Professional Updates: Consumer Law
Misleading or deceptive conduct:
People must assume that things go
wrong in the normal course of events:
the Full Court and the Longford
gas explosion
By Professor Warren Pengilley, Sparke Helmore Professor of Commercial
Law, University of Newcastle, Special Counsel to Deacons Lawyers, Sydney
General principles applicable to s 52
Federal Court’s jurisdiction
Lessons from the case
T
he Esso Longford Plant gas explosion on
25 September 1998 continues to occupy
the Federal Court in jurisprudential
wrangles both as to substance, as to the
applicability of class action procedures in
relation to the claims made against Esso and
others, and ultimately as to whether the Federal
Court has jurisdiction to hear the case at all. At
the time of writing, the latest relevant decision
is that of the Full Federal Court in Johnson Tiles
Pty Ltd v Esso Australia [2000] FCA 1572; (2001)
ATPR ¶ 41–794. The Court's judgment is that of
French J with whom Beaumont and Finkelsein
JJ concurred.
The primary judge ordered a partial strike
out of Johnson Tiles' pleadings. Esso appealed
claiming that the primary judge should have
struck out the whole of Johnson Tiles'
misleading or deceptive conduct claim under
s 52 of the Trade Practices Act. Esso contended
that this claim was not bona fide made. It also
contended that the cause of action in
negligence was not tenable. The Victorian State
Entities submitted that if the s 52 claim was
struck out, the proceedings could not be
continued in the Federal Court or, if they did so
proceed, the action should not proceed in the
Federal Court as a class action.
The judgment
1 The Section 52 Claim in relation to
misleading or deceptive conduct
(a) General principles
Brief facts
For purposes of this commentary, the facts
may be stated with brevity. Johnson Tiles was
the major plaintiff and this commentary will,
essentially, be limited to its case. It alleged that
Esso had engaged in misleading or deceptive
conduct in breach of s 52 of the Trade Practices
Act and it also alleged negligence. Johnson Tiles
suffered economic loss through disruption of its
gas supply. The alleged liability of Esso was
fundamentally based on omissions by Esso in
that it had failed to contradict assumptions
relating to continuity of supply and had failed
to disclose the susceptibility of gas supplies to
interruptions. Esso cross-claimed against certain
Victorian State entities and others involved in
the distribution and sale of gas to consumers
(referred to here as ‘The Victorian State
Entities’).
MAY 2001
The Esso defence in relation to the s 52
claim was that, even if the facts as alleged were
proven, s 52 was not infringed. On this basis,
the s 52 claim should, said Esso, be struck out.
It was not in issue that Johnson Tiles had
suffered damage as a result of the Longford gas
explosion.
Justice French elaborated the general
principles applicable to s 52. He made the
following points in this regard:
• Conduct is misleading or deceptive if it is
capable of inducing error (his Honour noted
that a doctrine of ‘erroneous assumption’ as
articulated by the High Court in Campomar
Sociedad Limitada v Nike International (2000)
ATPR (Digest) 46–201 seems to have arisen
only in the context of similar product name
cases).
• Conduct may be misleading or deceptive
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Consumer Law cont.
because it involves an express
representation which is false.
Conduct may also be misleading
or deceptive if it involves an
implied representation conveyed
by words or conduct or some
combination. Such an implied
representation is as false as an
express representation.
• Conduct is to be looked at in
light of its actual or probable
consequences. It is not necessary
to prove that any party has
actually been misled.
• There must be a logical causal
connection between the conduct
and any hypothesised error. But
not every case involving logical
connection between alleged
conduct and error will constitute
misleading or deceptive conduct
breaching s 52. An evaluative
judgment is required. For
example, a link may be
established between conduct and
error but the error was caused
because of an erroneous
assumption made, which
assumption was derived from, but
not logically justified by, the
conduct involved. Some causal
connections can be rejected
because, whilst they are
theoretically open, they are too
tenuous or they impose
responsibilities otherwise than in
accordance with the policy of the
Act. It has been held, for example,
that the Courts may well decline
to regard assumptions which are
made by persons whose reactions
are extreme or fanciful as
controlling the application of
s 52.
• It is not necessary that there be
an intention to deceive for there
to be a breach of s 52. Knowledge,
however, may be relevant. In the
case where disclosure would
reasonably be expected to be
known if a fact were known,
failure to disclose the fact may
convey the implication that the
fact is not known. However, a
supplier is not required to inform
the public of every possible risk. It
must be assumed that the public
is aware that in the normal course
of events things go wrong in the
course of supply of products and
services and no-one can
reasonably assume, absent
disclosure, that all supply will be
risk free. Further, the case law is
that questions of misleading
conduct in relation to nondisclosure have to be assessed in a
‘practical realistic way’. The
question of misleading or
deceptive conduct through nondisclosure must, like any other
issue, be evaluated in the context
or circumstances of the case
involved.
