Misleading or Deceptive Conduct
TABLE OF CONTENTS
The Australian Consumer Law
The Competition and Consumer Act 2010 (“CCA”) has replaced the Trade Practices Act 1974 (Cth) which governs how businesses are to deal with their customers, competitors and suppliers. The CCA enables fair trading and competition within the market, and ensures that consumers are treated fairly and are afforded appropriate protections. One of the most important components of the CCA is the Australian Consumer Law (“ACL”), which is contained under Schedule 2 of the CCA.
The ACL is a national law regime and applies to all businesses in all States and Territories in Australia. The main function of the ACL is to protect consumers and thus, the ACL sets out the rights and obligations of businesses when dealing with consumers. Therefore, it is important for both consumers and businesses to be aware of the rights that exist when it comes to conduct that is associated with the supply of goods and services.
Who enforces it?
The Australian Competition and Consumer Commission (“ACCC”) and the State and Territory consumer protection agencies work in collaboration in the administration and enforcement of the ACL. Both the ACCC and the consumer protection agencies are ACL regulators. Since certain consumer provisions of the ACL are mirrored and contained in the Australian Securities and Investments Commission Act 2001 (Cth), the Australian Securities and Investments Commission (“ASIC”) also plays a role in regulation and enforcement in relation to financial products and services.
Misleading or Deceptive Conduct
It is possible for both individuals and businesses to engage in misleading or deceptive conduct when they are operating in trade and commerce. As a consumer, it is important to be aware of the rights, and protections which may be available to you. As a business, it is just as important to be aware of the legal penalties that may be imposed and the consequences that may flow from such enforcement. Not only will you likely face hefty penalties in a monetary sense, but it may have consequences for the reputation of your business as well.
A common issue that arises in relation to consumer law and in the commercial law sphere more broadly, is that of misleading or deceptive conduct. Section 18(1) of the ACL prohibits misleading or deceptive conduct in regard to consumer transactions made in the course of trade or commerce. It provides the following:
“(1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
To establish a claim for misleading or deceptive conduct, one must satisfy the following elements:
- The conduct was engaged in ‘trade or commerce’; and
- The conduct must have been misleading or deceptive, or likely to mislead or deceive.
For the purposes of s 18(1) of the ACL, a ‘person’ may extend to cover partnerships and corporations. It is not simply limited to individuals. The fact that s 18(1) applies to individuals, means that employees of businesses can be the primary defendant in litigation. This is particularly important if the company is deemed to be insolvent.
It should be noted that the conduct must occur ‘in trade or commerce’, to fall under the scope of s 18(1) of the ACL. The words ‘in trade or commerce’ should be given their ordinary meaning, namely trading or conducting business, or engaging in activities which have a trading or commercial character. Put more simply, transactions between consumers and corporations, and activities where there is a profit-making objective, are likely to be covered by s 18(1). The definition may in certain circumstances extend to anyone that is providing goods or services, and to activities that are not carried out for profit. However, it is unlikely that a purely private or domestic transaction will fall within the scope of s 18(1). This does not mean that relief for such conduct cannot be sought through other means.
The term ‘misleading or deceptive conduct’ is not defined under the ACL, so the courts have formulated and adopted their own tests. One needs not to establish that there was actual deception or misleading conduct for a contravention of s 18 to be found. Instead, the test that is usually applied is an objective one, which looks at whether the conduct leads, or is capable of leading a person into error. It also considers the target audience of the relevant conduct. The ‘conduct’ consists not merely of actions, but may also include the following:
- Quotations; and
- Any representation made by a person.
Common scenarios where we see conduct that may be deemed deceptive or misleading conduct, or conduct likely to mislead or deceive includes the following:
- Fake advertising in relation to the quality, performance or use of goods and services;
- Fake reviews and testimonials – which are intended to give consumers confidence in the goods or services. This may cause consumers to be persuaded into purchasing the goods or services, potentially to their detriment;
- Unfounded predictions and promises – this applies when you are aware that they are false. However, if there are reasonable grounds for a certain prediction or promise to be made, this may not be considered to be misleading or deceptive;
- Silence or failure to disclose relevant facts – particularly where important details that impact the decision-making process of a consumer is impacted;
- The use of fine print or disclaimers concealing important information; and
- Offering rebates and prizes, with an intention to lure in consumers, but failing to provide them.
It is important to remember that when selling goods and services, your business should be aware of the fine line that exists between conduct that is permissible and conduct that is actionable. While advertising your goods or services in a particular manner, may prove beneficial for sales and profits, you must be careful not to transgress into the territory that may be held to contravene s 18 of the ACL.
It is also important to be aware that the section will apply even though you may not have had the intention to mislead or deceive. Since intention is not an element of the section, it does not matter whether you claim or believe that you acted reasonably and honestly. Additionally, it need not be proven that there was loss or damage suffered by the claimant because of the conduct.
Can silence or non-disclosure constitute misleading or deceptive conduct?
