Misleading and Deceptive Conduct Explained

We often hear in the media when a well-known corporation has been found to have mislead or deceived customers. 

As well as being subject to fines, being found to have mislead or deceived customers can clearly bring a lot of negative media attention to your business, which could be damaging to you as a tech startup. 

But what exactly is considered misleading and deceptive conduct, and how can you ensure your business complies with the relevant laws?

Below is a guide to misleading and deceptive conduct in Australia and how to comply with the legal framework surrounding this. 

What is misleading and deceptive conduct?. 

This means that you can’t partake in any conduct that is likely to mislead or deceive customers. This includes statements or representations, as well as any information that is withheld from the customers.  

How is misleading or deceptive conduct established? 

Misleading and deceptive conduct is covered under section 18 of the Australian Consumer Law (ACL)

Firstly, it must be established that a person has engaged in conduct. Engaging in conduct includes:

• Doing or refusing to do any act
• Making or giving effect to a provision of a contract or arrangement 
• Arriving at or giving effect to an understanding; or 
• Requiring or giving a covenant 

A ‘person’ means any corporation or individual, including the crown when carrying on a business.

Next, it must be established that the conduct is in trade or commerce.

This can be interpreted broadly and includes all commercial dealings and trading relationships. The conduct must be in trade or commerce for there to be a breach of the ACL.

The conduct must be likely to mislead or deceive.

Whether the conduct is likely to mislead or deceive depends on the specific circumstances. Misleading or deceptive conduct means if it induces or is capable of causing error. ‘Likely’ meaning something is less than probable. 

What if the misleading conduct was unintentional? 

Conduct can be considered misleading or deceptive regardless of whether there was intent to do so. This concept means that statements which a true can also be considered misleading.

What is the audience is knowledgeable on the topic? 

Under section 18 of the ACL, the overall impression of the conduct on other parties is considered. A test of whether an ordinary or reasonable person of the target audience would be misled by the conduct is generally applied. Depending on the target market, the court may consider that the audience has a greater understanding and knowledge on the topic. A ‘not insignificant’ number of the audience needs to be likely to be misled.

Is not disclosing information considered misleading?

It may be considered likely to mislead or deceive if a full and fair disclosure of all the facts related to a transaction are not disclosed.

The ACL does not:

• Require information to be volunteered that will assist the other party’s decision-making
• Require information to be volunteered to avoid the careless disregard of another party. 

The specific circumstances of the conduct and target audience will be considered when determining whether not disclosing information is considered likely to mislead or deceive. 

Can forecasts and opinions be misleading? 

A forecast or opinion can be considered misleading or deceptive if the person who made the claims does not believe that they are accurate at the time. 

A representation as to future matters can be considered misleading or deceptive where the representation is made without having reasonable grounds.

This doesn’t mean that an opinion is misleading just because it ends up being incorrect.

If you are using ‘expert’ opinions in the promotion of your business, particular care is required as to ensure that the opinion is not found to be misleading. 

This is also important if you are undertaking comparative advertising as there must be an evidentiary basis for any claims. 

Can disclaimers be used? 

Often, using disclaimers and exclusions to protect your claims from being considered misleading, will be considered ineffective. Rather, it is the overall impression that is created from the conduct that is considered important. 

Causation and reliance on the claims 

Where a party claims damages, satisfying the element of reliance is essential. It must be determined that the customer relied on the claims. A common sense test will also be applied.

What are the common types of misleading or deceptive conduct?

Passing off

Passing off aims to protect the reputation and goodwill of a business that comes from the use of a business’s intellectual property, such as trade marks or business names. 

The effect of businesses engaging in this, is that customers are mislead into buying products or services that they are under the impression are associated with another brand. 

If another business is using your intellectual property, or passing off their products as their own you should seek legal advice. 

It’s important that if your tech startup uses any intellectual property associated with another brand, that you first seek the advice of legal services. 

In order to claim passing off, the business’s brand an image must be distinctive and recognised by the public, therefore these cases be difficult to establish. 

Pre-contractual representation cases

Statements made during a sales pitch before a written agreement is executed, may be considered misleading or deceptive. For a pre-contractual representation to be considered misleading or deceptive, it must act as an inducement to agree to the contract, rather than just causing confusion. 

Ensure that when negotiating contracts, you do not make any claims that could persuade the other party to sign unless you are able to back these up, as they may be considered to be misleading or deceptive. 

Real estate misrepresentation cases 

There are many cases of misleading customers by sellers and agents in the real estate market. This is often regarding council approvals and zoning requirements.

As well as this, the representations could also be in regard to the size of the property, boundary locations, and the potential market for renting the property. 

Comparative advertising 

This type of advertising can be misleading depending on the circumstances. It is important that if you claim that your product is better than that of a competitor that you are able to back up the claims with sufficient evidence. 

Environmentally friendly claims

It is important that if you make claims that a product is environmentally friendly that the claims are accurate and able to be substantiated. The ACCC is very particular with these claims. The benefits to the environment should be clearly explained in regard to the product.

What specific conduct may give rise to a breach? 

Misleading representations of the following may constitute a breach of the ACL:

• The standard, quality, value or grade of the good or service
• Whether the goods are new
• Goods or services having a particular approval or performance characteristics
• A corporation having approval for an affiliation 
• The price of the goods or services 
• Facilities for the repair of goods
• The need for any goods or services
• The existence of any condition, warranty or guarantee

Can individuals be found liable for breaches of the Australian Consumer Law?

Whilst you may be thinking that only the business can be found liable for any breaches of the consumer law, it is not only corporations that are found responsible. The ACCC also often also pursues directors on the grounds that they knowingly contravened the act. 

If employees are responsible for the content that mislead and deceived, they could be found personally responsible. 

Usually the party that is mislead will sue the company responsible directly, therefore it is important to ensure that employees are complying with the laws.

It is recommended that you implement a training program into your tech business to ensure that employees are aware of the relevant laws and are complying with them. 

It is possible for multiple people to contravene the ACL in regard to the same misleading conduct, however the involvement and contribution of each person will be considered.

What happens if you have misled a customer? 

Usually if a customer believes you have misled or deceived them, they will start by sending you a letter outlining their claim. If this situation occurs in your business and you think that it may be accurate, you should contact the customer and attempt to negotiate a resolution to the problem.

Some possible commercial resolutions include: a refund, another form of compensation, and making changes to the original agreement. 

If you are not able to come up with a resolution through negotiation, the customer may decide to take you to court. Here they can be awarded with an injunction, damages and/or a contract recission. 

Final note:

In Australia there are laws in place to prevent businesses from misleading or deceiving its customers. Tech startups, and in general all businesses, need to have an understanding of what conduct is prohibited under these laws.

It is recommended that your business be aware of the Australian Consumer Law, and ensure that your business and employees are in compliance with it. Failure to do so could result in fines as well as negative media attention, which could be damaging to both your business and brand image.