#7291 - Misleading And Deceptive Conduct - Contracts 2

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594

Relevant Facts: The appellant company was constructing a building in Sydney. The respondent was an employee of the company working on site, who sustained injuries falling to the bottom of an air-conditioning staff while attempting to remove a grate at the entry point. He alleged his injuries were caused by the conduct of the company foreman who wrongly informed him that the grates at the entry points were fixed by bolts and it was safe to remove them. The worker fell because the grates gave way, not being fixed.

The worker claimed under s52 that his injury could be attributed to the worker ‘by reason of conduct....mislead or deceive’

Ratio (Mason CJ, Deane, Dawson and Gaudron JJ):

• Though Pt V must be interpreted with its heading (‘Consumer Protection’) it should not be said to apply to consumers alone – it hence applies to corporations involved in a transaction dealing with one another ‘in trade or commerce’

• The words ‘trade’ and ‘commerce’ are to be given wide import and are not terms of art, but the real issue arises with the requirement of the word ‘in’

  • The two competing views are whether it should encompass conduct in the course of all activities which though not in their nature of trading/commercial character but in the course of it or whether it could be construed as only referring to conduct which is itself an aspect of activities/transactions which bear a trading/commercial character

  • The narrower construction is to be preferred

• The court acknowledged that the line is not so easily drawn – concealing a defect may well constitute misleading or deceptive conduct

  • But the court said that when made by the company’s own employee to another employee it would not, without more be ‘in trade or commerce’. But the position may have been different if the statement was made during or for the purpose of some trading or commercial dealing between the corporation and the employee

• This case was concerned with internal communication by one employee to another in the course of ordinary activities in and about the construction of the building and hence was not within the ambit of s52.

Ratio (Toohey J):

• The word ‘in’ operates by way of limitation – the question si not whether the conduct engaged in was in connexion with trade or commerce – it must have been in trade or commerce

Order: Appeal Allowed

O’ Brien v Smolongov (1983) 53 ALR 107

Relevant Facts: The appellants acquired land which was under a conditional leasehold and in order to be built upon it would have be converted to freehold by paying fees etc. They decided they would like to build on a portion of the land and tod o so sell other portions of their holding. They advertised ‘building permit OK’, and when the first respondent called and spoke over the telephone a number of misrepresentations were made concerning its location, the quality of the land, the presence of a building permit etc.

Following these representations the parties entered into a contract of sale for a purchase and deposit price paid by the respondents, completion taking place 8 weeks after. By notice, 8 days before completion the respondents purported to rescind, demanding a return of the deposit and interest on costs, on the claim that false/misleading statements were made contrary to s53A(1)(b).

The trial judge held that he was satisfied the statements were made ‘in connection’ with the possible sale and that they concerned either its location/characteristics – ordering a refund of the deposit and damages/legal costs. The appellants appealed.

Ratio (Fox, Sheppard and Beaumont JJ):

• s53A doesn’t apply since the appellants are individuals but they come within the ambit of the Act because of s6(3) which extends the act to conduct over the telephone – which was the primary method of dealing in their course of business

• The trial judge thought that because the conduct involved an invitation to the public at large to treat with them, ordinary means of trade/commerce were utilized and hence the conduct was done ‘in the course of...’

• The Bill explaining its operation prohibits ‘commercial practices’ unfair to consumers – though not defined in the US this has been held to not be inclusive of a private sale of property unless in the course of business activity

• The land was not to be used for business activity – the only thing left to be relied upon was the newspaper medium used for public advertisement and the use of telephone. But the mere use of facilities commonly employed in commercial transactions cannot transform a dealing which lacks any business character into something ‘in trade or commerce’

Order: Appeal allowed

Houghton v Arms (2006) 225 CLR 553

Relevant Facts: Arms engaged WSA Online to provide website design services. Two of their employees (Houghton and Student) told htem that a particular web-based payment system could be set up easily and represent the extent of documentary obligations to be fulfille d by participants on the website. Arms set up a web-baseed wine-selling business based on these representations and as a result of their falsity was required to restructure his business, causing it to operate at a loss for a period of time. He sought to recover this loss on the basis that H&S breached s9 of the FTA which provides a ‘person must not in trade or...misleading....’

Ratio (The Court):

• The representations that in order for operation of the website, he would not be required to obtain from wineries any documentation other than a form providing for bank details were undoubtedly ‘with a character of an aspect or element of trading or commercial activities or transactions’ as used in Concrete Constructions

  • Like Toohey J said, though the nature of the business is determinative, the section also includes statements made by a person not themselves engaged in trade/commerce if e.g. they designed to encourage others to invest

  • Arms was engaged ‘in trade and commerce’ under the name of his company and enlisted WSA to provide services/advice for the business -0 it doesn’t matter that H&S weren’t proprietors or that their activities was an aspect/element of ACD/WSAs trade/commerce but no their trade/commerce

  • H&S were nevertheless engaged in conduct in the course of.... and were within the ambit of the FTA

Order: Appeal dismissed

Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45

Relevant Facts: CSL developed a business of selling perfumes/cosmetics under the trademark NIKE in Spain and Africa. N sold sporting goods throughout the world under the trademark NIKE and had a reputation in AU for the manufacture of athletic sports/footwear. CSL attempted to enter into an arrangement with the parent company of N to sell these goods in AU but were refused as not being consistent with N’s image. They began producing/distributing NIKE SPORTS FRAGRANCE in their own right. The product was distributed to pharmacies that displayed them near other sports fragrances. N commenced proceedings that this distribution was likely to mislead/deceive members of the public into thinking the the product was in some way promoted/distributed by Nike itself or with its consent/approval

Principles (The Court):

• The question/issue that arises in these cases is why the misconception created by the conduct arises in others – hence there must be a sufficient nexus between the conduct and those misconceptions/deceptions

• In cases like this the question must be approached at a level of abstraction not present in one involving untrue representations made by an individual – it further involves the objective attribution of certain characteristics to them

  • From Puxu - Namely s52’s ambit concerns the effect of the conduct on reasonable members of a class – in this case consumers

• The question is interlinked to the doctrine of ‘erroneous assumption’ and the erroneous assumption laboured under by the representee will be a relevant and sometimes decisive factor

• But regards should not be had to assumptions that are not only erroneous but extreme and fanciful (e.g. that laws restricted anyone from putting the name Nike on pet food etc.)

• The fact that companies may and do expend the range of products they produce cannot of itself warrant that a particular company had done so – but in Taco Bell...