Recent developments to the key elements of misleading or deceptive conduct

Authors: Nikita Chikohwa & Zeinab Farhat, Progressive Legal

Misleading or deceptive conduct as prescribed under section 18 of the Australian Consumer Law (“ACL”) is a highly litigated cause of action and its application in a practical context is heavily contested.  

There have been notable developments in recent years in relation to misleading or deceptive conduct, including without limitation, High Court guidance on the applicable principles relevant to the determination of a breach of s 18, whether mandatory conduct is “conduct” for the purposes of s 18 and other considerations pertaining to contributory negligence, warranties and representations and more.  

This article will consider:  

1. what is misleading or deceptive conduct?; 
2. the High Court of Australia’s decisions as handed down in Self Care IP Holdings & Anor v Allergan Australia & Anor [2023] HCA 8 and Mitsubishi Motors Australia Ltd v Begovic [2023] HCA 43; 
3. reliance on exclusion clause to defeat a claim for damages under s 236 of the ACL and whether warranties and representations in a contract can be relied on; 
4. contributory negligence;  
5. apportionment under s 87CD of the CCA; and  
6. key takeaways.

What is misleading or deceptive conduct? 

Section 18 of the ACL provides that: “a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”.  

Section 18 can, therefore, be broken down into the following elements: 

1. a requirement for conduct (such as an act (i.e. a representation, omission or silence);  
2. that the conduct was committed by a person (individual or corporation); 
3. can be demonstrated to be misleading or deceptive, or is likely to mislead or deceive; and 
4. has occurred in trade or commerce.  

The High Court decisions of Self Care IP Holdings & Anor v Allergan Australia & Anor [2023] HCA 8 (“Self Care”) and Mitsubishi Motors Australia Ltd v Begovic [2023] HCA 43 (“Mitsubishi”) are notable authorities for the development of law and applicable principles for a determination of a s 18 contravention. 

The High Court of Australia’s decisions as handed down in Self Care IP Holdings & Anor v Allergan Australia & Anor [2023] HCA 8 and Mitsubishi Motors Australia Ltd v Begovic [2023] HCA 43 

Self Care

In Self Care the manufacturer of Botox, commenced proceedings against Self Care for marketing a product as an “instant Botox alternative,” alleging it was misleading under section 18 and section 29(1) of ACL. On this issue, the Court held that “instant Botox alternative” was not misleading and the phrase did not suggest long-term efficacy which was equivalent to Botox injections.  

The High Court emphasised that the reasonable consumer would not interpret the phrase to mean that the product had the same duration of effect (reduction in wrinkles) as Botox and “instant Botox alternative” suggests it lasts for hours, and was not a long term solution. 

In reaching this conclusion, the High Court confirmed that the 4 principles relevant for a determination of s 18 breach are “well established” (Selfcare, at [80]).  

Below is a brief summary of the key considerations to be weary of: 

1. Step 1: identify with precision, the conduct said to contravene s 18: 

In identifying the conduct said to contravene s 18, the alleged conduct must be considered on the facts of the case and whether the “evidence establish[es] that the person engaged in the conduct” (Selfcare, at [80] citing cf Google (2013) 249 CLR 435 at 465 [89]). Often, the conduct complained upon is a representation which has arisen from a written or oral statement, silence in circumstances warranting an explanation, or a representation as to a future matter. 

2. Step 2: consider whether the identified conduct is in “trade or commerce”: 

Most commercial transactions fall within this classification, as such this element is less likely to be litigated. Though, the Court reaffirmed when conduct is and is not “in trade or commerce”, such as statements made to the Court (Little v. Law Institute 1990). 

3. Steps 3 and 4: consider the meaning conveyed by the conduct and whether the conduct, in light of that meaning, was ‘misleading or deceptive or likely to mislead or deceive”.   

The Court noted that “where the pleaded conduct is said to amount to a representation, it is necessary to determine whether the alleged representation is established by the evidence” (Selfcare, at [81]) and considered the following factors to be relevant in this assessment:  

1. “objective matter”: the conduct should be viewed as a whole and its notional effects judged by reference to the context and state of mind for the relevant persons [at [82]);
    
2. “immediate context”: that being, the immediate and broader context and all the words in the document or other communication and not just the words in isolation [at 82]; and
    
3. “effect on a reasonable person”:  where the conduct is directed to the public or part of the public, these steps must be undertaken by reference to the effect, or likely effect of the conduct on the ordinary and reasonable members of the relevant class of person. The Court relevantly held affirmed that:  

“The relevant class of persons may be defined according to the nature of the conduct, by geographical distribution, age or some other common attribute, habit or interest[151]. It is necessary to isolate an ordinary and reasonable “representative member” (or members) of that class, to objectively attribute characteristics and knowledge to that hypothetical person (or persons), and to consider the effect or likely effect of the conduct on their state of mind” [at 83]. 

