When you are advertising your goods or services, it is crucial that you do not make any false statements. If you do, your customers might be able to sue you for a pre-contractual misrepresentation or misleading or deceptive conduct. The customer will be able to cancel the contract and you may then have to pay them large sums. This article explains the steps that business owners should take to avoid making these false statements.

What is a Misrepresentation?

A misrepresentation occurs when a person makes a false statement to induce someone into entering into a contract.

For example, you might be selling a car and telling the customer that the car is one year old. However, if it is actually five years old, this is a misrepresentation.

The statement must be a fact, not an opinion or a promise.

For example, a real estate agent tells the seller of a house they think that the house is worth $500,000. However, it only sells for $300,000. This probably wouldn’t be found to have been a misrepresentation.

The misrepresentation has to be “material”. This means that the statement is significant enough that you would expect your customer to rely on it to engage your services.

What Are the Types of Misrepresentations?

There are three main types of misrepresentations, these are:

  1. fraudulent misrepresentation: This is where you make a statement that you knew was not true or you were reckless or indifferent to its truth;
  2. innocent misrepresentation: Where you believed that the statement you were making was true; and
  3. negligent misrepresentation: Where you make a statement carelessly and unreasonably to someone to whom you owe a duty of care.

If you make a statement fraudulently or negligently, your customer will likely be able to cancel their contract with you. They probably can also claim money from you if they’ve suffered financial losses as a result of your statement.

If you were unaware that the statement you made was incorrect, then the misrepresentation will be innocent as opposed to fraudulent. However, even if you have made a false statement innocently with no intention of mistaking your client, they might still have a claim against you for cancellation of the contract. It is unlikely, however, that they will be able to claim money from you.

What is Misleading and Deceptive Conduct?

The law prohibits you from engaging in business conduct that is misleading or deceptive or is likely to mislead or deceive consumers. In addition, while selling or marketing goods or services, you are prohibited from making false or misleading claims that the goods or services are:

  • sponsored, approved of, 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.

Whether conduct is misleading or deceptive requires an assessment of the conduct and its context as a whole. Conduct will be misleading or deceptive if it induces or is capable of inducing a person into error.

For example, you might make a false statement during a phone call with a consumer, but corrected yourself within that same phone call. Legally, the one statement will not be examined alone here, but the court will consider the whole conversation.

Even if you have acted honestly, you may still be liable for misleading and deceptive conduct if your conduct misled or deceived a consumer. Therefore, the intention of your business is irrelevant when considering whether you have engaged in misleading and deceptive conduct.

Effect of Disclaimers

Disclaimers and exclusion clauses are an effective way of ensuring that you are not liable for statements made before the creation of the contract. A disclaimer is a formal statement that you are not legally responsible for something. An exclusion clause has the same effect but is in writing within a contract.

You may have made a misrepresentation in a document or conversation. However, if you also made another statement denying legal responsibility for the misrepresentation, it is unlikely that you will be able to be successfully sued. This is because a reasonable consumer would have seen your disclaimer and would not have relied on the statement. Therefore, if you are unsure of the truth of your statement or you wish to protect yourself legally, you could tell your customer not to rely on the statement.

Further, you may include a disclaimer in the contract that states that you are not responsible for certain statements made before the contract and that someone should not rely on them. These disclaimers may be sufficient to erase the effects of the misrepresentation.

To determine whether conduct is misleading or deceptive, the court assesses the conduct in all of the circumstances. This includes the use of disclaimers. Therefore, if you include a disclaimer in your agreement, it is possible that the conduct would not be misleading. This is especially likely to be found when the statements are within the same document. For that reason, you should include disclaimers to alter the overall impression left on a consumer. However, be aware that the ability for disclaimers to completely protect you if you have made a misleading statement is limited.

Precautions

If you are running a business where you have a number of employees, you are legally responsible for the misrepresentations of your employees. For these reasons, it is important that you take caution when hiring employees who may be selling your services. It is very important to train them so that they are aware of the consequences of making a false statement.

Further, you should always take reasonable steps to check your facts before making any statements that may be a misrepresentation. Also, you may sometimes make a representation to your customer and discover later that this statement was not true. If so, you should take all reasonable steps to correct that statement and notify the customer of your mistake.

Key Takeaways

When advertising or selling products or services, it is crucial that you do not make any misleading statements. To protect yourself, take precautions to ensure that your advertising material and staff do not mislead consumers. 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, get in touch with LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.

Charlotte Hale
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