Valve Corporation v Australian Competition and Consumer Commission

[2017] FCAFC 224

FEDERAL COURT OF AUSTRALIA

Valve Corporation v Australian Competition and Consumer Commission [2017] FCAFC 224

Appeal from:

Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196

Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 1553

Australian Competition and Consumer Commission v Valve Corporation (No 8) [2016] FCA 1584

File number:

NSD 176 of 2017

Judges:

DOWSETT, MCKERRACHER AND MOSHINSKY JJ

Date of judgment:

22 December 2017

Catchwords:

PRIVATE INTERNATIONAL LAW – operation of “conflict of laws” provision in s 67 of the Australian Consumer Law – whether consumer guarantees in Div 1 of Pt 3-2 of the Australian Consumer Law apply to supplies of goods or services under a contract where the objective proper law of the contract (the law with which the contract has its closest and most real connection) is the law of a country other than Australia

CONSUMER LAW – misleading or deceptive conduct – false or misleading representations – where alleged contraventions based on representations made on the internet by foreign company – where company had large number of Australian customers – where statements on internet were addressed to customers – whether representations made in Australia

CONSUMER LAW – meaning of “carrying on business within Australia” within s 5(1)(g) of the Competition and Consumer Act 2010 (Cth) – where foreign company had large number of customers in Australia, earned significant revenue from those customers on an ongoing basis, owned valuable personal property in Australia and incurred significant expenses on a regular basis in Australia – whether company was carrying on business in Australia

Legislation:

Acts Interpretation Act 1901 (Cth), s 13

Competition and Consumer Act 2010 (Cth), ss 4, 5, 47, 48, 131, Sch 2, Australian Consumer Law, ss 2, 11, 18, 29, 51-68, 259-277

Corporations Act 2001 (Cth)

Insurance Contracts Act 1984 (Cth), s 8

Trade Practices Act 1974 (Cth), s 5

Cases cited:

Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470

Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 418

Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309

Barcelo v Electrolytic Zinc Company of Australasia Ltd (1932) 48 CLR 391

Bray v F Hoffman-La Roche Ltd (2002) 118 FCR 1

Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592

Campbell v Gebo Investments (Labuan) Ltd (2005) 190 FLR 209; 54 ACSR 111

Cordoba Shipping Co Ltd v National State Bank [1984] 2 Lloyd’s Rep 91

Corporate Affairs Commission (NSW) v Transphere Pty Ltd (No 2) (1985) 9 ACLR 1005

Diamond v Bank of London and Montreal Ltd [1979] QB 333

Director of Consumer Affairs Victoria v The Good Guys Discount Warehouses (Australia) Pty Ltd (2016) 245 FCR 529

Distillers Co (Biochemicals) Ltd v Thompson [1971] AC 458

Dow Jones & Company Inc v Gutnick (2002) 210 CLR 575

Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486

Gibson Battle & Co Ltd v James King and Sons [1915] SALR 14

Hope v Bathurst City Council (1980) 144 CLR 1

Jackson v Spittall (1870) LR 5 CP 542

Jumbunna Coal Mine, No Liability v Victorian Coal Miners’ Association (1908) 6 CLR 309

Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1

Okura & Co Ltd v Forsbacka Jernverks Aktiebolag [1914] 1 KB 715

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191

Pearce v Tower Manufacturing and Novelty Company (1898) 24 VLR 506

Pioneer Concrete Services Ltd v Galli [1985] VR 675

Re Norfolk Island Shipping Line Pty Ltd (1988) 6 ACLC 990

St Lukes Health Insurance v Medical Benefits Fund of Australia Ltd [1995] ATPR 41-428

Thiel v Commissioner of Taxation (Cth) (1990) 171 CLR 338

Tran v Commonwealth (2010) 187 FCR 54

Voth v Manildra Flour Mills Pty Ltd (1990) 171 CLR 538

Wanganui-Rangitikei Electric Power Board v Australian Mutual Provident Society (1934) 50 CLR 581

Ward Group Pty Ltd v Brodie & Stone plc (2005) 143 FCR 479

Wentworth Securities Ltd v Jones [1980] AC 74

Western Australian Planning Commission v Southregal Pty Ltd (2017) 259 CLR 106

Date of hearing:

10 and 11 August 2017

Registry:

New South Wales

Division:

General Division

National Practice Area:

Commercial and Corporations

Sub-area:

Regulator and Consumer Protection

Category:

Catchwords

Number of paragraphs:

225

Counsel for the Appellant:

Mr RG McHugh SC with Mr ADB Fox

Solicitor for the Appellant:

PricewaterhouseCoopers

Counsel for the Respondent:

Mr JK Kirk SC with Ms NL Sharp

Solicitor for the Respondent:

Thomson Geer

ORDERS

NSD 176 of 2017
BETWEEN:	VALVE CORPORATION Appellant
AND:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Respondent
AND BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Cross-Appellant
AND:	VALVE CORPORATION Cross-Respondent

JUDGES:	DOWSETT, MCKERRACHER AND MOSHINSKY JJ
DATE OF ORDER:	22 DECEMBER 2017

THE COURT ORDERS THAT:

1.The appeal be dismissed with costs.

2.The cross-appeal be dismissed with costs.

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

REASONS FOR JUDGMENT

THE COURT:

Introduction

1. The appellant (Valve) is a company based in the State of Washington in the United States of America.  Valve operates an online game distribution network known as “Steam” (Steam).  This network contains approximately 4,000 video games.  Valve has more than two million Australian subscriber accounts.

2. Valve operates and controls a website (the Steam website), an online video game delivery platform (the Steam Client) and an online support assistance service known as “Steam Support” (Steam Support), which is accessible from Steam or the Steam website.

3. The respondent (the ACCC) alleged at trial that Valve had contravened: (a) s 18 of the Australian Consumer Law, being Sch 2 to the Competition and Consumer Act 2010 (Cth) (the Australian Consumer Law), by engaging in conduct that was misleading or deceptive or likely to mislead or deceive; and (b) s 29(1)(m) of the Australian Consumer Law by making false or misleading representations concerning the existence, exclusion or effect of a condition, warranty, guarantee, right or remedy. Both claims were based on alleged misrepresentations concerning the existence, exclusion or effect of the consumer guarantees contained in the Australian Consumer Law, in particular the acceptable quality guarantee in s 54. It was alleged that Valve had misrepresented the position by making statements such as the following statement, which was contained in the Steam Subscriber Agreement (the SSA) between Valve and its customers, in capital letters: “ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART.”

4. The ACCC alleged that Valve had made misrepresentations as follows:

   (a)in the SSA, in relation to which three misrepresentations were alleged;

   (b)in the Steam refund policy (the Steam Refund Policy), in relation to which two misrepresentations were alleged; and

   (c)during online “chats” between three Australian consumers (Mr Miller, Mr Miles and Mr Phillips) and Steam Support staff, in relation to which four misrepresentations were alleged.

5. In order to understand some of the arguments, it is necessary to explain in more detail how the ACCC alleged the provisions of ss 18 and 29 of the Australian Consumer Law had been contravened. In simple terms, the steps in the ACCC’s case were as follows:

   (a)Valve supplied goods (namely, computer games) to consumers in Australia;

   (b)the supplies were subject to the consumer guarantees contained in Div 1 of Pt 3-2 of the Australian Consumer Law, and the associated remedies, which gave consumers the right to a refund in certain circumstances;

   (c)by representing that the fees payable by a consumer were not refundable, Valve made representations that were false, misleading or deceptive, or likely to mislead or deceive, as to the existence or effect of the consumer guarantees; and

   (d)sections 18 and 29(1)(m) were applicable either:

   (i)on the basis that the representations were made (and thus the conduct occurred) in Australia; or

   (ii)on the basis that Valve was carrying on business within Australia (relying on s 5(1)(g) of the Competition and Consumer Act, which relevantly provides that the Australian Consumer Law, other than Pt 5-3, extends to the engaging in conduct outside Australia by bodies corporate carrying on business within Australia).

6. Valve defended the proceeding at first instance on a number of grounds, including the following:

   (a)Valve contended that the consumer guarantees in the Australian Consumer Law (and hence the refund provisions associated with those guarantees) did not apply to the supplies. It contended that, on the proper construction of the Australian Consumer Law, and having regard in particular to the conflict of laws provision in s 67 of the Australian Consumer Law, the consumer guarantees do not apply where a supply is made pursuant to a contract and the objective proper law of the contract (ie, the law with which the contract has its closest and most real connection) is the law of a country other than Australia. Here, it was contended (and the primary judge accepted) that the law with which the SSAs had their closest and most real connection was the law of Washington State, United States of America. Hence, it was submitted, the consumer guarantees did not apply to the supplies. On this basis it was submitted that the representations, if made, were not false or misleading.

   (b)Valve further contended that ss 18 and 29(1)(m) of the Australian Consumer Law were inapplicable. It contended that the representations, if made, were not made in Australia and therefore its conduct fell outside the ordinary operation of the statutory provisions. Valve also contended that it did not carry on business within Australia and therefore s 5(1)(g) of the Competition and Consumer Act did not apply.

7. The primary judge rejected each of these contentions (apart from the contention regarding the proper law of the SSAs).

8. In relation to whether the alleged representations were made and, if made, whether they were misleading, the primary judge found, in summary, that:

   (a)all three of the alleged representations based on the SSA had been made and were misleading;

   (b)one of the two alleged representations based on the Steam Refund Policy (namely, the fourth representation alleged by the ACCC) had been made and was misleading; and

   (c)the ACCC’s case based on the four alleged chat room representations had not been made out.

9. The primary judge imposed a pecuniary penalty of $3 million for the contraventions of s 29(1)(m) of the Australian Consumer Law. He also made declarations and orders for an injunction, publication of a corrective notice and the implementation of a compliance program. He ordered Valve to pay 75% of the ACCC’s costs of the trial and all the ACCC’s costs relating to the relief hearing (the issues of liability and relief having been heard separately).

10. Valve appeals from the whole of the judgment below.  The ACCC cross-appeals in relation to the primary judge’s rejection of its case based on two of the alleged chat room representations (namely, the seventh and eighth alleged representations).

11. The appeal and cross-appeal raise six broad issues, which we summarise as follows:

    (a)Whether the primary judge erred in concluding that the consumer guarantees in Div 1 of Pt 3-2 of the Australian Consumer Law, and the associated remedies, applied to supplies of computer games by Valve to consumers in Australia.

    (b)On the assumption that the relevant representations were made, whether the primary judge erred in concluding that Valve made those representations (and thus engaged in conduct) in Australia.

    (c)Whether the primary judge erred in concluding that Valve was carrying on business within Australia within the meaning of s 5(1)(g) of the Competition and Consumer Act.

    (d)Whether the primary judge erred in concluding that Valve had made the three representations based on the SSA and the fourth alleged representation (based on the Steam Refund Policy) and that they were misleading.

    (e)Whether the primary judge erred in concluding that Valve did not make the seventh and eighth alleged representations (based on the online “chats”).

    (f)Whether the pecuniary penalty of $3 million imposed by the primary judge was manifestly excessive, and whether the primary judge erred in relation to the other relief ordered.

