Misleading or deceptive conduct

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Misleading or deceptive conduct is when one party induces another to enter a contract upon false impressions. The use of misleading or deceptive conduct during business is prohibited by the Australian Consumer Law, s 18.[1] Misleading or deceptive conduct operates as follows:

  • s 18 - A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Contravention of this section will compensated through remedies under the ACL.
  • Requirements of conduct that is misleading or deceptive:
    • The plaintiff was induced into believing an erroneous assumption as a result.[2]
    • The plaintiff must show he relied on the misleading or deceptive conduct when entering the contract (the conduct only needs to be one of the factors)[3]
    • Silence will constitute misleading or deceptive conduct only if there is a duty of disclosure.
    • Exclusion clauses cannot protect against these laws.
  • Trade or commerce limitation - must be in the course of business.[4]. If not, a plaintiff must sue under misrepresentation.
    • Private sales of property between individuals not in trade or commerce,[5] unless it is for a business activity.[6]
  • The standard of measuring the effect of conduct:
    • Public - the reasonable person, taking reasonable to his own safety.[7]
    • Particular individuals - nature of the parties, nature of transaction, what they knew, conduct itself.[8]

This article is a topic within the subject Contracts.

Contents

Required Reading

Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009), pp. 817-824 [33.05-33.30]; 825-836 [33.45-33.75]; 841-847[33.95-33.130].

Australian Consumer Law: ss 18, 19, 232, 236-245.

Introduction

It is provided in s 18 of the Australian Consumer Law that:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
  • Note that for the act to apply, the misleading conduct must have occurred 'in trade or commerce'.

s 18 thus sets a prohibition, it does not create liability in itself. Where a party contravenes s 18, the court may (for the purposes of compensating the injured party or preventing further suffering) give:

Note that such remedies are available under their individual sections. Thus, a party who recovers damages for misleading conduct does so under s 236 rather than s 18, which does not create liability.

Trade or commerce limitation

[12] The act only applies to misleading conduct occurring during trade or commerce. That means that misleading conduct which induces a party to enter a contract in a non-commercial context is not covered by the act and remedies under the act cannot be obtained. The meaning behind those words was discussed in Concrete Constructions (NSW) Pty Ltd v Nelson[13]:

  • "The phrase 'in trade or commerce' in s 52 has a restrictive operation."[14]
  • "What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it...has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character."[15]
  • "Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public."[16]
  • "On the other hand...to engage in conduct in the course of those activities which is divorced from any relevant actual or potential trading or commercial relationship or dealing will not, of itself, constitute conduct 'in trade or commerce' for the purposes of that section."[17]

In O'Brien v Smolongov[18], the court held that:

  • Private sales of property between individuals is not considered a business activity.

Note, if the property is to be used for business activity, it will be covered by the act.[19]

What constitutes misleading conduct

In order for conduct to be considered 'misleading', it must have misled (induced a false assumption) in the other party:

  • "No conduct can mislead or decieive unless the representee labours under some erroneous assumption[20]

What constitutes misleading conduct (and especially, whether silence can constitute misleading conduct)was also discussed in Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd:

  • Silence may constitute deceptive conduct where there is a duty to disclose or where the circumstances give rise to a reasonable expectation of disclosure.
  • A Plaintiff must show that he relied on the misleading conduct. However, the misleading conduct only has to be one of the factors in the reliance.
  • Exclusion clauses, such as disclaimers or entire agreement clauses, do not protect one against the statutory laws regarding misleading conduct.

In the determination of whether conduct was misleading, it is also important to examine the relevant audience.

Relevant audience

[21] In order to determine whether conduct is misleading, the court determines what would be the likely effect of the conduct on the 'audience' (ie, the other party). For the purposes of this inquiry, it is often relevant whether the misleading conduct was addressed to the public at large or a particular individual.

Public

To determine whether the public at large was likely to be mislead, the court adopts an objective approach:

  • Would it be likely that an ordinary member of the class of persons to whom the conduct is directed at would be deceived by the conduct of the Representor?[22]

This approach was discussed further in Campomar Sociedad Limitada v Nike International Ltd[23]:

  • Facts: Perfume goods were being displayed under the name NIKE and next to similar Adidas products, although they were not products of Nike International.
  • The court assesses the reaction of the public at large with a reference to the ordinary person.
  • The court can ignore fanciful reactions.
  • The reasonable person should be taking reasonable care (for example, an ordinary consumer would check if pet food marked 'NIKE' is actually Nike or not)
  • However, in this instance, the average person would safely assume that the products were marketed by Nike.
  • Conduct is misleading.

Particular individuals

In a case where the conduct in question was addressed to a particular individual, the court determines whether he was likely to be mislead by considering the particular circumstances, such as:

  • Nature of the parties - who are they, what is their level of expertise/financial ability to seek further help.
  • Nature of the transaction
  • What each party knew about the other.
  • The conduct itself.

This was discussed in Butcher v Lachlan Elder Realty:

  • In the case where the conduct is meant for a particular individual, the court analyses the conduct of the defendant in relation to the plaintiff alone, and analyses all of the conduct.
  • The nature of the parties, transaction and the conduct itself are all important factors:

References

Casebook refers to Paterson, Robertson & Duke, Contract: Cases and Materials (Lawbook Co, 11th ed, 2009).

Textbook refers to Paterson, Robertson & Duke, Principles of Contract Law (Lawbook Co, 3rd ed, 2009).

ACL refers to the Australian Consumer Law.

  1. Part of the Competition and Consumer Act 2010 (Cth) and applies throughout all Australian jurisdictions.
  2. Taco Co of Australia Inc & Anor v Taco Bell Pty Ltd (1982) 42 ALR 177, 200
  3. Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd
  4. Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594
  5. O'Brien v Smolongov (1983) 53 ALR 107
  6. Havyn Pty Ltd v Webster [2005] NSWCA 182
  7. Campomar Sociedad Limitada v Nike International Ltd (2000) 202 CLR 45
  8. Butcher v Lachlan Elder Realty
  9. ACL, s 232
  10. ACL, s 236
  11. ACL, s 237
  12. Casebook, p. 818 [33.10]
  13. (1990) 169 CLR 594
  14. (1990) 169 CLR 594, 602
  15. (1990) 169 CLR 594, 604
  16. (1990) 169 CLR 594, 604
  17. (1990) 169 CLR 594, 604
  18. (1983) 53 ALR 107
  19. Havyn Pty Ltd v Webster [2005] NSWCA 182
  20. Taco Co of Australia Inc & Anor v Taco Bell Pty Ltd (1982) 42 ALR 177, 200
  21. Casebook, p. 825 [33.40]
  22. Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 199
  23. (2000) 202 CLR 45
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