27 Mar 2012

Avoid making statements you can't stand by

by Nick Miller

The late American journalist Earl Wilson once warned "If you wouldn’t write it and sign it, don't say it". He probably didn't have in mind the Australian legal system, but his simple advice is a useful rule of thumb for Australian businesses today.

In Australia, there is a statutory prohibition on misleading or deceptive conduct. This means that if a business engages in conduct that leads - or has the potential to lead - another person into error, then it may be liable to those who are misled.

Where a statement is made about a future matter, such as when new stock will be available or how long a product will last, it will be taken to be misleading if the maker did not have reasonable grounds to make such claims.

So it would be problematic if a supplier said to a customer "we should be able to have that to you by next Friday", if the supplier knew it was out of the stock, and didn't have new stock on order that would arrive in time to meet that timing.

However, it would be reasonable if new stock was scheduled to arrive by next Friday, but ultimately didn't due to some unforseen circumstance.

This is a very powerful stick which can be used to keep businesses honest. Given this role, courts have not allowed businesses to use contractual exclusion clauses to escape liability.

The Australian Competition and Consumer Commission has actively policed public representations, recently exposing La Ionica’s “free to roam/no cages” ads as misleading – the company’s stock was kept in densities that kept them from roaming. But you don't need to be making public statements to fall under the rule. Any statement made in carrying on business - or sometimes, even not speaking up to correct a misleading impression - could give rise to liability.

For example, calling a piece of equipment "the latest model" would be misleading or deceptive if it has been superseded - even if the person making the statement didn't know that. In contrast, saying "as far as I know it's the latest model" would only be misleading or deceptive if the maker of the statement in fact knew of the existence of a later version.

Where you are not entirely sure about the correctness of a statement, it should be carefully qualified. The key question is: are you happy to stand behind that statement? If the answer is no, then don't write it, don't sign it and don’t say it.

This article was written by Corporate partner Nick Miller and was published in The Daily Telegraph, Adelaide Advertiser and Brisbane Courier on 26 March 2012.

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.