12. For the reasons that follow, we would dismiss both the appeal and the cross-appeal.

    Background facts

13. The following statement of the background facts is drawn substantially from the reasons for judgment on liability: Australian Competition and Consumer Commission v Valve Corporation (No 3) [2016] FCA 196 (the Reasons).

    Valve

14. Valve is a foreign corporation, based in Seattle, Washington State.  It carries on an online games distribution business under the brand name “Steam”.  We were told by senior counsel for Valve that it has about 118 million active subscribers around the world, of which about 2.2 million are located in Australia.

15. Valve’s business premises and staff are all located outside Australia.  Valve holds no real estate in Australia.  However, it owns servers in Australia.  At the time of acquisition, these servers had a retail value of US $1.2 million.  Valve’s Australian servers were initially configured by an employee who travelled to Australia.

16. Valve provides support services outside Australia, including to the 2.2 million subscriber accounts in Australia.

17. Payments for subscriptions are made in United States dollars and processed in Washington State.  These include payments made by Australian consumers to Valve.  Valve’s expenses include payments of tens of thousands of dollars per month to the Australian bank account of an Australian company, Equinix Australia Pty Ltd (Equinix), whose role is discussed in our reasons below.

    The process of installing Steam and purchasing a video game

18. There are three discrete processes that a consumer must follow to obtain the video games that Valve offers on Steam.  First, they must download and install the Steam Client. Secondly, they must create a Steam account.  Thirdly, they must download and install a game.

19. The first step in obtaining games from Valve is that a consumer goes to the Steam website and clicks on the hyperlink “Install Steam”.  A process then follows by which the consumer installs the Steam Client to the consumer’s computer.  The Steam Client is a software program without which video games cannot be played.

20. During the installation process, the consumer is taken to a window entitled “License Agreement”, with the text of the agreement appearing beneath (the Licence Agreement). The preamble to the Licence Agreement contains a reference to the SSA, which appears as a blue hyperlink.  To continue the installation, the consumer must click on a box beside the words “I accept the licence agreement AND I am 13 years of age or older”.

21. After installation, a pop up window appears notifying the consumer that Steam has been installed. An icon also then appears on the consumer’s desktop.

22. Consumers can also access the SSA online by a link on the Steam website.  When they click on this link, they are taken to a webpage which holds the terms and conditions of the SSA.  This webpage is stored on Valve’s servers in Washington State.  The SSA is published (and made accessible to customers) in 21 different languages.

23. The second step towards obtaining and using a Steam game is that the consumer must create a Steam account.  A consumer can create a Steam account either on the Steam website or through the Steam Client.  When the Steam Client is used to open an account, a new window opens containing the SSA.  The consumer must agree to the SSA before being taken to a window entitled “Create a Steam Account”.  From there, the consumer can choose an account name and password, and must enter an email address.  Clicking the “Next” button will take the consumer back to their desktop.

24. The third step towards obtaining and using a Steam game is to download a game.  By opening the Steam Client, the consumer will be taken to their “Library” within Steam.  This displays all the Steam video games that the consumer has purchased and downloaded. Within the consumer’s Library, there is a “Store” where games can be purchased or downloaded.  The consumer can search through the games in the Store, access game developer information, and read reviews of games.  The consumer can then select games to download, after purchasing the game if it is not free.  There is a “Review + Purchase” page where the consumer must accept the SSA before they can click “Purchase”.  The SSA can be read before being accepted by clicking on the words “Steam Subscriber Agreement”.  During the purchase, the consumer is required to inform Steam of the country in which the consumer is located.

25. In addition to credit card and other methods of payment, subscribers can also pay for games using “Steam Wallet”.  Steam Wallet is an account that a subscriber can use to store value for later use for Steam purchases.

26. Once a consumer has purchased a video game, a link to that game will appear in their Library.  The game must then be installed. But no further agreement to the SSA is required before installation.  During the installation process of a game that has been authored by a third party, the consumer may be required to accept an end-user licence agreement and any separate account registration requirements required by the third party.

27. Once a game is installed on a consumer’s computer, the consumer can play it online or, if the publisher of the game has created it in that way, in “offline mode”.  When the game is run online for the first time, Steam checks to confirm that the user owns a subscription to the game.  And after a subscriber quits an online Steam session, on the next online occasion the subscriber must login again to authenticate himself or herself.  The Steam Client also checks for, and downloads, any updates to the games on these subsequent online occasions.

28. To access the offline mode, the consumer double clicks on the Steam Client icon.  If the computer has no internet connection, a “Connection Error” message will appear on their screen, which contains a button entitled “START IN OFFLINE MODE”.  If this mode is selected, the consumer can see his or her Library offline and can play some games offline.  While the consumer is offline, he or she (a) cannot interact with other players in multi-user games, (b) cannot download updates to the game, and (c) cannot save progress, score or achievements to the Steam Cloud for use on another computer.

    The Steam games

29. Steam offers more than 4,000 games.  But only around 26 of these games are authored by Valve.  Almost all of them are authored by third party developers, who receive a royalty from any sales of their game by Valve.  Valve does not receive any of the source code of the video games from third party game developers. Instead, the game developers provide Valve with executable file software for the games to be uploaded in Washington State.

30. When a problem arises with a game developed by a third party, Valve often puts the customer in contact with the third party developer.  If Valve ultimately chooses to give a refund to the customer, then Valve will ordinarily deduct the refund from the royalties that it pays to the third party developer.

31. The top three games developed by Valve are all multi-player games.  They have a common theme of either battle (Dota 2, a free game), terrorism (Counter-Strike: Global Offensive, priced at US $14.99) or shooting (Team Fortress 2, a free game).  The consumer who downloads a free game commonly discovers that there are opportunities for purchases of digital items within the game.

1. The top three games developed by third party developers are Grand Theft Auto V (a single or multi-player game which needs no further description, priced at US $74.99), The Elder Scrolls V (a fantasy video game, priced at US $34.99), and Sid Meier’s Civilization V (a single or multi-player strategy game to become Ruler of the World, priced at US $69.99).

2. Apart from the approximately 4,000 games available for purchase or free download, the Steam Client also provides consumers with many other functions including friends lists, chat, user groups, community groups, Steam Cloud, Steam music player, video driver updates, and user profiles.  Valve’s evidence referred to many of these other functions and many Steam products in detail.  It is sufficient to observe that many of Steam’s non-game offerings are very closely associated with Steam’s core provision of games. Some examples follow.

   (a)Steam Wallet, as we have explained, is a method of paying for Steam games.

   (b)Steam subscribers can “create content” that can be used in Valve’s games and sold to other subscribers, for which Steam receives a portion of the sale proceeds.  At trial, senior counsel for Valve gave examples of such content as a digital “hat” or digital “sword”.

   (c)Steam subscribers have a licence to make modified versions of Valve’s games and to distribute them for free.

   (d)Steam Curators are individuals or organisations who make recommendations to other players about video games.

   (e)Steam Wishlist is an ability for subscribers to add games on to a wishlist.

   (f)Steam Greenlight is a forum where Steam subscribers can submit an unreleased game for the Steam community to rate according to whether they would like to see the game on Steam.

   (g)Steam Play is a feature that allows subscribers to purchase subscriptions to games across different platforms.

   (h)Steam Cloud is a feature that stores the game data of a subscriber when a game is concluded so that when the subscriber goes online again, from any computer, he or she can access this information, including for sharing with friends online. Steam Cloud is made available by third party service providers such as Microsoft Azure or Amazon Web Services.

   (i)Steam Support has a website published to the world at large for inquiries by way of a ticket received in servers located in Washington State.

   The operation of the Steam servers

3. Steam is supported by a global network of servers and associated information technology. Nearly a thousand servers are located in Washington State. The servers can broadly be classified into the following groups.

   (a)Steam website servers in Washington State: used to host and support the Steam website and Steam store.

   (b)Steam Client software and subscription servers in Washington State: used to enable the communications which permit a subscriber located in Australia to download the Steam Client software (including any updates) onto his or her local computer, create a Steam account, select a game subscription, and pay the purchase price.  These servers also enable the authentication of subscribers and, in this role, were sometimes referred to during the trial as “authentication servers”.

   (c)Steam content servers: used to host the content of Valve’s video games and all third party video games and other content available on Steam. Steam has content servers in Washington State as well as other locations around the world including Australia.  The three of Valve’s content servers that are in Australia are located in commercial rack spaces leased from Equinix.  These content servers provide content to Australian customers as well as other customers, particularly in the Asian region.

4. The way that the Steam content servers in Australia (like others outside Washington State) operate is that when a consumer seeks to download a game, the servers in Washington State provide the content to the Australian content server.  If that content is not requested again within a limited period of time (ranging from about 1 to 18 days in Australia, depending upon the server), it is automatically removed from the Australian content server.

5. One reason why Steam uses content servers in Australia and elsewhere in addition to its Washington State servers is efficiency. Steam aims to ensure that a consumer can download content as fast as possible.  In fact, as Mr Dunkle (Valve’s Business Development, Infrastructure and Operations Manager) explained at trial, the Steam Client knows how to download from multiple sources, including content servers and content delivery networks.

6. The content delivery networks are commercial third parties with whom Valve has business arrangements.  These third parties permit Steam to have access to their networks to deliver Steam content to subscribers all around the world at agreed bandwidth and delivery capacity. Members of content delivery networks obtain the advantage of being able to provide their customers with fast, direct downloads without having to obtain the download from Washington State or other servers. Some of these third parties, such as a “key partner” called Highwinds, have servers in Australia.

7. In addition to Valve’s contracts with global content delivery network providers, Valve also has arrangements with smaller providers throughout the world.  Two of those in Australia are Internode and ixaustralia.

8. Steam’s content servers, and the content delivery networks, hold a mirror image or “proxy cache” of the software.  However, a foreign content server (such as an Australian content server) will still need to communicate with the servers in Washington State to obtain authentication of the subscriber in relation to its communications with a subscriber.

9. The content server that is chosen for a download by the Steam Client depends on an algorithm.  The algorithm is designed to calculate the most efficient means of downloading based on available server capacity and to project download speed of available servers within the global network. Mr Dunkle said that it was “possible but not guaranteed” that the most efficient method for an Australian subscriber to obtain content would be to use a server in Australia.

10. Although Steam’s algorithm selects the server calculated to be the most efficient server to deliver the content, the algorithm can be overridden by a choice by the Steam subscriber of a particular server.  The subscriber might choose a server which that subscriber knows to be located close to him or her or which is known to have a large bandwidth.

11. Steam game servers are servers that host specific multi-player games and connect users who play against each other.  Valve owns 4,341 of these game servers.  There are also game servers operated by users independently of Valve but using Valve’s software. Some of the game servers are operated by third party developers of games sold or available for free download on Steam.  A user anywhere in the world can choose whichever game server he or she wants to use anywhere in the world, or the user can let the game’s software choose the server.

12. Eighty of Valve’s game servers and supporting equipment are located in Australia.  The original retail value of Valve’s Australian servers was US $1.2 million.  The servers are stored within rack spaces leased in Australia from Equinix and host two specific Valve developed multi-player games (previously a third was also hosted). From September 2012, Valve has paid Equinix for floor space and server racks, power, connectivity, and exchange linkages to Equinix’s exchange. Valve pays Equinix approximately US $26,000 per month.

