Misleading and Deceptive Conduct
We have conducted many matters involving misleading and deceptive conduct under the Competition and Consumer Act 2010 and previously under the Trade Practices Act 1974.
While the majority of these matters were settled through dispute resolution, a number of these matters were litigated, including Yorke v Lucas (1985) 158 CLR 661, Hype Investments Pty Ltd and Sebastiano v Funk Coffee and Food Pty Ltd [2019] SADC 98 and JM & PM Holdings Pty Ltd v Snap On Tools (Australia) Pty Ltd [2015] NSWCA 347.
Yorke v Lucas
Yorke v Lucas was one of the first cases under s52 of the Trade Practices Act involving misrepresentation and is still a leading authority today. Stephen Haarsma conducted the matter and appeared as counsel at all stages including before the High Court of Australia.
The case involved the sale of a business by Treasureway Stores Pty Ltd to Miles and Sue Yorke. The business was sold to the Yorkes through an agent Ross Lucas Pty Ltd.
The Federal Court found that both Treasureway Stores Pty Ltd and the agent Ross Lucas Pty Ltd had engaged in conduct that was both misleading and deceptive under s52 of the Trade Practices Act by falsely representing the average weekly turnover of the business before the sale. This was despite the fact that there was no evidence that the agent (Ross Lucas Pty Ltd) had knowledge that the representations were false.
The Federal Court held in assessing damages under s82 that the Yorkes were entitled to
- compensation for the actual losses they incurred in carrying on the business flowing directly from the inducement
- interest on the purchase price paid by them
- the amount payable by the Yorkes to the lessor in respect of loss and expenses incurred by the lessor on re-entry and re-letting of the premises
costs of going into and out of the business
- a proportion of the additional money provided by the Yorkes for the business.
The Yorkes subsequently appealed to the Full Federal Court in relation to the finding that Ross Lucas the principal of Ross Lucas Pty Ltd was not involved in the contravention of s52 and therefore not liable in damages to the Yorkes.
The Full Federal Court dismissed the appeal and the Yorkes appealed to the High Court.
The High Court then considered whether for an individual to be “involved in a contravention” under s75B that person needed to have actual knowledge that the conduct was misleading or deceptive in breach of s52.
Under s75B to be involved in a contravention, a party must aid and abett, induce, be knowingly concerned in or conspire with others to give effect to the contravention.
The High Court said at 670:
There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention …. In our view … [in order to be knowingly concerned] …. a party to a contravention [needs] to be an intentional participant, the necessary intent being based upon the knowledge of the essential elements of the contravention.
As a result while Lucas, as principal for Ross Lucas Pty Ltd, acted as the agent for Treasureway Stores Pty Ltd and he personally made the representations in relation to the weekly turnover and gross profit to the Yorkes, he was not held to be liable under s75B as it had not been shown that he had any knowledge that the representations were false.
Hype Investments v Funk Coffee
In Hype Investments Pty Ltd and Sebastiano v Funk Coffee and Food Pty Ltd [2019] SADC 98, a franchisor provided a franchisee with turnover figures for a certain period, but failed to provide the franchisee with additional turnover figures that showed that the turnover had dropped. The Court found that in the circumstances, the franchisor had engaged in misleading and deceptive conduct by silence (or non-disclosure). The Court stated:
The action for misleading and deceptive conduct based on inaccurate turnover figures must therefore succeed on the additional ground that those figures were provided knowing they would be relied on, by failing to correct the position in circumstances in which there was a genuine expectation the true figures would be disclosed.
JM & PM Holdings Pty Ltd v Snap On Tools
JM & PM Holdings Pty Ltd v Snap On Tools (Australia) Pty Ltd is a franchisee misleading and deceptive conduct case which was heard by the NSW Court of Appeal. The case involved a complex cash flow projection spreadsheet provided to the franchisee before the franchisee entered into the franchise agreement.
