Section 18 Australian Consumer Law: Misleading and Deceptive Conduct

What Section 18 Says

Section 18(1) of the Australian Consumer Law, which is Schedule 2 to the Competition and Consumer Act 2010 (Cth), states:

"A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive."

This single sentence forms the basis for a vast body of case law and regulatory action. The provision is not prescriptive about what constitutes "misleading or deceptive" conduct, allowing courts and regulators to apply it flexibly to a wide array of circumstances. This flexibility is both its strength and a source of potential complexity for businesses seeking to comply.

Key Elements of Section 18

"A person"

This includes individuals, companies, and other corporate entities. Importantly, directors, officers, and employees can also be personally liable as accessories if they are involved in the misleading conduct of their company.

"In trade or commerce"

The conduct must occur in an Australian trading or commercial context. This typically includes the full range of business activities, from advertising and marketing to sales, negotiations, and product labelling. It generally excludes purely private or political conduct.

"Engage in conduct"

Conduct is broadly defined and can include acts, omissions, statements, or promises. It encompasses:

• Representations: Express statements, advertisements, product packaging, or other communications.
• Silence: A failure to disclose information, where there is a reasonable expectation of disclosure. For example, failing to disclose known defects in goods or services.
• Actions: Physical acts or gestures that convey a message.
• Opinions and Predictions: While opinions and predictions are not generally considered statements of fact, they can be misleading if not genuinely held or if there is no reasonable basis for them at the time they are made.

"Misleading or deceptive or is likely to mislead or deceive"

This is the core of the prohibition. Critically:

• No Intent Required: Unlike some other legal provisions, Section 18 does not require proof of intention to mislead or deceive. A business can breach Section 18 even if it acted honestly and genuinely believed its conduct was accurate. This is an objective test.
• Likelihood is Enough: The conduct does not need to have successfully misled anyone; the mere likelihood that it could mislead or deceive is sufficient.
• Target Audience: Courts assess whether conduct is misleading by considering the likely effect on the ordinary or reasonable consumer within the target audience for the conduct. This can range from the public at large to a specific demographic or even sophisticated commercial parties, depending on the context.

The Regulator: The ACCC

The principal regulator responsible for enforcing the ACL and Section 18 is the Australian Competition and Consumer Commission (ACCC). The ACCC actively investigates and prosecutes breaches, focusing on industries and practices that have a broad impact on consumers or competitive markets. The ACCC has significant powers to gather information, issue infringement notices, commence court proceedings, and seek substantial penalties. More information on the ACCC's role and enforcement priorities can be found on their website: ACCC - False or Misleading Claims.

Common Examples of Misleading and Deceptive Conduct

Section 18 applies across all industries and to businesses of all sizes. Common scenarios include:

• False or Misleading Advertising: Exaggerated claims about product performance, health benefits, environmental impact ("greenwashing"), country of origin ("Australian Made"), or characteristics. For instance, falsely advertising products as 'organic', 'eco-friendly', or 'natural'.
• Pricing Practices: Misleading discount claims, drip pricing (where additional fees are revealed incrementally during the purchase process), or comparing prices against inflated 'recommended retail prices'.
• "Bait Advertising": Advertising goods or services at a very low price to attract customers, where the advertiser knows they will not be able to offer the goods or services for a reasonable period and in reasonable quantities.
• Misleading Representations about Services: Inaccurate statements about the need for repairs, the efficacy of services, or the qualifications of service providers.
• Silence and Non-Disclosure: As noted above, failing to disclose material facts during negotiations for sales or contracts that would likely influence a person's decision. This is highly contextual.
• Comparative Advertising: Directly or indirectly comparing one's own products or services to a competitor's in a way that is inaccurate or creates a false impression.
• Testimonials and Reviews: Publishing or endorsing fake testimonials, incentivised reviews that are not disclosed, or selectively displaying only positive reviews to create a skewed impression.
• Country of Origin Claims: Claims like "Made in Australia" or "Product of Australia" must comply with strict criteria set out in the ACL.

Remedies and Consequences

The consequences of breaching Section 18 can be severe, both for businesses and individuals. The ACL provides a wide range of remedies:

• Injunctions: Courts can issue orders to stop or prevent the misleading conduct.
• Damages: A person who suffers loss or damage because of misleading conduct can claim monetary compensation. This is often a primary remedy for businesses or consumers who enter into a detrimental transaction because of the misleading conduct.
• Compensation Orders: Courts can make various orders to compensate victims, including ordering a refund, repair, or specific performance of a contract.
• Setting Aside Contracts: A contract entered into as a result of misleading conduct may be declared void or varied.
• Pecuniary Penalties: For serious breaches, the ACCC can seek substantial financial penalties. For corporations, the maximum penalty per contravention is the greater of:
  • $50 million;
  • If the court can determine the value of the benefit obtained from the offence, 3 times the value of that benefit; or
  • If the court cannot determine the value of the benefit, 30% of the corporation’s adjusted turnover during the breach period.
  For individuals, the maximum penalty per contravention is $2.5 million.
• Adverse Publicity Orders: Courts can order a business to publish information to correct a misleading impression created by its conduct.
• Non-Party Consumer Redress: The ACCC can seek orders for redress for non-party consumers who have suffered loss or damage.

It is crucial to remember that individuals, including company directors and employees, can be held personally liable for being "involved in" a contravention under section 2 of the ACL. This includes aiding, abetting, inducing, or being knowingly concerned in the misleading conduct. This potential for personal liability underscores the importance of robust compliance procedures and diligent legal advice for all individuals within an organisation.

Minimising Risk and Ensuring Compliance

Given the broad scope and severe penalties, businesses must proactively manage their Section 18 risk. Key strategies include:

1. Review All Communications: Scrutinise marketing materials, advertising campaigns, social media content, website copy, product labelling, and sales scripts before publication.
2. Substantiate Claims: Ensure all factual claims, particularly those relating to performance, quality, or environmental benefits, are accurate and supported by evidence. Avoid hyperbole that could be interpreted as a factual claim.
3. Clear Disclosures: If qualifications, conditions, or limitations apply to an offer or claim, ensure they are clearly and prominently disclosed. Avoid fine print that contradicts main representations.
4. Training: Provide regular training to sales, marketing, and customer service teams on ACL compliance, particularly regarding representations and disclosure obligations.
5. Contract Review: Ensure contractual terms, especially those relating to product descriptions, warranties, and exclusions, are clear and not misleading. Seek legal advice on business contracts to ensure compliance.
6. Monitor Third-Party Conduct: Be mindful of how distributors, agents, or influencers represent your products or services, as their conduct could potentially be attributed to your business.
7. Internal Policies: Implement clear internal policies and procedures for approving marketing materials and handling customer complaints related to misleading conduct.

Compliance with Section 18 is not merely a legal obligation; it is fundamental to maintaining a strong reputation and fostering consumer trust. Proactive engagement with legal counsel is essential to navigate the complexities of this critical provision.

This article contains general information only and does not constitute legal advice. Envision Legal accepts no liability for any loss arising from reliance on this content. You should seek independent legal advice tailored to your specific circumstances. For enquiries, contact Envision Legal.