T2 2018 MLL217 Sumary Lecture Notes Topic 5 PDF

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Summary of Lecture Notes by Sharon Erbacher © Topic 5 The Nature of Misleading Conduct 2. The Nature of the Prohibition (a) Meaning Section 18 prohibits conduct that leads, or is likely to lead, into error the person or persons to whom it is directed. “Likely” in this context means that the conduct has the capacity or tendency to mislead, and make it clear that it is not necessary to show that the conduct actually misled anyone: Parkdale Custom Built Furniture v Puxu Pty Ltd per Gibbs CJ at [8]. As a general rule it is not essential to show that the respondent had an intention to deceive: S&I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd (1998) 88 FCR 354. Section 18 liability is strict in the sense that a respondent who engages in misleading or deceptive conduct will contravene the section even though the defendant was acting honestly and reasonably. Although the word ‘deceptive’ does suggest cheating or deliberately leading into error, the word ‘misleading’ is much broader and does not carry a connotation of bad faith or fault: Parkdale, per Gibbs CJ. That having been said, where an intention to deceive does exist, the conduct will usually be found to be misleading or deceptive: S&I Publishing Pty Ltd v Australian Surf Life Saver Pty Ltd. And there are some forms of conduct that will only be misleading or deceptive if fault can be shown. These include statements as to the future or statements of opinion, (see topic 6) and cases of accessorial liability (see topic 9). Section 18 is not limited to traditional forms of representation: State Government Insurance Corp v Government Insurance Office of New South Wales (1991) 28 FCR 511. For example, silence can amount to conduct under s 18 in a greater range of circumstances than at common law (see topic 6). Further, common law does not usually regard contractual promises as ‘representations’, however a contractual promise can form the basis of a claim for misleading or deceptive conduct in appropriate cases (see topic 6). Although in most cases the conduct will involve the making of a representation, and it would be usual for the applicant to plead and prove that a representation was conveyed by that conduct, it is not essential to do so. This is because s 18 refers to “conduct” rather than a representation, and accordingly the focus must be on the causal link between the conduct in question and the error said to have been induced by that conduct: see ACCC v Meriton Property Services Pty Ltd [2017] FCA 1305.

Where the corporation is a foreign corporation and the representations are contained on a website hosted on an overseas server, and accessible to people all around the world, a preliminary issue might arise as to whether conduct occurred in Australia so as to attract the operation of the ACL. In an important decision, the Full Court of the Federal Court of Australia held in Valve Corporation v ACCC [2017] FCAFC 224 that where the foreign corporation has a direct relationship with a significant number of Australian customers who access and read the representations on his or her computer in Australia, the conduct does occur here and the corporation is subject to the obligations in the ACL.

(b) Evidence Whether conduct is misleading or deceptive is determined objectively by the Court on the basis of all the surrounding circumstances. Where conduct is directed to the public, evidence of members of the public that they have been deceived is not essential. Nor, if given, is it determinative of the question. It is merely persuasive: Parkdale, per Gibbs CJ. However, evidence that persons have actually been misled can be used to support an inference that is otherwise objectively capable of being drawn that the conduct is misleading: Homart Pharmaceuticals Pty Ltd v Careline Australia Pty Ltd [2017] FCA 403. Furthermore, it may be that evidence that the recipients are misled is important in cases which rest upon the court drawing a conclusion about the impressions the recipients of the conduct would draw from a visual representation: Guy v Crown Melbourne Limited (No 2) [2018] FCA 36. In Guy Mortimer J was dealing with the visual operation of an electronic gaming machine and the impressions that would be formed by users of the machine. In that context her Honour said (at [349]) that: …[W] without the benefit of direct evidence from others who have gambled and “experienced” the impugned features, the Court is asked through the view to assign the impressions and effects experienced by the judge to the hypothetical gambler. There is a high degree of subjectivity and variation in this task, that is not present when a court is asked to assess language or text ... There is the added difficulty in this instance where the Court is being asked to consider whether certain “impressions” are formed by the hypothetical gambler, in circumstances where the parties have necessarily prompted the Court on what these impressions might be. That is why I consider some caution needs to be applied to the impressions formed, and effects experienced, during the view. It is virtually impossible to decide, on the evidence, whether they are representative of, or commensurate with, the hypothetical gambler.

