Background
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 section 52 of the Trade Practices Act 1974 (Cth) and the various state Fair Trading Acts, such as section 9 of the Fair Trading Act 1999 (Vic). Now, it is contained in the Australian Consumer Law (ACL), which is Schedule 2 to the Competition and Consumer Act 2010 (Cth). Specifically, 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."
Recent comments in the media suggest that Australia's consumer protection laws, and in particular the prohibition on misleading or deceptive conduct in trade or commerce, are being exploited by "corporate giants" in large transactions. These include assertions that these "corporate giants" are using these laws to "recut their unsatisfactory transactions in the courts, and as a result numerous parties are being dragged into those legal disputes."1
The comments imply that it is possible for large, commercial parties to exclude Australia's prohibition in Australian law on misleading or deceptive conduct in some transactions. However, the analysis behind the commentary is flawed and all commercial parties to a transaction should be keenly aware of their potential liabilities.
The ACL applies to all commercial transactions in Australia
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."
It should be noted that 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. Section 3.1 of the Explanatory Memorandum to the Australian Consumer Law clearly states that "the ACL contains a general prohibition against misleading or deceptive conduct in trade or commerce."
In light of the clear language of section 18 of the ACL, any suggestion that it may be possible to exclude the operation of the ACL in large transactions is dangerous and goes against the direction of recent legislative changes. Rather, commercial parties entering into transactions in Australia 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.
Disclaimers are not always effective in limiting liability under the ACL
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 merely passed on to another party. This approach was effective in the High Court of Australia decision of Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592.
Another approach is to use disclaimers to demonstrate that another party has not relied upon conduct that is allegedly misleading or deceptive. This method was effective in the Full Federal Court of Australia decision of Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd [2005] FCAFC 131.
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. For example, in the case of Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd [2012] NSWSC 1122, the New South Wales Court considered that there could be temporal or monetary limits imposed on a remedy for misleading or deceptive conduct, and stated that "in my opinion a distinction clearly needs to be drawn between a contractual term purporting for example to bar a statutory remedy altogether and one that purports to impose a monetary or temporal limit on the extent of the remedy."
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. Parties who enter into transactions in Australia should therefore not automatically assume that disclaimers will always be successful in allowing a party to avoid liability for contraventions of the ACL.
Significant damages can be awarded for engaging in misleading or deceptive conduct
Section 236 of the ACL provides that where a person suffers loss or damage because of the conduct of another party that is found to be misleading or deceptive, then the "claimant may recover the amount of the loss or damage by action against that other person, or against any person involved in the contravention."
The potential magnitude of such claims is demonstrated by the recent Asahi litigation, where Japanese brewer Asahi brought claims against private equity firms Pacific Equity Partners (PEP) and Unitas, and a number of warranty and indemnity insurers, based on allegations that PEP and Unitas engaged in misleading or deceptive conduct in relation to the sale of Independent Liquor to Asahi in 2011.
As noted in the Sydney Morning Herald, the litigation resulted in a settlement payout of AUD $199 million to Asahi. As far as we are aware, this is the largest reported settlement between private litigants (excluding class actions) in Australian legal history.
Conclusion
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."
For example, in Henjo Investments v Collins Marrickville (1988) 39 FCR 546 Justice Lockhart, in considering the former Trade Practices Act, stated that "Parliament passed the Act to stamp out unfair or improper conduct in trade or in commerce; it would be contrary to public policy for special conditions such as those with which this contract was concerned to deny or prohibit a statutory remedy for offending conduct under the Act."
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 approach is to assume it is not possible to exclude liability, and to recognise that any pre-contractual representations by a party will always be subject to challenge if those representations are misleading or deceptive.
Additional Resources
- Australian Consumer Law explained Guide misleading or deceptive conduct (published by the Australian Competition and Consumer Commission) Guide on misleading or deceptive conduct (published by Consumer Affairs Victoria) Laws and regulations affecting the Australian "Consumer" (published by Australian Government, The Treasury) The Australian Consumer Law explanation video (published by Consumer and Business Services South Australia)
1Lawyers Dragged into Class Actions as Investors Try to Offset Losses, by Mariana Papadikis, published in the Australian Financial Review on 13 June 2014
