An essential part of your business is promoting and advertising its goods and services. However, you should be aware you may be making representations about your goods or services. Such representations cannot be false or misleading, as a customer may rely on such statements when purchasing from you. If the representations are false, a customer may be entitled to several options that are often more costly for your business in the long run. This article will explain the various protections a business owner should take to avoid making false representations.
As a franchisor, you must not engage in misleading and deceptive conduct. We explain what it is and how to avoid it.
What is a Misrepresentation?
A misrepresentation in this context refers to a false statement to induce a customer to enter into a contract.
False statements will usually be a factual statement. Opinions or promises are usually softer in their claim.
However, you should know how customers will respond to statements made. Suppose any representation contains ‘material’ information or information that holds significant value in effecting the decision-making of the customer. In that case, you should pay more attention to its factual accuracy and its delivery.
What Are the Types of Misrepresentations?
There are generally three main types of misrepresentations, these are:
- fraudulent misrepresentation, where you make a statement that you knew was not true or you were reckless or indifferent to its truth;
- innocent misrepresentation, where you believed that the statement you were making was true; and
- negligent misrepresentation, where you make a statement carelessly and unreasonably to someone to whom you owe a duty of care.
Suppose you have made a fraudulent or negligent misrepresentation. In that case, the customer may be able to cancel their contract with you due to the product or service failing to meet the representations made about it. Depending on how much reliance was placed on your misrepresentation, a customer may be entitled to claim money from you for financial losses from relying on your misrepresentation.
The customer could claim that the contract should be terminated or cancelled if you made an innocent misrepresentation.
Continue reading this article below the formWhat is Misleading and Deceptive Conduct?
You should be aware of your obligations under the Australian Consumer Law, which prohibits businesses from engaging in misleading or deceptive conduct or is likely to mislead or deceive consumers. In particular, you cannot make false or misleading claims that your goods or services are:
- sponsored, approved by, or affiliated with a particular person or party;
- of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or
- of a price which is false.
When assessing whether conduct is misleading or deceptive, it is typically viewed in its context as a whole. The intention is irrelevant when considering whether a statement or conduct is misleading or deceptive. It would help if you were considering instead what the overall impression is when a customer receives a representation about the product and how significant that representation is to a customer’s decision to purchase.
What is the Effect of Disclaimers?
Disclaimers are formal statements that can help clearly set out the product or service being offered, which in turn can assist with avoiding a misleading impression. Disclaimers are typically used to clarify the essential terms, conditions and exclusions of any promotion, product or service being offered.
They can help reduce the risk of complaints or liability for statements made before the creation of a contract. They are usually worded to suit the industry and the products or services they accompany.
You should be aware of the contents and delivery of your disclaimer, as they can impact its effectiveness. Suppose a disclaimer sits too low on a piece of advertising or is too small to be picked up by an average customer. In that case, it may not be sufficient protection against misrepresentation.
Furthermore, you should be aware that adding a disclaimer may not absolve you from your obligations under the Australian Consumer Law. It is essential to consider how you use disclaimers in the whole context of your advertising.
What Precautions Should I Take?
If you have employees who make representations to customers about your business and its products or services, you should check the statements and communications they make. If one of your employees makes a misrepresentation, you would typically be responsible for the misrepresentation.
You should also ensure that any statements about your business and its products or services can be backed up with relevant information. Ensure that your statements are up to date and that you update information as it changes.
Key Takeaways
You must not make any misleading statements when advertising or selling products or services. To protect yourself, take precautions to ensure that your advertising material and staff do not mislead a customer. Furthermore, ensure that you have appropriate disclaimers and exclusion clauses included in your contract.
If you are concerned you have made a misrepresentation or need some assistance in drafting a contract, our experienced regulatory lawyers can help as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.
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