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The same approach potentially applies to passing off cases that are based on the visual appearance of two products (see Topic 7). In cases where the conduct was directed towards a specific individual (example a precontractual representation), evidence by that individual of actually having been misled or deceived, whilst persuasive, will generally not be determinative of the question whether the section has been contravened. However, if the applicant is seeking rescission of the contract or compensation for loss or damage, it will be crucial for the applicant to give evidence that she was misled or deceived in order to prove a causal link between the conduct and the entry into the contract/suffering of the loss or damage. (c) The benchmark: the ordinary or reasonable member of the target audience Whether conduct is misleading or deceptive is to be tested by reference to the persons to whom it is intended to be directed and those to whom it could reasonably be anticipated that it would be directed: Campomar Sociedad Limitada v Nike International Ltd. Where conduct, such as a pre-contractual representation, is directed to a particular person, the conduct will be judged by reference to whether an ‘ordinary’ or ‘reasonable’ person in that person’s position would be misled. The test for determining whether conduct is misleading is not whether the applicant was misled (although if the applicant is seeking a remedy such as damages it will at that stage become necessary for the applicant to establish that he or she was actually misled). The test is objective, so that whether conduct is misleading is judged by reference to the ordinary reasonable person in the applicant’s position: Campbell v Backoffice Investments Pty Ltd [2009] HCA] 25 French CJ at [25], Gummow, Hayne, Heydon and Kiefel JJ at [102]. However, as said by French CJ in Campbell v Backoffice Investments Pty Ltd [2009] HCA] 25 at [26], the conduct must be considered against the background of: ‘the circumstances and context of the questioned conduct. The state of knowledge of the person to whom the conduct is directed may be relevant, at least in so far as it relates to the content and circumstances of the conduct.’ Thus, as French CJ recognises in Campbell, a ‘lower level of abstraction’ will be relevant where the conduct is directed to a specific individual as opposed to the general public, and at least some of the subjective circumstances surrounding the conduct might be taken into account. This is illustrated by Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60 (discussed further below). In that case the majority took into account the fact that the purchasers were sophisticated business people, with considerable business and property investment expertise who were being advised by professional advisers. Thus, the benchmark becomes the ordinary reasonable purchaser with those attributes.

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Where a product is mass-marketed by way of advertising to the public at large, the relevant audience will usually be the class of actual or potential consumers of the product: Siddons Pty Ltd v The Stanley Works Pty Ltd. It is only if the relevant members of that audience would be misled or deceived that s 18 will be contravened; it being irrelevant that other sections of the public might be misled: Weitmann v Katies Ltd (1977) 29 FLR 336. So who are the ‘relevant members’ against whom the conduct is to be judged? The High Court in Campomar Sociedad, Limitada v Nike International Ltd (2000) ATPR (Digest) 46-201 identified the relevant members as follows (at pp 50,34750,348): ‘Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class. The inquiry thus is to be made with respect to this hypothetical individual why the misconception complained of has arisen or is likely to arise if no injunctive relief be granted … The initial question which must be determined is whether the misconceptions, or deceptions, alleged to arise or to be likely to arsie are properly to be attributed to the ordinary or reasonable members of the class of prospective purchasers.’ (emphasis added) The ordinary reasonable consumer is not particularly well-educated, intelligent or wellinformed, but is not ‘unusually stupid’: see, example, Franki J in Annand and Thompson Pty Ltd v TPC (1979) 40 FLR 165 and Campomar Sociedad, Limitada v Nike International Limited. As Murphy J recognises in ACCC v TPG Internet Pty Ltd [2011] FCA 1254, where the advertisement is directed to the public at large, the class will be very diverse and will include those who are not particularly astute, well-educated or wellinformed. As his Honour said at [24]: ‘The Court must take into account that an advertisement published to the world at large is designed and calculated to be seen and read by a wide range of persons, including the shrewd and the ingenuous, the educated and the uneducated, the experienced and inexperienced in commercial transactions. It will include the astute, the informed, those who are sceptical and read the small print, those who are intelligent and those who are well informed. It will also cover many who do not possess those characteristics, those who are less informed and those with average intelligence: Telstra Corp Ltd v Cable and Wireless Optus Ltd [2001] FCA 1478 at [21]-[25] …’ The ‘ordinary’ or ‘reasonable’ consumer is permitted to engage in a certain amount of ‘loose thinking’; that is will often approach the question impressionistically, and often will not be totally rational and logical in analysing the conduct. This will be particularly so when the item is an everyday inexpensive item: Siddons Pty Ltd v The Stanley Works Pty Ltd. Where the item is a substantial rather than an impulse purchase, it appears that a lesser amount of ‘loose thinking’ will be tolerated.

