Monday, April 4, 2011

Misleading or deceptive conduct - reasonableness of reliance

I read an interesting case summary which was linked on twitter the other day. It's the matter of Bonhomme v. St. James — N.E.2d —, 2011 WL 901966 (Ill.App. 2 Dist. March 10, 2011) (Bonhomme) in the Appellate Court of Illinois. It was a matter about fraudulent misrepresentation in creating a false identity over the internet. The Judges had some interesting comments about reasonableness of reliance which made me reflect on the Australian authories concerning reasonableness of reliance on misleading or deceptive conduct (now s18 of the Australian Consumer Law, previously s52 Trade Practices Act 1974 (Cth)).

By way of summary, in Bonhomme a female defendant created a false male identity 'Jesse' on a 'Deadwood' (TV series) internet forum and, from discussions which developed in that forum, commenced a relationship with the female plaintiff. The defendant created other fictional friends and relatives to further this ruse and used a voice alterning device when speaking with the plaintiff on the telephone. Over time, the plaintiff sent gifts worth over $10,000 to the defendant's various fictional identities. When the relationship got serious and there were discussions about living together, 'Jesse' died of liver cancer. The defendant conveyed the death to the plaintiff via the expressed condolensces of her other fictional characters. The plaintiff discovered this ruse and sued the defendant for 'fraudulent misrepresentation'.

According the Judges in Bonhomme, in that jurisdiction the elements of 'fraudulent misrepresentation' are:
  1. a false statement of material fact;
  2. knowledge or belief of the falsity by the party making it; 
  3. intention to induce the plaintiff to act;
  4. action by the plaintiff in justifiable reliance on the truth of the statement; and
  5. damage to the plaintiff resulting from that reliance. 
The majority of the Court in Bonhomme considered reliance was justifiable and noted the defendant engaged in an extensive masquerade to deceive. One dissenting Judge (Schostok J) said that the reality of the Internet age is that an online individual may not always be-and indeed frequently is not-who or what he or she purports to be. Because of this, the plaintiff’s reliance on the defendant’s alleged misrepresentations, in deciding to spend $10,000 on Christmas gifts for people who allegedly lived in another state and whom she had never met, was not justifiable.

So how would Bonhomme be decided in Australia under s18 of the Australian Consumer Law?

As a starting point, s236 of the Australian Consumer Law allows a person who suffers loss or damage 'because of the conduct of another person ', in contravention of s18, to recover the amount of that loss or damage. The previously applicable causative requirement in s82 of the Trade Practices Act 1974 (Cth) was 'by conduct of another person', which appears similar in practical effect.

The position with foolish people appears to be this (as set out in Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 (Argy) at [91]):
A case may perhaps be imagined where an applicant is so negligent in protecting his own interests that there will be a finding of fact that the representation complained of was not in the circumstances a real inducement to his entering into a contract. In such a case the element of causation between misrepresentation and damage will have been severed by the intervention of the negligence of the applicant.
In Argy, the applicant (a solicitor) claimed that he was misled when purchasing a waterfront property. An advertisement, brochure and contract represented that the entire property was capable of development by reason of its zoning, whereas this was not the case. The respondents (agent, vendor and solicitor) alleged that a manifestly incomplete zoning certificate was annexed to the contract and, because of this, the applicant should have made the appropriate inquiries about the missing information which (if done) would have revealed the true position. The court considered (at [81]) that the applicant gave scant attention to the certificate.

Cited at [89] in Argy is a useful extract from Sutton v. A J Thompson Pty Ltd (1987) 73 ALR 233 as follows:
. . . the possibility that a foolish person might be misled by some misrepresentation which no normal person would take seriously, is covered by the exclusion of representations which are not 'calculated to induce' entry into the contract - the test is objective, but must take into account the respective positions of the parties, including such matters as their knowledge of each other through previous dealings and their respective familiarity with the subject-matter of the contract. Similarly, if a person is so determined to enter into a contract that he is not in truth influenced by some false representation made to him, he clearly has no case. But there is nothing in the principles cited, or in any other authority which has been brought to our attention, to suggest that a person who has been misled into entering a contract, by false representations of a type which were likely to produce that result, and in fact did so, can be deprived of his remedy because of his failure to check the accuracy of those representations: see, to the contrary, Neilsen v. Hempston (1986) 65 ALR 302 at 309, and Collins Marrickville Pty Ltd v. Henjo Investments Pty Ltd (1987) 72 ALR 601.
In Argy, the Court found for the applicant and considered that the applicant's lack of diligence was not enough to sever the causative chain between the misrepresentations in the contract and brochure and the damage suffered.

Reflecting on how Bonhomme would be dealt with in Australia, a Court is unlikely to consider that the conduct was 'in trade or commerce'. However, putting that consideration to the side, did the plaintiff fail to take reasonable care of her own interests? I think an Australian Court would reach the same conclusion as the Court in Bonhomme in light of the effort by the defendant in creating and maintaining the ruse.

Happy to discuss the above.

1 comment:

  1. Andrew

    I must say that I agree with the dissenting Judge's view in the Bonhomme case. It's a matter of common sense. A fool and his money are soon parted(in this case, her money). This is an internet liaison between two consenting adults regardless of degree of deception. Deception can occurs at any stage of any relationship. Does the outcome of the Bonhomme case mean that a cheated partner in a relationship can then sue for the return of all the gifts ever given during the relationship after it has come apart? It's like returning a human intimate relationship back to the point as if it has never happened, ab initio! How on earth is that possible for a non-contractual, intimate, emotional human relationship?!?!