1

KAREN ABIDICONTRACT B

Misleading or deceptive conduct

2

KAREN ABIDICONTRACT B

Misleading or deceptive conduct

3

Where are we?

1. Termination of contracts2. Remedies for breach of contract3. Frustration of contracts4. Vitiating factors

• Misleading or deceptive conduct• Duress• Undue influence• Unconscionable conduct• Impropriety by third parties• Unconscionable conduct under statute• Remedies for vitiating factors under the unwritten

law: rescission• Remedies for misleading or deceptive conduct under

statute

4

What is a vitiating factor?

A vitiating factor is something that impairs a contract at the time of its formation.

Vitiating factors

Vitiating factors under the

unwritten law

Statutory vitiating factors

Undue influence Statutory unconscionability

Unconscionable dealing The prohibition on misleading or deceptive conduct

Duress

Vitiating factors under the unwritten law lead to eligibility for rescission

Statutory vitiating factors lead to eligibility for statutory remedies

6

Rescission

Rescission aims to restore the parties to their original positions. Effectively, it is as if the contract never existed.

Contrast this to the effect of termination (which operates only to discharge future rights).

7

Remedies under statute

Where there is a contravention of s18 (misleading or deceptive conduct) or s20 (unconscionable conduct ) under statute) of the ACL the principal remedies are: damages (s236 ACL); and other orders (s237 ACL).

8

Where are we?

1. Termination of contracts2. Remedies for breach of contract3. Frustration of contracts4. Vitiating factors

• Misleading or deceptive conduct• Duress• Undue influence• Unconscionable conduct• Impropriety by third parties• Unconscionable conduct under statute• Remedies for vitiating factors under the unwritten

law: rescission• Remedies for misleading or deceptive conduct under

statute

9Section 18 of the ACL

“A person must not, in trade or commerce, engage in

conduct that is misleading or deceptive or is likely to

mislead or deceive.”

10

Discussion

Misleading labelling in breach of s18 ACL?

Maggie Beer has provided a court enforceable undertaking in response to ACCC investigation to:• Apply amended labelling to

“Maggie Beer” branded products that are made outside of SA to accurately reflect the place of manufacture.

• Publish an educative article in Food Magazine.

• Review is consumer law compliance procedures.

11

Discussion

Where was this beerbrewed?

12

S18 elements

1.There must have been ‘conduct’ (see s2(2) ACL - note: inadvertent silence arguably does not amount to conduct).

2.That conduct must have been “in trade or commerce”.

3.That conduct must have been misleading or likely to mislead.

13

“conduct” defined in s 2(2) ACL

(2) (a) a reference to engaging in conduct is a reference to doing or refusing to do any act, including:(i) the making of, or the giving effect to a provision of, a contract or arrangement; or(ii) the arriving at, or the giving effect to a provision of, an understanding; or(iii) the requiring of the giving of, or the giving of, a covenant…

14

Misleading conduct

Conduct need not be misleading and deceptive – just one or the other. “Misleading” is wider (and thus easier to make out) than “deceptive”. Conduct is regarded as misleading if it has the capacity to lead into or cause error.

Section 18 can be contravened without anybody actually having been misled – sufficient if they were likely to have been misled as long as there was a real, not remote chance of that occurring.

There must be some causal link between the misconception and the defendant’s conduct.

Culpability is not always required.

15

Misleading conduct

When determining whether conduct is misleading or deceptive, “the question is whether in the light of all the relevant circumstances constituted by acts, omissions, statements or silence, there has been conduct which is or is likely to be misleading or deceptive”. Demagogue v Ramensky

ie. context is important

16Application of section 18

s 18 applies as federal law to conduct of corporations and certain natural persons.

s 18 applies as state/ territory law to conduct of corporations and all natural persons.

s 18 does not apply to financial products or financial services; however, it is mirrored in the Australian Securities and Investments Commission Act 2001 (Cth).

17Predecessors of section 18

Australian Consumer Law (“ACL”) came into force on 1 January 2011.

Pre-2011 equivalents to s 18 of the ACL:• s 52 of Trade Practices Act 1974 (Cth)

applied mainly to conduct of corporations;

• state and territory legislation applied to conduct of corporations and individuals, eg Fair Trading Act 1999 (Vic), s 9(1).

18Concrete Constructions v Nelson

• Section 52/s18 extends beyond situations where a person is misled in their capacity as a consumer.

• “In trade or commerce” means that the conduct has to be made towards a person with whom the corporation has dealings of a trading or commercial nature, and must itself relate to dealings of a trading or commercial nature.

• It does not include all activities undertaken in the course of, or incidental to, an overall trading or commercial business.

19

Consider the audience

In determining whether conduct is misleading or deceptive, you need to consider the audience to which it is directed. Can be analysed from two points of view (Butcher v Lachlan Elder Realty):

If the conduct is directed to the public at large (or sections thereof): apply Campomar Sociedad Limitada v Nike International.

If objects of conduct are specific individuals: apply the approach in Butcher v Lachlan Elder Realty.

20

Campomar v Nike

Representation was made to the public at large (not to identified individuals).