    Valve’s SSAs and the Steam Refund Policy

13. There were three relevant SSAs:

    (a)the SSA applicable during the period 1 January 2011 to 2 August 2012 (the 2011-2012 SSA);

    (b)the SSA applicable during the period 3 August 2012 to 2 July 2013 (the 2012-2013 SSA); and

    (c)the SSA applicable during the period 3 July 2013 to 10 November 2014 (the 2013 SSA).

14. The relevant versions of the Steam Refund Policy were as follows:

    (a)the policy that was presented on the website during the period 1 January 2011 to April 2013 (the 2011-2013 Refund Policy);

    (b)the policy that was presented during the period April 2013 to 23 July 2014 (the 2013-2014 Refund Policy); and

    (c)the policy that was presented during the period 24 July 2014 to 18 March 2015 (the 2014-2015 Refund Policy).

    The representations alleged at trial

15. At trial, the ACCC relied on nine alleged representations.  There was overlap between those representations, but submissions were made on each representation individually and the primary judge considered each separately. The representations derive from three separate sources: (a) the various versions of the SSA; (b) the various versions of the Steam Refund Policy; and (c) online chats between representatives of Steam Support and Australian consumers.  The primary judge set out in the Reasons the following summary of the alleged representations (based on a chart provided by the ACCC):

No.	Representation	Source	FASOC ref
1	No Entitlement to Refund Representation	SSA	[15]
2	Contractual Exclusion of Statutory Guarantee Representation	SSA	[19]
3	Contractual Modification of Statutory Guarantee Representation [further or in the alternative to Representation 2]	SSA	[21]
4	No Refund Policy Representation	Steam Refund Policy	[24]
5	No Entitlement to Refund or Replacement Unless Required by Local Law	Steam Refund Policy	[28]
6	No Obligation Where No Recourse to Developer Representation	Steam Support Rep	[62]
7	No Obligation to Refund Representation	Steam Support Rep	[64]
8	Non-Applicability of Statutory Guarantee Representation	Steam Support Rep	[66]
9	No Remedy Where Goods Used Representation	Steam Support Rep	[68]

Representations 1, 2 and 3 (in the SSAs)

1. The first alleged representation was that consumers had no entitlement to a refund from Valve for digitally downloaded video games they had purchased from Valve via the Steam website or Steam in any circumstances.

2. The second alleged representation was that Valve had excluded statutory guarantees and/or warranties of acceptable quality.

3. The third alleged representation was expressed as further, or in the alternative, to the second.  It was that Valve had restricted or modified statutory guarantees and/or warranties of acceptable quality.

4. The representations in the three SSAs were relied upon by the ACCC as having been made to Australian consumers (a) who accessed the SSAs on the Steam website (including consumers who did so to set up an account or purchase a computer game on the website), or (b) who accessed the SSAs through the Steam Client (such as when setting up a Steam account or purchasing a computer game).

5. Valve submitted at trial, and the primary judge accepted, that the mode in which an Australian consumer accessed the SSAs could not change the content of the representation.  The primary judge said that, on the evidence before the Court, it might be inferred that very few of the many consumers who had accessed the SSAs would have read them.  His Honour noted that: the three consumers who gave evidence in the proceeding had all insisted, to different degrees, upon rights to a refund; none of those consumers had made any reference to any terms of an SSA in any correspondence with Steam representatives; and it appeared that only Mr Miller may have read the terms of the SSA and formed the opinion that he was not able to obtain a refund (but he tried to do so anyway).

6. The primary judge found that the Australian consumers who were likely to be misled by representations in the SSAs could only be those few consumers who conscientiously read the terms and conditions of the SSAs, including the consumers who did so because they wished to know whether they could obtain a refund for a game that they considered to be defective.  The primary judge accepted a submission by Valve that such a meticulous consumer must be assumed to have read the whole contract, although not necessarily in close detail.  His Honour found that: such a consumer would take more notice of those parts of the terms and conditions which were in capital letters; the reasonable consumer who was reading the SSAs would also understand that the terms and conditions in the SSAs were not directed only to consumers in Australia; and it would not make any difference to that consumer’s understanding of the SSA whether it was being read by the consumer through the Steam Client, or on the Steam website.

7. The 2011-2012 SSA included the following statements that were highlighted by the parties in their oral submissions on the appeal:

   STEAM® SUBSCRIBER AGREEMENT

   This Steam Subscriber Agreement (“Agreement”) is a legal document that explains your rights and obligations as a Subscriber.  Please read it carefully.

   …

   4.        BILLING, PAYMENT AND OTHER SUBSCRIPTIONS

   …

   B.       Charges to Your Credit Card.

   ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART.  Valve reserves the right to change our fees or billing methods at any time and Valve will provide notice of any such change at least thirty (30) days advance.  All changes will be posted as amendments to this Agreement or in the Rules of Use (e.g. Steam release notices) and you are responsible for reviewing the billing section of Steam to obtain timely notice of such changes.  Your non-cancellation of your Account or an affected Subscription thirty (30) days after posting of the changes on Steam means that you accept such changes.  If any change is unacceptable to you, you may cancel your Account or a particular Subscription at any time as described below, but Valve will not refund any fees that may have accrued to your Account before cancellation of your Account or Subscription, and Valve will not prorate fees for any cancellation.  If your use of Steam is subject to any type of use or sales tax, then Valve may also charge you for any such taxes, in addition to the Subscription or other fees published in the Rules of Use.  The European Union VAT (“VAT”) tax amounts collected by Valve reflect VAT due on the value of any Software or Subscription as well as import VAT collected which is to be paid to the tax authorities for the importation of Merchandise.

   As the Account holder, you are responsible for all charges incurred, including applicable taxes, and all purchases made by you or anyone that uses your Account, including your family or friends.  Information on how to cancel your Account or a particular Subscription can be found at Valve reserves the right to collect fees, surcharges or costs incurred before you cancel your Account or a particular Subscription.  In the event that your Account or a particular subscription is terminated or canceled, no refund, including any Subscription fees, will be granted.  Any delinquent or unpaid Accounts must be settled before Valve will allow you to register again.

   C.       Steam Wallet.

   ALL STEAM FEES ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART.  Steam may make available an account balance associated with your Account (the “Steam Wallet”).  You may place funds in your Steam Wallet up to a maximum amount determined by Valve, by credit card, prepaid card, promotional code or any other payment method accepted by Steam.  You may use Steam Wallet funds to purchase Subscriptions or make transactions within Subscriptions, where Steam Wallet transactions are enabled.  Funds added to the Steam Wallet are non-refundable and non-transferable.  Steam Wallet funds have no value outside Steam and can only be used to purchase Subscriptions and related content via Steam (including but not limited to games offered on the Steam Store).  To the maximum extent permitted by applicable law, Steam Wallet funds that are deemed abandoned or unused by law will not be returned or restored.

   When your account uses your Steam Wallet to fund a purchase, you authorize Valve to deduct the amount of the purchase from your Steam Wallet.  If you do not have sufficient funds in your Steam Wallet to make a purchase and you have previously entered your credit card information, we may automatically charge your credit card a minimum amount determined by Valve to make the purchase, even if such minimum amount exceeds the cost of your purchase.  Any difference between the minimum charge and the cost of the purchase will be credited to your Steam Wallet.

   …

   9.        DISCLAIMERS; LIMITATION OF LIABILITY; NO GUARANTEES

   A.       DISCLAIMERS.

   THE ENTIRE RISK ARISING OUT OF USE OR PERFORMANCE OF STEAM, THE SOFTWARE, AND MERCHANDISE REMAINS WITH YOU, THE USER.  VALVE EXPRESSLY DISCLAIMS (I) ANY WARRANTY FOR STEAM, THE SOFTWARE, AND THE MERCHANDISE, AND (II) ANY COMMON LAW DUTIES WITH REGARD TO STEAM, THE SOFTWARE, AND THE MERCHANDISE, INCLUDING DUTIES OF LACK OF NEGLIGENCE AND LACK OF WORKMANLIKE EFFORT.  STEAM, THE SOFTWARE, THE MERCHANDISE, AND ANY INFORMATION AVAILABLE IN CONNECTION THEREWITH ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS, “WITH ALL FAULTS” AND WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT. ANY WARRANTY AGAINST INFRINGEMENT THAT MAY BE PROVIDED IN SECTION 2-312(3) OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY OTHER COMPARABLE STATE STATUTE IS EXPRESSLY DISCLAIMED.  ALSO, THERE IS NO WARRANTY OF TITLE, INTERFERENCE WITH YOUR ENJOYMENT, OR AUTHORITY IN CONNECTION WITH STEAM, THE SOFTWARE, MERCHANDISE OR INFORMATION AVAILABLE IN CONNECTION THEREWITH.  THIS SECTION WILL APPLY TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW.

   B.       LIMITATION OF LIABILITY.

   NEITHER VALVE, ITS LICENSORS, NOR THEIR AFFILIATES SHALL BE LIABLE IN ANY WAY FOR LOSS OR DAMAGE OF ANY KIND RESULTING FROM THE USE OR INABILITY TO USE STEAM, YOUR ACCOUNT, YOUR SUBSCRIPTIONS AND THE SOFTWARE INCLUDING, BUT NOT LIMITED TO, LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES.  IN NO EVENT WILL VALVE BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE, EXEMPLARY DAMAGES, OR ANY OTHER DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH STEAM, THE SOFTWARE, MERCHANDISE THAT YOU ACQUIRE VIA STEAM, ANY INFORMATION AVAILABLE IN CONNECTION THEREWITH, OR THE DELAY OR INABILITY TO USE MERCHANDISE OR ANY INFORMATION, EVEN IN THE EVENT OF FAULT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, BREACH OF CONTRACT, OR BREACH OF VALVE’S WARRANTY AND EVEN IF VALVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  THESE LIMITATIONS AND EXCLUSIONS REGARDING DAMAGES APPLY EVEN IF ANY REMEDY FAILS.

   IF YOU ARE A RESIDENT OF A EUROPEAN UNION COUNTRY, THE ABOVE PARAGRAPH MAY NOT APPLY TO YOU.

   C.       NO GUARANTEES.

   VALVE DOES NOT GUARANTEE CONTINUOUS, ERROR-FREE, VIRUS-FREE OR SECURE OPERATION AND ACCESS TO STEAM, THE SOFTWARE, YOUR ACCOUNT AND/OR YOUR SUBSCRIPTIONS(S).

   …

   14.      APPLICABLE LAW/JURISDICTION

   The terms of this section may not apply to European Union consumers.

   You agree that this Agreement shall be deemed to have been made and executed in the State of Washington, and any dispute arising hereunder shall be resolved in accordance with the law of Washington.  You agree that any claim asserted in any legal proceeding by you against Valve shall be commenced and maintained exclusively in any state or federal court located in King County, Washington, having subject matter jurisdiction with respect to the dispute between the parties and you hereby consent to the exclusive jurisdiction of such courts.  In any dispute arising under this Agreement, the prevailing party will be entitled to attorneys’ fees and expenses.

   15.      MISCELLANEOUS

   In the event that any provision of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provision will be enforced to the maximum extent permissible and the remaining portions of this Agreement shall remain in full force and effect.  This Agreement constitutes and contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior oral or written agreements.  You agree that this Agreement is not intended to confer and does not confer any rights or remedies upon any person other than the parties to this Agreement.

