Key Takeaways
- Section 18 of the Australian Consumer Law (ACL) prohibits misleading or deceptive conduct in trade or commerce, it applies to commercial contract negotiations, not just advertising.
- Silence can be misleading under s 18 ACL when, in the circumstances, it creates a false overall impression, even without a duty to disclose (Lam v Ausintel Investments Australia Pty Ltd [1990]).
- An “entire agreement” clause in a contract does not automatically defeat a misleading conduct claim based on pre-contractual representations.
- Remedies under s 236 ACL include damages, rescission, and injunctions, and they are available even where the conduct was not intentional.
- Queensland businesses regularly act for both plaintiffs and defendants in commercial ACL claims, getting advice before signing or before a dispute escalates is critical.
Section 18 of the Australian Consumer Law (ACL) is one of the most powerful and frequently misunderstood provisions in commercial law. Most Queensland business owners know that misleading advertising can trigger an ACL claim. Far fewer understand that the same section applies to what is said, and what is not said, during commercial contract negotiations.
This post explains how misleading and deceptive conduct under the ACL operates in a commercial contracting context, when silence becomes legally dangerous, and what Queensland businesses must know before entering, signing, or disputing a commercial contract.
What Is Misleading and Deceptive Conduct Under the ACL?
Section 18(1) of the ACL (contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth)) provides:
“A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.”
The key elements are:
- Conduct, not just statements, but any action, representation, omission, or overall impression
- In trade or commerce, commercial dealings between businesses are clearly captured
- Misleading or deceptive, or likely to mislead or deceive, the test is objective: would the conduct mislead a reasonable person in the position of the claimant?
- No intention required, unlike fraud, you do not need to prove dishonest intent
Critically, the ACL does not require proof that anyone was actually misled. The question is whether the conduct was likely to mislead or deceive. This makes s 18 claims significantly easier to establish than common law misrepresentation.
How Misleading Conduct Arises in Commercial Contract Negotiations
Section 18 captures conduct at every stage of a commercial transaction. In a contract negotiation context, liability commonly arises from:
1. Positive Misrepresentations
A party makes a statement, verbally, in writing, or in a document such as an information memorandum, term sheet, or heads of agreement, that is false or creates a false impression. Common examples include:
- Overstating revenue, profitability, or customer contracts during commercial negotiations
- Misrepresenting the status of regulatory approvals or licences
- Providing financial projections stated as fact rather than as estimates or forecasts
- Falsely representing that no third-party consents are required to complete the transaction
2. Half-Truths
A statement that is technically true but omits material context can still be misleading. A classic example is representing revenue figures without disclosing that the largest client has already indicated it will not renew its contract. Courts look at the overall impression created, not just the literal truth of individual statements.
3. Statements About the Future
Section 4 of the ACL creates a specific rule for future representations: if a person makes a representation about a future matter without reasonable grounds for making it, the representation is taken to be misleading. This is important in commercial negotiations where one party makes projections or commitments about future performance without a proper basis for doing so.
4. Conduct and Implied Representations
Misleading conduct need not involve a word spoken. Conduct, the way a business is presented, what documents are provided, what questions are deflected, can create representations by implication. If a seller provides selectively flattering financial data in a data room without flagging known contingent liabilities, the overall conduct may be misleading even if no single statement was expressly false.
When Can Silence Be Misleading?
This is the question that surprises most business owners.
Australian law does not impose a general duty of disclosure in commercial dealings. You are not automatically required to volunteer every piece of information that might be relevant to the other party. However, the absence of a duty to disclose does not mean that silence is always legally safe.
Silence can constitute misleading conduct where:
The Circumstances Create a Reasonable Expectation of Disclosure
In Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83, the Federal Court held that a vendor’s failure to disclose that a restaurant was operating in breach of council seating restrictions amounted to misleading conduct. The Court emphasised that where one party knows a material fact that the other party is clearly relying on, and the overall context creates an expectation of disclosure, remaining silent can be unlawful.
Partial Disclosure Makes Remaining Silence Misleading
Once a party begins making representations, omitting related material information may create a misleading overall impression. Courts examine the totality of the conduct. If a vendor discloses that revenue has been growing but does not disclose that the growth is attributable to a one-off contract that has since ended, the partial disclosure may be enough to ground a misleading conduct claim.
A Representation Creates a Duty to Correct
Where a party makes a representation that was true at the time but becomes false before the contract is signed, there may be an obligation to correct it. Failing to do so can constitute misleading conduct even though the original statement was accurate.
