Misleading and deceptive conduct in business dealings

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Business dealings between two or more parties often involve statements or representations during negotiations prior to reaching a concluded bargain. This article considers some case examples of conduct found to be misleading and deceptive in a variety of common business and commercial settings

Statutory definition of misleading and deceptive conduct

Schedule 2 of the Competition And Consumer Act 2010 contains the Australian Consumer Law (ACL).

Section 18 of the ACL is the successor of the much interpreted section 52 of the Trade Practices Act 1975 (Cth) (TPA). Section 18(1) of the ACL provides:

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

The elements of the prohibition against misleading or deceptive conduct

A useful analysis of the principals involved in establishing whether conduct is likely to be misleading or deceptive is contained in Australian Competition and Consumer Commission (ACCC) v Dukemaster^[1] (Dukemaster) where Gordon J restated the following principles:^[2]

• the “conduct” in the circumstances, must lead, or be capable of leading a person into error;^[3]
• the error or misconception must be caused by the conduct of the corporation, not other circumstances for which the corporation is not responsible;^[4]
• to mislead and deceive there must be a real and not remote chance that the conduct will mislead (regardless of whether it is less or more than fifty per cent);^[5] and
• the conduct must be considered in context and not in isolation.^[6]

The test is an objective one which a Court must determine for itself.^[7]

Application of the elements of misleading and deceptive conduct

The above principles must be applied as a two-step test.^[8]

• The first question is whether each or any pleaded representation is conveyed by the particular events [conduct] complained of;^[9] and
• Secondly, it is necessary to determine whether the proven representations are misleading or deceptive or likely to mislead or deceive (which has been said to be a “quintessential question of fact”.^[10]

Sales puffery

The courts have determined that in commercial dealings a certain level of embellishment is permissible and is to be expected. This hyperbole is commonly referred to as puffery or ‘sales talk’. The difficulty is that there is a fine line between what constitutes puffery, and what constitutes misleading and deceptive conduct.

Generally the more outrageous a comment is, the more likely it is simply puffery. By way of example:

• a statement regarding an office cleaning business that “the business ran itself” was held to be puffery, because no business has ever run itself.^[11]
• On the other hand a statement that a battery is the “world’s longest lasting battery in high powered devices” was found to extend beyond puffery.^[12]

Categories of conduct which have held to be misleading and deceptive

Advertising

Advertisements that tell half-truths have been found to constitute misleading and deceptive conduct. A recent example of misleading and deceptive conduct in advertising involved phrases used by Coles’ in advertising its bread as “baked today sold today” and “freshly baked”. Coles par-baked and snap froze its bread with a final baking process occurring on the day the bread was sold.[13] In this example the statement is not technically incorrect, however it was found to be misleading and deceptive.

See our commentary here.

Leases

Statements about rent may be misleading and deceptive, especially in circumstances where the maker of the statement has no basis for the statement, or fabricates the basis for the statement.^[14]   An example of this may be where a lessor states that it has engaged a specialist to value the rent and that the rent being offered is very reasonable and below market value, when in fact no specialist was engaged and there is no proof that the amount is rent is reasonable or below market value (as was the case in Dukemaster).

Representations as to future matters

A representation that something will occur in the future may be misleading and deceptive conduct if the person making the representation does not have reasonable grounds for making the representation.^[15] Representations to the effect that:

• a loan will be repaid with interest;^[16] or
• that changes in government spending will positively affect the business,^[17]

have been held to constitute misleading and deceptive conduct as to future matters.

Business sales

Due to the complexity of business sales, there is ample room for conduct to be considered misleading and deceptive. Representations in relation to:

• the financial position of a business;^[18]
• the quality of a tenant;^[19] and
• how much workers are paid^[20] where the entity making the representation had no reasonable basis for making the statement,

have all been found to be misleading and deceptive.

Silence

Silence or non-disclosure of a material fact when entering a transaction or agreement may constitute misleading and deceptive conduct. The relevant considerations are the level of sophistication of the parties involved, and the expectation that the parties would make reasonable enquiries about the transaction or agreement that they are entering into. The more sophisticated a party is, the more likely it is that the party should make its own enquiries before entering into the transaction or agreement.^[21]

Disparaging comments about a competitor’s business

In Seafolly v Madden [2012] FCA 1346 it was held that disparaging comments made by Madden about a competitors designs were ultimately held to be misleading and deceptive. See our commentary here.

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Online activities

Google AdWords

Using a competitors registered trademarks in Google AdWords has been held to be misleading and deceptive. See our commentary here.

Allegedly making False testimonials

In July 2014, the Australian Competition and Consumer Authority (ACCC) commenced proceedings against A Whistle (1979) Pty Ltd, the franchisor of the Electrodry Carpet Cleaning business alleging that it made false and misleading representations by posting fake Testimonials relating to its business on the internet and that it attempted to induce franchisees to make false or misleading representations on the internet.

See our commentary here.

Knowingly failing to remove known false testimonials

The ACCC brought proceedings against Allergy Pathway alleging that representations made about Allergy Pathway’s allergy diagnosis products were false. Allergy Pathway provided undertakings that it would not make any further false representations in relation to its ability to diagnose and treat allergies.

