Contract Law Exam Notes PDF

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T8. MISLEADING AND DECEPTIVE CONDUCT Introduction x

ACL s 18 provides that: o A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.

Cases relating to s 18: x

Comparative advertising. Corporation compares the features of its products against the features of its competitor’s products (Gillette Australia Pty Ltd v Energizer Australia Pty Ltd (2002) 193 ALR 629).

x

Misleading advice. Corporation alleged to have provided misleading information/advice subsequently causes loss/damage (Travel Compensation Fund v Tambree (2006) 222 ALR 263).

x

Pricing advertising. Where a corporation places an advertisement that contains ‘was/is now’ forms of statements (ACCC v Prouds Jewellers (2008) ATPR 42-094).

x

Banking. Where the conduct of banks in managing accounts or financial services was considered misleading or deceptive (Chiarabaglio v Westpac Banking Corporation (1989) ATPR 40-971).

x

Food and drink products. Where manufacturers have been alleged to be engaged in misleading conduct through the information contained on the labels attached to food and drink products (ACCC v Nudie Foods Australia Pty Ltd (2008) ATPR 42-245).

x

Franchising relationships. Where franchisors are alleged to have engaged in misleading conduct in either inducing entry into a franchise system or after a franchisee has joined a system (ACCC v Original Mama’s Pizzas & Ribs Pty Ltd (2008) ATPR 42-245).

x

Health and beauty products. Where manufacturers are alleged to have made misleading claims about the quantity or efficacy of their beauty products (ACCC v Emerald Ocean Distributors Pty Ltd (2005) ATPR 42-096).

x

Real estate sales. Where real estate agents and their firms are alleged to have engaged in misleading conduct in relation to the marketing and sale of both commercial and personal real estate (ACCC v Gary Peer & Associates Pty Ltd (2005) 142 FCR 506).

x

Sport. Where it is alleged that sporting organisations have engaged in misleading conduct in the conduct of sporting events or marketing (S&I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1999) ATPR 41-667).

x

Passing off. Where it is alleged that another corporation has engaged in misleading conduct in the marketing and promotion of goods or services that are alleged to be very similar in appearance or form as another corporation’s goods or services (Twentieth Century Fox Film Corp v South Australian Brewing Co Ltd (1996) ATPR 41-483).

x

No need to establish: o That a contractual relationship between the parties; o that the defendant corporation owed the plaintiff a duty of care that has been breached; that anyone has been misled or deceived.  Only need to establish that there has been conduct in trade or commerce that is or likely to be misleading or deceptive

x

The words in s 18 of the ACL are clear and unambiguous (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191). o However, the section affords little practical guidance.

x

S 18 prescribes a standard of conduct with consequences in general law or in statutes:

When is conduct ‘misleading or deceptive’? x Conduct is misleading or deceptive when it ‘leads into error’ OR ‘leads to a person or class of persons or the general public into making an error of judgement because the persons’ decision is made in error based on such misleading and deceptive information’ (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191). x

To determine whether there has been a contravention of the Act, it is necessary to determine whether the conduct complained of amounted to a representation which has or would be likely to lead to a misconception arising in the minds of that section of the public to whom the conduct has been directed (AstraZeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd (2006) ATPR 42-106).

Elements and threshold issues Elements Three elements must be satisfied to establish contravention to s 18: 1. A corporation or person engages in conduct; 2. ‘In trade or commerce’; that is 3. Misleading or deceptive, or likely to mislead or deceive.

Common Threshold issues: 1. Whether the conduct is ‘in trade or commerce’; 2. The Taco Bell steps for evaluating misleading or deceptive conduct; and 3. The methodology employed for evaluating the relevant ‘class of consumers’ alleged to have been misled. x

These foundational methods influence whether s 18 even applies (because the conduct in question might not be ‘in trade or commerce’); and if it does, who might have been misled (identifying the ‘class’ of consumers); and then whether that conduct is misleading or deceptive in breach of s 18.

