Small Business

Don’t mislead or deceive when selling

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by Peter Switzer

You might be passionate about your product or service and you want to make that sale, but don’t let this get the better of you when you’re selling. According to Damian Ward, partner at Home Wilkinson Lowry law firm, you could be tempted to oversell or you could forget to mention an important detail.

Misrepresentation can lead to good grounds for court action if your product does not match the buyer’s expectations.

Ward says that when you’re selling your products or services you should bear in mind the following things:

•   Overselling
Overselling is a common error. Portraying your product or service as better or having higher qualities and attributes than it actually does have can cause problems. People can rely on representations made in the course of a sale. If you’ve oversold your product and someone buys it on the basis of those misrepresentations, you could have a problem if and when the buyer is disappointed with the end result.

•   Concealing
Silence can also be a problem under the Trade Practices Act. A key consideration is the phrase, “misleading and deceptive conduct”. This is really the legal principle that governs this general area of misrepresentation here in Australia.

Always bear in mind, ‘Am I misleading or deceiving in my conduct by either making expressed statements? Or alternately, ‘Am I not telling someone what they really ought to know in order to make a true and fair assessment when buying my product or service?’.

Ward says that whether you intended to mislead or deceive anyone is largely immaterial in court. It could help but if what you’ve said or done is misleading and deceptive, then you’ve got a problem.

•   Puffery
‘Puffery’ effectively describes a position where someone says their product is the best in the world, when it isn’t and someone relies on this when purchasing the product.

As an example, Ward says that to describe a particular car as ‘the fastest in the market’ isn’t necessarily the sort of thing a person would rely on when buying the car but if there was greater specificity about the qualities of the car, which was misleading or deceptive, that’d be more problematic.
Puffery generally arises in advertising as a marketing technique, which ordinarily won’t get you into trouble, he says, but you do need to consider the fine line between this practice of puffery and really misleading and deceiving a consumer. The tip is to look closely at how you’re advertising your products and services so you don’t cross that fine line.

The do’s & don’ts of negotiating

Ward says that if you’re selling a product or service, you must understand the qualities and attributes of what you’re selling. The precise details are important and you mustn’t oversell or put a gloss on what you think you can deliver.

You also need to be careful about what you tell your customers and you should provide them with a full picture about what the product or service can do for them in their business.

It’s important also, if you can, to keep a note or record of any conversations you have in a negotiation. Ward says that lawyers always tell you this and it is not always easy to do in busy commercial lives. But notes of what you said to someone and what they replied could be useful if you’re ever in court giving evidence on an allegation that you’ve misled and/or deceived someone.

Never withhold important information from the purchaser of your goods or service. Ward says that silence or your failure to disclose matters properly in the interest of the purchaser can lead you into serious trouble.

As you can see, there’s a fine line between puffery, making the best of what you’re trying to sell and falling foul of the law. And Ward says that a further problem arises because the Trade Practices Act a broad area of the law. So the lesson is to be truthful and transparent in your business dealings about what you’re selling.

Court cases

A manufacturer makes parts for a machine. The manufacturer seeks from the supplier a particular part to finish the machine off. The manufacturer says they need the part by a certain date and the parts manufacturer says that they can supply it by that date.

If for some reason the part isn’t available on that date and the sale of the machine is held up, or there is some other consequent problem because the supplier of the part hasn’t done what they said they could do, then the supplier of the part can be liable.

The supplier has misled and deceived the manufacturer of the machine because they didn’t honour what they said they’d do.

When the case comes to court the manufacturer would be able to sue the supplier and get compensated for the loss of money in not being able to sell the product.

If the manufacturer can show that the cause of their loss is the failure of the supplier to provide the product, then there’s a good chance they would recover some damage from a court.

A second example

A restaurateur proposes selling their restaurant to a purchaser. In the course of due diligence inquiries, the restaurateur may give the purchaser some old accounts, which don’t truly reflect the financial position of the business.

If the incoming purchaser buys on the basis of those accounts, and pays value for the business on what it assesses from those accounts, there may be a problem when they start to run the business and realise the revenue is far lower than the amount they’d expected. A court case could arise if they were induced to purchase the business on the basis of false figures.

Published on: Monday, October 12, 2009