Buying or selling a business in Queensland often involves detailed financial records, trading figures, employee information and due diligence material. If that information is inaccurate, incomplete or presented in a way that creates a false impression, it may give rise to concerns about misleading and deceptive conduct under the Australian Consumer Law.

Misleading and deceptive conduct can arise where the information provided causes one party to rely on an inaccurate understanding of the business, its value, its financial position or its obligations. In a business sale context, these issues often become central when a buyer later alleges they would not have entered into the contract, or would have negotiated different terms, had the true position been known.

What Is Misleading and Deceptive Conduct?

Misleading and deceptive conduct generally refers to conduct that misleads or deceives, or is likely to mislead or deceive, another person. It does not always require an obviously false statement. Depending on the circumstances, misleading conduct may include written representations, verbal statements, silence, incomplete information, vague claims, small print, or an overall message that creates a false impression.

In a business sale context, this may involve representations about the business’s trading figures, profitability, assets, liabilities, employees, contracts, customer base or future matters. The relevant question is often whether the conduct, viewed in context, was likely to mislead or deceive the other party.

Australian Consumer Law: Misleading and Deceptive Conduct Definition

Under the Australian Consumer Law (“the ACL”) contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth), which applies in Queensland, a person cannot engage in conduct in trade or commerce that is misleading or deceptive, or likely to mislead or deceive.

This applies to the sale of a business, just as it may apply to other transactions involving consumers, small business owners, corporations and other businesses. The relevant sections of the ACL, which prohibit misleading or deceptive conduct and false or misleading representations, are sections 18 and 29, respectively.

Section 18 of the ACL deals with misleading or deceptive conduct in trade or commerce. Section 29 deals with false or misleading representations about particular matters, including goods or services, price, value, sponsorship, approval, performance characteristics and other relevant facts. While many ACL examples involve consumer guarantees, bait advertising, comparative advertising or business advertising claims, the same consumer law framework can also be relevant to commercial disputes where one party alleges that they were induced into a transaction by misleading representations.

How Misleading Conduct Can Arise in a Business Sale

Misleading or deceptive conduct surrounding the sale of a business can be particularly significant when the sale contract contains clauses, warranties or due diligence obligations that shape the buyer’s understanding of the business. These may include clauses that:

• require sellers to assure the buyers that trading figures relating to the businesses are true and correct in every particular;
• require sellers to provide to the buyer all books and records comprising the financial accounts of the business including all balance sheets, account ledgers, BAS statements, income tax returns that relate to the business and all such other records and information as the buyer may reasonably require for the business;
• relate to the service periods of each employee; and
• have due diligence clauses and prescribed timing for undertaking due diligence.

These details matter because the buyer may rely on them when deciding whether to proceed with the purchase, negotiate the price, request further information or withdraw from the transaction.

What Must Be Proven in a Misleading and Deceptive Conduct Claim?

To have a claim for misleading or deceptive conduct under the ACL, the following elements will generally need to be considered:

• whether the seller made a representation, either by words, conduct, documents or silence in circumstances where there was a reasonable expectation of disclosure;
• whether the representation was made in trade or commerce;
• whether the representation or conduct was misleading or deceptive, or likely to mislead or deceive;
• whether the buyer relied on the representation, conduct or overall impression created; and
• whether the buyer suffered loss or damage because of that conduct.

The court may consider the relevant facts, the circumstances of the transaction, the information provided, the conduct of the parties and how the representation would be understood by the target audience or a reasonable person in the buyer’s position.

Importantly, misleading or deceptive conduct does not always require a party to prove that the other party intended to mislead or deceive them. The issue is often whether the conduct was likely to mislead or deceive in the circumstances.

What Should a Buyer Do If They Suspect They Were Misled?

If a buyer suspects that the seller has engaged in misleading or deceptive conduct, they should document all of the information provided by the seller or their representatives.

Buyers should keep all documents that were provided by the seller or their representatives in the negotiation phase of the sale, including financial accounts, balance sheets, account ledgers, BAS statements, income tax returns, emails, letters, contract drafts and due diligence records.

They should also recall and record the details of any representations made by the seller or their representatives, including who made the statement, when it was made, whether it was written or verbal, and how the buyer relied on it.

A buyer should seek legal advice before taking further steps. Early advice can help determine whether the conduct may be considered misleading, what evidence may be required, whether the buyer has suffered loss, and what claims may be available.

What Remedies May Be Available?

Where a buyer successfully establishes that it has suffered loss or damage as a result of misleading or deceptive conduct, the remedies available to them may include, amongst other things:

• a declaration that the seller has engaged in misleading or deceptive conduct;
• an order declaring the sale contract void pursuant to sections 237 and 243 of the ACL; and
• damages against the seller for its contraventions of the ACL pursuant to section 236 of the ACL.

The remedies available will depend on the relevant facts, the evidence, the nature of the conduct, the loss suffered and the orders the court considers appropriate in the circumstances.

Sellers May Also Need Advice

Misleading and deceptive conduct claims are not only relevant to buyers. Sellers may also need advice if a buyer alleges that they were misled during the sale process.

In those circumstances, it may be necessary to review the contract, the due diligence material, the correspondence between the parties, any exclusion clauses, the information actually provided and whether the buyer relied on the alleged representation.

The broader context can matter. A statement that appears misleading in isolation may need to be assessed against the full exchange between the parties, the contract terms, the buyer’s own investigations and the relevant circumstances of the transaction.

How Rose Litigation Lawyers Can Help

Rose Litigation Lawyers regularly act for both buyers and sellers in these circumstances. We can help to review a Contract, compare the financial information and the relevant correspondence provided against the true circumstances, and provide advice with respect to a possible contravention of the ACL.

We can also assist with assessing the evidence, determining whether a potential claim exists, advising on the remedies that may be available, and helping buyers or sellers understand their legal position before the matter escalates.

If you suspect that this relates to you or your business and want advice on your possible rights, contact us today.

The content of this publication is intended to provide a summary and commentary only. It is not intended to be comprehensive, nor does it constitute legal advice and has been prepared based on applicable legislation and case authority at the date of publication. You should seek legal advice on specific circumstances before taking any action.