When Does Failure To Give Detailed Information About A Product Amount To Misleading And Deceptive Conduct

All manufacturers regularly make decisions about the kinds of information which should be included in product labels, advertisements and other promotional material. There are numerous Acts and regulations which prescribe that certain information relating to the product must be disclosed to the consumer. However, the manufacturer may have further information relating to its product which it is not obliged to disclose by law. Can the failure to disclose or disclose fully such information amount to conduct that is misleading and deceptive in contravention of s.52 of the Trade Practices Act 1974 (Act)? If so, under what circumstances?

The recent case of Forwood Products Pty Ltd v Gibbett [2002] FCA 298 handed down by the Full Court of the Federal Court is relevant to this issue. The facts of the case in brief are as follows:

• The defendant company operated a timber mill. A by-product of its operations was wood shavings.
• The plaintiffs wished to obtain wood shavings for purposes of packaging live crayfish. The intended use was known by the defendant company.
• After a contract had been made between the parties, the company's customer services manager (Manager) gave the plaintiffs a tour of the company's operations. On that tour, the plaintiffs were shown wood dipped in pentachlorophenol (PCP) (a chemical applied to prevent blue stain fungus). When the Manager was asked what the chemical was, he said that it was PCP. This was true.
• The Manager told the plaintiffs that the chemical would be concentrated only on the outer edge of the timber and that the amount of chemical in the leading edge of the shavings was so low as to be 'barely detectable'. This was true (although it didn't declare that PCP was toxic to fish).
• The plaintiffs did not ask him about the properties of PCP.
• The Manager was aware of the potentially harmful properties of PCP, and had available information that PCP was toxic to fish but did not share this with the plaintiffs.

The plaintiffs alleged that by failing to disclose information about the toxic nature of PCP in these circumstances, the defendant engaged in misleading and deceptive conduct. It was not in contention that shavings with PCP were unsuitable for packing live crayfish. The trial judge held that the defendant had contravened s.52 of the Act and the defendant appealed to the Full Court.

The majority of the Full Court dismissed the appeal and found in favour of the plaintiffs. The following comments by the majority show the reasoning behind that decision:

• That the plaintiffs had not asked the defendant about the properties of PCP was not determinative
• Although the Manager did not intend to mislead, the answer he gave, namely, that the amount of PCP was so low as to be barely detectable, conveyed that there was no problem with using the woodchips as a result of the treatment because of the low amount of chemical used
• Once the issue of the chemical had been raised and answered in the way it was, it could reasonably have been expected that the defendant would have drawn attention to the toxic nature of PCP. The defendant did not and in not doing so, the defendant's response amounted to conduct that was misleading or deceptive.

In short, the defendant's conduct led the plaintiffs to believe that the presence of PCP would not render it unsuitable for packing live crayfish and, in those circumstances, the defendant should have provided information about the toxicity of PCP. Thus, the decision in Forwood is a useful illustration of the circumstances in which a failure to provide information about a product can amount to misleading or deceptive conduct.

The case is probably a borderline one. As the dissenting judge noted:

'It would have been foolish in the extreme for [the plaintiff] to rely upon a timber miller ... for advice concerning the suitability of wood shavings for such a use. It may have been reasonable to rely on [the Manager's] response to a question about the properties of PCP. However, [the plaintiff never] made such an inquiry.'

The decision also emphasises the utility of s.52 in many cases. All judges agreed that an alternative claim against the defendant, based on breach of the implied warranty of fitness for purpose under the Sale of Goods Act, failed because, at the time the initial contract was made between the parties, the plaintiff did not rely on the defendant's skill or judgment to provide wood shavings that were chemical free or that were generally more suitable for packaging live crayfish for export.

The reasoning in Forwood appears consistent with the earlier decision of Elconnex Pty Ltd v Gerard Industries Pty Ltd (1991) 105 ALR 247. In that case, the respondent company created an impression that its products were of a high quality (eg, through its promotional material which presented the company as a 'quality endorsed company' which 'has always produced superior quality accessories') but omitted to disclose that its product did not comply with the relevant Australian Standards. The company was held to have contravened s.52.

Both Forwood and Elconnex show that where a manufacturer has created a positive impression on consumers that its product is of high quality or are safe for use, its conduct may contravene s.52 of the Act if it fails to disclose safety risks associated with that product within its knowledge.