Damages for competitor misleading conduct under the ACL

Section 236 of the Australian Consumer Law (ACL) entitles any person, including corporations – to claim compensation for loss or damage suffered from misleading or deceptive conduct.  The High Court has developed numerous general principles for assessing loss or damage which we will discuss in this article.

Damages – section 236 of the Australian Consumer Law (ACL)

Section 236 of the Australian Consumer Law (ACL) (Schedule 2 of the Competition and Consumer Act 2010) provides that a person who has suffered loss or damage resulting from a breach of the ACL may claim compensation for that loss or damage.  Section 236 states:

“(1) If:

(a) a person (the claimant) suffers loss or damage because of the conduct of another person; and

(b) the conduct contravened a provision of Chapter 2 or 3;

the claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention. 

(2) An action under subsection (1) may be commenced at any time within 6 years after the day on which the cause of action that relates to the conduct accrued. “

[Bold is our emphasis]

What prohibitions do Chapters 2 and 3 of the ACL contain?

Chapter 2 of the ACL provides general consumer protections for misleading or deceptive conduct, unconscionable conduct, and unfair contract terms.  Chapter 3 provides specific protections for unfair practices, unsolicited consumer agreements, and lay-by agreements.  This article will focus on misleading or deceptive conduct in trade or commerce, which is prohibited by section 18(1), as well as false and misleading representations pursuant to sections 29(1)(a)-(n).

Section 18(1) of the ACL is as follows:

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

[Bold is our emphasis]

The High Court has held that conduct is “misleading or deceptive” if it induces or is capable of inducing error; an intent to mislead or deceive is not required.^[1]  With regards to the phrase “in trade or commerce”, the Court gave the following definition:

“… conduct … towards persons, be they consumers or not, with whom it (or those whose interest it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character.”^[2]

Sections 29(1)(a)-(n) of the ACL prohibits individuals and businesses from making false or misleading representations in trade or commerce in relation to goods or services, as shown below:

“A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:

(a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or

(b) make a false or misleading representation that services are of a particular standard, quality, value or grade; or

(c) make a false or misleading representation that goods are new; or

(d) make a false or misleading representation that a particular person has agreed to acquire goods or services; or

(e) make a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or

(f) make a false or misleading representation concerning:

(i) a testimonial by any person; or

(ii) a representation that purports to be such a testimonial;

relating to goods or services; or

(g) make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; or

(h) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or

(i) make a false or misleading representation with respect to the price of goods or services; or

(j) make a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods; or

(k) make a false or misleading representation concerning the place of origin of goods; or

(l) make a false or misleading representation concerning the need for any goods or services; or

(m) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3 – 2); or

(n) make a false or misleading representation concerning a requirement to pay for a contractual right that:

(i) is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3 – 2); and

(ii) a person has under a law of the Commonwealth, a State or a Territory (other than an unwritten law).“

General principles of assessing loss and damage

Section 236 of the ACL does not specify how compensation for loss or damage is to be assessed.  However, the High Court, while considering section 82 of the Trade Practices Act 1974 (Cth) (Trade Practices Act) – the predecessor to the ACL – established numerous general principles of assessing loss and damage as follows:

• In quantifying the amount of damages to be awarded, the general test is to compare the claimant’s current position against the position they would have been in had the loss or damage not been suffered.^[3]  That is, damages are to be assessed by reference to the detriment actually suffered by the claimant, not on the basis of expectation loss (loss of expected profit).^[4]
• “Loss or damage” is not limited to economic loss.  Section 13 of the ACL stipulates that loss or damage may include injury, so “loss or damage” under section 236 “can be given no narrow meaning”.^[5]
• Loss is not necessarily singular; for example, damages may be assessed for losses on both capital account and revenue account.  Therefore, the loss or damage may require more than one remedy, and damages may not be the only form of compensation awarded.^[6]
• The phrase “because of the conduct of another person” implies a causal connection between the conduct and the alleged loss or damage.  Once the causal connection is established, the amount recoverable in damages is not limited by drawing analogies with the law of contract, the law of tort or equitable remedies.^[7]

How can losses be assessed where the misleading conduct was by a competitor?

An illustration of how loss or damage suffered by a business was assessed occurred in the case of Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) FCA 115 (Typing Centre), where the applicant sought damages for defamatory advertisements published by the respondents. 

The Applicant, a business college, published various newspaper advertisements claiming that its receptionist and secretarial courses allow people to become a receptionist in four (4) weeks, or a secretary in six (6) to twelve (12) weeks.  Shortly after, the Respondents – a group of competing business colleges – published newspaper advertisements containing the following statement:

“We are concerned that recent advertisements regarding the training of secretaries and receptionists are misleading and inaccurate since they indicate that a secretary can be trained in a matter of a few weeks.  THIS IS NOT TRUE.  The trained secretary or receptionist requires a core of skills that are developed, not over a few weeks, but over a period of months.“

Wilcox J concluded that although the Respondents’ advertisements did not explicitly name the Applicant, readers with “a particular interest in business colleges” would have understood these advertisements as impliedly referring to the Applicant.  This is because such readers would have likely “seen and remembered one or more of the Applicant’s own advertisements”, so given the nature and extent of the Respondents’ publications (four (4) separate newspapers totalling approximately 332,000 copies, distributed free of charge), “more than one person” would have read a particular copy of the newspaper and linked it to the Applicant.^[8] 