Therefore the relevant question is whether the placing of the Nike Sport Fragrance in the same area of pharmacies with other sports fragrances was likely to mislead or deceive ordinary or reasonable members of the public into believing that the product was in some way licensed or distributed by Nike itself?

21

Butcher v Lachlan Elder Realty

Representation was made to certain identified persons, including the appellants Butcher and Radford.

In determining whether there was conduct that contravened s52/s18 in circumstances such as these, the High Court held that it is relevant to have regard to: the character of the parties; the character of the transaction; what each party knew about the other.

22

Butcher v Lachlan Elder Realty

“Questions of allegedly misleading conduct … can be analysed from two points of view. One is employed in relation to “members of a class to which the conduct in question [is] directed in a general sense”. The other, urged by the purchasers here, is employed where the objects of the conduct are “identified individuals to whom a particular misrepresentation has been made or for whom a relevant fact, circumstance or proposal was withheld”; they are considered quite apart from the class into which they fall. Adoption of the former point of view requires isolation by some criterion or criteria of a representative member of the class. To some extent the trial judge adopted the former approach, pointing out that the class – potential home buyers for Pittwater properties in a price range exceeding $1 million – was small (as suggested by the fact that only one hundred brochures were printed), and its members could be expected to have access to legal advice.

The former approach is common when remedies other than those conferred by [s236 - damages] of the Act are under consideration. But the former approach is inappropriate, and the latter is inevitable, in cases like the present, where monetary relief is sought by a plaintiff who alleges that a particular misrepresentation was made to identified persons, of whom the plaintiff was one. The plaintiff must establish a causal link between the impugned conduct and the loss that is claimed. That depends on analysing the conduct of the defendant in relation to that plaintiff alone. So here, it is necessary to consider the character of the particular conduct of the particular agent in relation to the particular purchasers, bearing in mind what matters of fact each knew about the other as a result of the nature of their dealings and the conversations between them, or which each may be taken to have known.”

23

Butcher v Lachlan Elder Realty

Was the incorrect survey diagram on the real estate brochure misleading or deceptive?

Majority (Gleeson CJ, Hayne and Heydon JJ) – not misleading or deceptive.

McHugh J (dissent) – was misleading or deceptive.

Kirby J (dissent) – was misleading or deceptive (note comments on small print disclaimers).

24

Discussion

Applicants were member of the band INXS.Respondents manufactured and sold

unauthorised INXS t-shirts.Who was the target audience?

M K Hutchence (Trading as “INXS”) v South Sea Bubble Co (1986) ATPR ¶40-667

25

Discussion

Company imported irrigation equipment called “Lego”.

Lego Australia Pty Ltd (whose brand “Lego” was used for brick toys) argued that this was misleading or deceptive conduct.

Who was the target audience? Was this misleading?

Lego Australia Pty Ltd v Paul’s (Merchants) Pty Ltd

26

Discussion

27

Silence

When will silence constitute misleading or deceptive conduct?

Demagogue v RamenskyMiller v BMW

28

Demagogue v Ramensky

The relevant test: In the light of all relevant circumstances constituted by acts, omissions, statements or silence, has there been conduct which is or is likely to be misleading or deceptive?

Note: silence is unlikely to constitute misleading or deceptive conduct unless the circumstances are such as to give rise to the reasonable expectation that if some relevant fact exists it would be disclosed. In determining this, context is vitally important.

29

Miller v BMW

Consolidated Timber Holdings

Ltd

Miller(insurance

broker)

Negotiated insurance

premium funding loan

BMW Finance(lender)

Insu

ranc

e pr

emiu

m

fund

ing

loan

Engaged to

assist in getting

loan

Insurance policy(not cancellable)

HIH

30

Miller v BMW Australia Finance

Did Miller’s supply of the certificate of insurance convey a representation that it was a cancellable property policy, that amounted to misleading or deceptive conduct?

Did Miller’s failure to tell BMW that the policy was not cancellable misleading or deceptive?

31

Discussion

Contract for the sale of a Pizza Haven restaurant.

Purchaser asked the seller the reason for the sale.

Seller failed to disclose the reason, which was that a Pizza Hut restaurant was opening nearby.

Was this silence misleading conduct?Was there a reasonable expectation of

disclosure in the circumstances?

Hardy v Your Tabs Pty Limited [2000] NSWCA 150

32

Inadvertent silence

Watch out for “inadvertent” silence, which maynot constitute conduct and thus may not becapable of contravening s18.

It is not settled whether silence needs to be deliberatein order to contravene s 18.

Section 2(2) of the ACL defines “conduct”:“(b)  a reference to conduct … is a reference to the doing of or the refusing to do any act …(c)  a reference to refusing to do an act includes a reference to:(i)  refraining (otherwise than inadvertently) from doing that act …”

33

Promises, opinions & predictions

Failure of the promise, opinion or prediction to eventuate does not mean it contravenes s 18. Whether it’s misleading or deceptive is assessed at the time it is made.

However, if you make a statement as to the future, you may be representing that you intend to go through with that promise, that you actually hold that opinion, or that you believe in that prediction.

