Careful what you say about the future – misleading representations

Contract law tends to be pretty black and white. If the contract says something (or doesn’t say something), then that is that. The deal has been struck, and you need to accept the terms. However, that’s not necessarily the end of things. If you believe you have been deceived or misled into entering a contract, you can potentially have recourse to the Australian Consumer Law to help you out.

It’s common to make a decision to enter into an agreement based on statements by the other party about what the future will hold. Then when those things don’t turn out as promised, you can find yourself out of pocket.

For example: Let’s say you decide to enter into a franchise for a pharmacy in a suburban shopping mall. The agent assures you that a medical practice had recently signed a lease to open a practice in the mall, thus ensuring a steady stream of pharmacy customers. The medical practice doesn’t open, and you later discover the lease had not actually been signed, or was subject to some condition that didn’t get met.

At this stage, you’ll be looking for some form of compensation or damages. But the franchise agreement is silent about the medical practice… If you can establish that the conduct of the agent was misleading or deceptive, then you may have a solution.

But, not all representations made before a contract is entered will be ‘misleading and deceptive’, even if they prove to be untrue. The ‘conduct’ must be judged in the whole context of the situation. You need to take into account all of the circumstances in which the statement was made.

So, have you been misled or deceived?

The Australian Consumer Law

A claim for ‘misleading and deceptive’ conduct under section 18 of the Australian Consumer Law relates to conduct about the present existence of the thing being represented. It provides the public with protection from deception.

Section 18 has a very broad reach, it relates not only to conduct that misleads or deceives another person, but also conduct that is likely to mislead or deceive someone.

Not only that, under section 18, it doesn’t matter that the person responsible for the conduct was acting honestly and had no intention of misleading or deceiving anyone. Someone making a representation about a present fact has an obligation to consider whether the other person is likely to be misled.

It also doesn’t matter if that person believed the statement they made was true, and that they were acting honestly. The ‘fault’ or the ‘intention’ of the person responsible for the statement doesn’t matter.

What does matter is that at the time of making the statement, the statement of that fact was inaccurate.

In other words, regardless of the intent of the maker of the statement, if the representation about a present fact was untrue, that’s misleading and deceptive conduct.

The practical effect of this is to put the onus on someone thinking about making a statement to first consider and take appropriate steps to ensure that the statement is accurate, and therefore not likely to mislead or deceive.

What if the statement was about a future matter?

When the representation relates to a future matter (i.e. not a present fact), which subsequently proves to be false, it is not enough to rely on a claim under section 18. In making a claim for misrepresentation about a future event, you need to specifically plead section 4 of the Australian Consumer Law. Section 4 relates to misleading representations with respect to future matters.

This is because the person who made the statement about the future matter (the representor) needs to have the opportunity to establish there were reasonable grounds for making the representation at the time it was made. It may well be that at the time there was an adequate foundation for the representor’s belief. If there were reasonable grounds for making the representation, and things don’t work out as represented, then there is no ability to make a claim.

Only if the representor fails to produce evidence of ‘reasonable grounds’ for their belief, the court may conclude there were no reasonable grounds for making the representation at the time that it was made, and therefore the representation was misleading.

Let’s apply this to our pharmacy scenario:

  • If at the time the agent said that the medical practice had signed a lease to open a practice in the mall, and the agent knew the lease had in fact been signed by the medical practice; and
  • At that time, the agent had reasonable grounds to assume that the lessor had or would also sign the lease, because it was the lessor’s standard practice to sign a lease once the tenant has signed,

the agent would have had reasonable grounds for making the statement.

Putting this into practice

If you’re in the process of negotiating an important agreement:

  • Listen closely and carefully!
  • Monitor the conversation, listening out for representations about present facts and future matters;
  • As soon as you are able, take down notes about what was said, and who said what;
  • Clearly state what your reasons are for entering into the agreement, including if you are relying on what has been represented to you about present matters and future events; and
  • If you are in the process of negotiating an actual document, for example, a franchise agreement, write any changes into that document, and have each party initial and date any changes.

If you find yourself in a situation down the track where you feel you have been misled, ask yourself:

  • Did you enter into a contract based on representations or promises about present facts or future potential eventualities?
  • Did you enter into a loss-making transaction, in reliance on those misrepresentations?
  • Did the person making the claim about future matters have reasonable grounds for believing those things would eventuate; and
  • Could you make a claim for damages, based on a loss of opportunity?

On the other hand, if you are subject to a claim by another person that you have misled or deceived them, ask yourself:

  • Was any of that impugned conduct a statement about a future matter?
  • If so, was section 4 specifically claimed?
  • If so, did you have reasonable grounds to make that statement at the time when it was made?
  • What evidence might you have to prove it was reasonable for you to make that statement, at the time that is was made?

Talk To Us

If you are considering entering into an agreement, talk to us about how you can strategically place yourself to deal with the issue of misleading and deceptive conduct.

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