Misleading or deceptive conduct

Misleading or deceptive conduct (often referred to as just misleading conduct) is a doctrine of Australian law.

Section 18 of the Australian Consumer Law (ACL), which is found in schedule 2 of the Competition and Consumer Act 2010[1] (formerly the Trade Practices Act 1974) prohibits conduct by corporations in trade or commerce which is misleading or deceptive or is likely to mislead or deceive. The states and territories of Australia each have Fair Trading Legislation either containing similar provisions in relation to misleading or deceptive conduct by individuals, or simply applies the federal law to the state or territory.[2] Section 12DA of the Australian Securities and Investment Commission Act 2001 prohibits misleading or deceptive conduct in financial services.

The doctrine aims primarily to provide consumer protection by preventing businesses from misleading their customers. However, it extends to all situations in the course of trade or commerce. A range of remedies are available in the event of misleading or deceptive conduct.

Application

The prohibition on misleading conduct is set out in section 18(1) of the Australian Consumer Law:

"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

Section 4(2)(a) of the CCA defines conduct as:

"...doing or refusing to do any act, including the making of, or the giving effect to a provision of, a contract or arrangement, the arriving at, or the giving effect to a provision of, and understanding or the requiring of the giving of, or the giving of, a covenant;"

Section 18 essentially mirrors the previous ban on misleading or deceptive conduct in section 52 of the Trade Practices Act 1974 (Commonwealth), which was superseded by the CCA.

The elements required in order to establish misleading or deceptive conduct are:

  1. the impugned conduct was done in trade or commerce;
  2. the impugned conduct was, in all the circumstances, misleading or deceptive;
  3. the claimant relied on the conduct; and
  4. as a result of its reliance on the conduct, the claimant suffered a loss.

Trade or commerce

"Trade or commerce" is given its ordinary construction, and applies not only to transactions between corporations and consumers, but to anyone providing or acquiring goods or services.[3] However, purely private or domestic transactions will not be captured within the ambit of section 18.[4]

Misleading or deceptive

Unlike related doctrines in contract or tort law, such as the tort of deceit and misrepresentation, misleading or deceptive conduct applies to any conduct that is, or is likely to be, misleading or deceptive, and does not require the making of a representation.[5]

Conduct is likely to mislead or deceive where there is a "real and not remote" chance that it will mislead or deceive, which can be true even where the probability of misleading or deceiving is less than 50%.[6] When the allegedly misleading or deceptive conduct is directed towards the public at large, the relevant reaction is of the ordinary or reasonable members of the class of prospective purchasers.[7] If the conduct is directed at specific individuals, the conduct as a whole is relevant, considering the nature of the parties and transaction.[8]

Reliance and intent

Misleading or deceptive conduct is a "strict liability" offence, in that it does not matter whether the conduct was intended to mislead or deceive,[9] or even whether the claimant could reasonably have protected its interests.[10] This means that so long as there is an element of reliance on the part of the claimant, a respondent could be found to have engaged in misleading or deceptive conduct even if they had every reason to believe that their representations were true.

The reason for strict liability in this instance that a person making a representation is always better placed to know about whether or not it is true than the person relying on the representation, so the law is constructed to shift the onus of ensuring that the representation is true onto the person making it. This is in contrast to the traditional common law principle of "caveat emptor" or "let the buyer beware".[11]

Loss

As a tort-style offence applying to cases of "pure economic loss" (as opposed to physical harm), a cause of action in misleading or deceptive conduct will only accrue from the time that any loss is suffered — i.e. conduct could be misleading and deceptive, and a person could rely on it and still have no claim. There would only be a claim when that person suffers a loss as a result of the conduct.[12]

Other relevant matters

Individuals may be ancillary liable for breaches of s18 if they are "knowingly concerned" in the breach (s75B of the CCA).

Where conduct is a representation about the future (as opposed to a representation about present facts), then according to section 4 of the ACL, that conduct will be taken to be misleading if the person making it cannot show they made the representation on reasonable grounds. In these situations, representations about the future are presumed to be misleading, and the burden of proof is on the person making the representation to produce evidence to show that they had reasonable grounds.

