The (Unlawful) Art of Deception
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.
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.
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.
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.
... read on
Are your customers really accepting your website terms and conditions? We examine the enforceability of online contracts. ... read on
The High Court has today granted Mondalez International the right to appeal the meaning of “10 days of paid personal/carers leave” as quantified under section 96 of the Fair Work Act. The appeal comes after a ruling in August that confirmed Mondalez employees were entitled to 120 hours of paid leave rather than the 76 hours calculated by Mondelez.... read on