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  • the vendor encourages a deal on the basis of profit and loss statements that are outdated when more recent information discloses that the takings have fallen substantially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).

As  litigation lawyers we help with:- contractual agreeement, clauses that are uncertain and incomplete, conditional contractscontractual consideration, promissory estoppelwaiver and dischargecontracts that need to be in writing, the meaning and construction of contractswhether a term is implied into a contractlimiting liabilityrepudiation of contractbreach of contract, validity and enforceability of contracts, frustrated contracts, interference with contractual relations, mages for breach of contract, consumer rights and consumer protection, post employment restraints and non-compete clauses, disputes between business partnersjoint venture disputesrescission of contract, home building claims, home building act matters, home building time limits, home building contract matters, statutory warranties under the home building act, and home building disputes.

Often this will involve a letter of demand, without prejudice letter, wrapping it up with a deed of release or going to court. Schedule a conference on T: +61 2 9199 4530 to discuss your legal options and potential strategies. 

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