Australia: Misleading or deceptive conduct in commercial transactions: always assume the ACL catches all

Recent comments in the media suggest Australia's consumer protection laws are being exploited by "corporate giants" in large transactions.¹ The comments imply that it is possible for large, commercial parties to exclude the prohibition on misleading or deceptive conduct in some transactions.

But the analysis behind the commentary is flawed and all commercial parties to a transaction should be keenly aware of their liabilities.

Australia's consumer protection laws have always had a general prohibition on misleading or deceptive conduct in trade or commerce. Previously it was contained in the Trade Practices Act and the state Fair Trading Acts. Now, it is contained in the Australian Consumer Law (ACL).

It is incorrect to suggest the ACL is being used, perhaps by crafty lawyers or creative bankers, to get around contracts and recut transactions.

The use of the ACL in such transactions does not, in any sense, amount to a "recutting." The clear legislative position is that if parties to any commercial transaction are subject to misleading or deceptive conduct, then they should have redress to the ACL.

The analysis is also dangerous to the extent it suggests that it may be possible to exclude the operation of the ACL in large transactions. Rather, commercial parties need to be aware that the general prohibition on misleading or deceptive conduct applies equally to large companies and individuals.

This means that if anyone engages in misleading or deceptive conduct, they expose themselves to liability for contraventions of the ACL.

This is a good and sound position. It means the standard of conduct is consistent across all transactions, and prevents the situation arising where a Court has to distinguish between different transactions to determine if the prohibition on misleading or deceptive conduct applies.

Admittedly, there are some circumstances where disclaimers may limit liability under the ACL. One approach is to use disclaimers to qualify conduct so that it is not misleading or deceptive, such as where a person disclaims that they are the author of certain information that they have passed on to another party.²

Another approach is to use disclaimers to demonstrate that another party has not relied upon conduct that is allegedly misleading or deceptive.³ It may also be possible to contractually impose monetary or temporal limits on the size of a remedy in respect of a claim under the ACL.⁴

However, these disclaimers and limitations are not always effective. No matter how large the transaction, if a disclaimer is not found to have the effect of qualifying the conduct so that it is not seen as misleading or deceptive, or if reliance is not validly disclaimed, then a party will remain liable under the ACL.

The general application of the ACL was highlighted in the explanatory memorandum, which states that "the ACL contains a general prohibition against misleading or deceptive conduct in trade or commerce." Additionally, one of the changes resulting from the implementation of the ACL was that the factors that a court will consider when determining if unconscionable conduct has occurred are now the same for both business and consumer transactions. This means that, if anything, the suggestion that large corporations should be able to exclude the operation of Australia's consumer protection laws goes against the direction of recent legislative changes.

Corporations can suffer significant financial and reputational damage associated with contraventions of the ACL. The recent Asahi litigation is a high profile example of a claim made under the ACL against the private equity sellers of a business, which resulted in a significant settlement payment.⁵

The ACL puts Australia in stark contrast to many jurisdictions around the world, which do not have a general prohibition on misleading or deceptive conduct. The courts have continually affirmed that this prohibition is a matter of public policy, and that allowing clauses to exclude liability would be "contrary to public policy."⁶ The lesson here is that parties entering into commercial transactions should not assume they can draft contracts in such a way to exclude liability under the ACL. Although it may be possible to disclaim or limit this liability in some circumstances, this is never guaranteed to succeed.

Indeed, describing the use of the ACL by "corporate giants" as exploitation, while strong in rhetoric, is wrong in substance and dangerous in reality. The better and more prudent approach is to proceed on the basis that it is not possible to exclude liability, and to recognise that any contract entered into on the basis of pre-contractual representations by a party (which is generally the case), may always be subject to challenge if those representations are misleading or deceptive.

Footnotes

¹See, eg, "Lawyers dragged into class actions as investors try to offset losses", Australian Financial Review, 13 June 2014.

²See, eg Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592.

³ See, eg Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131.

⁴ See, eg Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122, [36] to [38]; Lane Cove Council v Davies & Associates [2012] NSWSC 727, [72] to [73].

⁵ See "Private Equity Partners and Unitas Capital to pay Asahi $199m", Australian Financial Review, 17 November 2014.

⁶ Henjo Investments v Collins Marrickville (1988) 39 FCR 546, 561.

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