EMPLOYEES CAN NOW BE HELD PERSONALLY LIABLE FOR MISLEADING AND DECEPTIVE CONDUCT

Author: Valentina Misevska

Publish Date: January 16, 2007

On 13 December 2006, the High Court in a unanimous decision held that two employees of a business were personally liable for misleading and deceptive conduct. They were subsequently found liable for damages incurred by a client who relied upon their incorrect advice.

Background

Simon Arms sought the advice and services of WSA Online Ltd (“WSA”) in relation to his business which provided for the online marketing of the products of small wineries. Houghton and Student, employees of WSA, advised Arms in relation to what was required to establish the business. However, this advice was found to be incorrect and Arms was required to restructure the business. As a result, the business operated as a loss for 12 months until a new profitable business structure was adopted.

Arms initiated proceedings in the Federal Court against WSA seeking damages for alleged misleading and deceptive conduct. Arms additionally claimed against Houghton and Student, asserting that they engaged in misleading and deceptive conduct in contravention of s 9 of the Fair Trading Act 1999 (Vic) (“FT Act”), which states:

            (1)       A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (emphasis added)

This provision is identical to s42 of the New South Wales Fair Trading Act 1987.

At first instance, the Federal Court held WSA to be liable under the Trade Practices Act 1974 (Cth) (“TPA”), but found that Houghton and Student were not personally liable as employees of WSA. Ryan J specifically determined that neither Houghton or Student had been engaged in trade or commerce on their own account.

On appeal, the Full Court of the Federal Court found in favour of Arms, determining that an employee acting within the scope of actual authority could be liable for misleading or deceptive conduct.

Houghton and Student appealed to the High Court.

High Court Decision

The High Court had to determine whether Houghton and Student themselves were acting in trade or commerce as required by s 9(1) of the FT Act, as distinct from acting in the trade or commerce of WSA.

The High Court held that it was not the point that Houghton and Student themselves were not business proprietors. Nor was it relevant that their activities were an aspect of the trade or commerce of WSA but not of “their” trade or commerce. Houghton and Student nevertheless engaged in conduct in the course of trade or commerce and were thus within the ambit of the FT Act.

The appeal was therefore dismissed and it was determined that Houghton and Student had engaged in misleading and deceptive conduct and were liable to pay damages to Arms.

Conclusion

Despite the fact that such claims have historically been brought against employers, the High Court decision in this case establishes that an individual can be found liable for damages for their conduct, even if they were merely acting as an employee of an organisation at the time. It is therefore clear that directors and managers of organisations, as well as other employees dealing with the company’s clients in a marketing, sale or contracting capacity, are more likely to be held personally liable in the future for deceptive or misleading conduct and incorrect advice, if that conduct or advice leads to damage to a party or parties with whom they have a contractual relationship.

Consequently, employers should review their liability insurance and contracts regarding indemnities to ensure that relevant employees are sufficiently protected against such claims. Employees should also personally ensure that their contracts of employment provide adequate protection.

Employees should note that they may have a right to claim against their employer for damages if they are found liable, for example if the conduct giving rise to the liability was conduct the employee was directed by the employer to undertake, although the financial status of the employer will be an important consideration as to whether proceedings should be commenced. In any case, it must be stated that the Employees Liability Act 1991 (NSW) only extends protection to employees for liability in relation to the commission of torts. Therefore, that legislation would not protect an employee in regards to any infractions committed against the TPA, FTA or any other statute or contract based provisions.

Finally, employers should ensure that they have in place appropriate measures to ensure that their business activities do not offend the TPA or FTA, and for the suitable monitoring of the performance and activities of their employees.

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