How Can Your Business Avoid Misleading or Deceptive Conduct?

Who wants to get caught for misleading or deceiving their customers? Not you – it can have a devastating impact on your business and damage your reputation.

Of course, most businesses never set out to purposefully engage in misleading or deceptive conduct, but if you don’t know what the rules are then you put your business at risk.

In this article, we’ll go through some of the key things to know about misleading and deceptive conduct.

What is Misleading and/or Deceptive Conduct?

Section 18 of the Australian Consumer Law (‘ACL’) prohibits businesses from engaging in conduct that is misleading or deceptive.

Well, what does this mean? What constitutes misleading or deceptive conduct?

Misleading and deceptive conduct can include doing an act doing an act (such as making statements, predictions, or even physical body language!) and advertisements and promotions.

It can even include not doing anything at all, for example if you misled someone by staying silent when you should’ve said something.

Essentially, if your conduct is likely to mislead or deceive consumers about anything – be it the quality, value, price, age, benefits or other characteristics of the goods or services you are providing – then you may be breaching the ACL.

If you do not comply with the consumer guarantees, then you may also open yourself up to claims of misleading and deceptive conduct too. For more information on consumer guarantees, have a look at our article on how your business can comply with the consumer guarantees.

Consequences of Misleading or Deceptive Conduct

First of all, a consumer has to prove misleading and deceptive conduct. To do this, a consumer would have to show that your business’ conduct led them to draw the wrong conclusion, and that this caused them loss or damage.

Once a consumer proves that you engaged in misleading and deceptive conduct, this could have the following consequences for your business:

• Having to pay compensation for losses suffered by your consumer
• Having your business disqualified from operating

As you can see, it can have some serious consequences for a business.

Below are some ways to minimise the risk of accidentally engaging in misleading or deceptive conduct.

8 Tips on How to Avoid Engaging in Misleading or Deceptive Conduct

We’ve put together some general principles on how to minimise the risk of engaging in misleading or deceptive conduct.

Every business will have different issues to consider, so it’s important to stay informed and alert in your own business.

1. Words can be misleading

A lot of words have multiple meanings, so be careful when you advertise with words like ‘free’ or ‘bonus’. If something you are providing is technically not free, it should be phrased in a way that makes clear the product is not free.

2. Your intentions don’t really matter

Whether or not you were actively trying to mislead your consumers is irrelevant under the ACL, and you may be liable for misleading or deceptive conduct even if you honestly believed that you were being truthful.

3. Just because you are ‘literally’ telling the truth, doesn’t mean you’re not being deceptive

If you advertise tickets for a ‘Madonna concert’ for $500, you can’t ask any lady that has the name Madonna to perform on stage. Consumers are expecting the real deal when they’ve paid big bucks, and they’re also expecting her to put on a show

4. Context is important

You shouldn’t isolate a phrase so that it has a completely different impression from its original context. For example, if you’ve had a scathing review of your product, but the person said one nice thing about your product at the bottom of the review, you can’t isolate that one nice comment as a testimonial on your website to make it look as if they love your product. That would be misleading!

5. Sometimes you need to say something

If there are clearly relevant facts or failures about your product or services, and you decide not to reveal these to your consumer, silence will not protect you from breach of the ACL.

6. Be careful if you are making promises about the future

If you know you are selling something on the assumption that something false or unreasonable to happen in the future, you may be liable under the ACL for misleading or deceptive conduct.

7. “But they didn’t ask” isn’t an excuse

Even if a consumer didn’t make proper enquiries (eg by engaging a lawyer or some other expert), that doesn’t necessarily free you from liability if you’re being misleading or deceptive.

7. The fine print in your T&Cs don’t solve everything

The fine print in your business’s disclaimers are often only effective if they are prominent in the contract. Exclusion clauses that attempt to escape any liability for misleading conduct are routinely disregarded by the courts. There are limits to how much you can contract out of your obligations under the ACL.

Advertisements – Can They Be Misleading and Deceptive?

One of the main areas where businesses get caught for misleading or deceptive conduct is in their advertising.

No matter what industry you are in, advertising is an important part of running your business. The misleading and deceptive conduct laws in the ACL apply to any kind of advertisement exposed to the public, so it’s important to understand the legal limitations.

Here are some key things you should know about advertisements that may be misleading or deceptive to consumers.

1. Misleading Statement, or is it just Puffery?

Puffery is an exaggerated statement that no reasonable person would believe to be true. It can be used as a defence for misleading and deceptive conduct.

If a statement is false but is also too outrageous for a reasonable person to actually believe, e.g. “Red Bull gives you wings”, then you may argue you have not been misleading or deceptive. That said, Red Bull did get sued for this phrase in the US, so the line is not always clear.

It’s better to be safe – if you say anything that a reasonable person would believe to be true, then it would not be puffery and you could find yourself in trouble.

2. Small Print and Asterisks

You can’t get away with misleading and deceptive conduct just by hiding the information somewhere on your ad.

If you have fine print at the bottom or end of your ads it has to be sufficiently prominent for consumers to see and read. Likewise, if you’re using asterisks, make sure that the qualification is clear to the consumer.

3. Disparaging Advertising

If your advertisement compares your product or service to your competitors, you must honestly and accurately inform your consumers about the advantages of your product or service over the other.

You can’t just mock and derogate another product or service while omitting relevant information and features.

4. Parody Advertising

Sometimes you might include some humour in your ads, and rely on parody.

Even if it’s funny, if you are ridiculing a competitor’s advertisement or creating a fictional advertisement, you still can’t be inaccurate, untrue, or omit relevant information.

5. Two Price Advertising

You’ve probably seen this one a lot and might be tempted to do it as well.

However, keep in mind that it can be misleading to say “was $100, now $50”, if the product was never sold for $100 in the first place. It will also be misleading if the product was not sold at that original price for a reasonable time before the discount.

What to Take Away…

The big question to keep in mind is: Would a reasonable person be misled or deceived by what I’m doing or saying?

Common sense can be a good guiding principle, but it’s also important to be aware of the relevant laws when it comes to misleading and deceptive conduct. Different industries may have principles of misleading or deceptive conduct that are more or less relevant for them.

Advertising alone is an area that has a lot of particular rules your business must follow to comply with the ACL.

We know this is a lot of information to take in about misleading and deceptive conduct. But don’t be discouraged or overwhelmed – there are a lot of resources available on government websites, and if you would like some further help identifying the relevant laws for your business under the ACL, feel free to chat to us.

Alice Kang

Alice is a legal intern at Sprintlaw. She is currently completing her Bachelor of Laws from Macquarie University and looking to do further study in the area of finance and law.

Tomoyuki Hachigo

Tomo is the co-founder of Sprintlaw and a commercial lawyer with a broad range of legal experience. Before starting Sprintlaw, he was an M&A lawyer at a top-tier law firm advising businesses of all sizes from large corporates to startups.