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In that circumstance a reasonable consumer is expected to take some care to evaluate the claims made (ACCC v TPG Internet Pty Ltd, at [30]) and will avoid extreme or fanciful assumptions when evaluating those claims: see Parkdale below. The ordinary, reasonable consumer might be attributed with some of the knowledge of the commercial practices in the relevant industry: ACCC v TPG Internet Pty Ltd [2013] HCA 54 (prospective purchasers of adsl services attributed knowledge that these services are generally bundled with a home phone plan). In Guy v Crown Melbourne Limited (No 2) [2018] FCA 36 Mortimer J took judicial notice of the fact that “there is a significant proportion of the Australian community who have little or no literacy skills in English”: at [339]. Her Honour queried whether, when the conduct to the general public, the benchmark of the ordinary or reasonable person has been set too high, indicating that most authorities base the test on the premise that all members of the class can read and understand the English language as their first language, or at a similar level of proficiency. Her Honour queried (at [340]) whether the test might need adjusting in light of the multicultural composition of modern Australian society: Many [authorities] implicitly assume a fairly high level of formal education in the “ordinary and reasonable” consumer. It is a larger question, and not one that needs to be answered in this proceeding given the findings I have made and the lack of engagement by the parties with the matter, but at some stage courts may need to start readjusting the approach taken to the hypothetical “ordinary and reasonable consumer”, so that it does not involve an inherent bias towards individuals with a relatively high level of formal education and literacy who have English as their first, or at least completely proficient, language. The conduct must be tested by reference to the target audience, so it will not contravene s 18 where it would not mislead the target audience even though other members of the public might be misled. For example, in Astrazeneca Pty Ltd v Glaxosmithkline Australia Pty Ltd [2006] ATPR 42-106 claims about the effectiveness of an asthma treatment were not misleading as they were targeted at general practitioners who would not be misled by the conduct even though members of the general public would have been. Conversely, the conduct will contravene s 18 if the target audience would be misled even though others might not be. So in Targetts Pty Ltd v Target Australia Pty Ltd (1993) ATPR 41-231 the use of the word ‘Target’ on a department store was held to mislead consumers in Launceston into believing a connection with a pre-existing department store ‘Targetts’, even though it would not mislead consumers in other parts of the nation. Will a failure by the plaintiff to take reasonable steps to check the accuracy of the claim amount to a defence? The generally stated proposition is that failure by the applicant to make reasonable investigations into the respondent’s claims is not relevant to s 18 liability (Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112). However, in Campomar Sociedad, Limitada v Nike International Limited the High Court

