Misrepresentations over milk: director held liable for misleading and deceptive conduct

When one thinks of misleading and deceptive conduct, one often thinks of large companies misleading their customers about their products. In those circumstances, it is uncontroversial that the company is to bear the penalty. But what happens if the members of the company are the victim of the misleading conduct? The Federal Court of Australia has recently confirmed that directors of incorporated entities can be held personally liable in these circumstances.

 

Background

The case of ACCC v Goulburn concerned Murray Goulburn Co-Operative Ltd, a dairy milk co-operative. The Co-Operative marketed and supplied milk on behalf of various dairy farms in Victoria, South Australia, and New South Wales.

A co-operative is a business structure owned by those who use it and, like companies, are incorporated entities which grant limited liability to its members. Mr Helou was the managing director of the Co-Operative in question.

The Co-Operative paid farmers according to a weighted average price for milk each financial year. Prior to the 2015/16 season, the Co-Operative announced that the year’s price would be $6.05 per kilogram of milk solids. However, in February 2015, following a forecasted decline in the commodity price of milk, the Co-operative lowered the price they were willing to offer farmers to $5.60.

The evidence before the Federal Court of Australia was that even this reduced amount was a grossly inflated figure. For instance, it was dependant on the Co-Operative being able to sell approximately 4 times more milk powder than any previous year. This was despite monthly targets at the time not being met and adequate supply lines not being in place.

Mr Helou conceded that he knew about these circumstances, knew that the price was misleading to the farmer members, and approved of the various letters sent to the famers on behalf of the Co-Operative containing this price.

Who to punish? The director or the co-operative?

Whilst this was a clear case of misleading and deceptive conduct, the ACCC did not seek a penalty against the Co-Operative. Instead, the requested that the Court only penalise Mr Helou.

The ACCC’s reasoning behind this decision as that, if the Co-operative was fined, it would ultimately be paid by the dairy farmer members of the Co-Operative. That is to say, those who were ultimately misled would be footing the bill and being disciplined.

Beach J found that it was appropriate to penalise Mr Helou. On considering whether also to issue a penalty to the Co-Operative, his Honour noted:

“that in the exceptional circumstances of the present case it is within my discretion not to impose a pecuniary penalty on [the Co-Operative] and I have accepted the parties’ position not to do so.”

His Honour ultimately issued a $200,000 fine to Mr Helou, and accepted his undertaking not to be involved in the dairy industry for three years. In issuing the penalty, importance was placed on deterring future breaches. Indeed, his Honour noted that:
  1. Farmers have little control over the price of milk, and are dependent on the price set by milk processors.
  2. The conditions that led to the misleading representations, being unexpected and significant price changes, are common in the industry.
  3. If strict penalties are not issued, farmer confidence in the industry may be undermined.

What this means for you: avoiding your own spilt milk

Whilst the Court recognised the facts of this case are exceptional, this case serves as a reminder that a director can be held responsible, and in some cases may be the only person to hold responsible, for the misleading and deceptive conduct of the company.

In addition to ensuring that they do not engage in misleading and deceptive conducts, directors have a host of duties to the corporate entities that they serve. McCabe Curwood has experience in advising its clients on complying with their duties as directors and in acting in misleading and deceptive conduct cases.

Contributors

Luke Dominish Lawyer
Tal Prigan Law Graduate