Misleading Conduct - The ACCC Cracks Down

Overview

Businesses often make statements and promises to their customers to make their product or service sound more attractive. After all, it is the aim of the game to incentivise customers to choose their goods or services over that of a competitor. That is often why businesses tell their customers that their product will work better, last longer, cost less and shine brighter than what is being sold next door.

Some statements made by businesses are fine, because:

• they are true, correct and not misleading; or
• the law views them as ‘mere puffery’ (i.e. hyperbolic statements customary in advertising).

However, there are some statements that the law does not view as appropriate. In fact, these statements (or representations) are unlawful and have the potential to cause significant legal consequences.

What is misleading and deceptive conduct?

Classic misleading and deceptive conduct claims are founded in section 18 of the Australian Consumer Law (ACL) in Schedule 2 of the Competition and Consumer Law Act 2010 (Cth) which 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.

Essentially, to fall foul of section 18, the conduct must satisfy the following two elements:

• it has taken place in trade or commerce; and
• it is either misleading or deceptive, or likely to mislead or deceive.

The first element is broad and captures consumer relationship and commercial relationships. It essentially captures any person who provides goods or services to others or any activities or transactions that have a trading or commercial character (Concrete Constructions (NSW) P/L v Nelson (1990) 169 CLR 594).

The second element is also quite broad, and the relevant considerations will depend heavily upon the circumstances at hand. The Court in Aldi Foods Pty Ltd v Moroccanoil Israel Ltd [2018] FCAFC affirmed that the appropriate question to ask is in reference to objective and reasonable (and figurative) consumer and what they would understand the words used in that particular context to mean. In this case, Aldi used the word ‘naturals’ on several of its products. The Court found that ordinary consumers would understand this to mean that the products consisted of at least substantially natural ingredients. However, this understanding did not match the reality and Aldi was held to have mislead its consumers.

To complicate matters, a representation can take many forms and does not even need to be in writing. A representation can be oral, written or a combination of the two. Even silence can be misleading or deceptive in some situations (Nadinic v Cheryl Drinkwater as trustee for the Cheryl Drinkwater Trust [2020] NSWCA 2).

Courts have been clear that representations will not be considered in isolation but will be considered as a whole and in reference to the particular business and particular class of consumers. This could mean that certain businesses will be held to different standards, particularly when the class of consumers is considered to be particularly vulnerable.

ACCC Cracking Down

The Australian Competition and Consumer Commission (ACCC) is Australia’s national competition and consumer regulator which has the power to enforce breaches of section 18 by bringing proceedings in the Federal Court of Australia.

There have been several high-profile businesses in the firing line this year, including:

1. Trivago – allegedly made misleading representations that hotel rooms offered on its website were the ‘best deals’ at the ‘cheapest rates’, when they were often not the cheapest, but the option that resulted in the highest financial benefit for Trivago;
2. Uber – allegedly made misleading representations to consumers that they would be charged a cancellation fee, when Uber’s terms and conditions actually provided consumers with a free five-minute cancellation period;
3. Honda – allegedly misled consumers into believing that their service dealership had closed and directing them to dealerships that would result in a financial benefit to Honda;
4. Samsung – allegedly misled consumers about the water resistance qualities of its Galaxy phones; and
5. Tiger Mist – allegedly misled consumers about their right to return faulty items by enforcing certain conditions on the refunds.

The representations have the potential to result in hefty penalties. Trivago alone has been required to pay $44,700,000.

And it is not just high-profile businesses who have to be wary – all businesses who sell goods or services to consumers have an obligation to abide by the ACL and can be penalised for a failure to do so. This is why it is extremely important that businesses understand what their obligations are and how to meet them.

It is also not just the ACCC that businesses should be concerned about. Third parties (e.g. customers) can also make direct claims against a business for breach of section 18. The scope of the section is wide, and it can apply in a vast array of situations. For example, it could apply when supplying a consumer with a mobile phone plan that has no coverage in their area, misrepresenting the financial position of a company or failing to disclose something important in the context of contract negotiations.

Also, a single representation may give rise to liability on several levels. For example, a misleading advertisement may result in separate contraventions of section 18 by the advertiser, the advertising agency and the publisher.

What should you do?

Businesses should regularly review the representations that they make to consumers. Legal advice should be obtained if any of those representations have the potential to mislead or deceive.

Prudent business operators will regularly review their consumer facing documents like terms and conditions, policies and advertising material to re-assess whether they contain any misleading material. If in doubt, seek legal advice.

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This article in no way constitutes legal advice. It is general in nature and is the opinion of the authors only. You should seek legal advice tailored to your individual circumstances before acting on anything related to this article.