(b) The applicability of the above
principles to the case
The case against Esso, said his
Honour, was based on a claim that
gas users were reasonably entitled to
assume uninterrupted supply and
that Esso, by not negating this
assumption, breached s 52 of the
Trade Practices Act.
This was said to be because of:
• a dependency of consumers on
Esso and the Victorian State
Entities as the sole suppliers of gas
and, therefore, the assumption
could be made that this supply
would be uninterrupted and
• the fact that Esso was a monopoly
Conduct is to be looked at in light of its actual or
probably consequences.
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KEEPING GOOD COMPANIES
supplier of gas was itself a reason
for assuming uninterrupted supply.
His Honour, however, found for
Esso in relation to the s 52 claim.
There is, he stated, no logical
connection between supply
dependence and interruption to
supply continuity. The Johnson Tiles
pleading was dismissed by his
Honour with the conclusion that it is
‘with all due respect ... a logical
absurdity’.
Likewise his Honour concluded
that there was no logical connection
between the fact that Esso was a
monopoly supplier and the
assumption made that the supply
would be uninterrupted.
His Honour noted, in any event,
that there was no dispute about the
fact that supplies could be
interrupted for reasonable
maintenance. The Victorian Gas
Customer Service Code also, in fact,
expressly contemplated the
possibility of ‘unplanned
interruptions’ to supply.
If, said his Honour, Esso were to
answer the pleaded case of Johnson
Tiles that the expectations of
consumers as to interrupted supply
had to be negated, Esso would have
been required in the present
circumstances to warn the populace
that it was expecting a gas explosion
in its plant — clearly something it
was not, on the facts of the case,
expecting at all and of which it had
no capacity to warn. Thus
compliance with s 52 by Esso would,
on the case pleaded by Johnson
Tiles, have been an impossibility.
His Honour thus concluded that
the pleadings of Johnson Tiles were
fatally flawed. The conduct of Esso
in failing to correct or contradict
assumptions made in relation to the
vulnerability of the gas supply could
not constitute misleading or
deceptive conduct. This aspect of the
Johnson Tiles statement of claim
should thus be struck out in its
entirety.
Consumer Law cont.
2. The negligence action
Esso contended that the
regulatory gas distribution system in
Victoria fundamentally undermined
any duty of care which might be
alleged in relation to supply
continuity. Also, said Esso, the
regulatory chain which required
certain channels of distribution
meant that there was no ‘proximity’
between Esso and its customers.
Further, submitted Esso, any
economic loss suffered cannot be
claimed if to do so is inconsistent
with contractual law principles. The
purchasers of gas were contractors
not with Esso (which was a gas
producer) but with other suppliers.
Further, supply contracts covered
interruptions to supply. Thus Esso
was not liable for non-supply to the
claimants because Esso was not their
supplier and, in any event, their
supply contracts precluded claims
against their suppliers.
His Honour held that the
claimants were in no little difficulty
in relation to their negligence claims.
However:
... the principles, and more
importantly, their application in
particular cases, are not so settled and
not so clear that it can be said the
claim is untenable.
In his analysis, Justice French
referred to Bryan v Maloney (1995)
192 CLR 609 (a successor in title to a
home owner successfully suing the
builder for negligent construction of
a house) concluding that the case
involved a particular kind of damage
(diminution in value of a house) and
was thus not directly applicable to
the present case. He also referred to
Perre v Apand Pty Ltd (1999) 198 CLR
180 (in which the High Court
reasoning covers 153 printed pages
of the Commonwealth Law Reports
and is contained in seven separate
judgments). Justice French
commented that in Perre v Apand
McHugh J observed that Australian
courts must be careful before holding
that contractual obligations
... s 52 is limited as to what has to be disclosed.
A supplier does not warrant everything to be
perfect and the fact that imperfections are
not disclosed does not mean that s 52
is breached.
automatically negate tort law claims
for economic loss. Justice French
finally referred to Astley v Austrust Ltd
(1999) 197 CLR 1 in which the High
Court had recognised that
concurrent duties in contract and
tort can exist and the law of contract
and the law of negligence are
informed by different rationales. His
Honour thus concluded that the
relevant cases do not:
... set out any principle so clearly and
authoritatively antagonistic to the
present pleading and so plainly settled
that it can be said that the present
pleading is untenable. The cause of
action in negligence must stand...
3. Did the Federal Court of
Australia have jurisdiction
to hear the case?
