Misleading or Deceptive Conduct under the ACL

The ACL Section 18(1) provides that “A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”

In addition to applying to persons generally, this section applies as a Commonwealth law to the conduct of corporations (Section 131, CCA).

Remedies for misleading conduct include damages, injunction, rescission of contract and other measures.

This section has had a profound effect on Australian commerce. It has generated a vast case law.

Although Section 18 appears in the Australian Consumer Law, the Section is not limited to consumer transactions or dealings.

Many of the cases on misleading conduct are business-to-business cases.

In addition it is a very useful law for consumers to use when an over-enthusiastic sales person has persuaded the consumer to buy with statements that turn out not to be correct.

The remedies available for misleading conduct are in addition to, and independent of, the remedies available for breach of consumer guarantees.

The concepts of misleading or deceptive conduct have been taken at face value by the courts.

For conduct to be found to be deceptive requires an intention to deceive (fraud) and so is of little relevance because proving fraud is difficult.

But for conduct to be found to be misleading requires no intention or particular state of mind.

In fact the prohibition of misleading conduct imposes a strict liability not to lead another into error in commercial and consumer dealings.

Case law has established that an innocent (non-fraudulent and non-negligent) statement can still generate liability.

It is also possible to be liable for what was not said if the failure to speak up was in context misleading.

This usually arises when a person has made a statement but fails to qualify it sufficiently.

The impact of Section 18 and its legislative predecessors has been very wide.

False advertising is caught by this legislation and it is possible for anyone to put a stop to a misleading advertisement, but this is usually left to the ACCC or sometimes a rival trader.

This treatment focuses on the contract-related effect of the legislation, that is, usually misleading conduct in the lead-up to a contract or during the running of the contract.

The courts have been wary about allowing statutory misleading conduct in effect to displace the law of contract.

Consequently it has been held that making a promise and then later not keeping it is not misleading conduct unless the promise was not genuinely made in the first place (that is, it was fraudulent which is difficult to prove).

Even so, some types of promises, for example about the performance or capability of a product, have generated liability under this legislation.

Misleading Conduct Must Happen in Trade or Commerce

For a person to take court action under the ACL, in relation to misleading conduct, the conduct needs to have happened while the accused was engaged in trade or commerce.

This has been interpreted very broadly by the courts and covers any kind of commercial activity, including the dealings before a contract is made.

It is easier to state where the legislation does not apply than to discuss the huge number of case where it does apply. It does not apply to:

• Private, one-off sales, for example, the sale of a car after having advertised it in The Mercury, or on Facebook;
• Internal communications within an organisation, such as a company or government department;
• Regulatory activity by government bodies;
• Provision of information by government in a non-commercial context, for example, information about pension rights; or
• Political statements.

The conduct of tenders by government is in trade or commerce as are ordinary procurement activities but governments are immune unless they are carrying on a business.

Procurement is not carrying on a business.

You should seek legal advice before commencing legal action in relation to an alleged breach of the ACL as it relates to misleading conduct.

Strict liability

Mention has been made already of the strict liability imposed as a result of the word ‘misleading’ (but not ‘deceptive’ which requires a guilty mind).

This is one of the most remarkable things about the ACL legislation.

It is not to the point for a person accused of misleading conduct to say that he or she did not know that the information was incorrect or that he or she took all due care when preparing the information.

The only question is: was it misleading? Did it lead the other party into error?

An innocent person can be found to have engaged in misleading conduct.

The strict liability principle in relation to misleading conduct has two possible exceptions:

• If the misleading conduct consists of making a statement about the future, the person making the statement can defend by proving that he or she had reasonable grounds for believing that the prediction was correct (Section 4, ACL);
• A person who acts as a ‘mere conduit’ for information that turns out to be incorrect can defend an action based on misleading conduct. It must be clear that the provider of the information is not in any way responsible for it and is just passing it on for what it is worth.

No exclusion

It is not possible to draft a clause in a contract that effectively removes potential liability for misleading conduct.

There have been many attempts and almost universal failure.

This is not because there is any section in the legislation which prohibits contracting out, as is common in other legislation discussed in this chapter.

Instead, the courts take the view that parliament has set a standard of conduct by legislation and it is not possible to contract out of that.

So long as a person has been misled in trade or commerce, no contractual device can remove this fact. This applies no matter what form the clause takes.

However, it is possible to qualify the information so as to make it not misleading if it turns out to be wrong.

The High Court held that an inaccurate survey diagram, included in a real estate agent’s brochure for an expensive house, was not misleading because of a disclaimer in the brochure that stated that information provided may not be accurate and that potential buyers should check for themselves.

Note that this was a disclaimer in the brochure which contained the misleading information. It is still true after this decision that an exclusion clause buried in the fine print of the contract will not be effective.

Time limit

An action based on misleading conduct must be brought within 6 years of the accrual of the cause of action (Sections 236(2) and 237(3)).