Pre-contractual Representations

Negotiations in the lead up to finalising a contract can be stressful. During negotiations a range of matters may be canvassed until an agreement is reached and there is usually great relief for both parties when the uncertainty is over. Or is it?

Potential liability

What was said during the negotiations leading up to an agreement can have a major impact on the expectations of each party to the agreement, whether the expectations relate to specific terms of the contract, how a contract will be performed or even the nature of the contract itself.

However, many people do not realise that the statements made during negotiations could still give rise to claims for damages by one party for misleading the other if the representations that were made prove to be false.

This is as a result of section 18 of the Australian Consumer Law which prohibits conduct in trade or commerce that is misleading or deceptive.

Although many contracts contain entire agreement clauses, and they can be effective at excluding parties from relying on representations, the parties cannot contract out of the provisions of the Australian Consumer Law.

This means that a party may be bound to representations that were made during discussions prior to the signing of a contract, even if they are not included in the written contract.

Careful consideration should be given to the terms of any clause purporting to exclude pre-contractual representations, because if it is not carefully drafted it may be ineffective and have wide ranging consequences for all the parties to a contract.