   Valve’s obligations are subject to existing laws and legal process and Valve may comply with law enforcement or regulatory requests or requirements notwithstanding any contrary term.

   …

1. As the primary judge noted, in the 2011-2012 SSA, the statements that Steam fees were not “refundable in whole or in part” were:

   (a)expressed without any qualification;

   (b)contained in clause 4, which was entitled “BILLING, PAYMENT AND OTHER SUBSCRIPTIONS”;

   (c)set out in capital letters that stood out strongly against the rest of the clause in lower case; and

   (d)repeated in relation to credit card and Steam Wallet purchases.

2. In the 2012-2013 SSA and the 2013 SSA, the billing, payment and other subscriptions clause (now numbered clause 3) was amended.  The new form of words included a statement, also in capital letters, that fees were not refundable in whole or in part “EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT”.  Also, these SSAs contained a specific exclusion for European Union customers (in clause 3).  The following extracts from the 2012-2013 SSA were highlighted by the parties in their oral submissions on the appeal.  (It appears that the 2013 SSA was relevantly in substantially the same terms.)

   3.        BILLING, PAYMENT AND OTHER SUBSCRIPTIONS

   ALL CHARGES INCURRED ON STEAM, AND ALL PURCHASES MADE WITH THE STEAM WALLET, ARE PAYABLE IN ADVANCE AND ARE NOT REFUNDABLE IN WHOLE OR IN PART, REGARDLESS OF THE PAYMENT METHOD, EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT.

   IF YOU ARE AN EU SUBSCRIBER YOU HAVE THE RIGHT TO WITHDRAW FROM A PURCHASE TRANSACTION FOR DIGITAL CONTENT WITHOUT CHARGE AND WITHOUT GIVING ANY REASON UNTIL DELIVERY OF SUCH CONTENT HAS STARTED OR PERFORMANCE OF THE SERVICE HAS COMMENCED.  YOU DO NOT HAVE A RIGHT TO WITHDRAW FROM A TRANSACTION OR OBTAIN A REFUND ONCE DELIVERY OF THE CONTENT HAS STARTED OR THE PERFORMANCE OF THE SERVICE HAS COMMENCED, AT WHICH POINT YOUR TRANSACTION IS FINAL.  YOU AGREE THAT DELIVERY OF DIGITAL CONTENT, AND THE ASSOCIATED SUBSCRIPTION, AND/OR PERFORMANCE OF THE ASSOCIATED SERVICE, COMMENCES AT THE MOMENT THE DIGITAL CONTENT IS ADDED TO YOUR ACCOUNT OR INVENTORY OR OTHERWISE MADE ACCESSIBLE TO YOU FOR DOWNLOAD OR USE.

   …

   7.        DISCLAIMERS; LIMITATION OF LIABILITY; NO GUARANTEES

   FOR EU CUSTOMERS, THIS SECTION 7 DOES NOT REDUCE YOUR MANDATORY CONSUMERS’ RIGHTS UNDER THE LAWS OF YOUR LOCAL JURISDICTION.

   A.       DISCLAIMERS.

   VALVE AND ITS AFFILIATES AND SERVICE PROVIDERS EXPRESSLY DISCLAIM (I) ANY WARRANTY FOR STEAM, THE SOFTWARE, AND THE SUBSCRIPTIONS, AND (II) ANY COMMON LAW DUTIES WITH REGARD TO STEAM, THE SOFTWARE, AND THE SUBSCRIPTIONS, INCLUDING DUTIES OF LACK OF NEGLIGENCE AND LACK OF WORKMANLIKE EFFORT.  STEAM, THE SOFTWARE, THE SUBSCRIPTIONS, AND ANY INFORMATION AVAILABLE IN CONNECTION THEREWITH ARE PROVIDED ON AN “AS IS” AND “AS AVAILABLE” BASIS, “WITH ALL FAULTS” AND WITHOUT WARRANTY OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NONINFRINGEMENT.  ANY WARRANTY AGAINST INFRINGEMENT THAT MAY BE PROVIDED IN SECTION 2-312 OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY OTHER COMPARABLE STATE STATUTE IS EXPRESSLY DISCLAIMED. ALSO, THERE IS NO WARRANTY OF TITLE, NON-INTERFERENCE WITH YOUR ENJOYMENT, OR AUTHORITY IN CONNECTION WITH STEAM, THE SOFTWARE, THE SUBSCRIPTIONS, OR INFORMATION AVAILABLE IN CONNECTION THEREWITH.  THIS SECTION WILL APPLY TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW.

   B.       LIMITATION OF LIABILITY.

   TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, NEITHER VALVE, ITS LICENSORS, NOR ITS OR THEIR AFFILIATES, NOR ANY OF VALVE’S SERVICE PROVIDERS, SHALL BE LIABLE IN ANY WAY FOR LOSS OR DAMAGE OF ANY KIND RESULTING FROM THE USE OR INABILITY TO USE STEAM, YOUR ACCOUNT, YOUR SUBSCRIPTIONS AND THE SOFTWARE INCLUDING, BUT NOT LIMITED TO, LOSS OF GOODWILL, WORK STOPPAGE, COMPUTER FAILURE OR MALFUNCTION, OR ANY AND ALL OTHER COMMERCIAL DAMAGES OR LOSSES.  IN NO EVENT WILL VALVE BE LIABLE FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, PUNITIVE, EXEMPLARY DAMAGES, OR ANY OTHER DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH STEAM, THE SOFTWARE, THE SUBSCRIPTIONS, AND ANY INFORMATION AVAILABLE IN CONNECTION THEREWITH, OR THE DELAY OR INABILITY TO USE THE SOFTWARE, SUBSCRIPTIONS OR ANY INFORMATION, EVEN IN THE EVENT OF VALVE’S OR ITS AFFILIATES’ FAULT, TORT (INCLUDING NEGLIGENCE), STRICT LIABILITY, BREACH OF CONTRACT, OR BREACH OF VALVE’S WARRANTY AND EVEN IF VALVE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.  THESE  LIMITATIONS AND EXCLUSIONS REGARDING DAMAGES APPLY EVEN IF ANY REMEDY FAILS TO PROVIDE ADEQUATE RECOMPENSE.

   BECAUSE SOME STATES OR JURISDICTIONS DO NOT ALLOW THE EXCLUSION OR THE LIMITATION OF LIABILITY FOR CONSEQUENTIAL OR INCIDENTAL DAMAGES, IN SUCH STATES OR JURISDICTIONS, VALVE, ITS LICENSORS, AND ITS AND THEIR AFFILIATES’ LIABILITY SHALL BE LIMITED TO THE FULL EXTENT PERMITTED BY LAW.

   C.       NO GUARANTEES.

   NEITHER VALVE NOR ITS AFFILIATES GUARANTEE CONTINUOUS, ERROR-FREE, VIRUS-FREE OR SECURE OPERATION AND ACCESS TO STEAM, THE SOFTWARE, YOUR ACCOUNT AND/OR YOUR SUBSCRIPTIONS(S) OR ANY INFORMATION AVAILABLE IN CONNECTION THEREWITH.

   …

   11.       APPLICABLE LAW/JURISDICTION

   For Subscribers other than EU Subscribers:

   You agree that this Agreement shall be deemed to have been made and executed in the State of Washington, and any dispute arising hereunder shall be resolved in accordance with the law of Washington.  Subject to Section 12 (Dispute Resolution/Binding Arbitration/Class Action Waiver) below, you agree that any claim asserted in any legal proceeding by you against Valve shall be commenced and maintained exclusively in any state or federal court located in King County, Washington, having subject matter jurisdiction with respect to the dispute between the parties and you hereby consent to the exclusive jurisdiction of such courts.  In any dispute arising under this Agreement, the prevailing party will be entitled to attorneys’ fees and expenses.

   For EU Subscribers:

   You agree that this Agreement shall be deemed to have been made and executed in the Grand Duchy of Luxembourg and that it is subject to the laws of Luxembourg, excluding the law of conflicts and the Convention on Contracts for the International Sale of Goods (CISG).  However, where the laws of Luxembourg provide a lower degree of consumer protection than the laws of your country of residence, the consumer protection laws of your country shall prevail.  In any dispute arising under this Agreement, the prevailing party will be entitled to attorneys’ fees and expenses.

   …

   13.      MISCELLANEOUS

   In the event that any provision of this Agreement shall be held by a court or other tribunal of competent jurisdiction to be unenforceable, such provision will be enforced to the maximum extent permissible and the remaining portions of this Agreement shall remain in full force and effect.  This Agreement constitutes and contains the entire agreement between the parties with respect to the subject matter hereof and supersedes any prior oral or written agreements.  You agree that this Agreement is not intended to confer and does not confer any rights or remedies upon any person other than the parties to this Agreement.

   Valve’s obligations are subject to existing laws and legal process and Valve may comply with law enforcement or regulatory requests or requirements notwithstanding any contrary term.

   …

   Representation 4 (in the Steam Refund Policy)

3. The fourth alleged representation was that, from about 1 January 2011, a consumer had no entitlement to a refund for digitally downloaded video games purchased from Valve via the Steam website or through the Steam Client.

4. From 1 January 2011 to July 2014, the Steam website included the following statements:

2011-2013 Refund Policy (1 January 2011 to around April 2013)	Steam Refund Policy As with most downloadable software products, we do not offer refunds for purchases made through Steam – please review Section 4 of the Steam Subscriber Agreement for more information.
2013-2014 Refund Policy (April 2013 to about July 2014)	Steam Refund Policy As with most software products, we do not offer refunds or exchanges on games, DLC or in-game items purchased on our website or through the Steam Client.  Please review Section 3 of the Steam Subscriber Agreement for more information.

1. As noted by the primary judge, there was no evidence that any consumer read the Steam Refund Policy. However, the Steam Refund Policy was easily accessible and some consumers were likely to have viewed it if they had problems with games.  His Honour did not consider it likely that this would have occurred on many occasions.  The general accessibility of the Steam Refund Policy can be seen by a specific link “Steam Refund Policy” on the Steam Support section of Steam’s website concerned with “General Purchasing Questions”.

   Representation 5 (in the Steam Refund Policy)

2. It is unnecessary to consider the fifth alleged representation for present purposes.  The primary judge concluded that this representation was not false and was not misleading, and this finding is not challenged in the cross-appeal.

   Representations 6, 7, 8 and 9 (in the online chats)

3. Representations 6, 7, 8 and 9 were alleged to have been made in online chats between three Australian consumers and Steam support representatives.  It is unnecessary to consider representations 6 and 9 for present purposes.  There is no challenge in the cross-appeal to the primary judge’s conclusions in relation to these representations.

4. The seventh alleged representation was that Valve was under no obligation to provide a refund to a consumer in any circumstances where the computer games it had supplied were not of acceptable quality.

5. The eighth alleged representation was that statutory guarantees and/or warranties of acceptable quality did not apply in relation to the supply by Valve of video games to consumers in Australia.

6. The facts in relation to these alleged representations are set out later in these reasons.

   Key legislative provisions

7. In order to provide context for the discussion that follows, we set out some of the key legislative provisions. Section 131(1) of the Competition and Consumer Act provides that the Australian Consumer Law (set out in Sch 2 of the Act) applies as a law of the Commonwealth to the conduct of corporations, and in relation to contraventions of Ch 2, 3 or 4 of the Australian Consumer Law by corporations.

