Misleading and Deceptive Conduct under s 18 of the ACL

Income guarantees, projected earnings and representations concerning available work can be powerful inducements in franchise recruitment. They may also expose a franchisor to liability under sections 4 and 18 of the Australian Consumer Law (the ACL) where the overall impression conveyed to a prospective franchisee is not supported by the franchisor’s actual operational or financial position.

Misleading and Deceptive Conduct under s 18 of the ACL

Section 18 prohibits conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive. The inquiry is objective and requires the impugned conduct to be assessed as a whole and in its commercial context. In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640, the High Court emphasised that a prominent headline representation may retain its misleading character notwithstanding qualifications appearing elsewhere. The question is whether the qualification is sufficiently clear and prominent to correct the dominant message: TPG Internet at [47]-[49].

That principle is particularly important where franchise advertising prominently represents that a franchisee will receive a guaranteed weekly income, a minimum volume of work or an established customer base. Expressions such as “conditions apply” or “subject to contract” do not automatically neutralise an otherwise unqualified earnings promise. Their effect depends upon the prominence, clarity and consistency of the qualification when the recruitment material is considered as a whole.

The nature of the representation must then be identified. In Australian Competition and Consumer Commission v Woolworths Group Ltd (2020) 281 FCR 108, the Full Court explained that a representation concerns a future matter where it is “in the nature of a promise, forecast, prediction or other like statement” about something that will transpire later: at [132]. A statement that a contractual guarantee presently exists may concern an existing state of affairs. By contrast, a statement that the franchisee will receive a specified income, sufficient work or a particular level of profitability ordinarily predicts a future outcome.

A single communication may convey both kinds of representation. For example, a franchisor may represent that an income-guarantee scheme presently exists while also implying that the franchisee will, in practice, qualify for and receive the stated amount. As Brecher v Barrack Investments Pty Ltd (No 2) [2020] FCA 911 recognised at [374], a representation concerning future profitability may also imply a present representation about the maker’s existing opinion or assessment.

Representations on Future Matters under s 4 of the ACL requires reasonable grounds at the time representations were made

Where a future matter is represented, ACL s 4 introduces a significant evidentiary mechanism. If the representor does not adduce evidence of reasonable grounds, the representation is taken to be misleading. In Unilever Australia Ltd v Beiersdorf Australia Ltd [2018] FCA 2076, the Court explained that the production of “some evidence” does not necessarily establish reasonable grounds and that, even where reasonable grounds are shown, the representation may still be misleading under ordinary s 18 principles: at [406]-[407].

Reasonable grounds are assessed objectively at the time the statement was made. In Australian Competition and Consumer Commission v ACM Group Ltd [2018] FCA 1115, the Court stated that a genuinely held belief is insufficient. The representor must possess facts capable of inducing in the mind of a reasonable person a proper basis for the representation: at [173]. Accordingly, subsequent commercial optimism cannot retrospectively justify a guarantee that lacked an adequate foundation when advertised.

The practical operation of these principles is illustrated by Australian Competition and Consumer Commission v South East Melbourne Cleaning Pty Ltd (in liq) [2015] FCA 25. The franchisor represented that franchisees would be provided with sufficient cleaning work to generate minimum monthly revenue or would otherwise receive specified monthly payments. The Court characterised those promises as representations concerning future matters: at [95]-[96]. It observed that the later failure of a prediction does not, by itself, prove that there were no reasonable grounds when it was made. However, the franchisor adduced no evidence of such grounds, with the result that s 4 operated.

The surrounding circumstances also supported the absence of reasonable grounds. The franchisor had no customers in the relevant area and relied upon prospective cold calling to generate work. The Court reasoned that the franchisor could not have known how much work would be obtained or when it would become available: South East Melbourne Cleaning at [95]-[96]. The decision demonstrates that a franchisor must possess more than general confidence in its business model. Relevant matters may include existing customer contracts, territory-specific demand, historical franchisee performance, lead-conversion data and the financial capacity to honour the guarantee.

Australian Competition and Consumer Commission v Megasave Couriers Australia Pty Ltd [2021] FCA 543 provides a further, although procedurally different, illustration. The proceeding involved agreed declarations concerning representations disseminated through online advertisements, earnings documents and direct communications that franchisees would receive minimum weekly payments and guaranteed annual income: at [21]-[25]. The agreed facts included that existing franchisees were not receiving the represented payments, the franchisor lacked sufficient revenue and there was no reasonable basis to expect the necessary increase in parcel volumes: at [85]-[90]. The case illustrates why a general qualification such as “conditions apply” cannot safely be treated as a complete answer where the dominant message remains that a specified income will be received.

Relevance of Independent Advice

Finally, contractual qualifications and independent advice remain relevant, although they do not permit a franchisor to contract out of the ACL. In Husseini v Girchow Enterprises Pty Ltd [2024] FCAFC 143, the Full Court emphasised the importance of characterising the conduct in context, including the effect of qualifications and disclaimers, and of proving actual inducement with precision. Reliance upon a representation may establish the necessary causal connection where the franchisee alters position and suffers economic loss: at [119].

Conclusion

The central compliance lesson is therefore straightforward. An income guarantee must be supported not only by carefully drafted contractual conditions but by contemporaneous, objectively reasonable grounds for believing that the promised commercial outcome can be delivered. Courts will examine the complete recruitment process, including advertisements, emails, oral statements, disclosure documents and contractual terms, to determine the true impression conveyed.

At Leo Lawyers, we understand that disputes involving misleading or deceptive conduct under the Australian Consumer Law can have serious consequences for businesses and consumers alike, often requiring swift, strategic legal action—particularly where liability is alleged to arise from representations, omissions, advertising or pre-contractual communications, and where loss is said to have been suffered in reliance on that conduct.

Whether you are seeking to bring or defend a claim concerning misleading or deceptive conduct under s 18 of the ACL, assess the availability of remedies, or consider limitation and evidentiary issues, feel free to contact Damin Murdock at Leo Lawyers via our website, on (02) 8201 0051 or at office@leolawyers.com.au. Further, if you liked this article, please subscribe to our newsletter via our Website, and subscribe to our YouTube, LinkedIn, Facebook and Instagram. If you liked this article or video, please also give us a favourable Google review.

DISCLAIMER: This is not legal advice and is general information only. You should not rely upon the information contained in this article. If you require specific legal advice, please contact us.