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(at p 50-347) endorsed a statement by Gibbs J in Puxu that s.52 [s 18] did not operate for the benefit of persons ‘who failed to take reasonable care of their own interests’. Thus, in some circumstances at least, a ‘reasonable consumer’ might be expected to take steps to protect her own interests, including seeking further information from third parties. Thus, in Campomar the court suggested that a reasonable consumer looking to buy a lounge suite (the facts of Puxu) might not notice the very slight differences in the appearance of the two pieces of furniture, but could reasonably be expected to attempt to ascertain the brand name of the particular type of furniture on offer by checking the labelling. (d) Surrounding circumstances It is necessary to examine the whole of the respondent’s conduct and surrounding circumstances in order to determine if the conduct is misleading or deceptive: Puxu. However, the situation is different where in all the circumstances it is the dominant impression that would be conveyed to the ordinary or reasonable recipient, and that dominant impression is misleading. In that situation a contravention will occur even though a careful analysis of each constituent part of the document would reveal the true situation: see National Exchange Pty Ltd v ASIC (2004) ATPR 42-000 (letter was literally accurate, but created overall a misleading impression that the deal being offered was favourable). See further topic 7 for a discussion of principles relating to the ‘dominant impression’ in advertising, with reference to the recent High Court decision in ACCC v TPG Internet Pty Ltd [2013] HCA 54. Where the conduct constitutes postings to a social media site such as Facebook, it has been suggested that readers would read the latest postings in the context of the earlier ones on the same topic. Accordingly, it is the entirety of the postings on that topic that will determine whether the conduct was misleading or deceptive: Madden v Seafolly Pty Ltd [2014] FCAFC 30; ACCC v Valve Corporation (No 3) [2016] FCA 196. Though cf Homart Pharmaceuticals Pty Ltd v Careline Australia Pty Ltd [2017] FCA 403. There could be circumstances which negate what would otherwise be misleading conduct, such as the presence of a disclaimer clause in a contract (see below) or attaching a label to the product (see Parkdale below). The mode and manner of the representation will also be important. For example, claims made in a television advertisement, in which people have no time to evaluate the claims made, might be more likely to be misleading or deceptive than an advertisement in a newspaper where the readers have more of an opportunity to analyse the item: TPG Internet Pty Ltd v ACCC [2012] FCAFC 190 (FCFC). Further, as a general rule, the less expensive the item the less time consumers are likely to be expected to evaluate the conduct; they act impressionistically. Thus in ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 634 Allsop CJ said the following about the decision-making process when consumers are purchasing a household staple such as bread (at [41]– [43]):

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It is necessary to view the conduct as a whole and in its proper context. This will or may include consideration of the type of market, the manner in which such goods are sold, and the habits and characteristics of purchasers in such a market. The context will also include relevant disclaimers or explanations. In assessing advertising material, the “dominant message” of the material will be of crucial importance. Where conduct or representations is or are directed to members of the public at large, the conduct or representations must be judged by their effect on “ordinary” or “reasonable” members of the class of prospective purchasers. In a context such as the present, the purchasing of a staple such as bread in a supermarket, the ordinary or reasonable person may be intelligent or not, may be well educated or not, will not likely spend any time undertaking an intellectualised process of analysis, will often be shopping for many other items, and will be likely affected by an intuitive sense of attraction rather than by any process of analytical or logical choice. The dominant message of advertising for bread is likely to be simple, though intuitively diffuse.What is reasonable care by members of the public must be judged in the above context. The purchase of bread from a baker or bread shop should not normally call for astute attention to disclaimers about the wares on sale at the counter. [citations omitted] (e) Conduct causing confusion or uncertainty For conduct to be misleading or deceptive it must do more than merely cause confusion or uncertainty as to (for example) the source of products. The conduct must actually lead the persons to whom it is directed to an erroneous conclusion on the source of the products: McWilliams Wines Pty Ltd v McDonald’s System of Australia Ltd (1980) 49 FLR 455; Hornsby Building Information Centre v Sydney Building Information Centre (1978) 140 CLR 216; Guy v Crown Melbourne Limited (No 2) [2018] FCA 36. Accordingly, the use of get-up or a brand name similar to that of a competitor’s, which leads consumers to be confused as to, or to wonder about, whether the competitor is the source of the product, is not of itself generally misleading or deceptive conduct. It will only amount to misleading or deceptive conduct if the consumer actually (or is likely) to reach a conclusion that the product is that of the competitor. Guy v Crown Melbourne Limited (No 2) [2018] FCA 36 is an example of a case where the conduct (in respect of the representation about the return to players) was found to be likely to cause confusion among players, but not actually l...