E1.

Establish can be both a corporation or natural person

1.1

Just prove that either a corporation or natural person engaged in the conduct A ‘person’ is not expressly limited to ‘natural persons’, the term ‘person’ can include corporate entities (Houghton v Arms (2006) 225 CLR 553)

x

x

Explanatory Memorandum of ACL: Provision of the ACL apply to all persons – whether they are individual persons or bodies corporate – as it will be a law both of the Cth and of each State and Territory.

x

ACL s 18 may be used by consumers, traders, corporations or other parties in the event that those parties have experienced misleading or deceptive conduct (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191).

E2.

Establish conduct in trade and commerce x

ACL s 18 prohibits a person/corporation ‘in trade or commerce’ from engaging in conduct that is misleading/deceptive.

x

ACL s 2 defines the phrase ‘trade or commerce’ as: a) Trade or commerce within Australia; or b) Trade or commerce between Australia and places outside Australia; and includes any business or professional activity (whether or not carried on for profit).

2.1

Must be in trade or commerce, not merely connected with trade or commerce

There is a distinct between conduct ‘in trade or commerce’ on the one hand, and conduct ‘in connection with’ trade or commerce on the other. For conduct to breach ACL s 18, it must be in trade or commerce and not merely incidental to or in connection with trade or commerce.

2.2 x

Concrete Constructions – summary of the principles The phrase ‘in trade or commerce’ has a restrictive operation.

x

The narrower view is that the phrase ‘in trade or commerce’ refers only ‘to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character’. o I.e. the words ‘in trade or commerce’ refer to ‘the central conception’ of trade or commerce and not the ‘immense field of activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business’.

x

The broader view would encompass activities ‘which are undertaken in the course of, or incidental to, the carrying on of an overall trading or commercial business’. o E.g. where one employee gives inaccurate information to another in the course of carrying on the building activities of a commercial builder.

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 x Facts: Nelson an employee of Concrete Constructions. Was instructed by his foreman to move metal gates. Told that the gates were secured by three bolts. They were not. Nelson seriously injured. Argued misleading and deceptive conduct against Concrete Constructions (i.e. the statement by the foreman that it was safe to work on the gates). x

Preliminary Issue: Whether the direction given by the foreman was in trade or commerce

x

Decision: not ‘in trade or commerce’.

x

Obiter: ‘The giving of a misleading hand signal by the driver of one its trucks is not […] conduct by a corporation in trade or commerce. Nor […] is a misleading statement by one of a building company’s own employees to another employee in the course of their ordinary activities’

2.3

Application of the Concrete Constructions’ Reasoning

Private Sales by Individuals x Where non-incorporated (private) individuals sell private real or personal property (e.g. house, car), the conduct is generally not ‘in trade or commerce’ for the purposes of ACL s 18 (Smolonogov v O’Brien (1982) 44 ALR 347). Smolonogov v O’Brien (1982) 44 ALR 347 x Facts: Smolonogov purchased land from the O’Briens. During negotiations, the O’Briens made representations about the characteristics of the land. After inspecting the land, Smolonogov terminated the contract. Instituted proceedings alleging that the O’Briens had made false/misleading representations in trade or commerce in relation to the land x

Decision: Not engaged in trade or commerce. Sale of land was not done in the course of carrying on a business and it lacked trading or commercial character as a transaction. Does not matter that the mechanisms employed to sell the land are ordinarily used in trade or commerce.

Argy v Blunts (1990) 94 ALR 719 x Facts: Argys purchased an expensive property from the vendor (Mr Crooks) through an action conducted by Mr Crooks’ real estate agents (Blunts). Argys alleged that the pre-contractual representations by Crooks, Blunts and the vendor’s solicitors were misleading/deceptive. x

Decision: Crooks had not engaged in misleading/deceptive conduct. Cannot be said that sale of a house is trade in a business context. o Whether or not: a real estate agent is used; that agent advertises the property by preparing brochures; the agent sells by auction or negotiates a private treaty, the sale remains a sale by the vendor and not an act done in a business context.