8. Section 18(1) of the Australian Consumer Law provides:

   Misleading or deceptive conduct

   (1)A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

9. Section 29(1)(m) provides:

   False or misleading representations about goods or services

   (1)A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

   ...

   (m)make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2); or …

10. As explained above, the ACCC alleged that the representations were false, misleading or deceptive, or likely to mislead or deceive, in circumstances where (it was alleged) supplies of computer games by Valve to consumers in Australia were subject to the consumer guarantees and associated remedies in the Australian Consumer Law. The consumer guarantees are set out in Div 1 of Pt 3-2. Division 1 is headed “Consumer guarantees” and comprises ss 51-68. In particular, the ACCC relied on the consumer guarantee as to acceptable quality in s 54.

11. Section 54(1) provides for a guarantee that goods are of acceptable quality if (other than by way of a sale by auction) a person supplies, in trade or commerce, goods to a consumer. Section 54(2) provides that:

    Goods are of acceptable quality if they are as:

    (a)fit for all the purposes for which goods of that kind are commonly supplied; and

    (b)acceptable in appearance and finish; and

    (c)free from defects; and

    (d)safe; and

    (e)durable;

    as a reasonable consumer fully acquainted with the state and condition of the goods (including any hidden defects of the goods), would regard as acceptable having regard to the matters in subsection (3).

12. There are separate provisions concerning when goods will not fail to be of acceptable quality, and the matters to which regard must be had in determining acceptable quality.

13. Sections 64 and 67 (both of which are contained in Div 1 of Pt 3-2) are relevant to Valve’s contentions as to the application of the consumer guarantees. Section 64 provides:

    Guarantees not to be excluded etc. by contract

    (1)A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying:

    (a)the application of all or any of the provisions of this Division; or

    (b)the exercise of a right conferred by such a provision; or

    (c)any liability of a person for a failure to comply with a guarantee that applies under this Division to a supply of goods or services.

    (2)A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Division unless the term does so expressly or is inconsistent with the provision.

14. Section 67 provides:

    Conflict of laws

    If:

    (a)the proper law of a contract for the supply of goods or services to a consumer would be the law of any part of Australia but for a term of the contract that provides otherwise; or

    (b)a contract for the supply of goods or services to a consumer contains a term that purports to substitute, or has the effect of substituting, the following provisions for all or any of the provisions of this Division:

    (i)        the provisions of the law of a country other than Australia;

    (ii)       the provisions of the law of a State or a Territory;

    the provisions of this Division apply in relation to the supply under the contract despite that term.

15. The remedy provisions relating to the consumer guarantees are contained in Pt 5-4, which is headed “Remedies relating to guarantees”. That Part comprises ss 259-277.

16. Section 259 is concerned with failures of compliance. Different conditions are imposed on whether the goods can be rejected for major, or non-major, failures of compliance. Section 259 provides:

    Action against suppliers of goods

    (1)       A consumer may take action under this section if:

    (a)a person (the supplier) supplies, in trade or commerce, goods to the consumer; and

    (b)a guarantee that applies to the supply under Subdivision A of Division 1 of Part 3-2 (other than sections 58 and 59(1)) is not complied with.

    (2)If the failure to comply with the guarantee can be remedied and is not a major failure:

    (a)the consumer may require the supplier to remedy the failure within a reasonable time; or

    (b)if such a requirement is made of the supplier but the supplier refuses or fails to comply with the requirement, or fails to comply with the requirement within a reasonable time–the consumer may:

    (i)otherwise have the failure remedied and, by action against the supplier, recover all reasonable costs incurred by the consumer in having the failure so remedied; or

    (ii)subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection.

    (3)If the failure to comply with the guarantee cannot be remedied or is a major failure, the consumer may:

    (a)subject to section 262, notify the supplier that the consumer rejects the goods and of the ground or grounds for the rejection; or

    (b)by action against the supplier, recover compensation for any reduction in the value of the goods below the price paid or payable by the consumer for the goods.

    (4)The consumer may, by action against the supplier, recover damages for any loss or damage suffered by the consumer because of the failure to comply with the guarantee if it was reasonably foreseeable that the consumer would suffer such loss or damage as a result of such a failure.

    (5)Subsection (4) does not apply if the failure to comply with the guarantee occurred only because of a cause independent of human control that occurred after the goods left the control of the supplier.

    (6)To avoid doubt, subsection (4) applies in addition to subsections (2) and (3).

    (7)The consumer may take action under this section whether or not the goods are in their original packaging.

17. If the consumer is entitled to reject the goods, s 263 applies and makes relevant a right to refund:

    Consequences of rejecting goods

    (1)This section applies if, under section 259, a consumer notifies a supplier of goods that the consumer rejects the goods.

    (2)       The consumer must return the goods to the supplier unless:

    (a)the goods have already been returned to, or retrieved by, the supplier; or

    (b)the goods cannot be returned, removed or transported without significant cost to the consumer because of:

    (i)the nature of the failure to comply with the guarantee to which the rejection relates; or

    (ii)       the size or height, or method of attachment, of the goods.

    (3)If subsection (2)(b) applies, the supplier must, within a reasonable time, collect the goods at the supplier’s expense.

    (4)       The supplier must, in accordance with an election made by the consumer:

    (a)       refund:

    (i)any money paid by the consumer for the goods; and

    (ii)an amount that is equal to the value of any other consideration provided by the consumer for the goods; or

    (b)replace the rejected goods with goods of the same type, and of similar value, if such goods are reasonably available to the supplier.

    (5)The supplier cannot satisfy subsection (4)(a) by permitting the consumer to acquire goods from the supplier.

    (6)If the property in the rejected goods had passed to the consumer before the rejection was notified, the property in those goods revests in the supplier on the notification of the rejection.

18. Section 276, also contained in Pt 5-4, complements s 64. It provides as follows:

    This Part not to be excluded etc. by contract

    (1)A term of a contract (including a term that is not set out in the contract but is incorporated in the contract by another term of the contract) is void to the extent that the term purports to exclude, restrict or modify, or has the effect of excluding, restricting or modifying:

    (a)the application of all or any of the provisions of this Part; or

    (b)the exercise of a right … conferred by such a provision; or

    (c)any liability of a person in relation to a failure to comply with a guarantee that applies under Division 1 of Part 3-2 to a supply of goods or services.

    (2)A term of a contract is not taken, for the purposes of this section, to exclude, restrict or modify the application of a provision of this Part unless the term does so expressly or is inconsistent with the provision.

    (3)This section does not apply to a term of a contract that is a term referred to in section 276A(4).

19. Section 5 of the Competition and Consumer Act provides for the extended operation of certain provisions. Section 5 provides in part:

    (1)       Each of the following provisions:

    …

    (c) the Australian Consumer Law (other than Part 5-3);

    …

    extends to the engaging in conduct outside Australia by:

    (g)bodies corporate incorporated or carrying on business within Australia; or

    …

    (2)In addition to the extended operation that sections 47 and 48 have by virtue of subsection (1), those sections extend to the engaging in conduct outside Australia by any persons in relation to the supply by those persons of goods or services to persons within Australia.

    The judgment below

1. For the purpose of the appeal and cross-appeal, it is relevant to consider three separate reasons for judgment given by the primary judge in support of the declarations and orders made.  These were: the reasons for judgment on liability, which we are referring to as “the Reasons”; the reasons for judgment on relief, Australian Competition and Consumer Commission v Valve Corporation (No 7) [2016] FCA 1553 (the Relief Reasons); and the reasons for judgment on costs, Australian Competition and Consumer Commission v Valve Corporation (No 8) [2016] FCA 1584.

2. His Honour dealt with the issue of whether the consumer guarantees applied to supplies of computer games by Valve to consumers in Australia at [54]-[125] of the Reasons. His Honour noted, at [54], that the ACCC had accepted that ss 18 and 29(1)(m) could only apply in this case if s 54 was applicable. His Honour also noted that Valve’s submission (that s 54 did not apply) was based upon its construction of s 67 of the Australian Consumer Law. As his Honour noted at [56] of the Reasons, Valve’s submission was to the effect that the consumer guarantee in s 54 was not applicable where a supply takes place pursuant to a contract the proper law of which is not the law of any part of Australia.

3. The primary judge discussed the decision of the High Court of Australia in Akai Pty Ltd v People’s Insurance Company Ltd (1996) 188 CLR 418, which concerned provisions of the Insurance Contracts Act 1984 (Cth), including s 8(2) of that Act, which his Honour considered to be in “very similar” terms to s 67(a) of the Australian Consumer Law. His Honour outlined the two-stage approach to the determination of the proper law of a contract adopted by the majority in Akai, the second stage of which involves identification of the system of law with which the transaction has its closest and most real connection. His Honour held (at [71]) that the basis upon which s 67(a) of the Australian Consumer Law was enacted, and the decision of the majority in Akai, “requires the question of closest and most real connection to be considered as an objective question, separate from the question which is concerned with construction of the contract”.

4. In the next section of the Reasons (at [72]-[84]), his Honour considered which system of law had the closest and most real connection to the SSAs between Valve and consumers in Australia and concluded that this was the law of Washington State.  This conclusion is not challenged on appeal or cross-appeal.

5. The primary judge next considered (at [85]-[89]) a submission by the ACCC that, if the law with the closest and most real connection to the SSAs was the law of Washington State, then s 67(b) had the effect that Div 1 of Pt 3-2 would still apply. His Honour concluded, with one assumption, that: the inclusion of a Washington State choice of law clause in the SSAs purported to substitute Washington State law for all or any of the provisions of Div 1 of Pt 3-2; and, accordingly, s 67(b) had the effect that “the provisions of this Division [1] apply in relation to the supply under the contract despite that term”. The assumption underlying this conclusion was that the Division was not limited to apply only to instances where the law with the closest and most real connection to the contract is the law of a part of Australia. His Honour went on to consider whether this assumption was correct in the next section of the Reasons.

6. His Honour considered, at [90]-[125], Valve’s submission to the effect that s 67 limited the operation of Div 1 of Pt 3-2, by confining its operation to cases where the law with the closest and most real connection to the contract is the law of a part of Australia. His Honour rejected Valve’s submission for four reasons: it was inconsistent with the text of s 67; it was inconsistent with the context of s 67; it was inconsistent with the history and purpose of s 67; and it was inconsistent with the policy of the Australian Consumer Law. In relation to the history of the relevant provisions, his Honour explained that, prior to 1 January 2011 (when the Australian Consumer Law came into operation), the predecessor legislation to the Australian Consumer Law (the Trade Practices Act 1974 (Cth)) provided for similar consumer guarantees to those contained within Div 1 of Pt 3-2. However, under the Trade Practices Act those consumers guarantees were imposed as statutory implications into a contract.  His Honour referred to the explanatory memorandum to the Trade Practices Amendment (Australian Consumer Law) Bill (No 2) 2010 (Cth), which explained that one of the “features of the current law which contribute[s] to its uncertainty” was that “the existing statutory implied terms regime is based on the law of contract” (at [25.28], quoted in the Reasons at [109]).  The explanatory memorandum explained that the new regime was intended to be simpler.  It compared the previous scheme of implications with the new scheme, which was described as one in which, “[i]f a person supplies goods to a consumer, the following guarantees apply”.  His Honour observed, at [111], that there was no suggestion that the guarantees would only apply if a person supplied goods to a consumer where the law with which the supply had its closest and most real connection was the law of a part of Australia.

