Most people think that the sale of the business will be governed by the contract for the sale of the business. Whilst that is true there is more to it since precontract representations can play a significant role especially if the vendor intentionally deceives the seller (or otherwise misrepresents something important).
Representations can take many forms and would include: –
- oral representations; and
- written representations
… often made before the contract is even signed.
Oral representations would include positive statements such as “the turnover will increase next year” and representations by silence. A famous example of a representation by silence involved a case dealing with the sale of the restaurant that could seat 128. In that case the buyer, due to the sellers silence, formed the impression the restaurant could legally seat that number when in fact it was only lawfully allowed to seat much less.
What are some of the examples of misleading or deceptive conduct in the sale of a business? Here is a list of potentially actionable misrepresentations: –
- the vendor tells you the medical equipment can legally be used (when in fact that equipment cannot be lawfully used)
- the vendor encourages a deal on the basis of profit and loss statements that are outdated when more recent information discloses that the takings have fallen substantially
- the buyer is told by the seller that no customers have been lost (when in fact significant customers had been lost).
If you recently bought a business and feel that you have been duped by a fraudulent misrepresentation by the vendor you may have rights. Section 18 to the Australian Consumer Law prohibits misleading or deceptive conduct in trade/commerce so that a “victim” may be entitled to seek damages under section 236. It is possible an additional cause of action exists for any fraudulent representation which may offer additional damages. Ultimately, it will be important for the purchaser to show that it suffered loss because of the fraudulent misrepresentation (and not due to some other reason). For more information contact our misleading and deceptive conduct lawyers.
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