Misleading and Deceptive Conduct

Executive Summary

Misleading and deceptive conduct, fraud, and misrepresentation can have serious consequences for individuals and businesses. These issues often involve false or misleading statements or actions that cause harm or financial loss to others.

Within this article, our expert commercial litigation lawyers will breakdown misleading and deceptive conduct, fraud and misrepresentation.

Misleading and Deceptive Conduct

Misleading and deceptive conduct is conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive another party.

Section 18 of the Australian Consumer Law (ACL) contained in schedule 2 of the Competition and Consumer Act 2010 (Cth) states that ‘A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’.

A similar provision is contained within the Australian Securities and Investments Commission Act 2001, relating to financial services, which states at section 12DA that ‘A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive.’

Therefore, for a claim of misleading conduct to be considered, it must do so in trade or commerce, which encapsulates most commercial activity but excludes private sales.

There are several examples of conduct that has been found to be misleading and deceptive, including:

1. Misleading statement (or conduct) – a statement for the purposes of misleading or deceiving another party. This includes when a third party ‘creates, adopt or endorses’ misleading or deceptive statements.

2. Silence – silence can amount to misleading and deceptive conduct in circumstances where a party fails to disclose relevant information.

3. Predictions of the future – making a statement that is projecting, predicting or forecasting the future can be deemed misleading and deceptive. For example, a party predicting a company will make $2,000,000.00 without any justifiable basis or substantiation for this prediction.

The Courts will apply an objective test as to whether the conducts, leads, or is capable of leading a person into error and will consider the following (among other) factors:

1. Conduct at the time – the Courts will consider the relevant parties conduct at the time of occurrence. For example, the Courts have held that making a promise and not later keeping it would not be misleading conduct unless the promise was not genuine in the first place.

2. Mere Conduit – A party will not be liable for misleading conduct simply by passing on information as a mere conduit.

3. Intention – Unlikely misrepresentation or fraud, misleading and deceptive conduct does not require an intention to mislead or deceive and therefore, a party can be liable for misleading conduct even if it was unintentional.

Remedies

The remedies available for misleading and deceptive conduct, includes:

1. Declaratory relief – Declaration of the Court confirming that the conduct was misleading and deceptive.

2. Corrective Advertising – An order of the Court requiring the misleading party to correct any advertising that may be misleading or deceptive.

3. Injunctions – An order of the Court requiring the misleading party to perform a certain action or be restrained from undertaking such conduct.

4. Damages – compensation for the loss suffered by the innocent party as a result of the misleading and deceptive conduct.

Relevant Case Law

1.  Butcher v Lachlan Elder Realty Pty Ltd (2004) HCA 60; 218 CLR 592; 79 ALJR 307; 212 ALR 357:

Overview

Parties Involved: Mr. Butcher and Ms. Radford (appellants) vs. Lachlan Elder Realty Pty Ltd (respondent).

Facts: The appellants purchased a property in Sydney for $1.36 million. Prior to the auction, they received a brochure from the estate agent, which included a survey diagram and a disclaimer. The diagram incorrectly showed the pool as being within the property boundaries, which was crucial for the appellants as they intended to move the pool.

Issue: Whether the estate agent was liable for misleading and deceptive conduct under section 52 of the Trade Practices Act 1974 (now section 18 of the Australian Consumer Law).

Decision: The High Court, by a 3-2 majority, held that the estate agent was not liable. The majority found that a reasonable purchaser would have read the disclaimer and understood that the agent was merely passing on information from other sources123.

2.  Miller & Associates Insurance Broking Pty Ltd v BMW Australia Finance Limited (2010) HCA 31; 241 CLR 357; 84 ALJR 644; 270 ALR 204:

Overview

Parties Involved: Miller & Associates Insurance Broking Pty Ltd (appellant) vs. BMW Australia Finance Limited (respondent).

Facts: Consolidated Timber Holdings Ltd (CTHL) applied to BMW Australia Finance Limited for an insurance premium funding loan. They retained Miller & Associates to make the application. The insurance policy in question was a ‘non-cancellable cost-of-production insurance policy’ issued by HIH. BMW provided funding of $3.975 million, but only $1.265 million was repaid before CTHL defaulted. BMW initiated legal action against Miller, alleging that they were deceived into thinking the policy was cancellable. This belief would have enabled BMW to terminate the policy and reclaim any unused premiums after CTHL defaulted.