7. His Honour next dealt, at [126]-[157] of the Reasons, with an issue as to whether there had been a “supply of goods” by Valve.  His Honour concluded, contrary to Valve’s submissions, that it had supplied “goods” (the inclusive definition of which refers to “computer software”).  This conclusion is not challenged on appeal.

8. In the next part of the Reasons, at [158]-[205], the primary judge considered whether Valve’s conduct was in Australia and whether Valve carried on business in Australia.  His Honour noted, at [159], that the parties had conducted the litigation on the basis that it was necessary for the ACCC to prove that Valve’s conduct was in Australia or, if not, that the relevant provisions of the Competition and Consumer Act applied to extend the operation of the Act to conduct outside Australia.  In light of the conclusions he reached on the issues, and in the absence of argument on the point, his Honour proceeded on that assumption.

9. His Honour stated that the conduct that needed to be characterised (to determine whether it was conduct in Australia) was the conduct that was alleged to contravene ss 18 and 29(1)(m) of the Australian Consumer Law. The core of that conduct involved representations by Valve on its website, in “chat logs” to consumers, and through the Steam Client. As the chat log representations and the Steam Client representations had been specifically made to consumers in Australia, they were taken to be made in Australia. In relation to the website representations, his Honour said (at [181]):

   The website representations are less simple. Considered by themselves, they were general representations to the world at large.  They are not representations to any person or to any Australian consumer.  Until the representations were accessed, the representations were meaningless and could not be the subject of any alleged contravening conduct.  But, by the time a consumer had purchased a game or downloaded Steam Client the consumer had a relationship with Valve and representations were made in Australia.  The purchase of a game also required a consumer to click on a box that agreed to the terms of the SSA.  The consumer provided Valve with his or her location as Australia at the time of purchase. Indeed, Valve priced some games differently in Australia … The consumer might be told by Valve that “This item is currently unavailable in your region” …

   For these reasons, the primary judge concluded that the website representations also involved conduct in Australia.

10. At [189] of the Reasons, the primary judge stated that the issue of whether Valve carried on business in Australia would arise only if he had concluded that Valve’s conduct was not in Australia.  However, as the parties had addressed the issue in comprehensive detail, his Honour expressed his views about the issue.  His Honour stated, at [197], that the ordinary meaning of “carrying on business” usually involves (by the words “carrying on”) a series or repetition of acts; and those acts will commonly involve “activities undertaken as a commercial enterprise in the nature of a going concern, that is, activities engaged in for the purpose of profit on a continuous and repetitive basis”: see Thiel v Commissioner of Taxation (Cth) (1990) 171 CLR 338 at 350 per Dawson J; Pioneer Concrete Services Ltd v Galli [1985] VR 675 at 705; Hope v Bathurst City Council (1980) 144 CLR 1 at 8-9 per Mason J (Gibbs, Stephen and Aickin JJ agreeing). The primary judge concluded, at [198], that in this ordinary sense of carrying on business, “Valve undoubtedly carried on a business in Australia” for six reasons, set out at [199]-[204]. Thus, his Honour held that, even if Valve did not engage in the conduct in Australia, the Australian Consumer Law was engaged because Valve was an incorporated body that was carrying on business in Australia.

11. His Honour then considered, at [206]-[339], whether the alleged representations were made and, if made, whether Valve had contravened ss 18 and 29(1)(m). His Honour concluded, in summary, as follows:

    (a)In relation to the first alleged representation (namely, that consumers had no entitlement to a refund from Valve for digitally downloaded video games they had purchased from Valve via the Steam website or Steam in any circumstances), the primary judge found that all three iterations of the SSA conveyed this representation and that it was misleading. The primary judge found that the representation was misleading because ss 259(3) and 263(4) of the Australian Consumer Law provided that consumers were entitled to refunds in certain circumstances.

    (b)In relation to the second and third alleged representations (namely, that Valve had excluded or, alternatively, restricted or modified statutory guarantees and/or warranties of acceptable quality), the primary judge found that these representations were made by all three iterations of the SSA. The primary judge held that these representations were misleading on the basis that s 64 of the Australian Consumer Law precluded a supplier of goods from excluding, modifying or restricting the consumer guarantee of acceptable quality.

    (c)In relation to the fourth alleged representation (namely, that from about 1 January 2011, a consumer had no entitlement to a refund for digitally downloaded video games purchased from Valve via the Steam website or through the Steam Client), the primary judge found that this representation was made in two iterations of the Steam Refund Policy (namely, the 2011-2013 Refund Policy and the 2013-2014 Refund Policy). This representation was held to be misleading on the basis that, contrary to ss 259(3) and 263(4) of the Australian Consumer Law, the representation conveyed that consumers had no entitlement to a refund in any circumstances.

    (d)The primary judge held that the ACCC’s case based on the fifth alleged representation was not made out.

    (e)The primary judge held that the ACCC’s case based on the sixth, seventh, eighth and ninth alleged representations (being the representations made in online chats between three Australian consumers and Steam Support representatives) was not made out.

12. In the course of the primary judge’s discussion of the applicable principles, he noted, at [220], that an incorrect statement of the law can constitute misleading or deceptive conduct, referring to the decision of the High Court in Forrest v Australian Securities and Investments Commission (2012) 247 CLR 486. The primary judge also noted, at [222], that since “engaging in conduct” includes “the making of, or the giving effect to a provision of, a contract or arrangement” (see s 4(2) of the Competition and Consumer Act), representations contained within a contract are capable of constituting misleading or deceptive conduct.  His Honour referred to Accounting Systems 2000 (Developments) Pty Ltd v CCH Australia Ltd (1993) 42 FCR 470, in which Lockhart and Gummow JJ said (at 506) that it is “no objection to relief [under provisions for breach of the equivalent of s 18] that the misleading conduct is found in the making of a contractual provision, and the complainant does not have contractual privity with the defendant”.

13. In the Relief Reasons, the primary judge dealt with the various categories of relief that were sought by the ACCC.  His Honour noted that: the vast majority of the parties’ submissions had concerned pecuniary penalties; Valve had submitted that the appropriate penalty was $250,000; and Valve’s counsel had accepted that this amount was, in all the circumstances, “next to nothing”.  His Honour decided to order a total pecuniary penalty of $3 million.

14. The primary judge made declarations and orders on 23 December 2016, including as follows:

    THE COURT DECLARES THAT:

    1.Between 1 January 2011 and 28 August 2014, the respondent, in trade or commerce, in connection with the supply of goods, represented to consumers located in Australia (Australian Consumers) in the Steam Subscriber Agreement (SSA), which was displayed on (Steam Website) and on the Steam delivery platform (an application that an Australian Consumer can download from the Steam Website and install on their computer (Steam)), that the respondent had no obligation to offer a refund for digitally downloaded video games they had purchased:

    1.1when, in fact, by s 259(3) and s 263(4) of the Australian Consumer Law, those consumers had an entitlement to a refund at the consumer’s election in the event of a major failure in complying with the consumer guarantee of acceptable quality in s 54 of the Australian Consumer Law and where the consumer had rejected the goods, and by s 64 of the Australian Consumer Law that consumer guarantee and the rights to which it gave rise could not be excluded, restricted or modified by contract,

    1.2and thereby:

    (a)engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law; and

    (b)made false or misleading representations concerning the existence, exclusion or effect of a consumer guarantee in contravention of s 29(1)(m) of the Australian Consumer Law.

    2.Between 1 January 2011 and 28 August 2014, the respondent, in trade or commerce, in connection with the supply of goods, being digitally downloaded video games, represented to Australian Consumers in the SSA, which was displayed on the Steam Website and on Steam, that it had excluded statutory guarantees and/or warranties of acceptable quality:

    2.1when, in fact, by s 64 of the Australian Consumer Law it is not possible for a supplier of goods to exclude the consumer guarantee of acceptable quality in s 54 of the Australian Consumer Law,

    2.2and thereby:

    (a)engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law; and

    (b)made misleading representations concerning the existence, exclusion or effect of a consumer guarantee in contravention of s 29(1)(m) of the Australian Consumer Law.

    3.From around 1 January 2011 to around July 2014, the respondent, in trade or commerce, in connection with the supply of goods, represented to Australian Consumers on the Steam Website through the Steam Refund Policy that the respondent had no obligation to offer those consumers a refund for digitally downloaded video games they had purchased from the respondent:

    3.1when, in fact, by s 259(3) and s 263(4) of the Australian Consumer Law, those consumers had an entitlement to a refund at the consumer’s election in the event of a major failure in complying with the consumer guarantee of acceptable quality in s 54 of the Australian Consumer Law and where the consumer had rejected the goods, and by s 64 of the Australian Consumer Law that consumer guarantee and the rights to which it gave rise could not be excluded, restricted or modified by contract,

    3.2and thereby:

    (a)engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law; and

    (b)made misleading representations concerning the existence, exclusion or effect of a consumer guarantee in contravention of s 29(1)(m) of the Australian Consumer Law.

    THE COURT ORDERS THAT:

    1.In respect of the contraventions of s 29(1)(m) of the Australian Consumer Law (as set out in the Competition and Consumer Act 2010 (Cth), Sch 2) and the subject of declarations 1, 2 and 3 above, the respondent pay to the Commonwealth within 30 days the sum of $3 million by way of pecuniary penalty under s 224(1) of the Australian Consumer Law.

    2.The respondent, whether by itself, its servants, agents, or otherwise, is restrained for a period of 3 years from the date of these orders in connection with the supply or possible supply of digitally downloaded video games, from representing in communications to Australian Consumers, in trade or commerce, whether in the Steam Subscriber Agreement or on the Steam Website, that the respondent:

    (a)is under no obligation to offer refunds to Australian Consumers for video game subscriptions acquired from the respondent;

    (b)is under no obligation to refund the subscription fee paid for any video games made available to Australian Consumers which are not of acceptable quality;

    (c)does not, with respect to its dealings with Australian Consumers, regard itself as being subject to the consumer guarantees of acceptable quality in s 54 of the Australian Consumer Law; or

    (d)is able, with respect to its dealings with Australian Consumers, to exclude, restrict or modify the consumer guarantee of acceptable quality in s 54 of the Australian Consumer Law.

    3.For a period of 12 months after 20 February 2017, for the benefit of Australian Consumers logging onto the Steam Website from a computer with an Australian IP address (based on the IP look up table available to the respondent current as at the consumer’s login), the respondent will publish on the home page of the Steam Website a link, in a typeface of at least 14 point Times New Roman, reading “IMPORTANT NOTICE ABOUT CONSUMER RIGHTS IN AUSTRALIA”, which directs them to a notice in the terms set out in Annexure A1 (“Consumer Rights Notice”).

