Sunny Side Up: strong penalties imposed in solar panel sales case

Director of Consumer Affairs Victoria v Vic Solar Pty Ltd (No 4) [2021] FCA 449

Summary

The successful legal action by the Director of Consumer Affairs against Vic Solar Pty Ltd (Vic Solar) catalysed law reform in the Victorian residential solar sales market. Shortly after the Vic Solar penalty decision, and after pressure from lobby groups led by the Consumer Action Law Centre, the Victorian State Government announced that door-to-door solar sales will be banned from 1 September 2021 for retailers participating in Solar Victoria programs.

In the penalty decision, Justice O’Bryan ordered that Vic Solar pay a $3 million penalty and Mr Sunny Srinivasan pay a $450,000 penalty for contraventions of the Australian Consumer Law (ACL). Mr Srinivasan was also disqualified from managing corporations for a period of 5 years. The Director initially proposed a total penalty of $500,000-$700,000 for Vic Solar and $50,000-$75,000 for Mr Srinivasan, but O’Bryan J imposed harsher penalties due to the severity of the contraventions.

Facts

Vic Solar marketed, sold and installed residential solar photovoltaic panels and inverters (solar PV systems). Mr Srinivasan was the director of, and a shareholder in, Vic Solar from October 2012 until it went into voluntary administration in November 2019. From mid-2014, Vic Solar engaged a variety of lead generators to undertake residential door-to-door marketing. Vic Solar entered into around 4,300 contracts for the supply of solar PV systems via door-to-door lead generation.

As part of the marketing web, the lead generators told potential customers that a ‘community bulk buy’ was being organized in their neighbourhood. The sales pitch was that, for a limited time only, a customer could participate in the community bulk buy program, and that the more households that participated in the bulk buy program, the greater the cost savings to each household.

Vic Solar installed solar panels under the brand One Solar. The brochures for the One Solar brand represented that One Solar International was the world’s first fully integrated ‘one-stop-shop’ solar company that controls the whole process of manufacturing, installation and servicing the solar PV system. Vic Solar represented that the One Solar panels utilized German and US engineering.

Mr Srinivasan and Vic Solar did not appear at the liability or penalty hearings.

Liability Decision: Director of Consumer Affairs Victoria v Vic Solar Technologies Pty Ltd and Anor (No 2) [2021] FCA 26

Justice O’Bryan held that:

• The ‘community bulk buy’ program was a marketing fiction and the representations connected to that campaign were false.
• One Solar International does not manufacture solar panels, but merely owned the brand name ‘One Solar’. The solar panels and inverters supplied by One Solar were manufactured in China, not Germany and the US. The representation that it manufactured solar panels was false and breached ss 18 and 29(1)(a) of the ACL. The country of origin representations were also false.
• The agreements entered into by Vic Solar for the supply and installation of solar PV systems were unsolicited consumer agreements. The methods used to enter into the agreements breached many of the ACL requirements for unsolicited consumer agreements, and were therefore unlawful.
• Vic Solar had engaged in unconscionable conduct in contravention of s 21 of the ACL.  The ‘community bulk buy’ marketing concept was a deceptive ruse to gain entry into the consumer’s home. It was done in bad faith and sought to exercise undue influence on the consumer.
• Mr Srinivasan was knowingly involved in the contraventions of the ACL, save for some of the unsolicited consumer agreement contraventions. Mr Srinivasan admitted in his examination that he oversaw the direction of the Vic Solar business, was responsible for the marketing and sales system, and had approved the marketing scripts used by the lead generators. Mr Srinivasan admitted that the ‘community bulk program’ was a false marketing concept and there was no ‘bulk buying’.

Penalty Decision

Justice O’Bryan held that:

• The revenue generated from the sale of solar PV systems was about $21.4 million over 3 years.
• The ‘community bulk buy’ misrepresentations were made in the vast majority of door-to-door sales by Vic Solar.
• The conduct in breach of ss 76 and 79 of the ACL (unsolicited consumer agreements) occurred more than 4,000 times.
• The contravening conduct was deliberate and arose out of the conduct of the most senior management within Vic Solar. Mr Srinivasan knew that the ‘community bulk buy’ representations and the country of origin representations were false.
• Vic Solar’s conduct was likely to have caused loss to consumers.

In determining the penalty, O’Bryan J focused on three categories of contraventions: the ‘community bulk buy’ program misrepresentations; the country of origin and global manufacturing misrepresentations; and the contraventions relating to unsolicited consumer agreements. Justice O’Bryan held that each of the categories of contravention by Vic Solar should attract a penalty of $1 million, being $3 million in total. Despite Vic Solar having limited assets, a penalty of this size was justified for the purpose of general deterrence.

With respect to Mr Srinivasan, O’Bryan J determined that an aggregate penalty of $600,000 would have been appropriate, however a reduced penalty of $450,000 was ordered because a disqualification order was also made against him.

Mr Srinivasan was disqualified from managing a corporation for 5 years. The purpose of this order was to protect consumers, given the likelihood that Mr Srinivasan would manage corporations in a manner that would result in serious contraventions of the ACL.

Comment

Deliberate and serious contraventions of the ACL attract high pecuniary penalties. Justice O’Bryan ordered that Vic Solar and Mr Srinivasan pay a penalty which was respectively four times and six times higher than the upper range sought by the Director. As was recently shown in Volkswagen AG v ACCC [2021] FCAFC 49, the Federal Court has shown a willingness to impose penalties far greater than those sought by consumer regulators to denounce contravening conduct. It remains to be seen whether consumer regulators will be emboldened to seek stronger penalties for contraventions of the ACL in future proceedings. However, what we do know is that the Vic Solar litigation sparked a crackdown on energy and solar door-to-door sales, including the introduction of the Energy Legislation Amendment (Energy Fairness) Act 2021 (Vic).