The law generally states that a company or person cannot engage in misleading and deceptive conduct. Once a contract is signed or a deal done, this is not necessarily the end of the tale. Often written agreements, which are drafted by lawyers or are in standard form, contain a clause that the written document constitutes the entirety of the agreement between the parties. However, this clause will not necessarily exclude any liability for representations made in the course of negotiating or selling the deal.
In general, the following types of representations and omissions may come back to haunt a seller:
- Not precisely identifying what the purchaser will and will not get under the contract.
- Not disclosing all material elements in relation to the deal and remaining silent on the less attractive or potentially disadvantageous elements.
- Making predictions or statements of opinion about benefits the buyer will directly or indirectly obtain under the contract without any reasonable basis for these assertions.
- Making inaccurate statements about the subject matter of the contract in an attempt to persuade the buyer to purchase.
- Making assurances about "after-sales service" or acts that the seller will do either during the term of, or after, the contract.
Representations or omissions may not be intentional. However, under the law, intent is not necessarily relevant. As well, not making information available may be misleading and deceptive. Liability for any damage flowing from misconduct may arise, irrespective of whether the seller was consciously dishonest.
To balance this otherwise bleak picture, courts do recognise that in negotiations there is some latitude for general assertions. This is quaintly called "puffery". For example, calling the product "the best in the market" or "the best in the world".
Take for instance a broker retailing residential mortgage products. After meeting with the client the broker will have some understanding of the general needs and wants of that client. For any number of reasons he or she may recommend a particular product. It is likely that certain elements of the product will be highlighted. However, it may be that by conscious omission or oversight the broker does not disclose a relevant fact in relation to the mortgage. Say the mortgage product may have a low interest rate period for six to 12 months. The broker may quote this rate to the client without disclosing that after 12 months it becomes a fixed higher rate or is subject to the variable rate in the market.
As a result of any number of further reasons, it may be that during the course of obtaining legal advice this issue is not fully explained to the mortgagor. The mortgagor then enters the mortgage on the assumption that the grace period interest rate is a set rate for the duration of the mortgage. It is no defence to say that the mortgagor is commercially lacking in commonsense or intelligence. Buyer beware isn't totally true. The broker must take the mortgagor as he or she finds them, and there is no standard of intelligence or understanding that the court applies to a person in this context.
The broker may be sued for misleading and deceptive conduct. They may also have an action against their lawyer, although this would be more likely to be for negligence rather than misleading and deceptive conduct.
There are a number of do's and don'ts to assist in avoiding liability on this basis.
- Ensure that you intimately understand the product you are selling. The precise detail is important. Both the beneficial and less beneficial elements of it for clients are important to them and therefore, in this context, important to you.
- Take particular care in what you tell clients. Ensure that to the fullest extent possible you provide them with the entire picture. If you don't, the consequence may be a claim by them for the difference between the rate during the grace period and the actual interest rates they pay throughout the mortgage.
- To the best extent possible, keep a record of the meeting and details about what you said to the client. While lawyers will invariably tell you this, it is not always commercially possible. Nevertheless, it is always a useful exercise. A note of what you said will assist in triggering your memory in the event a claim is made and it will boost your credibility before the court.
- Don't exaggerate certain elements of the deal that you consider beneficial to the purchaser. It is important to precisely and accurately identify what the buyer is likely to get.
- Don't withhold information that is material to the purchaser's consideration in buying the product.
- Don't attribute qualities to the product it does not have.
- Don't make promises or predictions about the product that cannot be fulfilled or for which you have no reasonable grounds for making. While general statements of comfort like "this will be a great product for you" are not generally problematic, direct assertions as to future benefits might be.
All of these suggestions are an attempt to help minimise the risk of a claim against you, and in the event one is made, allow you to forcefully respond to it. Regrettably, there is no absolute way of protecting yourself from a claim but, these tips will make it much harder for an action to succeed.
Damian Ward is a senior associate of commercial litigation for Abbott Tout Solicitors.