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 (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. State Fair Trading Legislation contains similar provisions in relation to misleading or deceptive conduct by individuals. 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 of the doctrine

Section 18 appears unrestricted in its words 'A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive'. However, the Compeitition and Consumer Act (CCA) is an act of the Parliament of Australia, so section 51 of the Australian Constitution (which sets out the division of powers between the federal and state parliaments) restricts the application. Section 18 is based on the corporations power ( s51(xx) of the Constitution). The requirement 'in trade or commerce' creates a significant threshold issue.

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

Each of the States and territories of Australia have fair trading legislation, which mirrors the ACL.

Conduct which is misleading

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;"

Whether conduct is misleading or deceptive is a question of fact determined by considering the conduct as a whole.

To be misleading or deceptive the conduct must contain a misrepresentation capable of inducing the relevant class into error. Generally, misrepresentations will be false statements of fact. However, statements that are factually true may also be misrepresentations if they are capable of inducing consumers into error.

The relevant test is whether the conduct misleads or deceives, or is likely to mislead or deceive, the relevant class. Accordingly, it does not matter if the conduct intends to mislead or deceive, or is negligent or reckless as to whether they mislead or deceive. However, in some circumstances it may be necessary to show that the person doing the conduct did intend to mislead or deceive, for example when the person is merely passing on information.

Silence may be misleading in limited circumstances. When there is a duty between parties at common law to disclose facts, then a failure to do so may be misleading conduct. Furthermore, even if there is no common law duty to disclose, a person's silence, when considered in light of all the circumstances (other statements they have made, or other actions they have taken) may be misleading conduct. Generally, 'mere silence' is not misleading conduct unless there is a reasonable expectation that the person should disclose facts.

When the relevant 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 have 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.

Although section 18 is usually thought of in terms of consumer protection, it is not limited to these circumstances. Section 18 applies to representations made in commercial transactions, for example during negotiations between franchisers or for the sale of a business.

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 82(2).

Section 87 orders

Power of Court to prohibit payment or transfer of moneys or other property

(1) Where:

(a) proceedings have been commenced against a person for an offence against a provision of Part VC; or

(b) an application has been made under section 80 for an injunction against a person in relation to a contravention of a provision of Part IVA, V or VC; or

(c) an action has been commenced under subsection 82(1) against a person in relation to a contravention of a provision of Part V; or

(d) an application for an order under subsection 87(1A) or (1B) has been or may be made against a person in relation to a contravention of a provision of Part IVA, V or VC;

the Court may, on the application of the Minister or the Commission, make an order or orders mentioned in subsection (2) if the Court is satisfied that:

(e) it is necessary or desirable to do so for the purpose of preserving money or other property held by or on behalf of a person referred to in paragraph (a), (b), (c) or (d), as the case may be (in this section referred to as the relevant person), where the relevant person is liable or may become liable under this Act to pay moneys by way of a fine, damages, compensation, refund or otherwise or to transfer, sell or refund other property; and

(f) it will not unduly prejudice the rights and interests of any other person.

The measure of loss or damage here may be different than the measure for damages under section 82. Some cases have suggested that since section 87 is not just about recovering monetary loss, then the measure should be broader. However, other cases consider that the same measure of loss or damage should be used.

There is also a limitation period of six years on actions for section 87 orders, according to section 87(1CA).