The action was brought by the Australian Competition and Consumer Commission, which says it was the first of its kind in the world.
"This is an important victory for consumers, especially anyone concerned about their privacy online, as the Court's decision sends a strong message to Google and others that big businesses must not mislead their customers," said ACCC Chair Rod Sims.
"Today's decision is an important step to make sure digital platforms are up front with consumers about what is happening with their data and what they can do to protect it."
The action concerned behaviour by Google between January 2017 and December 2018.
The Court found that Google misrepresented that the 'Location History' setting on an Android device was the only Google Account setting that affected whether Google collected, kept or used personally identifiable data about their location, because the 'Web & App Activity' also enabled Google to collect, store and use personally identifiable location data when it was turned on, which it was by default.
Another finding was that when users subsequently turned off the 'Location History' setting, they were also misled because Google failed to tell them they also needed to switch off the 'Web & App Activity' setting, otherwise Google would continue to collect, store and use that data.
Furthermore, consumers were misled when they accessed the 'Web & App Activity' because Google failed to inform them that the setting was relevant to the collection of personal location data.
The Court also found that Google's conduct was liable to mislead the public, but dismissed the ACCC's allegations about certain statements Google made concerning customers' location data.
"We are extremely pleased with the outcome in this world-first case. Between January 2017 and December 2018, consumers were led to believe that 'Location History' was the only account setting that affected the collection of their personal location data, when that was simply not true," said Sims.
"Companies that collect information must explain their settings clearly and transparently so consumers are not misled. Consumers should not be kept in the dark when it comes to the collection of their personal location data."
The Court has yet to determine the penalties and other orders it will impose on Google.
"In addition to penalties, we are seeking an order for Google to publish a notice to Australian consumers to better explain Google's location data settings in the future. This will ensure that consumers can make informed choices about whether certain Google settings that personal collect location data should be enabled," added Sims.