Third parties subsequently posted comments on Allergy Pathway’s website and social media pages. The ACCC argued that by failing to remove the comments, Allergy Pathway was liable for contempt for breaching their undertaking. The court found in favour of the ACCC and ordered that Allergy Pathway pay $7,500.00 and that it publish corrective advertising.

See our commentary here.

Price representations

In Specsavers Pty Ltd v Coastal Contacts (Aus) Pty Ltd^[22] (Specsavers) an application was made for interlocutory relief based on allegations of misleading and deceptive conduct pursuant to section 18 and also section 48’s single price provisions.

The court held that that the representation ‘Focus Dailies Lenses Only $18.99^[23] contravened the single price provisions of section 48(1) as 6.95% was added to every order for insurance and handling.^[24]  It was further held that the disclaimer ‘see website for details’ did not cause the conduct to fall within an exception to the single price provisions of section 48(3) of the ACL.^[25]

Other Business and Commercial Situations

There are many other common business and commercial situations where a party’s conduct may breach the provisions of ACL relating to misleading and deceptive conduct. This article and our specific commentaries will be updated regularly.

Directors personal liability for misleading and deceptive conduct

Remedies for misleading and deceptive conduct

Parties who have suffered loss as a result of misleading and deceptive conduct may be able to claim damages. The plaintiff must establish that the:

• conduct was misleading and deceptive in contravention of the ACL;
• that the loss or damage was caused by the conduct;
• declarations;
• injunctions;
• compensation orders;
• orders for corrective advertising; or
• orders for corrective letters to be sent.

Where a court finds that loss or damage has been caused by the misleading and deceptive conduct, the amount of damages awarded is usually the difference between the price paid for the item and the true value of the item. It is important to note that the true value is not necessarily the market value.^[26]

The Australian Competition and Consumer Commission (ACCC) may also bring an action against entities that engage in misleading and deceptive conduct.

Links and further references

Legislation

Competition and Consumer Act 2010 (Cth)

Cases

Australian Competition and Consumer Commission v Dukemaster Pty Ltd (ACN 050 275 226) [2009] FCA 682

Caffey v Leatt-Hayter [No.3] [2013] WASC 348

Metz Holdings Pty Ltd v Simmac Pty Ltd (No 2) [2011] FCA 981

Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300

Beach Petroleum NL v Johnson [1993] FCA 283

Further information

If you need advice on misleading and deceptive conduct, 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 circumstance.

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[1] Australian Competition and Consumer Commission (ACCC) v Dukemaster Pty Ltd [2009] FCA 682.

[2] Australian Competition and Consumer Commission (ACCC) v Dukemaster Pty Ltd [2009] FCA 682 at [10].

[3] Gordon J in Dukemaster at [10] citing Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd [2008] FCA 1591 at [252] citing Taco Company of Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at 200; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191 at 198).

[4] Gordon J in Dukemaster citing Global Sportsman Pty Ltd 2 FCR 82 at [91].

[5] Gordon J in Dukemaster citing Global Sportsman Pty Ltd 2 FCR 82 at [14].

[6] Gordon J in Dukemaster citing Global Sportsman Pty Ltd 2 FCR 82 at [87].

[7] Gordon J in Dukemaster citing Global Sportsman Pty Ltd 2 FCR 82 at [87].

[8] ACCC v Telstra Corporation Ltd [2007] FCA 1904.

[9] Campomar Sociedad, Limitada v Nike International Ltd [2000] HCA 12.

[10] Australian Competition and Consumer Commission v Telstra [2004] FCA 987; (2004) 208 ALR 459 at [49].

[11] Vera Gurr and Nicolas Lamont Gurr v Richard Forbes and Dakar Nominess Pty Ltd [1996] FCA 1385, [31].

[12] Gillette Australia Pty Ltd v Energiser Australia Pty Ltd [2005] FCA 1647, [25].

[13] Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Limited [2014] FCA 634.

[14] Australian Competition and Consumer Commission v Dukemaster Pty Ltd (ACN 050 275 226) [2009] FCA 682, [8].

[15] Competition and Consumer Act 2010 (Cth) sch 2 Australian Consumer Law s 4.

[16] Dib Group Pty Ltd v Ventouris Enterprises Pty Ltd [2011] NSWCA 300.

[17] Caffey v Leatt-Hayter [No.3] [2013] WASC 348.

[18] IBEB Pty Ltd v Duncan [2011] NSWCA 368, [30]-[38].

[19] Como Investments Pty Ltd (in liquidations) & Anor v Yenald Nominees Pty Ltd & Anor [1997] FCA 12.

[20] Vera Gurr and Nicolas Lamont Gurr v Richard Forbes and Dakar Nominess Pty Ltd [1996] FCA 1385.

[21] Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited [2010] HCA 31.

[22] Specsavers Pty Ltd v Coastal Contacts (Aus) Pty Ltd [2012] FCA 102.

[23] Specsavers Pty Ltd v Coastal Contacts (Aus) Pty Ltd [2012] FCA 102, [27].

[24] Specsavers Pty Ltd v Coastal Contacts (Aus) Pty Ltd [2012] FCA 102, [36].

[25] Specsavers Pty Ltd v Coastal Contacts (Aus) Pty Ltd [2012] FCA 102, [40].

[26] Caffey v Leatt-Hayter [No.3] [2013] WASC 348 [362]–[364].

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