Statements made in an employment context x Must distinguish between future and existing employee context: o Ask: Did the conduct occur in the course of negotiating a new employment contract with a potential/existing employee, or as part of an internal communication between an employer and existing employee? x

Conduct will be in ‘trade and commerce’ only if in the course of negotiating a new employment contract with a potential/existing employee (Roberts v University of New England [2009] FMCA 964).

x

Note: One line of authority holds that negotiations between an employer and prospective or existing employee are not conduct in trade or commerce. o The application of the Concrete Constructions principles compels the conclusion that these sorts of negotiations are ‘in relation to’ but not ‘in’ trade or commerce (Martin v Tasmania Development and Resources (1999) 163 ALR 79).

x

The other line of authority holds that such negotiations of themselves bear a trading or commercial character within the meaning of Concrete Constructions. o This is because a business cannot conduct any form of trade or commerce without employees (Stoelwinder v Southern Health Care Network (2000) 177 ALR 501).

Statements in the course of public debate x What is the situation where an organisation enters public debate, whether in the form of a national advertising campaign or various television and print media statements or comments? Depends on the individual facts of each case. General education/information campaigns versus industry-specific campaigns x Is there a close relationship between the allegedly misleading conduct and the advancement, maintenance or protection of the corporation’s commercial interests. o Yes – in T or C, no – Not in T or C

Educational/political campaign = Not T or C Orion Pet Products v Royal Society for the Prevention of Cruelty to Animals (Vic) (2002) x Facts: RSPCA made statements that electronic shock dog collars were cruel. Manufacturers of collars (Orion) argued statement was misleading/deceptive. x

Issue: Were the representations ‘in trade or commerce’?

x

Decision: Not ‘in trade or commerce’. o Statements made by RSPCA were part of an educational/political campaign to have collars outlawed. Their connection with the corporation’s trading activities were fragile at best, and any benefit accrued to RSPCA’s commercial revenue as a result of increased public exposure was purely incidental.

Advertisements = T or C Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations (1992) 111 ALR 61 x Facts: Newspaper advertisements by Tobacco Institute of Australia. Expressed in the risks associated with passive/second hand smoking. x

Issue: Statements ‘in trade or commerce’?

x

Decision: In trade or commerce because the conduct of the Tobacco Institute of Australia was intended to enhance and protect its commercial interests.

Maintaining or protecting business = Not T or C Village Building Co Ltd v Canberra International Airport Ltd (2004) 210 ALR 114 x Facts: Village Building applied to have land rezoned for residential purposes. CIA opposed residential development of land in vicinity of the airport (which included Village Building’s land). CIA explored the idea of obtaining approval for a new landing flight path that would reduce aircraft noise in one area but increase noise over housing the site of Village Building’s land at Tralee. o CIA Attempted to protect their interests in seeking approval for the proposed landing flight path by persuading both public and political decision-makers that rezoning as residential the land owned by Village Building would be a bad idea.  Village Building argued that CIA’s conduct was designed to protect and maintain its own business (i.e. was in trade or commerce) and not merely designed to participate in public debate on the desirability of developing the Tralee site x

Decision: Argument rejected – Not in trade and commerce o Maintaining or protecting business is not, of itself, enough to ensure that the conduct is in trade or commerce

Statements uttered in a lecture = Not T or C Pilmer v Roberts (1997) 150 ALR 235 x Facts: Roberts gave a series of lectures at a bible college asserting his belief that Mt Ararat could contain remnants of Noah’s Ark. Audio/video tapes, brochures and other materials were sold at these lectures. x

Issue: Were the lectures ‘in trade or commerce’?

x

Decision: Conduct was not ‘in trade or commerce’. Delivery of lectures not inherently a trading/commercial activity. o What is said in the course of the delivery of the lecture or address will not ordinarily be ‘in’ trade or commerce, even if the selling by the institution is. o Roberts’ misrepresentations were not placed ‘in trade or commerce’ by the fact that, to his knowledge, an admission charge was being imposed and recordings were being sold.