Issue: Whether Miller & Associates engaged in misleading or deceptive conduct by representing the insurance policy as cancellable or failing to disclose its non-cancellable nature.

Decision: The High Court unanimously upheld the appeal, finding that Miller & Associates had not engaged in misleading or deceptive conduct. The court determined that the broker’s issuance of the insurance certificate did not misrepresent the policy’s cancellability. Additionally, the broker’s omission to inform the lender about the policy’s non-cancellable nature was not considered misleading or deceptive conduct.

3.  Google Inc v Australian Competition and Consumer Commission [2013] HCA 1; 249 CLR 435; 87 ALJR 235; 294 ALR 404:

Overview

Parties Involved: Google Inc (appellant) vs. Australian Competition and Consumer Commission (respondent).

Facts: The case revolved around Google’s AdWords program, which allows advertisers to create sponsored links that appear alongside search results. The ACCC alleged that some of the sponsored links shown by Google were misleading or deceptive because they resembled organic search results, despite being paid advertisements.

Issue: Whether Google engaged in misleading or deceptive conduct by displaying sponsored links that could be mistaken for organic search results.

Decision: The High Court unanimously allowed Google’s appeal, holding that Google did not engage in misleading or deceptive conduct. The court determined that Google acted solely as a conduit for the advertisements, with the representations being made by the advertisers themselves, not by Google.

This is just a few examples of relevant case law on this issue.

Stressed with a misleading or deceptive conduct dispute? Don’t let uncertainty overwhelm you. At Odyssey Legal, we’re here to provide clarity and support. Take advantage of our free 15-minute consultation to discuss your case with our expert team.

Fraud (tort of deceit) and Misrepresentation

Misrepresentation occurs when a false statement is made to induce another party to enter into a contract or agreement, resulting in the induced party suffering detriment.

There are three (3) forms of misrepresentation, namely:

1. Innocent Misrepresentation – This occurs when a party unknowingly gives false information, and it is not done fraudulently or negligently but the information induces the other party to enter into a contract.

2. Negligent Misrepresentation – This occurs when a party provides information with no reason to believe the information to be the true facts. This information has then induced the other party to enter into a contract.

3. Fraudulent Misrepresentation – This occurs when a party provides information that they know is false, or with reckless regard as to the truth or whether the information is true or correct. This information has then induced the other party to enter into a contract.

Fraud in the civil jurisdiction is referred to as the tort of deceit and is essentially like fraudulent misrepresentation. In Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205, the Court established the following elements for a claim deceit or fraudulent misrepresentation:

1. a clear false representation of fact or law.

2. fraud by the maker, in the sense that they knew that the representation was false, or had no belief in its truth, or was reckless whether it was true or false.

3. an intent that the representation should be acted on by the claimant.

4. action by the claimant in reliance on the representation.

5. damages suffered by the claimant in reliance on the representation.

The finding of fraud, either fraudulent misrepresentation or deceit, is a serious one such that strict evidentiary requirements to satisfy the above elements must be met and clearly proven, albeit on the balance of probabilities.

Remedies

The remedies available for misrepresentation or deceit, includes:

1. Recission – Rescinding the contract so that the parties are taken back to their original position as if the contract had never taken place.

2. Injunctions – An order of the Court requiring the party to perform a certain action or be restrained from undertaking such conduct.

3.  Damages – compensation for the loss suffered by the innocent party as a result of the misleading and deceptive conduct.

Relevant Case Law

1. Magill v Magill [2006] HCA 51; 226 CLR 551; 81 ALJR 254; 231 ALR 277:

Overview

Parties Involved: Liam Magill (plaintiff/appellant) vs. Meredith Magill (defendant/ respondent).

Facts: Liam and Meredith were married in April 1988 and separated in November 1992. During their marriage, three children were born, and Mr. Magill was listed as the father on their birth registration forms. However, in 1995, Mr. Magill learned that Ms. Magill suspected he was not the biological father of their second child. DNA testing in 2000 confirmed that Mr. Magill was not the biological father of the second and third children. Mr. Magill then sued Ms. Magill for deceit, claiming damages for personal injury (anxiety and depression) and financial losses incurred under the mistaken belief he was the father.

Issue: Whether an action for deceit could be brought against a spouse for false representations about paternity made during the marriage.

