In Short
- Misleading or deceptive conduct in a business sale can breach the Australian Consumer Law, even if it was unintentional.
- Buyers can rely on statements made during negotiations, due diligence and marketing, not just the final contract.
- Sellers and buyers can face significant financial consequences if information is inaccurate or incomplete.
Tips for Businesses
Check that all information shared in a business sale is accurate, current and not misleading. Keep written records of disclosures and clarify any assumptions. Buyers should carry out thorough due diligence and seek warranties in the contract. Address risks early so they can be priced in or managed before signing.
Summary
This article explains deceptive conduct in business sales for buyers and sellers in Australia and outlines key legal risks and protections. It is prepared by LegalVision’s business lawyers, and LegalVision, a commercial law firm, specialises in advising clients on business sales and commercial law.
Buying or selling a business is a major commercial decision. Whether you are acquiring a café, professional practice or online business, you rely heavily on the information provided during negotiations. When that information is misleading or false, the law provides strong protections. This article outlines your rights in relation to deceptive conduct, which is essential to managing risk in a business sale.
What is Deceptive Conduct?
Deceptive conduct occurs when a party engages in behaviour that is misleading or likely to mislead another party. In Australia, deceptive conduct in business sales is primarily regulated by section 18 of the Australian Consumer Law (ACL), which prohibits misleading or deceptive conduct in trade or commerce.
In the context of business sales, deceptive conduct can occur during:
- negotiations;
- due diligence;
- advertising or marketing of the business; or
- pre-contractual representations made verbally or in writing.
Common Examples in Business Sales
Deceptive conduct in business sales often arises from misrepresentations about the performance, assets or risks of the business. Common examples include:
- overstating revenue, profits or growth prospects;
- providing inaccurate or incomplete financial statements;
- failing to disclose the loss of key clients or suppliers;
- misrepresenting the condition or ownership of business assets;
- misleading statements about licences, permits or regulatory compliance; and
- incorrect assurances about lease terms or landlord consent.
Who is Protected?
The ACL applies broadly to conduct ‘in trade or commerce’, meaning it captures most business sale transactions. Buyers of businesses are generally protected, even where both parties are commercial entities.
However, protection under the ACL does not extend to purely private sales or conduct unrelated to commercial dealings.
Continue reading this article below the formRepresentations vs. Contract Terms
A common misconception is that only what appears in the sale contract matters. In reality, pre-contractual representations are often central to deceptive conduct claims.
Statements made in emails, information memoranda, spreadsheets, pitch decks or conversations can all be relied upon. Even where a contract includes disclaimers or ‘entire agreement’ clauses, these will not automatically protect a seller from liability under the ACL.
Reliance and Loss
To bring a claim for deceptive conduct, a buyer generally needs to show that:
- the seller engaged in misleading or deceptive conduct;
- the buyer relied on that conduct; and
- the buyer suffered a loss as a result.
Loss can include:
- overpaying for the business;
- lost profits;
- costs of rectifying issues; or
- losses arising from undisclosed risks.
Remedies Available
The ACL provides a range of remedies for deceptive conduct, including:
- damages to compensate for loss suffered;
- rescission of the contract (in serious cases);
- injunctions to prevent ongoing misleading conduct; and
- orders to vary or void contract terms.
Courts have wide discretion when awarding remedies, particularly where fairness requires adjustment of contractual outcomes.
Know which key terms to negotiate when buying a business to protect your interests and gain a favourable outcome.
Defences and Risk Management for Sellers
Sellers are not without protection. Key risk-management strategies include:
- ensuring all information provided is accurate and up to date;
- avoiding predictions or forecasts without reasonable grounds;
- clearly qualifying statements where uncertainty exists;
- disclosing known risks and adverse matters; and
- maintaining clear records of what was disclosed.
Practical Steps for Buyers
Buyers should take proactive steps to protect themselves, including:
- conducting thorough legal and financial due diligence;
- requesting warranties and indemnities in the sale contract;
- documenting key representations in writing; and
- seeking legal advice before signing binding agreements.
Key Takeaways
Deceptive conduct in business sales can have significant financial and legal consequences for both buyers and sellers. Australian law provides strong protections, but enforcing those rights depends on the specific facts, documentation and conduct involved.
Whether you are buying or selling a business, understanding deceptive conduct obligations and obtaining legal advice early is essential to protecting your commercial interests.
LegalVision provides ongoing legal support for Australian businesses through our fixed-fee legal membership. Our experienced lawyers help businesses manage contracts, employment law, disputes, intellectual property and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
Yes. Under Australian law, deceptive conduct does not require intention. A seller can be liable for statements that are incorrect, incomplete or careless if they mislead a buyer and cause loss.
Not necessarily. Disclaimers and entire agreement clauses do not override the ACL. A buyer may still claim deceptive conduct if they relied on misleading statements made before signing the contract.
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