Misleading or Deceptive Conduct

Transcription

1 Misleading or Deceptive Conduct Charlotte Murphy & David Niven FOS Conference 2012

2 MISLEADING or DECEPTIVE CONDUCT What we will cover The boring stuff The less boring stuff FOS Approach Vaguely Interesting Case studies

3 Relevant Law A person must not, in trade or commerce, engage in conduct in relation to a financial service that is misleading or deceptive or likely to mislead or deceive. S 12DA ASIC Act 2001 S 1041H Corporations Act 2001 S 18 The Australian Consumer Law

4 Some Definitions must be trade or commerce in Australia or between Australia and Overseas: S12 BA(1) engage in conduct is a reference to doing, or refusing to do, an act: S12 BA(2) financial service is defined in S12BAB representation as to future matters: S12BB

5 Is the Statement Promissory? Is the statement intended to be a term of the contract; Objective approach; Effect of non contractual promises.

6 What is Misleading or Deceptive Conduct? Test is objective. Question is whether the statement conveys a meaning that is false. That is tested by reference to the ordinary or reasonable members of the class of persons to whom the representation is directed.

7 The test of reasonableness has a range of responses and ought consider the boundaries of that range. Foolish People a case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation...was not...a real inducement.. Argy v Blunts & Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112

8 Misleading or Deceptive Conduct Silence, Opinions & Forecasts? Doesn t just apply to positive statements Silence Forecasts Promises Opinions

9 Silence as False & Misleading Conduct Not a general duty of disclosure Engaging in conduct includes refusing or refraining from doing an act...where there is a reasonable expectation that if a relevant fact exists it will be disclosed Costa Vraca Pty Ltd v Berringan Weed & Pest Control Pty Ltd [1998] FCA 693

10 Forecasts, Promises & Opinions Forecasts: Representation of future matters: S12BB must have reasonable grounds for making the representation a representation of future matters is to be taken not to have reasonable grounds unless evidence to the contrary

11 Promises & Opinions: If knew it to be false or made with reckless disregard Not capable of performance Implied representation of a present fact

12 Liability for Agent s representations Who is an agent of the FSP Effect of statement about agency in the contract S. 128 National Credit Code: If there is a tied loan contract or a tied continuing credit contract in respect of a sale contract, any representation, warranty or statement made (whether orally or in writing) by the supplier, or any person acting on behalf of the supplier, to the debtor in relation to the tied loan contract or tied continuing credit contract gives the debtor the same rights against the credit provider as the debtor would have had if it had been made by the credit provider

13 Causation & Loss loss must be caused by the contravention Marks v GIO Australia [1998] HCA 69 not sole cause a cause versus the cause causal connection & reliance remedy is not to make the promise come true appropriate counterfactual Marks v GIO Australia [1998] HCA 69

14 Share Price ($) 19 February Profit Announcement 13 August Half Year Profit Announcement 10 December 2002 Reasonable 2002 Profit Forecast is $81.6m 7 February Profit Downgrade to $80.2m 4 April 2003 Partial Disclosure of 2002 South American Contracts 27 May 2003 Half Year Profit Downgrade 18 November 2003 Disclosure of remaining effect of 2001 Profit overstatement Causation & Loss Corp Meier Recognition Effect Brazil-1, Jade, Dakota Recognition Effect 10 December 2002 Profit Forecast Effect 0 Jan Feb Mar True Value Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov

15 Contribution & Apportionment Available in relation to economic loss or damage to property; Where the claimant s loss is partly a result of its own failure to take reasonable care, and: the defendant did not intend to cause the loss; did not fraudulently conceal the loss (S.12GF(1B))

16 Invariably oral statements alleged Often little or no corroborating material Question of credibility The Challenge We cannot test credibility by cross-examination Human memory is fallible, especially where there are overlays of self interest in recollections Sometimes people are not completely truthful

17 FOS Role Make a finding on the weight of available information balancing contradictory views The Applicant s statement as to what was said has weight A finding of dishonesty ought not be lightly made. Briginshaw v Briginshaw (1938) 60 CLR 336

18 FOS Approach As we can t test evidence through cross examination we will give weight to documentary evidence such as contemporaneous file notes However the document must support the allegation relating to the representation because it is in the contract does not mean there was no representation. The contract will be relevant, but to the amount of compensation: the Applicant fails to read it at their peril the contract may be a relevant disclosure Opportunity to read/get advice will be relevant to apportionment.

19 FOS Approach Where there is disclosure of costs, or an explanation of terms, the statement should be complete. If there are evenly weighted recollections of the Applicant & FSP we may not be able to make a finding Test credibility through inconsistencies in answers and recollections

20 What this means to you Need to respond to allegations Reliance on the contract terms is not sufficient Statement by relevant officer File notes of relevant communications Identify inconsistent correspondence or conduct (both pre & post representation)

21 Case Studies 1. The Angry Agrarian 2. The Delayed Developer