Misleading or deceptive conduct - representations regarding future matters
'Traditional bargaining may be hard, without being in the statutory sense misleading or deceptive. Noone expects all the cards to be on the table. But the bargaining process is not therefore to be seen as a licence to deceive.’
Burchett J in Poseidon Ltd v Adelaide Petroleum NL (1992) ATPR 41-164
The prohibition against misleading and deceptive conduct is a familiar part of the commercial landscape for businesses, being some of the most heavily litigated statutory provisions in Australian law. The provisions are now located in section 18, of Schedule 2 (‘the Australian Consumer Law’) to the Competition and Consumer Act 2010 (previously section 52 of the Trade Practices Act 1974) and seek to promote competition and fair trading. The provisions are often relied upon and, too often, not properly understood. (The Trade Practices Act was repealed effective January 2011 and replaced by the Competition and Consumer Act)
The recent decision of Justice Buchanan in the Federal Court on 4 May 2011 in Skiwing Pty Ltd trading as Café Tiffany’s v Trust Company of Australia (Stockland Property Management Ltd) [2011] FCA 438 gives insight into how these provisions operate and, in particular, when a party can rely on statements made by other parties in the course of business negotiations.
The Facts
The applicant in this case, Skiwing, ran a cafe in The Imperial Arcade central Sydney CBD. The Trust Company of Australia Ltd was the registered proprietor, and Stockland Property Management was the manager of the Arcade. When Skiwing took over the cafe in 1993, they also took over an existing lease, which was renegotiated before the Arcade was demolished in 2008.
During the lease negotiations the café owners alleged the landlord made numerous representations that they relied upon in entering into the lease, including the erection of a balcony (subject to Council approval), refurbishment of the arcade, and a major advertising campaign to increase foot traffic.
As often happens, none of these in fact came to fruition, and the café owners brought proceedings alleging that the statements constituted misleading or deceptive conduct.
The Judgment
The applicants case relied on section 52 (as it was then), which prohibits conduct that is misleading or deceptive in trade or commerce. This has been described as conduct that “creates a misleading impression in your mind”, “lead[s] into error”, or “gives cause to err”.http://www.austlii.edu.au/au/journals/MULR/2000/10.html - fn35
Justice Buchanan emphasised that the applicant’s case misconceived the operation and effect of the section. His Honour pointed out that the representations were not false statements about existing facts, but rather were representations with respect to future matters, that should be dealt with under s 51A (now s.4 of the Australian Consumer Law). Under this section, a corporation that makes any representation about future matters engages in misleading conduct, unless it can establish that it had reasonable grounds for making the representation at the time it was made.
It is worth noting that it is the corporation making the representation that is obliged to establish, on the balance of probabilities, that there were reasonable grounds for making it.
In this case, the evidence generally established that at the time the statements were made in around 2000 Stockland intended to honour them, and there was nothing to prevent them from doing so – ie. there were reasonable grounds for making the statement at the time. Upon rejection of the plans by the Council, and the possibility of significant future costs and delay, Stockland changed their policy.
Thus, the mere fact that the representations about the future conduct or events did not come to fruition did not make the representation misleading or deceptive, even though Skiwing relied on the representations.
By way of contrast with Skiwing, in Digi-Tech (Aust) Ltd v Brand [2004] NSWCA 58 the Court of Appeal found that representations regarding revenue and profit potential were representations with respect to future matters. In Digi-Tech the representations were held to be misleading or deceptive because no reasonable grounds for making them were established.
In order to meet the standard of behaviour required by section 4 of the Australian Consumer Law, businesses should check the accuracy and bona fides of the representations they make have reasonable grounds for making the representations, and should only make promises they intend to keep, and can reasonably be expected to perform.
Jonathan Casson
Partner
T: +61 2 9390 8316