Is silence always golden?

The test is objective. It does not depend on intention nor does it depend on actual deception. Evidence that other parties were deceived is, of course, important but not crucial to a finding of misleading and deceptive conduct. The High Court has said that the protection is not for persons who do not take reasonable steps in their own interests.

For instance, in a famous case under the old Trade Practices Act provision, which is largely the same as that in the ASIC Act, McWilliams Wines produced a large bottle of mixed grape red wine which they called ‘The Big Mac’. A certain well-known company, which sold certain hamburgers with a similar name, argued that this was misleading and deceptive conduct. The court found that any confusion between red wine and hamburgers was caused by an erroneous assumption by the consumers and not by the conduct of McWilliams. Quite apart from any trademark issues, McWilliams won the case for misleading and deceptive conduct.

A more difficult question is whether not saying something can be misleading conduct and, therefore, actionable under the ASIC Act. Brokers already have, as was discussed in my last blog, substantial duties of disclosure. They also have a general obligation, as holders of Australian Credit Licences, to conduct their businesses “efficiently, honestly and fairly”. In addition, there has been some case law to the effect that, while a party may not have a general duty of disclosure, their conduct, in particular circumstances, was misleading even though they did not actually say or represent anything that was untrue. If this is so, contractual waivers and ‘whole agreement’ clauses in contracts will not exonerate the breaching party. The contract documents simply then become part of the factual matrix.

As one judge has said: “Silence is like any other fact”, and is to be considered along with all the facts and circumstances of a case to determine whether, in context, such silence was misleading conduct. In one case, the owners of a Pizza Haven franchise were asked by a prospective buyer why they were selling. They gave several answers, in some detail, about their “change of life” and their desire to get out of the hospitality industry. They did not mention what was found to be the chief reason – that a Pizza Hut was opening around the corner. This was held to be misleading and deceptive conduct, and actionable under the relevant statute.

On the other hand, the purchasers of land from an airport corporation for the purpose of building a religious school were orally told that “the land may not be suitable”, but not why. Further, the contract specifically said that the seller was not responsible for the suitability of the land and that this was a matter on which the purchaser should satisfy themselves. The purchasers did not conduct a contaminated land search. It turned out the land was contaminated and unsuitable for a school. The court held that silence in this situation, taking into account all the facts of the negotiations and the words of the contract, was not misleading and deceptive.

So while the prohibition on misleading and deceptive conduct does not create a general duty of good faith and disclosure, ‘mere silence’ can amount to a breach. In business, as in life, it is probably best for brokers to adopt the motto that ‘honesty is the best policy’.

Dr Paul O'Shea, director and principal solicitor, O’Shea Lawyers

Dr Paul O’Shea has conducted some of the leading cases in consumer credit law. He has advised governments, consumer groups and industry. Dr O’Shea has published widely and conducted many seminars for the Queensland Law Society, state and federal governments and private agencies in Australia, Singapore, Thailand, Brunei and China, and is currently a member of the Investment, Life Insurance and Stock Broking Panel of the Financial Ombudsman Service. He also has advised other industry dispute resolution schemes and has been a member of the Banking and Finance Committee of the Queensland Law Society for more than 15 years. He is the author of The Legal Environment of Business, published by Thomson Reuters, and his most recent publication is a chapter on 'Regulatory Powers' in the 2013 Federation Press book Consumer Law and Policy in Australia and New Zealand.