Considering the seriousness of the allegations, Wilcox J held that the Respondents’ advertisements were defamatory.  The Respondents, in publishing the advertisements, had engaged in “misleading and deceptive conduct” under section 52 of the Trade Practices Act, which was the former equivalent of section 18 of the ACL.  Resultingly, the Applicant was entitled to compensation for the loss or damage suffered from the Respondents’ advertisements, as per the former equivalent of section 236 of the ACL.  However, Wilcox J qualified the damage suffered, at [36]:

“The only damage in respect of which the applicant is entitled to recover is damage sustained to its business.  An individual who is defamed is entitled to compensation for any injury to his or her feelings.  But a corporation does not have feelings to be hurt.  In the case of a corporation, damages in defamation are confined to such amount as will reflect the court’s assessment of the pecuniary damage likely to have been, or to be, sustained by the corporation as a result of the defamation.  That damage need not be confined to income.  The goodwill of a business may be injured, causing a capital loss.“

[Bold is our emphasis]

Wilcox J went on to acknowledge that although it may be difficult to quantify the exact loss or damage suffered, Courts must still make the best effort to do so:

“… it is not necessary that the court be able to calculate mathematically the appropriate sum.  However difficult the exercise may be, the court has to make the best estimate it can, even if the result seems arbitrary … it may be possible to do no more than make a broad estimate of the extent of that loss or damage … The selection of any particular sum, by way of damages, must simply be an exercise of judgment having regard to the whole of the circumstances.“^[9]

[Bold is our emphasis]

Wilcox J then cited Enzed Holdings Ltd v Wynthea Pty Ltd and Ors [1984] FCA 373 (Enzed), where the Federal Court affirmed that best efforts should be made to quantify damages but also emphasised that actual loss or damage must be suffered in the first place; it is insufficient for the Plaintiff to merely show wrongful conduct by the Defendant.^[10]  As such, the Court in Enzed declined to award compensation to the Appellants because the primary judge found that no loss or damage has been established.^[11]

At [42] of Typing Centre, Wilcox J also considered the issue of special damages and made remarks on the Applicant’s claim for loss of goodwill:

“In the present case there is no claim for special damage.  There is no evidence of any loss of income as a result of the publication of the advertisements.  But it is claimed that the consequence of the publication must have been to affect the goodwill of the applicant’s business and that, in determining the extent of that loss, the Court ought to have regard to the nature of the statements made by the respondents and to the manner and extent of their publication.“^[12]

[Bold is our emphasis]

Numerous principles regarding how loss and damage is assessed for a business because of misleading and deceptive conduct by a competitor can be distilled from the Typing Centre case as follows:

• a business can suffer loss or damage from disparaging material that is misleading or deceptive, even where the material does not explicitly refer to the business;
• the loss or damage suffered is purely pecuniary and businesses cannot receive compensation for “injured feelings”;
• even where a precise sum is difficult to calculate, provided that the Applicant has adduced appropriate evidence the Court must do its best to quantify the loss or damage suffered, having regard to the whole of the circumstances;
• the Court will not award compensation where no actual loss or damage was established;
• a claim for special damages must be supported by evidence of loss of income as a result of the Respondent’s actions; and
• if a claim for loss of goodwill is made by the successful Applicant because of the Respondent’s conduct, the Court must have regard to the nature of the statements made and to the manner and extent of their publication – in other words, the Applicant must put this into evidence.

Concluding comments on assessing loss and damage

The principles for assessing “loss or damage” pursuant to section 236 of the ACL can be found in various case authorities.  In the context of businesses, the Federal Court case of Typing Centre provides some key guidance; importantly, loss or damage suffered by businesses can only be pecuniary (such as loss of income and loss of goodwill) and must be quantified to the Court’s best efforts.

Links and further references

Legislation

Australian Consumer Law (Schedule 2 of the Competition and Consumer Act 2010)

Trade Practices Act 1974 (Cth)

Cases

Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17

Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3

Enzed Holdings Ltd v Wynthea Pty Ltd and Ors [1984] FCA 373

Murphy v Overton Investments Pty Ltd [2004] HCA 3

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44

Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 2) [2012] VSC 239

Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) FCA 115

Further information about misleading and deceptive conduct

If your business has suffered loss and damage because of misleading and deceptive conduct by a competitor and you need advice on how to quantify it, contact us for a confidential and obligation-free discussion:

Disclaimer

This article contains general commentary only.  You should not rely on the commentary as legal advice.  Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.

[1] Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44 at [7].

[2] Concrete Constructions (NSW) Pty Ltd v Nelson [1990] HCA 17.

[3] Murphy v Overton Investments Pty Ltd [2004] HCA 3; Gates v City Mutual Life Assurance Society Ltd [1986] HCA 3.

[4] Sunland Waterfront (BVI) Ltd v Prudentia Investments Pty Ltd (No 2) [2012] VSC 239 at [360].

[5] Murphy v Overton Investments Pty Ltd [2004] HCA 3 at [45].

[6] Murphy v Overton Investments Pty Ltd [2004] HCA 3 at [50]–[52].

[7] Marks v GIO Australia Holdings [1998] HCA 69 at [38].

[8] Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) FCA 115 at [43].

[9] Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) FCA 115 at [39]-[40], [47].

[10] Enzed Holdings Ltd v Wynthea Pty Ltd and Ors [1984] FCA 373 at [68].

[11] Enzed Holdings Ltd v Wynthea Pty Ltd and Ors [1984] FCA 373 at [70]-[72].

[12] Typing Centre of NSW Pty Ltd v Northern Business College Ltd (1989) FCA 115 at [42].

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