Huntley Management Ltd (Huntley), an investment services company, learnt an important lesson about misleading marketing practices recently when the Federal Court of Australia ordered it to pay a A$50,000 penalty. 

The Australian Securities and Investments Commission (ASIC) issued two infringement notices to Huntley over what it considered misleading website and newspaper advertisements. In the ads, Huntley described its “projects” as “approved” by ASIC. In fact, ASIC had merely registered them. 

When Huntley refused to pay the fine for the misleading statements, ASIC took the firm to the Federal Court of Australia – and won.

Consumer law

Section 12DB of the ASIC Act 2001 regulates statements made in connection with providing financial services in trade and commerce. So accountants who recommend financial products in the course of advising clients can be caught out.

As well, these provisions are similar to those contained in the Australian Consumer Law (ACL). Section 29(1) of the ACL regulates statements made in connection with the supply of goods and services in trade and commerce. This is broader than the ASIC provisions, so it can cover general accounting services. Theoretically, Huntley could have come under fire from the Australian Competition and Consumer Commission (ACCC) as well as ASIC for its misleading representations.

Both provisions prohibit the making of false or misleading representations about any sponsorships or approvals over services. They also prohibit the making of false or misleading representations about the performance characteristics and benefits of services.

Statements need only have the potential to mislead to amount to a breach. A breach of any of these provisions can also result in either ASIC or ACCC imposing financial penalties. For example, Huntley’s initial penalties from ASIC were A$10,200 but after ASIC took it to the Federal Court, that amount increased to A$50,000. 

Accountants and other advisers should be careful to avoid making misleading representations that their services have approval from third parties.

Back up your endorsements

Accountants and other advisers should be careful to avoid making misleading representations that their services have approval from third parties. If you would like to rely on endorsements or testimonials, you must be prepared to back them up with concrete evidence. Otherwise, you must take care when using loaded words such as “approved”, “recommend”, “endorse”, or “support”. In their ordinary meaning, these words connote approval or consent. 

Crucially, when making any representations, businesses should be strict in their choice of words. You should always ensure the meaning you are trying to convey is reflected in the words’ ordinary meaning and how those words will be interpreted by consumers. A registration with a third party might create a relationship with the entity, but calling it an “approval” would stretch the ordinary and recognised meaning of the word. To avoid misrepresentation, you should write in language suited to people who are not particularly well-informed or with less than an average level of financial sophistication. Beyond your use of words, here are some other examples of misleading representations of endorsement.

• Use of certain images, designs and colours that might suggest affiliation or approval from a particular community can be misleading.

• For celebrity endorsements, if a celebrity or any other person does not have knowledge of your service, then they cannot genuinely approve of it. 

• Claims that a particular person uses your services, or is a regular client, should be backed up with evidence.

Be sure

Third-party endorsements are an important part of establishing business reputations and can be crucial in securing clients. Therefore, it is important that businesses do not make misleading representations about endorsements. This is even more important where the third party is an important party, such as a Commonwealth body – ASIC, in this case. 

Finally, business should be wary that, in some circumstances, any careless representations can attract steep penalties from not only ACCC, but also ASIC. Misleading endorsements in general accounting services can be caught under the ACL, while some specific aspects of services can attract scrutiny by both the ACCC and ASIC.