(a) Substantive issues of law
The Federal Court had jurisdiction
to hear the s 52 claim. As part of its
'accrued jurisdiction’ it also had
jurisdiction to hear all other akin
matters between the parties in order
to determine the entire controversy
between them. However, the s 52
claim had been definitively struck
out. Did any jurisdiction remain in
the Federal Court to hear the
negligence claim — a common law
claim which involved no Federal
jurisdiction?
His Honour discussed the various
cases (the major one being Fencott v
Muller (1983) 132 CLR 570) as to
what constitutes a controversy
between the parties. The High Court
held in Fencott v Muller that
whether or not a Federal and nonFederal claim could be regarded as
MAY 2001
one controversy was a matter of
practical judgment. Non Federal
claims that cannot be severed from a
Federal claim are treated as part of
the one matter for purposes of
Federal jurisdiction. That condition
is satisfied if both sets of claims arise
from a common substratum of facts.
The fact that a Federal claim is
determined adversely to a party does
not deprive the Court of jurisdiction
in respect of the non-Federal claim.
It does not matter whether the claim
is determined adversely on a
question of law or on a question of
fact. This, said Justice French, is
supported by a long line of authority.
Several decisions (which his Honour
cited) have been made where Trade
Practices Act claims have been struck
out in their entirety yet related nonFederal claims have been determined
by the Federal Court.
His Honour noted that a claim
may be a sham reflecting no matter
in relation to which the court may
claim jurisdiction. He noted that
there had also been considerable
discussion about what was called
‘colourable jurisdiction’ — these
being claims under the Trade
Practices Act for the purpose of
fabricating jurisdiction. However, the
mere fact that a claim under the
Trade Practices Act is struck out as
untenable does not make a claim
‘colourable’ in that sense.
His Honour concluded:
The pleading of the s 52 claim in this
case advanced the legitimate forensic
purpose of endeavouring to establish a
cause of action which would not
require proof of a duty of care.
Notwithstanding its precipitate
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227
Consumer Law cont.
initiation and chequered history, I am
not satisfied that it was colourable in
the sense that it would deprive this
Court of jurisdiction to deal with the
matter including any non-Federal
claims that may form part of it.
(b) Issues of discretion
The exercise of non-Federal
jurisdiction is, nonetheless
discretionary. His Honour noted
from prior cases, however that good
reason had to exist why a court, once
it had jurisdiction, should decline to
exercise that jurisdiction. His Honour
held that jurisdiction should not be
declined. The case had involved
millions of dollars which should not
now be wasted. The fact that the
Supreme Court of Victoria would be
as competent as the Federal Court of
Australia to determine a negligence
claim was no reason for the Federal
Court of Australia to decline to
exercise its jurisdiction.
4. Should the case proceed as
a class action?
The Victorian State Entities
submitted that, as the Trade Practices
Act claims had been dismissed, the
common law claims should not be
heard as a class action pursuant to
Federal Court procedures. His
Honour held, however, that the
Federal Court had jurisdiction to
hear the matter and that the hearing
even of a common law issue should
be conducted in accordance with
Federal Court procedures. To suggest
otherwise:
... misconceives the nature of Federal
jurisdiction and suggests a dichotomy
which is contrary to (the Federal
Court's) constitutional foundations
and the principles derived therefrom.
The case could thus proceed
under Federal Court class action
procedures.
Lessons from the case
The case has two basic lessons.
The first is that s 52 is limited as
to what has to be disclosed. A
supplier does not warrant everything
to be perfect and the fact that
imperfections are not disclosed does
not mean that s 52 is breached. The
analysis of s 52 is, in this writer's
view, sound and, in some respects,
may well establish new principles —
in particular that it must be assumed
that the public is aware that in the
normal course of events things go
wrong. This principle may well have
been able to be gleaned from prior
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decisions but it has not previously, to
the writer's knowledge, been as
definitely stated as in the present
case.
The second lesson is in relation to
obtaining the ‘accrued jurisdiction’
of the Federal Court of Australia. No
doubt his Honour's analysis in this
respect is the correct one based on
the authorities. The Federal Court
itself will, however, have to keep a
keen eye on cases which are
‘colourful’ and attempt to attract
Federal jurisdiction by doubtful
Trade Practices Act pleadings. The
attraction of Federal jurisdiction ‘opt
out’ class actions when such
procedures are not available in a
number of State and Territory Courts
is a particular temptation to engage
in colourful Federal Court pleadings.
Perhaps this case gives some
encouragement to such colourful
pleadings. The fact that s 52
complaints could be made which
were found to be ‘a logical absurdity’
but nonetheless resulted in a
common law negligence action
obtaining the benefit of Federal
Court class action procedures may
well inspire others to plead even
greater ‘logical absurdities’ with a
similar objective in mind.