Though businesses need not reveal all information in all circumstances, this may not prove to be a defence. The reason for this is because the failure to disclose certain information, may be considered to constitute misleading or deceptive conduct for the purposes of s 18(1) of the ACL. For example, you are selling electronics and a consumer walks in wanting a printer that will allow them to print photos directly from their mobile phone. The consumer tells you what type of mobile phone they have. They like the look of one printer, but you are aware that the printer is not compatible with their mobile phone. Nonetheless, you decide not to disclose this information and instead, you recommend the printer as a quality product. The consumer decides to purchase the printer.
The situation we have described above is an example of where silence in and of itself may constitute misleading or deceptive conduct for the purposes of s 18(1) of the ACL. It is possible for silence to constitute misleading or deceptive conduct, if the business fails to disclose facts which are relevant to the consumer and the decision that they are making. In the above example, the salesperson should have disclosed that the printer was not compatible with the consumer’s mobile phone. In particular, the retailer had knowledge of the incompatibility, but decided to withhold this information. It is reasonable to expect that this type of information would be disclosed, since it is likely to impact the decision-making process of the consumer. Had the salesperson revealed this information, the consumer may not have purchased the printer.
It is important to remember that determining whether silence amounts to misleading or deceptive conduct will depend on the particular circumstances of the matter, and will be decided on a case by case basis. However, one of the most important questions that arises when determining whether the conduct is misleading or deceptive is whether the overall impression that is created as a result of the conduct is false or somehow inaccurate.
‘Puffery’ involves making wildly exaggerated, fanciful or vague claims. For instance, a cafe may claim that it “makes the best coffee in the world”. This is a widely exaggerated claim and should not be relied on by consumers. Though it may help to sell the product, it is not expected that a reasonable person would believe the claim. Therefore, if it is found to be mere puffery, and it will not amount to misleading or deceptive conduct.
It is common to see that advertisements for goods and services will include a disclaimer and fine print. The usual examples include the wording “conditions apply” or the use of an asterisk (*), to indicate that a disclaimer is to follow.
It will depend on the circumstances of the case, but in some instances, if the disclaimer is clearly displayed and is simply ignored by a consumer, it may be sufficient in proving that there was no contravention of s 18 of the ACL. For example, a bank advertises low interest rates for home loans for the first 24 months. The disclaimer at the end of the advertisement clearly indicates that this will only be available for customers who apply for a home loan before the end of the month. As a customer, you fail to read this disclaimer and seek to apply for a home loan a month later. You think that you may have a claim under s 18 of the ACL. In this case, the disclaimer can be said to contain the terms and conditions, and does not contradict the overall advertisement. The fact that as a customer, you failed to read a disclaimer that was clearly displayed, means that your claim for misleading or deceptive conduct will likely not succeed.
On the other hand, disclaimers and fine print cannot be used by businesses to hide important details that may contradict the overall advertisement. Businesses may try to make the text too small to read; difficult to find; or obscured by other elements of the advertisement. If this is the case, it is likely that this will amount to misleading or deceptive conduct. For example, there is an advertisement for a free trip to Paris, France that can be won by entering into a competition online. As the consumer, you expect that “free” indicates that the flights and accommodation will be covered. However, at the end of the advertisement, the fine print indicates that this does not include accommodation. In this case, even if the fine print is prominently displayed, disclaimers and fine print cannot be relied on as an excuse for misleading or deceptive conduct. It is likely that this will constitute misleading or deceptive conduct, or that it is likely to mislead or deceive, since it contradicts the overall impression that the advertisement initially gives.
The threshold for finding a contravention of s 18 of the ACL is relatively low, particularly since it sets a norm of conduct that is expected and thus, any deviation from this norm may amount to misleading or deceptive conduct. The remedies which may be available to the claimant include the following:
- Damages to be awarded to compensate for the loss or damage suffered by the claimant; and
- Granting of an injunction – this may either restrain or require the defendant to do something.
It is also possible that the court will impose pecuniary penalties (monetary fines), which will vary in amount depending upon whether the defendant is an individual or business. The person or business will likely face further consequences if a contravention of s 18 of the ACL is found. These include the following:
- Damage to reputation of the business;
- Loss of trust and decreased consumer confidence; and
- Potential shutdown of the business.
If you suffer loss or damage because of the conduct, you may be able to bring an action against the relevant business or person, and potentially recover damages for the loss or damage suffered. In accordance with s 236 of the ACL, this action may be commenced within 6 years.
It is important to remember that it is possible to bring an action personally against an employee of a business, not just the business itself. For example, a salesperson that is selling you a toaster, may have knowingly made statements in relation to the quality and the performance of the item which were not true. In this example, the salesperson can still be held liable for engaging in misleading or deceptive conduct, even though it was during their employment.
What is next?
Whether you think that you may have a claim for misleading or deceptive conduct under s 18 of the ACL, or you have been accused of engaging in such conduct, MC Lawyers & Advisers can assist you with any questions or queries which you may have. It is important to speak to a legal professional so as to obtain advice on your specific circumstances.