    4.Pursuant to s 246(2) of the Australian Consumer Law, the respondent is:

    (a)within 90 days of this order, to establish and implement an Australian Consumer Law Compliance Program to be undertaken by each employee of the respondent or other person involved in the respondent’s business who deals or who may deal with Australian Consumers, being a program designed to minimise the respondent’s risk of future contraventions of s 18 and s 29 of the Australian Consumer Law in relation to the operation of the consumer guarantees under Part 3-2, Division 1 of the Australian Consumer Law; and

    (b)for a period of 3 years from the date of this order, maintain and continue to implement the Australian Consumer Law Compliance Program referred to in order 4(a) above.

15. His Honour also made costs orders to the effect indicated earlier in these reasons.

    The appeal and cross-appeal

16. Valve’s notice of appeal raises the following 12 grounds:

    As to liability:

    1.Having found that the objective proper law of the Appellant’s Steam Subscriber Agreements (the SSAs) (in the sense of the system of law with which the SSAs had the closest and most real connection) was the law of Washington State in the United States, the primary judge erred in concluding that the guarantee in s 54 of the Australian Consumer Law (ACL) applied to any supply of goods made by the Appellant pursuant to the SSAs.

    2. The primary judge erred in construing Division 1 of Part 3-2 of the ACL by:

    (a)failing to hold that, either as a matter of the proper construction of s 67 or as a necessary implication, s 54 did not apply to any supply of goods made pursuant to contracts the objective proper law of which is the law of a place outside Australia;

    (b)misconstruing the words “a term that purports to substitute, or has the effect of substituting the following provisions for all or any of the provisions of this Division” in s 67(b) as engaging s 67 where, in the absence of the term, the objective proper law of the contract was in any event the law of a country other than Australia.

    3.The primary judge erred in finding that the Appellant carried on business within Australia within the meaning of s 5(1)(g) of the Competition and Consumer Act 2010 (Cth).

    4.The primary judge erred in finding that the Appellant had engaged in conduct in Australia.

    5.As to the alleged representations made by the Appellant, the primary judge erred in finding that:

    (a)Representation 1 in all three forms of the SSAs in issue was made and was misleading, contrary to s 18(1) and s 29(1)(m) of the ACL;

    (b)Representation 1 in the “2011/2012 SSA” was made and was false, contrary to s 18(1) and s 29(1)(m) of the ACL;

    (c)Representations 2 and 3 in all three forms of the SSA were made and were misleading, contrary to s 18(1) and s 29(1)(m) of the ACL; and

    (d)Representation 4 in the 2011-2013 and 2013-2014 Steam Refund Policies was made and was misleading, contrary to s 18(1) and s 29(1)(m) of the ACL.

    6.The primary judge erred in finding that the Appellant had contravened s 18 and s 29(1)(m) of the ACL, and in making declarations to that effect.

    As to remedies:

    The following grounds of appeal arise to the extent that the Appellant’s grounds of appeal with respect to liability are not upheld.

    7.The primary judge erred in making the following findings, alternatively in taking into account the following irrelevant matters or in giving them excessive weight:

    a.that the Appellant’s contravening conduct had a substantial effect on consumers (RR [ie, Relief Reasons] [25]) and that the misrepresentations made by the Appellant were a significant part of its business process involved in making profits (RR [37]), particularly in light of:

    i.the absence of any finding, allegation or evidence that any of the Appellant’s video games was in fact not of acceptable quality or that any consumer was in fact entitled to a refund under the ACL;

    ii.the metaphysical distinction the primary judge drew at RR [26] between contribution and causation;

    iii.the findings at RR [35] and [95] that the Appellant’s contraventions did not cause any profit to the Appellant or loss to consumers;

    iv.the findings at RR [28] that the Appellant’s conduct was unlikely to have induced any consumer to make a purchase that he or she would not otherwise have made, and that if the Appellant’s conduct had any effect, it would have had the opposite effect on consumer behaviour; and

    v.his Honour’s failure to acknowledge at RR [24] that these were matters on which the Respondent bore the onus of proof.

    b.that the Appellant had lacked a culture of compliance with Australian law (RR [38], [41], [49], [77]), particularly given his Honour’s finding that the Appellant had believed that it was not subject to Australian law (RR [47]) and the absence of any finding or evidence that the Appellant’s policies were inconsistent with the laws of Washington State (where it resided and from where it operated);

    c.that the Appellant’s co-operation in the proceedings was “extremely” or “very” minimal (RR [62]-[63]), and that the Appellant had “contested liability on almost every imaginable point” (RR [59]), particularly in:

    (i)erroneously finding that the Appellant’s conduct in respect of discovery was deficient (RR [60]-[61]);

    (ii)failing to take into account that the Appellant had successfully defended a significant proportion of the Respondent’s allegations as to misleading and deceptive conduct under the ACL;

    (iii)failing to take into account that the Appellant’s arguments that it was not subject to the ACL were reasonable and responsibly made; and

    (iv)failing, when considering the Appellant’s conduct in the litigation, to give sufficient weight to the Respondent’s approach to the matter (RR [63]­[64]) namely, that notwithstanding the Appellant’s efforts to negotiate with the Respondent to resolve the matter, the Respondent had decided to pursue a court-based outcome.

    8.The primary judge erred in failing to take into account the following relevant matters, alternatively, in failing to give them sufficient weight:

    a.that the Appellant believed that it was not subject to local law (RR [47]), and in particular the reasonableness of that belief in light of the express choice of law provisions in the SSAs and his Honour’s finding in the Liability Reasons that the system of law with which the SSAs had the closest and most real connection was the law of Washington State;

    b.the absence of any prior contraventions by the Appellant of Australian consumer protection laws (RR [65]); and

    c.that, on his Honour’s findings at RR [33], the Appellant in fact gave refunds to a substantial number of its Australian customers who may have sought refunds in the relevant period.

    9.The primary judge erred in ordering the Appellant to pay any pecuniary penalty, alternatively a penalty of $3 million, which was manifestly excessive.

    10.      The primary judge erred in concluding that any injunction was appropriate.

    11.The primary judge erred in ordering the Appellant to publish on its Steam Website a Consumer Rights Notice in the form of Annexure A1 to the Orders.

    12.The primary judge erred in ordering the Appellant to establish and implement an Australian Consumer Law Compliance Program.

1. In our view, no error is shown in the primary judge’s approach, namely to treat the online chats as a single (ongoing) conversation for the purposes of determining whether each of the four pleaded representations was made.  We consider this to be consistent with authority, including Butcher.  Although the online chats continued over a period of days or weeks, it was appropriate in the circumstances to have regard to the whole of the conversation as this formed the context in which to assess particular statements that were made by the Steam Support staff.

2. The ACCC challenges the primary judge’s conclusion that the seventh and eighth alleged representations were not made in the chats. 

3. In relation to the seventh alleged representation, the ACCC submits that: the primary judge placed weight on the fact that Steam Support made the statements in the context of “this transaction”; in other words, the primary judge characterised the representation as one that Valve was not prepared to give a refund in the particular circumstances of the case; but in context it was clear that the statements were a representation of Valve’s general policy (a no refund policy) since there was repeated reference to cl 3 of the SSA with hyperlinks to the SSA; and the last statement to Mr Phillips commenced with: “As a one time exception to our policy”.

4. In relation to the eighth alleged representation, the ACCC submits that: the primary judge failed to construe each of the statements in their overall context as at the point in time each was made; and the context was that each complainant had asserted his rights under Australian law.  In particular, the ACCC submits:

   (a)Mr Phillips twice asserted an entitlement to a refund under Australian law.  In response, on 26 November 2013 and on 2 December 2013, Steam Support conveyed a general policy position by saying that a refund could not be offered and then referring to cl 3 of the SSA.  Thus, Mr Phillips asserted a right under Australian law and Steam Support rejected the applicability of that right.

   (b)After previously requesting a refund, Mr Miles asserted on 26 July 2013 that the video game was “barely playable” and that he would not have purchased it if it was appropriately labelled.  He continued: “I’m not a lawyer but I do know there are laws regarding this sort of thing”. Steam Support replied on 29 July 2013 that: “The regulations you are citing do not apply to digital distribution subscriptions, electronic games, or downloadable content” (emphasis added). Later, on 30 July 2013, Mr Miles wrote that he had researched consumer law in Australia and the consumer law applied to digital goods.  He stated: “Your ‘no refund’ policy is unlawful here in Australia”.  The 5 August 2013 response from Steam Support was: “Unfortunately, we will be unable to assist you further with this issue”.  In the context of a clear assertion of a right to a refund under Australian law, both replies are appropriately understood as an assertion that the Australian law did not apply.

   (c)Mr Miller wrote to Steam Support on 2 May 2013 stating: “Under the Australian consumer rights laws you are immediately required to refund purchases that do not meet adequate standards or function as promised”.  He also said: “As an American … based company, it’s my understanding you’ve breached the Fair Credit and Billing Act & Consumer Protection Act”.  Steam Support responded on 2 May 2013 by saying: “The regulations you are citing do not apply to digital distribution subscriptions, electronic games, or downloadable content” (emphasis added). Mr Miller replied the same day that: “In Australia law, you are definitely in the wrong, hopefully the FTC will find the same”.  Steam Support responded on 3 May 2013: “Unfortunately, we will be unable to assist you further with this issue”.  It is clear that Mr Miller was asserting a right under Australian law and the response conveyed a message that that right did not apply in the transaction.

5. In our view, no error is shown in the primary judge’s conclusions that the seventh and eighth alleged representations were not made. The primary judge reasoned, correctly in our view, that the statements relied upon by the ACCC must be considered in the context of two matters (at [327]). The first was that the ACCC did not allege that there was any right to a refund that arose under the Australian Consumer Law. As the primary judge explained, a right to a refund only arises if the various conditions in ss 54, 259 and 263 of the Australian Consumer Law are met. The second matter of context was that each consumer was engaged in a chat with a Steam Support representative concerning whether that consumer was entitled to a refund in the circumstances. Further, in relation the seventh alleged representation, we consider that the primary judge was correct to conclude (at [329]) that the statements relied upon by the ACCC concerned the availability of refund in the context of the particular transaction.  In relation to the eighth alleged representation, we agree with the primary judge’s textual analysis at [331]-[333] of the Reasons.

6. The ACCC contends that, in holding that the representations were not misleading or likely to be so because none of the three complainants was actually misled, the primary judge elided characterisation of the representations with causation: cf Director of Consumer Affairs Victoria v The Good Guys Discount Warehouses (Australia) Pty Ltd (2016) 245 FCR 529 at [152]. It submits that causation was not relevant to the ACCC’s case as no damages claim was made. But this aspect of the primary judge’s reasoning needs to be considered in the context of the Reasons as a whole. In his Honour’s discussion of the applicable principles, particularly at [223]-[228], he did not exclude the possibility that conduct may be likely to mislead where it is directed towards a single person who is not misled. Proceeding on this basis, his Honour nevertheless took into account, in characterising the statements relied upon by the ACCC, the fact that none of the three consumers was actually misled or (when the chats were read as a whole) likely to be misled. This formed part of the context in which to undertake the task of characterisation. We see no error in this approach.

7. For these reasons, we reject grounds 1-4 of the cross-appeal.  In these circumstances, it is unnecessary to deal with ground 5 of the cross-appeal.