Decision: The High Court of Australia dismissed Mr. Magill’s appeal. The court ruled that no action for deceit could lie for representations about paternity made between spouses. However, the court acknowledged that there could be exceptional circumstances where such an action might succeed, but these did not apply to Mr. Magill’s case. The Victorian Court of Appeal’s decision to reverse the initial award of $70,000 in damages to Mr. Magill was upheld.

Key Points of Reference:

a. at [22]: ‘For present purposes, it will suffice to distinguish the two senses in which “fraud” is used in civil litigation which correspond to different meanings at law and in equity. The difference turns on the state of mind of the person said to have committed fraud. At common law, “fraud is proved when it is shewn that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”: Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337 at 374. The contrast with equity was explained by Viscount Haldane LC in Nocton v Lord Ashburton [1914] AC 932 at 953-954: “[i]n Chancery the term ‘fraud’ thus came to be used to describe what fell short of deceit, but imported breach of a duty to which equity had attached its sanction”

b. at [28]: ‘People who are married, happily or unhappily, may sue one another for the full range of torts. It is impossible to accept that the legislation, sub silentio, makes fraud an exception. Such a consequence would be absurd. Why should a woman, who is about to enter into a separation agreement with her husband, not have the full extent of the law’s protection, including its protection against fraud? Why she might be able to sue him for negligent misrepresentation, but not for fraudulent misrepresentation, defies rational explanation.’

c. at [95]: ‘The Commonwealth submitted that there is nothing on the face of s119 (or to be found in the relevant extrinsic material) which suggests there is a continuing spousal immunity in relation to some torts, specifically deceit, and not others. This submission is correct and must be accepted. The plain terms of the section would permit actions brought in respect of disparate intentional torts, for example trespass to the person, or deceit in the context of contractual negotiations.’

2.    Vo v Rawlings & Anor [2014] QCA 236:

Overview

Parties Involved: Huyen Vo (appellant) vs. Jon Rawlings and Marilyn Bolger (respondents).

Facts:  In July 2005, the appellant, Vo, purchased a business from the respondents, Rawlings & Anor, for $52,000, along with an additional amount for stock-in-trade to be valued at the date of completion. The business turned out to be unprofitable and was closed in January 2008. Vo alleged that the respondents had made fraudulent misrepresentations about the business, leading to her financial losses.

Issue:  Whether the respondents knowingly made fraudulent misrepresentations to the appellant about the profitability and viability of the business.

Decision: The trial judge dismissed Vo’s claim, finding that the respondents did not knowingly make fraudulent misrepresentations. The Queensland Court of Appeal upheld this decision, concluding that there was insufficient evidence to prove that the respondents had engaged in deceitful conduct.

Key Points of Reference:

a. at [32]: ‘There was no direct evidence that the first respondent who made the misrepresentation, knew of its falsity when he made. The case advanced by the appellant on the issue was a circumstantial one. As his Honour observed, fraud must be clearly proved. He was therefore correct to proceed upon the footing that in order to find fraud, it was necessary that the circumstantial evidence indicate clearly that the first respondent had the requisite knowledge of the falsity. His Honour undertook that exercise, also correctly in my view, by examining whether the circumstances yielded to an explanation of the misrepresentation as one that was made without knowledge of its falsity. He found such an explanation in the comparative exercise that he undertook. He even ventured, at paragraph 47 of the reasons, that the misrepresentation might have been negligently, rather than fraudulently, made. 

b. at [34]: ‘The fact that the first respondent did not give evidence is rather a distraction. It was always for the appellant to prove factual circumstances which pointed clearly toward fraud, including the element of knowledge of falsity. If the factual circumstances proved by the appellant for that purpose failed in that regard, it is not to point for the appellant to divert attention from that critical shortcoming in her case by speculation as to what further, if anything, might have been established, by concession or otherwise, had the first respondent testified.’

These cases (among others) demonstrate the strict evidentiary requirements that must be satisfied to be met to be successful in a claim of misrepresentation or deceit.

Conclusion

Misleading and deceptive conduct, fraud, and misrepresentation can have serious consequences for individuals and businesses. These issues often involve false or misleading statements or actions that cause harm or financial loss to others.

At Odyssey Legal, we understand the profound impact that misrepresentation and the tort of deceit can have on your personal and professional life. Our experienced commercial litigation team provides tailored legal solutions to protect your rights and seek justice.

Don’t let deceit go unchallenged—schedule your free 15-minute consultation today and let us help you navigate the complexities of your case with confidence and expertise.