Property tsar Harry Triguboff's Meriton Serviced Apartments could end up being fined many millions of dollars after being found guilty of engaging in misleading or deceptive conduct by preventing guests posting negative TripAdvisor reviews of their accommodation.
In the first case of its kind, the Federal Court ruled on Friday, in favour of the consumer watchdog, that Meriton management deliberately implemented a strategy to minimise the number of critical comments its guests sent to TripAdvisor.
Each breach of Australian consumer law can incur a maximum fine of $1.1 million and commissioner Sarah Court of the Australian Competition & Consumer Commission (ACCC), says there are arguably many instances of this kind of behaviour.
"It could be argued that every time an email address was masked that was another instance of misleading or deceptive conduct, so the penalties could be in the multiples of millions. It could prove very expensive for Meriton."
Meriton was found to have either misrepresented guests' email addresses to the review service so they never received emails prompting them to submit comments, or not sending over their addresses at all.
"We alleged this was a widespread practice by a large provider of apartment accommodation in New South Wales and Queensland, that was also deliberate and systemic, and the court found that Meriton had that intention," says Ms Court.
"Meriton argued it was not a breach and was not misleading but the court found it did have the intention of reducing negative reviews which created an impression of their accommodation that would not otherwise have been there. It's the first time a court has considered the issue of the practice of manipulating reviews."
Meriton's general counsel Joseph Callaghan said the court's decision was obviously disappointing and the company would be reviewing the judgement and considering its options. "Meriton has never denied that between November 2014 and October 2015 some Meriton staff masked email addresses of certain guests at its hotels, which meant that those guests did not receive a reminder email from TripAdvisor to review their stay," he said.
"As soon as Meriton's Managing Director was made aware of the conduct, it was stopped. Meriton did not agree that the conduct had the effect on the consumer alleged by the ACCC, but the Court has decided against us. We will review the judgment and consider all options."
The Federal Court will probably hear any mitigating argument from Meriton next year, and then rule on the penalties it will impose. As well as the fines, it could also order that Meriton makes a declaration about its practices, is prevented from any such "corrective" conduct on reviews in future, is forced to advertise the court's finding and to alert its consumers to the verdict.
Meriton could appeal, but is more likely to do so after the decision on penalties, Ms Court said.
An expert witness on TripAdvisor said that consumers were 30 per cent more likely to post a review - whether negative or positive - if they received a prompt to do so soon after a stay. The court found that on several occasions Meriton engaged in this conduct against the majority of its guests at one hotel when there were problems like a lift not working or a lack of hot water.
"I assume that every accommodation provider will look at their judgement with interest," Ms Court said. "This case involved a significant company and what it did was found to have an impact on consumers."
The ACCC was alerted to Meriton's practice of "masking" the email addresses of people who might potentially give them bad reviews by a report from a former Meriton employee revealing a management directive not to give feedback forms to guests who complained during their stay.
An alleged email from a national manager was shown, saying the controversy was simply the result of "one disgruntled ex-employee".