Wake up call for related entities in Emma Sleep judgment

Erika Serrano and Zareen Qayyum review the Federal Court’s decision in ACCC v Emma Sleep and outline the key takeaways for related group entities.

The Federal Court of Australia’s recent decision in ACCC v Emma Sleep GmbH [2025] FCA 618 (Emma Sleep) is yet another example of the ACCC’s ongoing attempts to expand the scope of accountability for misconduct beyond the principal contravener to related entities (including overseas entities) and individuals.

The decision follows a series of cases where the ACCC has successfully used the derivative liability provisions of the Competition and Consumer Act 2010 (Cth) (CCA) to bind additional parties in a corporate group to contraventions – and obtain significant penalties against those parties. For example, see our recent blog post here on the Federal Court’s 2 May 2025 penalty judgment against Captain Cook College, its parent company Site Group International Ltd, and the parent company’s COO, Mr Wills.[1]

The Emma Sleep decision provides more guidance on how the Federal Court approaches the liability of a corporate group under the Australian Consumer Law (ACL). Hill J emphasised that liability of related entities is a question of fact, and each case turns on its own circumstances. His Honour found that the overseas parent in this case (Emma Sleep GmbH) was not liable for the misconduct of its subsidiary Emma Sleep Pty Ltd (Emma Sleep AU). However, he also found that a related entity of Emma Sleep AU, Bettzeit Southeast Asia Inc (Bettzeit) was both liable as a principal contravenor and derivatively liable for Emma Sleep AU’s conduct under the CCA s 139B(2)(b)(i). More detail is set out below.

Section 139B(2) of the CCA

Section 139B(2) of the CCA operates to attribute the conduct of an individual director, employee or agent (or any other person at the direction of those persons) to a body corporate if certain conditions are met.

Section 139B(2) states:

Conduct of directors, employees or agents of bodies corporate

…

(2) Any conduct engaged in on behalf of a body corporate:

(a) by a director, employee or agent of the body corporate within the scope of the actual or apparent authority of the director, employee or agent; or

(b) by any other person:

(i) at the direction of a director, employee or agent of the body corporate; or

(ii) with the consent or agreement (whether express or implied) of such a director, employee or agent;

if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of this Part or the Australian Consumer Law, to have been engaged in also by the body corporate.

Facts

The First Respondent, Emma Sleep GmbH is a bedroom furniture supplier incorporated in Germany. The Second and Third Respondents, Bettzeit and Emma Sleep AU, are its subsidiaries incorporated in the Philippines and Australia respectively. Emma Sleep AU commenced its Australian operations in 2019, advertising and supplying mattresses, bed frames, pillows and accessories to consumers primarily through its website, but also through online platforms including Facebook, Instagram and by email.

The ACCC alleged that during the period between 15 June 2020 and 27 March 2023, Emma Sleep AU made certain representations in its advertisements that were misleading or deceptive, and false and misleading, in contravention of ss 18 and 29(1)(i) of the ACL. Emma Sleep AU admitted that:

• • it advertised 74 products online by displaying either:
    • a purchase price alongside a higher price with a ‘strikethrough’ and a percentage discount such as ‘50% off’, or
    • a representative savings amount to the customer such as ‘save as much as $X’,
  • when in fact, of the 74 products, 58 were not previously for sale and 16 had almost never been for sale at the represented discounted prices.

The parties agreed the following key facts outlining the relationship between the various entities:

• • Emma Sleep AU had a division or business unit responsible for its operations, business development and management of content on online platforms called Country Team Australia.
  • Country Team Australia was comprised of persons employed by both Emma Sleep AU and Bettzeit. The ‘Team Lead’ was employed by both entities, while the ‘Country Manager’ or ‘Head of Australia’ (which sat above Country Team Australia) was employed by Bettzeit and was responsible for steering the Australian business operations.
  • Emma Sleep GmbH held 99.40% of the issued share capital in Bettzeit, and Emma Sleep was a wholly owned subsidiary of Emma Sleep GmbH.
  • Senior managers of GmbH generally provided guidance to Country Team Australia at a strategy level with respect to the Australian operations.
  • The Australian directors of Emma Sleep AU were appointed to fulfil statutory requirements for company registration but were not involved in the day-to-day business.

The decision on liability

Emma Sleep AU admitted to contraventions of the ACL. Therefore, the remaining questions for the Court were whether Emma Sleep GmbH and Bettzeit were separately liable as principal contraveners and/or derivatively through application of s 139B(2) of the CCA.

The ACCC alleged that either:

• Principal liability case: The impugned representations were made by Emma Sleep GmbH and/or Bettzeit in its own right;

OR

• CCA s 139B(2)(a) case: The conduct can be attributed to Emma Sleep GmbH and/or Bettzeit because the impugned representations were made by Emma Sleep AU as the agent for Emma Sleep GmbH and/or Bettzeit within the scope of Emma Sleep’s actual or apparent authority under that agency;

OR

• CCA s 139B(2)(b)(i) case: The conduct can be attributed to Emma Sleep GmbH and/or Bettzeit because the impugned representations were made at the direction of a director, employee or agent of Emma Sleep GmbH and/or Bettzeit, where the direction was within the scope of the actual or apparent authority of the director, employee or agent.

The Federal Court’s findings on liability are summarised in the table below:

More detail on the Court’s findings is below.

Why was Bettzeit found liable?

Bettzeit’s independent principal liability

The Court found that Bettzeit had independent principal liability for the contraventions of the ACL due to its close involvement in the preparation and publication of the impugned representations.

