 

21. 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. 

22. 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

23. 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.

24. 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.

25. 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. 

26. 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.

27. 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.

28. 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.

29. 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. 

30. 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

31. 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 180^ºC – 210^ºC for some types of hair, but ranging up to 230^ºC 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. 

1. 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.

2. 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.

3. 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

4. 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. 

5. 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. 

6. 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

7. I have dealt earlier with the representation, in the context of the website representation, that Keratin Complex was safe for its recommended use. 

8. 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

9. 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. 

10. 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. 

11. 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

12. 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.

13. The extract from the advertisement does not adequately reflect the colour and style of the various fonts used, which create an air of hyperbole.

14. 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

15. 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.

16. 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.

17. 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.

18. 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.

19. 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. 

20. 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. 

21. 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. 

22. 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. 

23. 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

24. 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. 

25. 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.

26. 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”. 

27. 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. 

28. 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. 

29. 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. 

30. 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

31. 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. 

32. 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. 

33. 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.

34. 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.

35. 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

36. 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]). 

37. 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.

38. The ACCC submits that the words “Keratin Complex treatments contain 40% natural keratin” represented that Keratin Complex was comprised of 40% natural keratin.

39. 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

40. 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.

41. Again, this extract does not adequately reflect the colour and style of the various fonts used and air of hyperbole that is created.

42. 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. 

43. 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. 

44. 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. 

45. For the reasons I have given earlier, I accept the first of the ACCC’s submissions, but reject the second. 

46. 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.

    CONCLUSION

47. 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).

1. I have found that the ACCC has not otherwise proved that Dateline breached ss 52(1) or 53(a) or (c) of the TPA.

2. 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.

3. 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:

Dated:       30 July 2014