Conduct not in the course of person’s T or C but influences the trade and commerce of another x Can the conduct of person or corporation be ‘in trade or commerce’ for the purposes of ACL s 18 when that conduct is not in the course of that person or corporation’s trade or commerce but does influence another person or trading corporation’s trading activities? Answer: Yes see Firewatch

Dataflow Computer Services Pty Ltd v Goodman (1999) 168 ALR 169 x Facts: Goodman worked at Dataflow. After he left, he sent emails to retail stores to the effect that Dataflow would stop selling to retail stores and sell directly to members of the public. This was false, Dataflow had no intention of terminating its distributorship arrangements with the retail stores x

Decision: Although the email was misleading, it was not sent by Goodman ‘in trade or commerce’ o Goodman did not have a commercial or trading relationship with any of those whom he email was directed o No evidence that Goodman seeks to promote any interests other than his own.

o The sending of the email by Goodman is not conduct ‘towards persons with whom Goodman has or may have dealings in the course of those activities which of their nature bear a trading or commercial character’. C.f. Firewatch Australia Pty Ltd v Country Fire Authority (1999) 93 FCR 520 x Facts: CFA issued a bulletin to its members advising that extinguishers manufactured by Firewatch Australia did not comply with Australian standards. Bulletin recommended that extinguishers should not be used. o CFA argued that the internal publication of its bulletin was not ‘in trade or commerce’ because it was not of a commercial nature x

Decision: CFA’s bulletin was of ‘trading or commercial character o Held that although an internal CFA communication will ordinarily not have a trading or commercial character, the added recommendation to brigades they not be involved in the distribution or recommendation of Firewatcher extinguisher gave it a commercial character because: It intended to influence servicing brigades not to be involved in the distribution or recommendation of the Firewatch extinguisher.

Statements made by persons who are not themselves ‘in trade or commerce’ but does influence x Statements made by persons who are not themselves engaged ‘in trade or commerce’ may nevertheless be held to have been made in trade or commerce (Houghton v Arms (2006) 225 CLR 553). o Representation may be in the course of trade and commerce although it may not be in the trade and commerce of the person making the representation – as long as it is in the trade of the person to whom the representation is being made, it is made in trade and commerce

TCN Channel Nine Pty Ltd v Ilvariy Pty Ltd (2008) ATPR 42-262 x Facts: Reporter represented himself as a customer seeking a quote for building work to a builder who was under investigation by the program. o False representation to trick builder into letting reporter inside builder’s office. x

Decision: Representations made by reporter were ‘in trade or commerce’. o ‘The communications, directed as they purported to be for the sole purpose of acquiring the services of the respondents as builders, bore the requisite trading or commercial character’.

E3.

Establish that the conduct is misleading or deceptive

3.1

Taco Bell Methodology (Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177)

Conduct is misleading or deceptive if it ‘leads to error’. The following processes are used to consider whether conduct has led ‘into error’ and therefore breached s 18: x

STEP 1: Identify the relevant sections of the public to whom the conduct is likely to be misleading or deceiving

o The matter is to be considered by reference to all who come within it:  Including the astute or the gullible, the intelligent or not so intelligent, educated or not educated and men and women of various ages and vocations x

STEP 2: Whether from an objective outlook the statement (Conduct) is misleading or deceptive: o Evidence that some individual has formed an erroneous conclusion is admissible (persuasive but not essential). Such evidence does not of itself establish the conduct to be misleading or deceptive. o Conduct is likely to mislead or deceive if that is a real or not remote possibility regardless of whether it is less or more than 50% o Don’t have to prove that anyone was actually misled or deceived

x

STEP 3: Identify whether people are confused because of the misleading or deceptive statement: o It is necessary to inquire why any proven misconception has arisen. Only by this investigation can it be determined whether they are confused because of misleading or deceptive co...