Contractual modification

Parties to a contract cannot exclude liability for misleading or deceptive conduct under section 18 of the Australian Consumer Law. Terms that purport to do so will be unenforceable to protect the public interest in ensuring that statutory remedies are available to persons who are misled or deceived into entering an agreement. As was stated in reference to section 52 of the Trade Practices Act 1974 (Cth), the modern equivalent of which is section 18 of the Australian Consumer Law:

Irrespective of the construction of these two special conditions it does not matter ultimately whether the impugned conduct with which this case is concerned falls literally within them or not. Section 52 is a section in the consumer protection provisions of an Act concerned to protect the public from misleading or deceptive conduct and unfair trade practices which may result in contravention of the Act. It has been held that exclusion clauses, of which special conditions 6 and 7 are examples, cannot operate to defeat claims under s. 52. It may be, as the judgment of Sweeney J. in P.J. Berry Estates Pty. Ltd. v. Mangalone Homestead Pty. Ltd. (1984) 6 ATPR 40-459 at 45,638 suggests, that such exclusion clauses will generally be ineffective because they cannot break the nexus between the conduct in contravention of s. 52 and the making of the agreement in issue... There are wider objections to allowing effect to such clauses. Otherwise the operation of the Act, a public policy statute, could be ousted by private agreement. Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act.[13]
— Lockhart J

Exceptions

Despite the strict liability nature of the offence, a person will not be deemed to have engaged in misleading or deceptive conduct where:[14]

  1. the circumstances make it apparent that the person is not the source of the information and that it expressly or impliedly disclaims any belief in its truth or falsity and is merely passing on the information for what it is worth;[15]
  2. the person, while believing the information, expressly or impliedly disclaims personal responsibility for what it conveys, for example, by disclaiming personal knowledge; or
  3. the person, while believing the information, ensures that its name is not used in association with the information.

Remedies

Fines

There are no pecuniary penalties available for a breach of section 18. However, for a breach of many of the related provisions in the Australian Consumer Law, the Australian Competition and Consumer Commission (ACCC) can seek pecuniary penalties of up to $1.1 million from corporations and $220,000 from individuals.

Damages

A victim of misleading or deceptive conduct is only entitled to damages (i.e., monetary compensation) if they have suffered loss or damage as a result of the conduct. The measure of loss or damage here is generally the same as it is in contract law or tort law. According to section 82(1B) of the CCA, which was introduced in 2004, if a victim contributed to the loss or damage that they suffered, then the court can reduce the amount of damages that they are awarded, in a similar fashion to the reduction of damages in a negligence claim if the plaintiff is guilty of contributory negligence. However, if the person engaging in the conduct intended to mislead or deceive, or was fraudulent in their conduct, then the courts cannot reduce the damages.

There is a limitation period of six years on actions for damages, according to section 236(2).

References

  1. ↑ "Competition and Consumer Act 2010 Schedule 2, The Australian Consumer Law". Commonwealth Consolidated Acts. Australasian Legal Information Institute. Retrieved 4 December 2011.
  2. ↑ Fair Trading Act 1987 (NSW) s 28; Australian Consumer Law and Fair Trading Act 2012 (Vic) s 8; Fair Trading Act 1989 (Qld) s 16; Fair Trading Act 1987 (SA) s 14; Fair Trading Act 1990 (Tas) s 14; Fair Trading Act 1987 (WA) s 10; Consumer Affaris and Fair Trading Act 1990 (NT) s 27; Fair Trading (Australian Consumer Law) Act 1992 s 7.
  3. ↑ Concrete Constructions (NSW) Pty Limited v Nelson (1990) 169 CLR 594; see also Houghton v Arms [2006] HCA 59. AustLII
  4. ↑ Re Paul Smolonogov and Adrian Lapardin v Raymond Lawrence O'Brien and Barbara Annette O'Brien (1982) 67 FLR 311 Austlii
  5. ↑ Re Henjo Investments Pty Limited [1988] FCA 40, [31]
  6. ↑ Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [112] AustLII
  7. ↑ Campomar Sociedad Limited v Nike International Limited (2000) 202 CLR 45 AustLII
  8. ↑ Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 AustLII
  9. ↑ Yorke v Lucas (1985) 158 CLR 661, [11]
  10. ↑ Re Henjo Investments Pty Limited [1988] FCA 40, [42]
  11. ↑ See, e.g., Perre v Apand Pty Ltd 198 CLR 180, [114]-[118] (Callinan J)
  12. ↑ HTW Valuers (Central Qld) Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, 665-6 (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ)
  13. ↑ Re Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd [1988] FCA 40, [49]-[50] (Lockhart J) Austlii
  14. ↑ Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, [123]
  15. ↑ See generally, Google v ACCC (2013) 87 ALJR 235
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