Don’t be Deceived.
The Australian Consumer Law and its predecessor legislation have for 40
years served to enable victims of sharp or misleading practices in business to
seek redress from the Courts. Just as often, it has made it much easier for
those who have simply struck bad bargains to (bearing in mind that the vast
majority of civil disputes are settled and do not proceed to formal
determination) use the litigation process to negotiate a more favourable
outcome, with arguable merit. Some commentators
have suggested that while in some cases actually helping real victims of
misleading conduct, this has undermined the sanctity of contract and spawned an
industry in challenging contractual arrangements that don’t work out as one or
the other party intended or understood, thereby adding layers of risk and cost
to deal making in all sectors. It has
certainly been a boon for commercial litigation lawyers.
Policy issues aside, there is no
doubt that anyone involved in the negotiation of any significant contract
(which includes all front line staff in many small businesses) needs to have
solid awareness of the legal risks and be thoroughly briefed on the company’s
risk management strategy in negotiations.
There are many cases where complex transactions have been undone by
relatively simple and naive – or just mistaken – comments being made in emails
or recorded in meeting minutes, or simply in phone conversations.
Those negotiating contracts have to
work to a clear and unified strategy regarding matters such as:
(a) who will communicate to whom,
(b) what will be disclosed, when and by whom,
(c) how they will respond to the other side’s
likely questions and probing about the transaction and its terms,
(d) how negotiations are to be recorded and who
has authority to conclude any element of a transaction.
All of this requires good legal
advice and management, before negotiation begins. At HHG we prepare detailed
checklists for all such negotiations and guide our clients and their advisers
through all legal aspects of the process of negotiation – from non-disclosure
agreements, to the timing and wording of a heads of agreement or other
document, to the content of warranties.
At times we hear it said that
getting out of contracts is easy if you have been misled. Our experience is
that this is the exception, not the rule (although it is always easy to make
allegations and commence litigation).
The idea that it is as simple as finding something misleading in the
conduct of the other party or their agents prior to the transaction in order to
get out of it, is itself misleading, as is the idea that the law will always compensate
you for being misled or deceived.
For example, it is not enough just
to prove that someone has said or done something to cause you to be misled or deceived
into acting on something that was untrue.
You also have to prove:
(a) the person who misled you did so in
connection with the purchase or sale of goods or services, or in other words,
in trade or commerce;
(b) that you relied on the misleading
conduct: in other words, it caused you to do something that you would not
otherwise have done, or decided not to do something that you otherwise would
have done; and
(c) that you have lost something as a
result of your reliance on the conduct, or in other words, had you not relied
on it, you would have been better off.
The first of these facts will
generally be quite easy to prove.
Proving reliance and loss may not be quite so easy, though, because it
means having to prove:
(a) that you were actually misled in the
sense that the other party’s conduct caused you to misapprehend a certain fact;
(b) that you had intended to act
differently before being misled (that is, you would not have acted as you did if
you had not been misled); and
(c) if you had acted differently but for
the misleading conduct, then you would have avoided some loss which you have in
fact suffered or made some gain which you have in fact foregone.
Matters can become more complicated
where you say, for example, you were misled because of something someone did
not tell you or because someone predicted some future event which did not in
So don’t be deceived by the apparent
simplicity of the law’s prohibition against misleading or deceptive
conduct. If you feel you have been the
victim of misleading or deceptive conduct, obtaining proper legal advice is
This is general information only,
and does not constitute specific legal advice.
Murray Thornhill is the Director at
HHG Legal Group with the Litigation/Commercial Law team. Daniel Morris is a Senior
Associate with the Litigation/Commercial Law team at HHG Legal Group. If you
would like further details in relation to this information, please contact HHG
Legal Group on 1800 609 945.