Clifford Gouldson Lawyers

The (Unlawful) Art of Deception

Print Version

6/03/2017

Talking up the good points of a deal is common in business but what happens when someone decides to stretch the truth just a bit too far?  
 
Section 18 of the Australian Consumer Law provides that a "person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive”. 
 
A recent case in the New South Wales Supreme Court highlights the risks to business owners, company directors and employees who make frivolous promises during negotiations.
 
The Background
 
In Armstrong Strategic Management and Marketing Pty Limited v Expense Reduction Analysts Group Pty Ltd (No 9), the Plaintiff alleged that during joint venture negotiations, the Defendants made certain oral and written representations to the Plaintiff’s director, Mr Armstrong.
 
The alleged representations included:
 

  • Mr Armstrong would become a director of subsidiary companies of an insurance consulting business;
  • Mr Armstrong would have access to the accounts of the subsidiaries; and
  • The overarching business would provide funding to the subsidiaries, including funds to expand within the United Kingdom.
 
The relationship between Mr Armstrong and his business partners deteriorated when Mr Armstrong realised that the alleged representations had been made to entice him to become a party to the joint venture.
 
Mr Armstrong asserted to the Court that:
 
  • the overarching business did not provide sufficient funds to the subsidiaries;
  • he was denied access to the accounts of the subsidiaries; and
  • the overarching business did not appoint him as director of the subsidiaries.
 
Mr Armstrong relied on various emails with the Defendants as evidence of his claims.
 
The Verdict
 
Justice Ball held that the alleged representations did not constitute misleading or deceptive conduct, or conduct likely to mislead or deceive, due to the following findings:
 
  • The representations were never actually made as the joint venture agreements did not reflect them nor did Mr Armstrong raise them in correspondence;
  • Any pre-contractual statements concerning Mr Armstrong’s role in the business were subsumed by the joint venture agreements, which did not specify that he would become a director of the subsidiaries; and
  • Mr Armstrong did not rely upon the alleged representations in entering into the joint venture as he did not ensure the joint venture agreements reflected the representations, nor did he complain when the representations did not become a reality after his contractual relationship with the Defendants began.
 
The Lesson
 
This case exemplifies the importance of ensuring that the final signed written contract incorporates any promises made during negotiations.  
 
Additionally, verbal or written statements need not be subjectively intended to mislead or deceive – any objective tendency to mislead or deceive will breach section 18 of the Australian Consumer Law.
 
If you believe that misleading or deceptive statements have been made during the course of your negotiations, please do not hesitate to contact our Litigation + Dispute Resolution team.

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