FCA 196
AUTHOR VICTORIA ROY, PRACTICE GROUP LEADER
DECISION DATE: 24 MARCH 2016
FEDERAL COURT OF AUSTRALIA
BEFORE: EDELMAN J
SOLICITORS: THOMAS GEER (APPLICANT)
Valve Corporation is a company based in the State of Washington in the United States of America. It sells online computer games globally, including to consumers in Australia. It had a no refund policy which was contained in contractual documents and confirmed by online chat representatives. Certain Australian consumers were unsatisfied by the quality of the online games that they had purchased and sought refunds. These refunds were declined by Valve in accordance with their no refund policy. Australian consumers therefore complained to the Australian Competition and Consumer Commission (ACCC).
Australian consumers have the benefit of statutory warrantees that goods will be of an acceptable quality under s.54 of the Australian Consumer Law. Under s.64 of the Australian Consumer Law, statutory guarantees cannot be modified or excluded.
The ACCC therefore prosecuted Valve for informing Australian consumers that they were not entitled to a refund. The ACCC argued that Valve had made misleading and deceptive statements about Australians’ consumer rights to a refund in breach of s.18(1) of the Australian Consumer Law, and for making false representations regarding consumer guarantees in breach of s.29(1)(m) of the Australian Consumer Law.
Valve defended the proceedings on the basis that:
- The alleged misleading and deceptive conduct complained of did not occur in Australia, and s.54 did not apply to them because they did not “carry on business in Australia”.
- Section 54 did not apply because the law with which the contracts between Valve and Australian consumers had the closest and most real connection was the law of the State of Washington and not Australian law.
- Section 54 did not apply because the computer games that it supplied were not “goods”.
Was there a breach of ss18(1) and 29(1)(m)?
It was agreed between the parties that Valve was a corporation and that it acted in trade and commerce. These are precursors for the application of the Australian Consumer Law.
However, the following issues were in dispute:
- Does the Australian Consumer Law apply when a good is supplied under a contract which does not have the law of Australia as the proper law of the contract?
- Were the computer games supplied “goods” under the Australian Consumer Law?
- Did Valve’s alleged conduct take place in Australia, or alternatively was it “carrying on business” in Australia, which are requirements for the Australian Consumer Law to apply?
- Was the alleged conduct misleading?
These issues were analysed as follows:
- Do the Australian Consumer Law statutory guarantees apply when the consumer contract is not subject to Australian Law?
This question turned on s.67 of the Australian Consumer Law which reads as follows:
67 Conflict of laws
(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.
Valve’s consumer agreements stipulated that any dispute arising under the contract would be resolved in accordance with the law of Washington, and that any proceedings should be commenced and maintained in the courts of King County, Washington. The agreement also deemed that the place where the contract was made and executed was the State of Washington.
Under s.67(a), a contractual term specifying the law of a contract is disregarded when determining the proper law of a contract to supply goods or services. Therefore if the proper law of a contract is the law of any part of Australia, the Australian Consumer Law applies despite an applicable law contractual term.
Edelman J therefore turned to what the “proper law of the contract” was in respect of the contracts between Valve and Australian consumers. This is the subject of longstanding authorities such as Bonython v Commonwealth  AC 201 and Akai Pty Ltd v People’s Insurance Co Ltd  HCA 39. The test for the proper law of a contract (disregarding a contractual term) is to look for the “system of law with which the transaction has its closest and most real connection”. This is a question to be decided objectively.
When determining which system of law has the closest and most real connection to the transaction, there are various factors to consider which are not necessarily given equal weight. These considerations include:
- The place of residence of the parties;
- The place where the contract was formed (disregarding any contractual clause deeming the place of formation of the contract);
- The place of performance of the contract; and
- The nature and subject matter of the contract.
Edelman J found on the facts that the “proper law of the contract” was the law of Washington State. In respect of the place of the formation of the contract , Edelman J found that this indeed was Washington State, as well as there being a contractual term deeming the place of the contract to be Washington State. This was in accordance with the Australian principle that where contracts are formed by electronic instantaneous communication (such as fax and email) the contract is formed where acceptance of the contract is received. Furthermore Australian Electronic Transactions Acts provides that electronic communications are generally received at the addressee’s place of business. Thus the Valve consumer agreements were formed in Washington State where Valve received electronic acceptance of its terms and conditions from it consumers.
