Australia has strong laws to punish any business which misleads or deceives its customers. If you run a business, you will need to understand what type of conduct is prohibited. If you’re not careful, an innocent mistake or miscommunication could land you and your employees in hot water. This article will explain how the Australian Consumer Law (ACL) regulates misleading and deceptive conduct and what can happen if you breach these laws.

What is Misleading and Deceptive Conduct?

The ACL sets out that you must not engage in conduct that is misleading or deceptive while undertaking your business. Also, you must not undertake conduct that is likely to mislead or deceive your customers. This conduct might include statements or representations that you make, as well as information that you withhold or remain silent about.

‘Misleading’ and ‘deceptive’ have distinct meanings:

Misleading Leading another party into an error.
Deceptive Deliberately leading another party into an error.

 

The critical difference is whether you intended to cause the error. You can mislead someone by mistake, but you can’t deceive someone by mistake. While both types of conduct are prohibited, this means that you could face harsher consequences if you deceive customers.  Deceptive conduct is also known as fraud.

When Does This Law Apply to Me?

The laws surrounding misleading or deceptive conduct apply to both companies and individuals. It sets a standard which you must uphold in all commercial transactions. This includes a wide range of situations, such as:

  • selling retail or online goods to your customers;
  • selling your services to clients;
  • advertising your products;
  • packaging and labelling your products; and
  • business-to-business dealings, such as contract negotiations.

Essentially, if you are engaging with another party in the marketplace, it is likely that the laws surrounding misleading and deceptive conduct will apply to your business.

There is only a limited number of scenarios that this law doesn’t apply in. The main ones are:

  • private, once-off sales (i.e. selling something second hand on eBay);
  • internal communication within an organisation; and
  • government activities such as procurement, tenders or regulatory action.

How Do I Know if My Conduct Is Misleading or Deceptive?

The legal definitions of misleading and deceptive conduct match their plain English meanings. So, you can often assess whether a situation amounts to misleading and deceptive conduct by applying common sense.

Ask yourself, would this conduct lead someone to believe something that isn’t true? If so, you might be engaging in misleading or deceptive conduct.

You can only get in trouble for misleading or deceptive conduct if someone takes you to court. You could be taken to court by:

In court, the other party would need to prove one of the following:

Your Conduct Misled The Other Party The other party will need to provide evidence that your conduct led to their error.
Your Conduct Deceived The Other Party The other party will need to provide evidence that your conduct led to their error. They will also need to prove that you intended to deceive them.
Your Conduct Was Likely to Mislead or Deceive The other party does not have to prove that your conduct led to their error. Instead, they need to show that your conduct was objectively misleading. A court would decide this by considering whether someone in the same situation would likely be misled.

 

The third category is far easier to prove that the first two. It is crucial to keep in mind that even if you make an innocent mistake, you might still get caught out for misleading behaviour.

What Are Some Examples of Misleading and Deceptive Behaviour?

Some real-world examples of misleading and deceptive conduct might include:

You advertise and label your food product as a “health food” when, in fact, it is extremely sugary and unhealthy. Even if you ensure that the ingredients are displayed in the fine print, the overall look of the packaging could still be considered misleading or deceptive. This could be if the packaging leads the average consumer to believe that the food is healthy.

You sell tickets to events online. You have multiple hidden fees associated with your service, which are not clearly displayed when a customer uses the online checkout. While minor additional service fees are commonplace in the events industry, the ACCC has successfully sued businesses in the past for ‘drip pricing’. This is when you incrementally disclose multiple additional costs in a misleading fashion.

You provide a pest management service. You offer your first inspection for free and advertise this on websites like Groupon. However, you don’t disclose on Groupon that you have a yearly subscription model and a cancellation fee.

Even if your terms of service are set out the subscription model, your conduct could still be considered misleading if you:

  • don’t explain your pricing structure on Groupon; or
  • try to sign customers up for more work without being explicit about the subscription model.

You are discussing a license agreement with a potential distributor to sell your products in their region. During the negotiation process, you stated many times that they would have exclusive distribution rights for that territory. The contract itself doesn’t explicitly state this. After the contract is signed, this turns out to be untrue.

The distributor may be able to argue that you made misrepresentations that induced them into entering the contract and that it was, therefore, misleading or deceptive.

I Think I Have Misled a Customer. What Do I Do?

Usually, before someone takes you to court, they will send you a formal letter setting out their claim. If you receive such a letter and are concerned that the claim is accurate (or partially accurate), you should reach out to them and try and negotiate a commercial resolution.

A commercial resolution could include:

  • a refund;
  • some other form of compensation; or
  • change to your original agreement.

If you aren’t able to resolve the matter through negotiation, the other party might take you to court. If they are successful, the court can provide the other party with one or a combination of the following:

Injunction

An injunction is a court order that requires a person to do something or refrain from doing something.

For example, a court could order that you stop selling your product until you update your packaging.

Damages

A court also has the power to make orders against you to compensate the other party for the damage that your conduct caused. If the other party lost money as a result of your misleading or deceptive conduct, the court can force you to pay money to put them back in the financial position they otherwise would have been in.

The severity of how much you will have to pay will directly relate to the damage that you caused.

Contract Rescission If you made misleading or deceptive statements that induced another party to enter into a contract with you, they can apply to the court to cancel the contract.


It Wasn’t Me, It Was My Employee!

A Court also has the power to make a range of additional orders, including pecuniary penalties, which are fines that the court collects. You could also be ordered
to establish a training program for your employees to ensure compliance in the future.

If your employees were responsible for misleading and deceptive conduct, they could also be held individually legally responsible.

Unfortunately, this won’t get your business off the hook entirely. Your company will still be held legally responsible for misleading and deceptive conduct. Mislead parties will generally always sue the relevant company directly, rather than its employees who engaged in the conduct.

Key Takeaways

The ACL creates strong protections for consumers, including the prohibition of misleading and deceptive conduct. Under this law, if you make an innocent mistake that misleads a consumer, you could be legally responsible for misleading or deceptive conduct. If you intended to deceive consumers, you could be in even more serious trouble with the law. If you are concerned about how the requirements to avoid misleading and deceptive behaviour may impact your business, call LegalVision’s competition lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Simon Hillier

Get a Free Quote Now

If you would like to receive a free fixed-fee quote or get in touch with our team, fill out the form below.

  • We will be in touch shortly with a quote. By submitting this form, you agree to receive emails from LegalVision and can unsubscribe at any time. See our full Privacy Policy.
  • This field is for validation purposes and should be left unchanged.

Privacy Policy Snapshot

We collect and store information about you. Let us explain why we do this.

What information do you collect?

We collect a range of data about you, including your contact details, legal issues and data on how you use our website.

How do you collect information?

We collect information over the phone, by email and through our website.

What do you do with this information?

We store and use your information to deliver you better legal services. This mostly involves communicating with you, marketing to you and occasionally sharing your information with our partners.

How do I contact you?

You can always see what data you’ve stored with us.

Questions, comments or complaints? Reach out on 1300 544 755 or email us at info@legalvision.com.au

View Privacy Policy