An Existing Relationship Creates a Contextual Expectation
The nature of the parties’ relationship matters. Where one party holds superior knowledge and the other is clearly relying on them for information, as often occurs in franchise arrangements, joint ventures, or professional engagements, courts may be more willing to find that non-disclosure was misleading.
The “Entire Agreement” Clause: Not a Shield Against ACL Claims
Many commercial contracts include an entire agreement clause, a provision stating that the written contract represents the full agreement between the parties and that no prior representations are relied upon.
A common and costly misconception is that these clauses prevent an ACL claim. They do not.
An entire agreement clause can validly exclude contractual liability based on pre-contractual representations (for example, excluding implied terms or collateral warranties). But it cannot exclude liability under the ACL. Section 18 is a statutory remedy, not a contractual one, and it cannot be contracted out of.
This is confirmed by a line of authorities making clear that representations made during negotiations, even if not incorporated into the final contract, remain available as the basis for an ACL claim. The entire agreement clause may go to the weight of evidence on reliance, but it does not defeat the claim.
Businesses regularly act under a false sense of security created by these clauses. If your counterparty made material representations before you signed, the contract’s merger clause does not extinguish your ACL rights.
Common Commercial Situations Where ACL Claims Arise
| Context | Common Misleading Conduct Risk |
|---|---|
| Business sale / acquisition | Financial misrepresentation; concealed liabilities; inflated EBITDA |
| Franchise agreements | Revenue projections in disclosure documents; territory exclusivity misrepresentation |
| Commercial lease negotiations | False representations about fit-out contributions; permitted use; outgoings disclosure |
| Joint venture / partnership formation | Misrepresentation of assets contributed; concealed prior claims over IP or assets |
| Construction contracts | False representations about capacity, qualifications, or regulatory compliance |
| Supply and distribution agreements | Misrepresentation of exclusivity, supply volumes, or pricing arrangements |
What Remedies Are Available for Misleading Conduct in Contracts?
Where misleading or deceptive conduct is established, the ACL provides a powerful suite of remedies under s 236 and s 237:
- Damages, compensation for loss or damage caused by the misleading conduct (s 236 ACL). The measure is the reliance loss: the amount by which the claimant is worse off because they entered the transaction.
- Rescission and variation, the court can void or vary the contract under s 243 ACL
- Injunctions, to restrain ongoing misleading conduct or prevent completion of a transaction (s 232 ACL)
- Account of profits and other orders available at the court’s discretion
Importantly, a claimant does not need to prove that they would have entered the contract on different terms, only that they suffered loss as a result of the misleading conduct. Courts apply a “but for” causation test: would the claimant have suffered the loss but for the misleading conduct?
For guidance on how these remedies are pursued in Queensland courts, see Boss Lawyers’ commercial litigation practice area.
Defences to Misleading Conduct Claims
The ACL provides limited defences and mitigations for misleading conduct claims:
Reasonable grounds for future representations
For representations about future matters, a defendant can rebut the s 4 presumption by demonstrating they had reasonable grounds for making the representation at the time it was made. Documentary evidence of forecasting methodology, market analysis, or professional advice will be central to this defence.
Claimant’s independent investigation (reliance qualifier)
Courts consider whether the claimant took steps to independently verify representations. Sophisticated commercial parties who conducted due diligence and chose not to investigate certain matters may face a higher bar in establishing that they relied on the representation. Note: this is not an absolute defence, it affects the weight of evidence on reliance.
Opinion, not fact
A genuine statement of opinion, clearly presented as such, is less likely to ground a misleading conduct claim. However, courts distinguish sharply between “in my view” language and statements of belief presented as fact. An opinion offered without an honest belief that it is true can still be misleading.
Puffery: The Line Between Promotion and Conduct That Misleads
Not every positive statement about a business, product, or service constitutes misleading conduct. Australian courts recognise the concept of “puffery”, vague, general, promotional statements that a reasonable person would not rely on as statements of fact.
Typical examples of lawful puffery include: “best product on the market”, “premium quality”, “Australia’s most trusted provider”. These are general superlatives that reasonable people understand to be promotional rather than factual claims.
The puffery defence erodes rapidly when:
- Specific figures, percentages, or measurable claims are made
- The statement is in a formal document (information memorandum, proposal, or prospectus) rather than casual promotion
- One party is clearly more sophisticated than the other
- The statement directly addresses a matter the other party has specifically inquired about
If you are making specific representations in a formal commercial context, the puffery defence is unlikely to assist.