In light of the proper law of the contract being the law of Washington State as well as the contractual term deeming the law of the contract to be the law of Washington State, s.67(a) was therefore inapplicable.
However, the Court found that pursuant to s.67(b), Valve was prevented from relying on Washington State law. This was pursuant to ACCC’s argument that if there was no s.67(b) conflict of law rule contained in the Australian Consumer Law, the s.54 statutory guarantee regarding quality of goods would apply to the contract (which was agreed between the parties). However furthermore under s.67(b) if a contractual term tries to stipulate that another country’s law applies and therefore substitutes Australian law for the foreign country’s law, the provisions of Division 1 (including s.54) of the Australian Consumer Law would apply despite that term.
ACCC had argued that Valve had tried to substitute s.54 for the law of Washington State, and that s.54 should therefore still apply pursuant to s.67(b). Valve on the other hand argued that s.67(b) only applied when the proper law of the contract is Australian law and a business uses a contractual term to substitute the Australian proper law of the contract for a foreign law. However as it argued (and the Court agreed) that the proper law of the Valve contracts was the law of Washington State in any event, s.67(b) would not apply.
Edelman J rejected Valve’s arguments and found that s.67(b) did not allow Valve to rely on Washington State law for four reasons, namely:
Valve’s reasoning that s.67(b) depended on the proper law of the contract was inconsistent with the text of s.67
- Valve’s reasoning was also inconsistent with the context of s.67
- Valve’s reasoning was inconsistent with the history and purpose of s.67
- Valve’s argument was inconsistent with the policy of s.67
As a result Edelman J found that despite the law of Washington State being the applicable law of the contract under both the choice of law clause and the common law method of determining the proper law of the contract, the provisions of the Australian Consumer Law still applied. Edelman J noted in essence that when a company like Valve enters a foreign jurisdiction such as Australia, they are required to deal with that foreign country’s legal system as they find it.
- Was there a “supply of goods”?
Having made the above finding, the next issue to consider was whether there had been a “supply of goods”. Valve argued that it provided services to consumers rather than goods.
The Court looked at the definitions of “goods” and “services” under the Australian Consumer Law. Importantly s.2(1) of the Australian Consumer Law includes computer software in the definition of goods.
Edelman J found that whilst not everything that Valve supplied to consumers were “goods”, the important point to note in this case was that its core business was supplying online computer games. These games were provided by the supply of computer software, and as such Valve supplied “goods”.
- Did Valve’s conduct occur within Australian or did it carry on business in Australia?
The next issue to be addressed was whether Valve committed the conduct within Australia or carried on business in Australia, and therefore whether the Australian Consumer Law applied at all.
The trial proceeded on the basis that if Valve’s conduct occurred within Australia, it was not necessary to look at whether it carried on business in Australia.
Valve submitted that it did not carry on the conduct within Australia for the following reasons:
- It is a foreign corporation
- It has business premises and staff all located outside Australia
- It holds no real estate in Australia
- It hosts its website outside Australia
- It provides support services outside Australia
- Its content was not preloaded or stored on its Australian servers
- Payment for subscriptions was made in US dollars and processed in Washington State.
Whilst Edelman J accepted the above points, he noted that Valve had various connections to Australia including the following:
- Valve holds significant personal property in Australia and in particular servers
- Valve has 2.2 million subscriber accounts in Australia
- Its support services provide support to 2.2 million subscribers in Australia
- Content was deposited on Valve’s Australian servers when requested by a subscriber
- Australian consumers make payments to Valve, which Valve used against expenses including to its Australian host provider’s Australian bank account.