The Court viewed the high level of involvement of Bettzeit’s employees in Australian operations, particularly in determining the marketing strategy and developing, approving and updating the advertising on the platforms, as strong indicators that Bettzeit would be liable for the representations in its own right.

The Court rejected the respondent’s argument that Bettzeit could only have ‘made’ the impugned representations in its own right if its name were added to the representation (citing Ackers v Austcorp International Ltd[2], where a holding company communicated to the public that it adopted or endorsed its subsidiary’s representations for itself) or if Emma Sleep AU was acting as its legal agent. Instead, the Court relied on ACCC v Hillside (Australia New Media) Pty Ltd t/as Bet365[3] (ACCC v Hillside) (where a related UK entity was liable due to its close involvement in the preparation of representations and their publication by designing and maintaining the Australian website) to make a finding of principal liability.

Bettzeit’s liability under 139B(2)(b)(i)

Notwithstanding the above, the Court found that Bettzeit was also derivatively liable for the conduct of Emma Sleep AU under the CCA s 139(2)(b)(i).

The Court inferred from the agreed facts that the impugned representations were made by Country Team Australia (who were employed by Emma Sleep AU) ‘at the direction of’ the Country Manager of Country Team Australia (who was employed by Bettzeit). Therefore, the Court needed to determine whether the representations were made ‘on behalf of’ Bettzeit.

The respondents argued that the various Bettzeit employees (including the Country Manager and Head of Australia) were provided to Emma Sleep AU pursuant to a labour hire arrangement through which they were acting only on behalf of Emma Sleep AU and not Bettzeit. The Court disagreed with this argument on the basis that the Country Manager or Head of Australia was also the Managing Director of Bettzeit, stating ‘it would be surprising if conduct of the Managing Director of a company was not undertaken on behalf of that company, even if it was also on behalf of a related company’ (at [110]).

The Court drew parallels to the decisions in ACCC v Hillside and ACCC v Productivity Partners Pty Ltd (No 3)[4] (Captain Cook College (No 3)) (where the CEO of the respondent’s parent company and at relevant times, acting CEO of the respondent itself, was found to have been knowingly concerned in the respondent’s contraventions) to illustrate that a person’s conduct can be engaged in on behalf of multiple companies. In this case, the conduct being engaged in on behalf of Bettzeit in addition to Emma Sleep AU was especially clear in the context of a group of companies that have a common or overlapping purpose (in this case, to sell Emma Sleep products). It was notable that Country Team Australia was described as belonging to Emma Sleep Group, and that the business operations in Australia are conducted ‘via’ Emma Sleep AU.

The Court ultimately found that the actions of employees and directors of a company are usually expected to be engaged in on behalf of that company (even if the conduct is also on behalf of another company). Therefore, the Court found the impugned representations were made ‘on behalf of’ Bettzeit.

Bettzeit’s liability under s 139B(2)(a)

The Court dismissed the argument that the impugned conduct was attributable to Bettzeit under either an actual or apparent agency relationship as there was no express evidence that either existed.

Why was Emma Sleep GmbH not liable?

The Court found that Emma Sleep AU was neither acting ‘at the direction of’ any of its employees or directors within the meaning of s 139B(2)(b)(i) of the CCA, or that Emma Sleep AU was acting as its legal agent under s 139B(2)(a) of the CCA.

Notably, evidence of Emma Sleep GmbH executives providing detailed advice on pricing strategies to the Australian entity during the relevant period was still insufficient to amount to a ‘direction’ that connected to the impugned representation, as this was not reflective of a general practice between the parties and that this only occurred from time to time.

Parent companies will not automatically be held liable for subsidiary misconduct

The Court affirmed that the purpose of s 139B(2) of the CCA is to ‘extend, rather than limit’ liability, and that it is not sufficient for the purposes of this section to merely point to a ‘general economic interest’ in the operations of its subsidiary to determine whether liability is attributable to the parent company (at [38]-[39]). The Court also emphasised that each case would turn on its own facts but marked it useful to identify comparable cases to determine the relevant factors and circumstances. With reference to three cases, including the Captain Cook College (No 3) decision, the Court identified the factors applicable to examining the ACCC’s case as follows:

• • links between respondent companies are relevant;
  • a company is not liable merely because it is a parent company;
  • evidence of day-to-day control;
  • overlapping directorships do not per se establish control;
  • distinctly separate marketing;
  • licensing of trade marks and domains, and coincidence of company name and trade mark are not, without more, sufficient to establish liability as a principal; and
  • the construction of an intercompany agreement.

Key takeaways for corporate groups

The Emma Sleep judgment affirms that corporations will not automatically be liable for the conduct of other entities in the corporate group, and provides guidance on the facts that may be relevant to establishing liability. It provides comfort that parent company liability will not arise in the absence of evidence of actual involvement in the contravening conduct. This approach ensures that the reach of the ACL matches the operational realities of modern multinational business structures, while respecting the separate legal personality of corporate group members.

However, it also demonstrates that Courts are willing to find principal liability even in cases where marketing representations are wholly made by another entity, if the first entity’s employees are involved in determining the strategy or approving the marketing. It also emphasises the risk of derivative liability extending to related entities – including overseas entities – where directors undertake conduct on behalf of multiple companies.

Footnotes:

[1] ACCC v Productivity Partners Pty Ltd (trading as Captain Cook College) (in administration) (No 6) [2025] FCA 542.

[2] [2009] FCA 432.

[3] [2015] FCA 1007.

[4] [2021] FCA 737.

Image Credit: Bed Testing Area inside Mandaue Foam Showroom / Wikipedia Commons / CC3.0 / Remixed to B&W and resized