   Issue 6

8. The sixth issue is whether the pecuniary penalty of $3 million imposed by the primary judge was manifestly excessive, and whether the primary judge erred in relation to the other relief ordered.  This issue is raised by grounds 7-12 of the notice of appeal.  These grounds were raised by Valve in the event that its grounds relating to liability were not upheld.  In light of our conclusions, above, it is necessary to consider the grounds relating to relief.  The focus of the appeal submissions in relation to these grounds was on the pecuniary penalty amount.

9. Valve submits that, in all the circumstances, the pecuniary penalty of $3 million was manifestly excessive.  Valve submits that the primary judge erred in making four findings that were not supported by the evidence or, alternatively, by giving those findings manifestly excessive weight.  In particular, Valve submits, in summary, as follows:

   (a)First, the primary judge found that “Valve’s conduct had a substantial effect on consumers”. Valve submits that there was no proper basis for this finding, given that there was no finding, allegation or evidence that any of the games or digital content purchased by consumers through Steam were in fact not of acceptable quality, or that any consumer was in fact entitled to a refund under the provisions of the Australian Consumer Law, but was denied a refund by Valve.

   (b)Secondly, the primary judge found, as a corollary to the first finding, that “the misrepresentations were a significant part of Valve’s business process involved in making profits”.  However, the primary judge stated elsewhere that he was “not satisfied that any profit to Valve or loss to the consumers was proved to have been caused by these contraventions” (emphasis in original).  As to this, the primary judge drew a metaphysical distinction between causation and contribution, but then did not make the necessary finding of causation to link Valve’s contraventions with loss suffered by consumers or profit gained by Valve.  To the contrary, the primary judge found (Relief Reasons, [28]) that:

   … the misrepresentations by Valve were unlikely to induce any consumer to make a purchase that he or she would not otherwise have made. If they had any effect prior to a purchase, which I doubt, it would have been the opposite. A consumer who read and relied upon the misrepresentations might not have made a purchase.

   (c)The ACCC bore the onus of proof in relation to both damage to consumers and profit to Valve that was alleged to have been caused by the contraventions, which the ACCC did not attempt to discharge.  This overarching obligation is not reflected in the primary judge’s reasons for decision.  The primary judge also failed to take into account or give sufficient weight to the following relevant matters: Valve gave refunds to two of the three complainants whose evidence the ACCC relied upon at the liability hearing; and Valve gave refunds to 15,127 Australian subscribers during the relevant period.

   (d)Thirdly, the primary judge found that Valve lacked a culture of compliance with Australian law, placing weight on the fact that Valve did not obtain legal advice about its position under Australian law.  However, the primary judge found elsewhere that Valve believed it was not subject to Australian law.  There was no finding that this belief was not genuine or was unreasonable.  Valve was based in Washington State, it had no subsidiary in Australia and the primary judge found that the proper law of the SSA was that of Washington State, being the system of law with which the SSA had the closest and most real connection, consistent with the express choice of law provisions within the SSA.  There was no finding or evidence that Valve’s policies were inconsistent with the laws of Washington State in the US, where Valve resided and from which it operated.

   (e)Further, after Valve was approached by the ACCC in relation to the potential application of the Australian Consumer Law to Valve’s conduct, Valve obtained legal advice and provided training to its support staff on compliance with the Australian Consumer Law. There was no finding that the training given to support staff was inadequate, or that, following the training, Valve’s support staff were unable to deal with Australian consumers in a manner consistent with the Australian Consumer Law. There was no evidence or finding that any Australian consumer was denied a refund to which they were entitled pursuant to the Australian Consumer Law. It is also relevant to the exercise of discretion on this issue that Valve has not been the subject of any prior contraventions of the Australian Consumer Law.

   (f)Fourthly, the primary judge found that Valve’s co-operation in the proceedings was “extremely” or “very” minimal, with Valve having “contested liability on almost every imaginable point, including jurisdictional issues”.  Valve submits that this was not a fair summation of Valve’s approach to the litigation.  There is no suggestion that any point taken by Valve was unreasonable or plainly unarguable.  To the contrary, many of the points taken raised difficult (and, in many cases, novel) questions of law and fact.  These matters were dealt with efficiently in a liability trial contained to three days.  Valve was successful in defending a significant portion of the ACCC’s allegations.  Five of the nine alleged misrepresentations were found either not to have been made or not to have been misleading or deceptive or false.  When the ACCC first raised concerns about Valve’s conduct, Valve offered to take steps to resolve the ACCC’s concerns, but was informed in blunt terms by the ACCC that the ACCC was “of the view that a court based outcome is appropriate in this case and has made a formal decision to institute proceedings”.  The finding that Valve’s conduct in respect of discovery was “obstructive”, or otherwise deficient, was erroneous in failing to take into account important differences in the wording of subsequent and supplementary discovery categories, with which Valve fully complied. In any event, the primary judge gave excessive weight to this factor, given Valve’s otherwise reasonable conduct of the litigation, which included acceptance of service in Australia, participating in Court-ordered mediation in Sydney (which the ACCC opposed), and putting forward witnesses who “gave evidence honestly and with a genuine effort to assist the court”.

   (g)The primary judge also erred in assessing the size of Valve by reference to its population of subscribers, as this placed disproportionate emphasis on only one dimension of its business, rather than as a company with only 325 employees working from a single office within Washington State.

10. We note that Valve does not challenge the primary judge’s discussion of the legal principles at [8]-[13] of the Relief Reasons.  The challenge is to his Honour’s application of those principles on the facts of the present case.  But in our view, no error is shown in his Honour’s approach.  His Honour had regard to all the relevant factors and did not take into account matters that were extraneous to the exercise of the penalty discretion.  In particular, his Honour properly had regard both to specific and general deterrence. 

11. One relevant aspect was the size of the contravenor.  At [53] of the Relief Reasons, the primary judge stated, correctly, that Valve’s revenue and net income worldwide is “massive”.  The primary judge found that the approximate net income (ie, income after expenses), in United States dollars, derived from all source between 2011 and August 2014 (very roughly approximated by dividing the income for 2014 in half) was a figure as there set out.  (The figure has been redacted for confidentiality reasons in the publicly-available version of the judgment.)  The primary judge also said that, while the “massive” net income of Valve worldwide was a relevant factor, it was also relevant that the contravening conduct all occurred in Australia where its net income was much smaller.  The primary judge found that Valve’s approximate net income, calculated on the same basis, arising from purchases by Australian subscribers between 2011 and August 2014 was a figure as there set out (again, the figure has been redacted for confidentiality reasons in the publicly-available version of the judgment).  The primary judge, in our view correctly, had regard to the size of Valve and the size of its business in Australia in considering the appropriate penalty to impose.

12. Another relevant factor was Valve’s culture of compliance.  As his Honour noted at [39] of the Relief Reasons, prior to, or during, the period of contraventions until the involvement of the ACCC in April 2014, Valve did not obtain legal advice about its position in Australian law.  In his evidence before the primary judge, Mr Quackenbush said that Valve “certainly could have afforded that advice” and that Valve could have sought it “if it had occurred to us”.  However, he said that he did not turn his mind to whether Australian legal guarantees applied to Valve because of the “way we think about our legal position in the world”.  The primary judge then said (at [40]):

    Mr Quackenbush had therefore formed his view about the applicability of Australian law, and Valve had reached conclusions about its “legal position in the world” including Australia, without having obtained any legal advice in Australia. Mr Quackenbush went further.  He said that he was not even sure that Valve would have done anything different even if it had received legal advice that Valve was subject to Australian law … Even in hindsight, Mr Quackenbush did not accept that it would have been prudent to obtain legal advice about Valve’s position in Australian law …

13. On the basis of this evidence, the primary judge considered (rightly, in our view) that “[t]his bespeaks a very poor culture of compliance in relation to Australian operations” (at [41]).

14. Further, even after the publication of the Reasons (on 24 March 2016), Valve appears to have done relatively little to train its support staff about Australian legal requirements. As described in [44] of the Relief Reasons, on 11 August 2016 the ACCC issued Valve with a notice to produce documents recording directions or instructions given by Mr Quackenbush to Steam Support staff in relation to the rights of Australian consumers. Valve’s response was that it had nothing to produce. Mr Quackenbush said in evidence before the primary judge that he had given the support staff only oral compliance instructions (which had been based on legal advice that he received from K&L Gates) because: “They’re a pretty efficient bunch. A very mature bunch”. In written submissions before the primary judge, Valve maintained that it did not need to provide any written guidance about the Australian Consumer Law to its 50 support staff because “verbal [by which was meant oral] tuition is a perfectly valid and effective means of providing staff training”.

15. We do not consider that Valve has established error in relation to the four findings by the primary judge highlighted in Valve’s submissions, summarised above.  It was open to the primary judge to find (at [25] of the Relief Reasons) that Valve’s conduct had a substantial effect on consumers, and to have regard to this in exercising the penalty discretion.  This finding is unsurprising given the large number of subscriber accounts in Australia, the significance of the SSAs in the process of establishing an account and purchasing a computer game, and the relevance of the Steam Refund Policy if a customer was experiencing problems and considering seeking a refund.  It was also open to the primary judge to find (at [37] of the Relief Reasons) that the misrepresentations were a significant part of Valve’s business process in making profits.  Again, the SSA formed a significant part of the process of establishing an account with Valve and purchasing a computer game from Valve.  Valve highlights, in its submissions, [28] of the Relief Reasons.  But that passage needs to be read with the following paragraph, in which the primary judge noted that “a loss that might have been suffered, and profit that Valve might have made from its contraventions, arose if a consumer was deterred from seeking a refund to which he or she might otherwise have been entitled” and that the primary judge was satisfied, based on the combination of evidence at the liability hearing and the penalty hearing, that a significant number of consumers would have read either the terms and conditions in the SSA or the terms of the Steam Refund Policy.  In relation to Valve’s co-operation in the proceeding, we consider that his Honour’s observations were open to him.

16. For these reasons, we do not consider that any error has been shown in the primary judge’s approach to the determination of the appropriate penalty, and we do not consider the penalty that he imposed to be manifestly excessive.

17. In relation to the non-pecuniary remedies, Valve submits the primary judge erred in concluding that non-pecuniary penalties (including an injunction, publication of a consumer rights notice and implementation of an Australian Consumer Law compliance program) were appropriate in circumstances where there was no reason to apprehend a continuing or future breach of the Australian Consumer Law given that Valve had changed the terms of the SSA and statements on its website. Valve notes that the ACCC had made no complaint about the current terms and submits that the primary judge’s reference to a “dispute” between the parties about this was erroneous. Valve submits that, insofar as the injunction and the order for implementation of a compliance program were based on the finding that Valve lacked a culture of compliance, these orders were erroneous for the reasons submitted in relation to the pecuniary penalty. We do not consider that any error has been shown in the non-pecuniary remedy orders. The Relief Reasons provide a proper basis for the making of such orders. Insofar as these orders were predicated on the primary judge’s finding as to culture of compliance, we consider these findings to be supported by the evidence, for the reasons indicated above.

    Conclusion

1. For these reasons, the appeal and the cross-appeal are to be dismissed.  There is no apparent reason why costs should not follow the event.  Accordingly, we will order that the appeal be dismissed with costs, and the cross-appeal be dismissed with costs.

I certify that the preceding two hundred and twenty-five (225) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Dowsett, McKerracher and Moshinsky.

Associate:

Dated:        22 December 2017