Edelman J also turned to authorities on the place of a tort (Distillers Co (Biochemicals) Ltd v Thompson  1 WLR 441;  AC 458, Voth v Manildra Flour Mills Pty Ltd  HCA 55; (1990) 171 CLR 538) and defamation (Dow Jones and Company Inc v Gutnick  HCA 56; (2002) 210 CLR 575) to address the place where Valve’s conduct occurred. In short, Edelman J found that when Valve’s Australian consumers subscribed to the content, they ticked Australia as their place of residence. Valve was therefore aware that it was making representations to consumers in Australia, and the representations were indeed received and perceived in Australia. The Court therefore concluded that Valve’s conduct had taken place in Australia.
Although the above finding meant that the Court did not need to rule on whether Valve conducted business in Australia, Edelman J also addressed this as the parties had dealt with it in comprehensive detail.
Under s.5(1)(g) of the Competition and Consumer Act, the provisions of the Australian Consumer Law relevant to this case extend to “the engaging in conduct outside Australian by…bodies corporate incorporated or carrying on business within Australia”. Valve argued that this extended operation did not apply to its conduct because it did not carry on business in Australia.
There is little authority for the meaning of “carrying on business”. Edelman J noted that the ordinary meaning usually involves a series or repetition of acts. Those acts will commonly involve “activities undertaken as a commercial enterprise in the mature of a going concern, that is activities engaged in for the purpose of profit on a continuous and repetitive basis” (referring to Merkel J in Bray v F Hoffman-Law Roche Ltd  FCA 243; (2002) 118 FCR 1;  FCAFC 153; (2003) 130 FCR 317).
Edelman J found that in the ordinary sense of the words, Valve undoubtedly carried on a business in Australia for six reasons as follows:
- Valve has 2.2 million Australian user accounts, numerous customers in Australia, and earned significant revenue from Australian consumers on an ongoing basis;
- Content is deposited on Valve’s three servers in Australia when requested by a subscriber;
- Valve has significant personal property and servers in Australia;
- Valve incurs tens of thousands of dollars per month of expenses in Australia for rack space and power to servers;
- Valve relies on relationships with third party members of content delivery providers in Australia who provided proxy caching in Australia
- Valve entered contracts with third party service providers who provide content around the world including Australia.
For the above reasons, even if Valve did not engage in content in Australia, Edelman J found that the Australian Consumer Law was engaged because Valve was an incorporated body which was carrying on business in Australia.
- Did the representations contravene s.18(1) or s.29(1)(m)?
The final question to decide was whether Valve’s representations to Australian consumers breached s.18(1) or s.29(1)(m) and in particular whether they were misleading.
Edelman J looked at each representation in turn. He found on the facts that most but not all of the representations complained of were misleading, because, for example, Valve represented that consumers did not have any right to a refund when in fact Australian consumers did have such rights under the Australian Consumer Law.
The Court therefore found that despite being based overseas, Valve had contravened the Australian Consumer Law. The matter was set down for a further hearing to address the issue of remedies.
In our golden age of e-commerce, Australian consumers enter online transactions with foreign corporations on a daily basis. ACCC v Valve demonstrates that Australian consumers’ rights under the Australian Consumer Law can extend to rights against foreign corporations when goods are purchased over the internet. In particular, such rights can operate regardless of the choice of law clause in the foreign business’ contract.
The Court’s wide interpretation of “carrying on business” in Australia also shows that foreign businesses conducting online transactions with Australian consumers can be found to carrying on business in Australia even if they do not have a business premises in this country. An Australian consumer base, holding personal property within Australia, and generating revenue and expenses within Australia may be enough for a foreign corporation to be found to be carrying on business in Australia and thus have its transactions governed by the Australian Consumer Law. This has far reaching implications for Australian consumers, as transactions with online companies can be protected by the Australian Consumer Law even when the seller does not have a physical address in Australia.
From a personal injury perspective, if an Australian consumer is injured by goods or services bought over the internet, they may have recourse to compensation under the Australian Consumer Law regardless of where the Defendant is based or where the injury occurs. This has particular implications for holidaymakers who are injured overseas and who bought their holidays online.
By Victoria Roy.
Victoria Roy is the Practice Group Leader of Stacks Goudkamp’s Travel Law Group. Victoria specialises in bringing claims for people who have been injured in the course of air and maritime travel and whilst overseas.