#7420 - Misleading And Deceptive Conduct - Contract Law

Week 11- Misleading and Deceptive Conduct:

• Section 52(1) of the Trade Practices Act provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Section 52 does not create liability but a standard of conduct in trade or commerce. Someone who breaches this section will have to pay damages through section 82. Section 87 allows the court to grant any other order is sees fit.

• Section 52 in the TPA only applies to corporations.

• Section 6 of the TPA extends the act beyond corporations to people who engage in trade and commerce outside Australia, among the state and between territories or if they use postal or telephone services. Each state has their own legislation against individuals doing this kind of behaviour.

• Misleading conduct must be ‘in trade or commerce’. This excludes those who act in a private capacity concerning domestic transactions.

• An individual acting on behalf of their employer may breach the prohibition against misleading and deceptive conduct even if it was on behalf of the employer.

• You must look at the relevant audience the conduct is directed at to find out if there has been misleading or deceptive conduct. Yet it is often directed at the public at large like advertisements for mass marketing. If it is addressed to specific individuals then the assessment of whether the conduct is misleading is to be made by reference to the individual.

• What type of conduct may be misleading? If it has the capacity to lead into or cause error. That is when a person is led to believe things that are not true. You must pay close attention to the context in which the representations are made.

  • Puffs: A certain degree of puffery or exaggeration is to be expected in the ordinary course of business. The question is whether they were capable of leading the person into error.

  • Silence: Failure to disclose information will sometimes be misleading conduct like a half truth. If they have failed to disclose an alteration of circumstances after a statement has been made or correct it when they know it is inaccurate.

  • Reasonable expectation of disclosure: If a fact has not been disclosed the court must ask it is reasonable to expect an independent duty to disclose. You look at the effect of the conduct (the reasonable expectation test). It is a matter of context.

  • Deliberateness: Silence must be deliberate if it is misleading conduct. This is an iffy question in the courts.

  • Representations about future matters: Governed by section 51A. The representation is misleading if the corporation does not have any reasonable grounds for making the representation. Otherwise it won’t be misleading unless there is evidence to the contrary. It occurs when the future matter implies that the representor is of a statement of mind when it is made in which they genuinely believe what they say.

  • Promises about future conduct: The making of a commitment to do something in the future shows that they currently intend to perform and the commitment will be honoured in the future. It may be misleading conduct.

  • Promises about a present state of affairs: If it affirms a presently existing state of affairs it is called a warranty. If what is promised does not exist, it is misleading.

  • Opinions and statements of belief: May be misleading conduct but not simply because it is later shown to be incorrect. The courts focus on whether the representations were impliedly made by the giving of the opinion and whether the representations were false. They need to know if it is genuine and has a reasonable foundation.

  • Statements of law: A misstatement of law can be misleading conduct. The expertise and knowledge of the person making the statement is relevant for whether it constitutes as misleading. If the party holds itself as having expertise it is more likely to be misleading.

• What are the remedies? Under section 82 a person who suffered breach as a result of contravention is entitled to damages. Section 87 says that the court can give what it thinks fit to prevent loss. This includes under section 75B those who have aided or abetted the contravention. Loss or damage must be proved under section 82 to bring an action. It must be directly caused by the action. Loss or damage is often calculated on a reliance basis.

• For loss of opportunity the applicant must sustain a prejudice or disadvantage as a result of altering their position in reliance of the misleading conduct. They must restore expectations that they lost like entering a profitable contract.

• Expectation damages are awarded for breach of contract and are used to put the person in the position they would have been in. If expectation loss is caused by misleading or deceptive conduct then section 82 which provides the measure of damages (‘the amount of the loss or damage’) will apply. You must prove loss under section 82 and it must be a result of the misleading or deceptive conduct. Many courts do not think that expectation damages are a compensable loss under section 82.

• Exemplary damages are aimed at punishing or deterring repetition of such conduct. They are not available under section 82 but you can get damages for distress.

• Damages under section 82(1B) can be reduced if the plaintiff’s loss is caused partly by their own failure to take reasonable care.

• Part VIA allows an apportionment of damages where loss or damage has been caused by the acts or omissions of two or more persons. They recover the proportion of the loss for which the wrongdoer is responsible.

• Section 87(1A) provides that the court may “make such orders...[as they] think appropriate against the person who engaged in the conduct or a person who was involved in the contravention...(if the court considers that the orders concerned will compensate the person who made the application...in whole or in part for the loss or damage or will prevent or reduce the loss of damage suffered or likely to be suffered”.

  • A person who is involved in the contravention under section 75B is someone who has aided or abetted, or have been knowingly concerned in a contravention.

  • Section 82 is concerned with compensation for actual loss or damage but section 87 extends it to include prevention and reduction of loss or damage which is likely to be suffered.

  • They can declare a contract void, vary a contract, refuse to enforce provisions, direct a refund or return of property, direct payment of the amount of damage, direct repair of goods, the supply of specified services of direct variation of an instrument transferring an interest in land.

  • Section 87 does not restrict the court as the general law does. They may seek guidance from general law principles.

  • Relief can only be given under section 87 if they suffer or are likely to suffer loss or damage. They have to show they would have acted in some other way which would have been of greater benefit or less detriment.

  • There is nothing under section 82(1B) or section 87 which requires explicitly for monetary awards to be reduced when the loss arises partly as a result of a failure of the applicant to take reasonable care.

• You must show actual reliance on the misleading conduct but it doesn’t stop causation if they make their own enquiries.

• The plaintiff has the burden of proving causation

• The butt for test is useful to see if there was causation and the loss was caused by misleading conduct. Would the plaintiff have entered into the contract but for the defendant’s misleading conduct? If the answer is no then this shows the ‘but for’ test.

• If there are several inducing factors the court will take it into account.

• If the plaintiff failed to make appropriate investigations regarding the accuracy of the misleading statement there will still be a casual connection but damages under section 82(1B) for a section 52 breach may be reduced where the loss is partly attributable to their failure to take reasonable care.

• Parties try to avoid the statute by limiting liability through a merger clause (an entire agreement clause that limits a party’s duties to the terms set out in the document and declares that the agreement is the entire understanding between the parties) and acknowledgment clauses or disclaimers about the accuracy of the information. This stops them establishing that they relied on the misleading conduct and makes it hard to show actual reliance. The disclaimer must be worded unambiguously and feature prominently. In Butcher v Lachlan Elder the disclaimer worked because it was only two pages and Butcher had professional advice so it changed the nature of the representations made by the agent.

• An appropriately worded disclaimer if sufficiently prominent may prevent the alleged misconduct from being misleading or make it difficult for a person to show actual reliance on the misleading conduct. It must be worded unambiguously.

• Excluding liability through an exclusion clause is unlikely to succeed. You can’t oust a statutory remedy. Section 52 is a consumer protection provision aimed at protecting the public from misleading conduct and to allow an exclusion clause would make it ineffective.

• An acknowledgment clause is when you sign a separate deed acknowledging that no representation of the lessor has been relied upon by the lessee in entering into the lease. They do not always work if there was misleading conduct to get them to sign. They are only useful for evidence to make it harder for the plaintiff to say that the representations were an inducement.

cases

Trade Practices Act 1974 (Cth)

Division 1- Unfair Practices

51A (1) and (2)