Practical Steps to Protect Your Business
Whether you are about to sign a commercial contract or facing a dispute where misleading conduct has been alleged, these principles apply:
Before signing
- Document every material representation, retain emails, data room records, term sheets, and notes of verbal representations. You may need them.
- Conduct proportionate due diligence, the sophistication and scale of the transaction should dictate the depth of verification. Do not rely solely on vendor representations.
- Ask specific questions in writing, this establishes that you sought information, and any misleading answer becomes more clearly tied to your reliance.
- Do not assume the contract protects you, an entire agreement clause is not a shield against ACL liability. Get legal advice on what pre-contractual representations have been made before you sign.
If you are the one making representations
- Substantiate your statements, ensure every material representation about the business, its finances, or its circumstances can be supported by documentary evidence.
- Qualify forecasts clearly, state the assumptions underlying any projections. Ensure recipients understand they are estimates, not guarantees.
- Correct misapprehensions early, if you become aware that the other party is operating under a mistaken belief, address it immediately. Allowing a mistaken assumption to persist can be as risky as making the false statement yourself.
- Get legal review of your pre-contract documents, information memoranda, term sheets, and heads of agreement create legal exposure before any contract is signed.
For matters involving unpaid amounts or breach of contract resulting from misleading conduct, Boss Lawyers also acts in commercial debt recovery proceedings in Queensland courts.
How Boss Lawyers Can Help
Boss Lawyers regularly acts for Queensland businesses and directors in misleading and deceptive conduct disputes under the ACL, on both the plaintiff and defendant sides. Mark Harley and the team have experience in commercial contract disputes in the Supreme Court of Queensland and the Federal Court of Australia.
If you are:
- A business owner who was misled into entering a commercial contract and wants to explore rescission or damages
- A company facing an ACL claim and needing to understand your defences and exposure
- About to enter a significant commercial transaction and wanting pre-contract legal review
…we can give you clear, practical commercial advice on your position.
Call Mark Harley on 1300 267 711 or contact us at bosslawyers.com.au/contact/.
Frequently Asked Questions
Can I bring an ACL claim for misleading conduct in a commercial contract even if both parties are sophisticated businesses?
Yes. Section 18 of the ACL applies to conduct in trade or commerce regardless of the sophistication of the parties. However, the commercial sophistication of the claimant is relevant to the question of reliance, courts are less likely to find that a large, experienced commercial party was misled by a statement it had the means and opportunity to independently verify.
Does an entire agreement clause in my contract stop me bringing an ACL claim?
No. An entire agreement clause can limit contractual liability for pre-contractual representations, but it cannot exclude statutory liability under the ACL. Section 18 claims based on pre-contractual conduct remain available even where the contract contains a merger or entire agreement clause.
Can silence during commercial negotiations amount to misleading conduct?
Yes, in certain circumstances. While there is no general duty to disclose information in commercial negotiations, silence can be misleading where it creates a false overall impression, for example, where a partial disclosure makes omitted information material, or where the circumstances created a reasonable expectation that the information would be shared.
What is the limitation period for a misleading conduct claim under the ACL?
Six years from when the cause of action accrues, generally when the loss is suffered, which may be when the contract is entered into or when the harmful consequences of the misrepresentation crystallise. Time limits in commercial disputes are strict. Seek legal advice promptly if you believe you have been misled.
What remedies are available if I succeed in a misleading conduct claim?
Under sections 236 and 237 of the ACL, remedies include damages (calculated on a reliance loss basis), rescission or variation of the contract, injunctive relief, and other orders the court considers appropriate. You can recover loss caused by the misleading conduct without proving the other party acted dishonestly.
Boss Lawyers offers fixed fee services for commercial contract reviews and letters of demand in commercial disputes. If you need pre-contract legal review or initial advice on an ACL claim, contact Mark Harley at 1300 267 711 or via bosslawyers.com.au/contact/ for a clear scope before you start.
Disclaimer: This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances before taking any action in relation to the matters discussed in this article.
Author: Mark Harley, Principal Solicitor, Boss Lawyers Pty Ltd. Mark has over 17 years of experience in commercial litigation, contract disputes, and misleading conduct claims in Queensland courts. Boss Lawyers is regularly retained by business owners and directors across Queensland in commercial disputes under the Australian Consumer Law.
