Director’s Liability Under Australian Consumer Law For Misleading & Deceptive Conduct

It is important to note that where the misleading or deceptive conduct constitutes representations, they do not need to be in writing and can be oral, or implied. However, ascertaining the nature of the representation is highly fact specific. Such analysis will be made increasingly complicated where the impugned representation is silence. Silence can be considered as misleading or deceptive, as noted in Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2:  

“the High Court made clear the circumstances in which non-disclosure or silence can be misleading or deceptive – in essence, where, in the whole of the circumstances in which the parties are situated, a “reasonable expectation” exists that disclosure should be made or silence broken”. 

Despite this, in a commercial context, it does not necessarily follow that a failure to volunteer information will constitute misleading or deceptive conduct. For example, in Wormald v Maradaca Pty Ltd [2020] NSWCA 289 it was held that a failure of the shareholders of a seller company to provide certain facts about the business was not misleading or deceptive conduct.  

Yorke v Lucas (“Yorke”) sheds light on the meaning of “involvement” in the context of the Competition and Consumer Act 2010 (Cth) (formerly the Trade Practices Act 1974 (Cth) (“TPA”)). Despite being decided under the TPA, the decision remains heavily cited.  

Ross Lucas was the managing director of Ross Lucas Pty Ltd (“the Lucas Company”) and acted for Treasureway Stores Pty Ltd (“the Company”) in the sale of the Company’s business to the appellant (“Yorke”).  

Yorke wished to buy the Company and during negotiations between the two parties, a piece of paper was provided to Yorke which indicated that the weekly turnover for the Company was $3,500. Ultimately, this was not the case and Yorke brought an action against Lucas for engaging in misleading or deceptive conduct.  

At trial, the trial judge found that the Company had engaged in misleading or deceptive conduct by misrepresenting the business’s turnover. It was found that Yorke was induced by this conduct to enter into the purchase contract. The Lucas Company had also contravened s 52 of the TPA on the basis it was acting as an agent for the Company. However, the trial judge dismissed the claim against Lucas himself on the basis he was insufficiently aware of the relevant facts so as to be involved in the contravention. This was in contrast to the finding that Kevin Mahoney (Director of the Company) was found to have aided, abetted or was knowingly concerned in the contravention of s 52 by the Company.  

The Full Court of the Federal Court dismissed an appeal against the judgment and found in favour of Lucas. Thus, the question for consideration for the High Court on appeal was whether Lucas was a person “involved” in the Company’s contravention of s 52 [the equivalent of the now s 18 misleading or deceptive conduct provision]”. 

The High Court dismissed the appeal in favour of Lucas noting, among other things: 

Knowledge and intent re. accessorial involvement for misleading and deceptive conduct

The appellant’s argument proceeded on the basis that Lucas was a person “involved” for the purposes of the TPA. The appellants argued there was no requirement of intent on part of Lucas.

In response to this, the Court noted that “aided, abetted, counselled or procured” are terms derived from criminal law and cited the decision in Giorgianni v the Queen (1985) 59 ALR 461 which held that to have aided and abetted, or counselled and procured the offence of culpable driving, there must have been an intentional participation in the offence and the defendant must have knowledge of the essential matters which went to makeup the offence.

At trial it was the case that, whilst Lucas was aware of the representations being made, he had no knowledge of their falsity and could not for that reason be said to have intentionally participated in the contravention. 

Effectively, the appellants tried to argue that s 75B(a) (now s 2 of the ACL) should not be understood in the context of the criminal law. However, the Court noted: 

“the nature of the prohibition imposed by s.52 [s 18] is, however, governed by the terms in which it is created and the context in which it is found. Section 75B, on the other hand, in speaking of aiding, abetting, counselling or procuring, makes use of an existing concept drawn from the criminal law and unless the context requires otherwise, there is every reason to suppose that it was intended to carry with it the settled meaning which it already bore” at [12]. 

And  

“Notwithstanding that s.75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning” at [14].  

Directly or indirectly, knowingly concerned in, or party to, the contravention

Here the Court stated that: 

1. “a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention” at [16]; and  
2. “the proper construction of par.(c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention” at [17].  

Takeaway for Directors

Ultimately, Yorke serves as authority for the proposition that to be “involved” in a contravention of the ACL for the purposes of s 2, there must be some element of intent and knowledge vis-a-vis the essential facts which make up the contravention. As a result, if a director is aware of a contravention of the ACL as it pertains to misleading or deceptive conduct, they may be liable for damages in their personal capacity as director depending on the nature of such knowledge. 

In this case, the Court affirmed Yorke noting that for the Court to be satisfied that an individual was involved in a contravention of the ACL by a corporation and: 

 “the evidence must disclose that the individual intentionally participated in the contravention and had the requisite knowledge. The Court must be persuaded that the individual had knowledge of the essential matters which go to make up the contravention whether or not he or she knows that those matters amount to a contravention” at [153]. 

Further, the Court noted that the knowledge itself must be “actual” and “not constructive” [156]. Actual knowledge of an essential matter can be established as a matter of inference from the circumstances surrounding the contravention. The Court re-iterated that it is the knowledge of the alleged accessory, and not “what might be postulated of a hypothetical person in the position of the alleged accessory” [at 156].   

Ultimately, in this case, it was found that two directors were also liable for the ACL contraventions of the company on the basis they aided and abetted in the contraventions having dealt with complaints pertaining to the company’s misrepresentation.

In this case, the Court found that the company’s former Director Vitali Roesch and Director Maryna Kosukhina were knowingly concerned in misleading and deceptive conduct. The Court ordered that they pay $179,000 and $174,00 in penalties respectively, in addition to ordering that they both be disqualified from managing a company for 3 years. 

Essentially, this case concerned false and misleading representations made on the company website (a 4WD vehicle hire business) pertaining to the insurance of the vehicles, which were in fact, not insured.   

In short form, the ACCC noted the following regarding the extent of Roesch and Kosukhina’s knowing involvement, so as to render them both jointly and severally liable for the actions of the company. Put briefly, these included: 

1. the “organisational diagram” provided by the company showed that corporate responsibility was vested firstly with Kosukhina, then with Roesch;  
2. after the cessation of Roech’s position as director, he continued to hold a senior management position titled “Fleet Manager”;  
3. evidence suggested that both were owners and operators of all the website content, insurance policies as well as setting, enforcing and managing the company policies; and 
4. Roesch was responsible for authorising and approving the terms and conditions and he had direct knowledge of the relevant clauses. 

 Ultimately, the Court agreed with the ACCC’s submissions that these matters, and others, constituted evidence that Roesche and Kosukhina were jointly and severally liable for the conduct of the company, noting: 

“Both of those respondents have admitted knowledge of and responsibility for the making of the representations that I have found to be misleading, deceptive, and false. They knew the true position regarding insurance coverage for the hired vehicles and they knew of the Insurance Discretion Clause. They were knowingly concerned in the company’s breaches of s 18 and s 29 of the ACL. They knew of the contravening conduct and caused the company to engage in it.” at [200] 

As the above cases illustrate, it is important to consider and reflect on your position within the company. If you have knowledge of particular matters which you think may amount to a contravention of the ACL, you must take immediate steps to address the issue. In such situations, it may also be best to obtain specific legal advice.  

The discretion of the court to impose certain remedies is quite broad, and can range from pecuniary penalties payable by you personally – to a court order that you are unable to do a certain thing for a period of time (i.e. as in the Smart case which ordered that the respondents be unable to manage a company for three years).  

This will depend on the particular situation, however, it appears as though the law in this area suggests no. To be “involved” in an ACL contravention requires some element of awareness on part of the alleged contravener.