S4 of the ACL places an evidentiary burden on a defendant who is alleged to have made a representation as to a future matter that is misleading.

34

S4 ACL ss 1-2

1. If:a) a person makes a representation with respect to any

future matter (including the doing of, or the refusing to do, any act); and

b) the person does not have reasonable grounds for making the representation;

the representation is taken, for the purposes of this Schedule, to be misleading.

2. For the purposes of applying subsection (1) in relation to a proceeding concerning a representation made with respect to a future matter by:a) a party to the proceeding; orb) any other person;

the party or other person is taken not to have had reasonable grounds for making the representation, unless evidence is adduced to the contrary.

35

S4 ACL ss 3-4

3. To avoid doubt, subsection (2) does not:

a) have the effect that, merely because such evidence to the contrary is adduced, the person who made the representation is taken to have had reasonable grounds for making the representation; orb) have the effect of placing on any person an onus of providing that the person who made the representation had reasonable grounds for making the representation.

4. Subsection (1) does not limit by implication the meaning of a reference in [the ACL] to:

a) a misleading representation; orb) a representation that is misleading in a material particular; orc) conduct that is misleading or is likely to mislead;

And, in particular, does not imply that a representation that a person makes with respect to any future matter is not misleading merely because that person has reasonable grounds for making the representation.

36

Futuretronics v Gadzhis

Purchaser bid at auction, then refused to sign contract.

Vendor argued purchaser, in bidding at the auction, engaged in misleading or deceptive conduct in representing that: his bid was genuine; and he intended to sign the contract of sale if the property

was knocked down to him.

37

Futuretronics v Gadzhis

Mr Gadzhis didn’t engage in misleading or deceptive conduct in representing that his bid was genuine – the bid was genuine at the moment it was made.

Mr Gadzhis engaged in misleading or deceptive conduct in representing that he intended to sign the contract – he had no belief and no reasonable grounds to believe that he would comply with the auction conditions by signing the contract of sale.

38

Exclusion clauses & disclaimers

Liability under s 18 cannot be excluded. You cannot contract out of liability under s18 simply by inserting a disclaimer or exclusion clause. An exclusion clause is contrary to public policy.

However, in some circumstances a contractual exclusion clause may be sufficient to show that conduct is not actually misleading or deceptive (see eg Butcher v Lachlan Elder Realty).

An exclusion clause might also be enough to prevent the claimant from showing that they reasonably relied on the misleading conduct, thus preventing them from proving that the conduct caused the loss.

• Byers v Dorotea Pty Ltd

• Butcher v Lachlan Elder

39

Butcher v Lachlan Elder Realty

Disclaimer on the brochure:“All information contained herein is gathered from sources we deem to be reliable. However, we cannot guarantee its accuracy and interested persons should rely on their own enquiries.”

40

Butcher v Lachlan Elder

Note Kirby J’s dissent: disclaimer was not effective, due to its small size and because giving effect to disclaimers would go against policy aims of ACL.

Also note McHugh’s dissent.

41

Byers v Dorotea

Contract for the sale of Gold Coast units.The real estate agent engaged in misleading

and deceptive conduct by representing that the unit building would have swimming pool and be “bigger and better” than a nearby building.

42

Byers v Dorotea

Contract contained exclusion clause:“The Purchaser acknowledges that he has not relied on any representations by the Vendor, the Vendor’s Agent or any other person or persons or corporation in and about entering into this Contract other than as set out herein, and that the conditions and stipulations hereof constitute the only agreement between the Purchaser and the Vendor.”

Exclusion clause ineffective to exclude liability for misleading or deceptive conduct under [now s18 ACL].

43

Discussion

Footlong?

44

What do you need to know?

1. How to determine whether conduct is “in trade or commerce” as required for s18 of the ACL to apply.

2. The way in which the audience is relevant, and how that changes depending on whether the representation was made to the public at large or identifiable individuals.

3. The circumstances in which silence may amount to misleading or deceptive conduct, and how to determine whether such contravention has occurred in any given fact scenario.

4. The circumstances in which a representation as to the future may contravene s18, and how s4 of the ACL might impact on that analysis.

45

Discussion 2010 exam Q2(2)(a)

Kieran O‟Clare, a retired sheep farmer, decides to sell some of his old farming equipment in order to finance a trip overseas. Kieran is elderly and quite frail and had very limited formal education, but still has his wits about him and regularly enjoys playing online chess against players from around the world at quite a high standard. Advise him in the following alternative scenario:

2. Kieran decides to try to sell his farming equipment on eBay, with a buy-it-now price of $2999. On behalf of a farming museum, an employee enters into a contract with Kieran by going through the “buy it now” process on ebay. However, the museum changes its policy and never actually completes the sale by providing the promised payment. No other purchasers were interested in buying the items at that price, but there was another potential purchaser who would have been willing to buy them for $1000 if they had still been available. a. Advise Kieran as to his prospects of success if he brought an action against the purchaser for misleading or deceptive conduct under statute.

46

Acknowledgments and Copyright

Thanks to Sirko Harder, Mark Davison and Rebecca Giblin for the use of their slides.

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