Mitsubishi

In Mitsubishi, it was held that actions required by law such as the affixation of certain labels on products is generally not considered voluntary and is unlikely to constitute misleading conduct for the purposes of the ACL.  

Reliance on exclusion clause to defeat a claim for damages under s 236 of the ACL and whether warranties and representations in a contract can be relied on 

Section 236 of the ACL provides provision for an award of damages for a contravention of a provision in Chapter 2 or 3 of the ACL. 

In Viterra Malt Pty Ltd v Cargill Australia Ltd [2023] VSCA 157 (“Viterra”), the Court of Appeal held that an exclusion clause cannot include an award of damages under s 236. In other words, parties to an agreement cannot attempt to contract out of s 236, as the clause is for the benefit of the claimant and community. This is imperative in the context of the drafting of any commercial agreements such that parties are informed that they cannot contract out of this provision.  

Facts of Viterra 

1. Cargill Australia purchased the shares in Joe White Holdings Pty Ltd from Viterra Malt Pty Ltd. 
2. Joe White Holdings Pty Ltd is a wholly owned subsidiary of Viterra Malt Pty Ltd. 
3. Cargill Australia purchased the shares relying on information provided by Viterra Pty Ltd. 
4. Cargill Australia alleged that Viterra Pty Ltd made a series of misrepresentations and failed to disclose information concerning the routine supplied by Joe White (Viterra Malt) that failed to comply with its customers contractual representations. 
5.  The Court held that Cargill could be taken to have relied on warranties and representations made in 

the share acquisition agreement because: 

1. the definition of warranties: which included the warranties and representations in schedule four of the acquisition agreement; 
2. the operation of Section 13.7: which recorded that Cargill had entered into the acquisition agreement in reliance on the warranty representations; 
3. the fact that there was no logical or conceptual problem with contemporaneous reliance; and 
4. that the acquisition agreement and the surrounding circumstances clearly supported a finding of reliance. 

Contributory negligence  

Section 137B of the Competition and Consumer Act 2010 (Cth) (“CCA”) makes provision for contributory negligence, in cases of a s 18 breach and a claim for damages made under s 236 of the ACL.  

The Court of Appeal in Mikkelsen [2023] VSCA 255 has that a claim under the ACL will permit a claim for contributory negligence to be advanced for misleading or deceptive conduct, but this may not apply to the equivalent state laws (for example, in Victoria). 

Apportionment under s 87CD of the CCA 

Section 87CD of the CCA considers proceedings involving an apportionable claim.  

In Taylor v Stav Investments [2023] NSWCA 204 the NSW Court of Appeal considered the apportionment of damages for a contravention of s 18 of the ACL in accordance with s 87CD.  

Facts of Taylor  

1. Appellants were directors of a company called Yatango Mobile (a communications company).  
2. Appellants made false statements concerning Yatango Mobile having a unique online platform, and that they owned the platform, whereas, in fact, Yatango Mobile only had a licence to use the platform. 
3. The Respondents entered into agreements to purchase shares in Yatango Mobile in reliance on that false representation, which the Court held was misleading or deceptive. 
4. The warranties in the share acquisition agreement on which the misleading or deceptive conduct was based were jointly given by Yatango Mobile and its directors. 
5. The Respondents purchased the second tranche of shares in Yatango Mobile. Not long after, Yatango Mobile went into administration and then into liquidation. 
6. The Respondents were awarded damages for misleading and deceptive conduct.  
7. The Appellants, who were the directors, claimed that the damages should be apportioned 80% to the company, Yatango Mobile, which was now in liquidation, and 20% to the directors. 

The Court held, among other things that: 

1. Yatango Mobile was a concurrent wrongdoer within the meaning of Section 87(3) of the CCA. 
2. the Appellants were the primary actors and that only 20% of the liability was with Yatango Mobile. 
3. it was not a case in which the liability of the company was limited to its vicarious liability for the acts of its directors. 

Single director companies

In Robinson v 470 St Kilda Road Pty Ltd [2018] FCAFC 84 the Court considered whether a company with a sole director who was the alter ego of a company could be a concurrent wrongdoer. In this case, the Court held that there is only a single act and this makes it “artificial” to say there are two acts of persons, one of the company and one of the director.  

However, in DSHE Holdings Ltd v Potts [2022] , the Court took a different approach and stated: 

“it is difficult to reconcile the rejection of a single act for which two wrongdoers are jointly liable with statutory language which expressly contemplates the possibility that there is a single act or omission of two or more persons”.  

As such, based on the above authorities, the question of vicarious liability for single director companies is unclear based on the tensions pertaining to the consideration of a single act and the liability of two wrong doers.

Key Takeaways

The above developments in the law of misleading and deceptive conduct demonstrate the complexities inherent in the application of the ACL and s 18. For business owners, these developments should be considered in the context of business practices such as advertisement, contract negotiation and execution, as well as the conduct of directors in the performance of their director duties.  

Need Dispute Resolution Advice?

Please get in touch with us today via phone or the contact form on this page.

1800 820 083