Misleading and Deceptive Conduct in a Business Sale: What Queensland Buyers and Sellers Need to Know

When you buy or sell a business in Queensland, the information exchanged during due diligence carries serious legal weight. Financial statements, trading records, customer contracts, lease arrangements and employee entitlements all form part of the deal. If that information is inaccurate, incomplete or presented in a way that creates a false impression, the affected party may have legal remedies under the Australian Consumer Law.

Misleading and deceptive conduct in business sales is more common than most buyers realise. It can occur without any intention to deceive. A seller who provides outdated financial records, fails to disclose a supplier contract that is about to expire, or overstates revenue projections may be liable regardless of their state of mind.

This article explains what constitutes misleading and deceptive conduct in a business sale context, what remedies are available to buyers, and how sellers can reduce their legal exposure.

What Is Misleading and Deceptive Conduct Under Australian Consumer Law?

Section 18 of the Australian Consumer Law (ACL), contained in Schedule 2 of the Competition and Consumer Act 2010 (Cth), prohibits conduct in trade or commerce that is misleading or deceptive, or is likely to mislead or deceive.

The prohibition extends far beyond outright lies. Courts have consistently held that conduct can be misleading when it involves:

• True statements made in a way that creates a false overall impression
• Silence or omission where there was a duty to disclose
• Statements that omit material context
• Predictions or forecasts made without a reasonable basis
• Representations that were accurate when made but became false before the transaction completed

Importantly, intention is irrelevant. A seller who genuinely believed their financial projections were achievable may still be liable if a court finds those projections lacked a reasonable basis at the time they were made.

How Misleading Conduct Arises in Business Sales

Business sales involve the exchange of extensive information across multiple stages. Misleading conduct can arise at any point in that process.

Financial Records and Trading Figures

Providing financial statements, profit and loss accounts, or revenue figures that have been manipulated, relate to a period other than what was represented, or omit significant cost items can constitute misleading conduct. Common examples include:

• Inflating revenue by recording sales that have not yet been earned
• Excluding unusual expenses to artificially reduce apparent costs
• Presenting financials that include the departing owner’s unpaid labour without disclosure
• Providing unaudited figures without stating they are unaudited

Revenue Forecasts and Growth Projections

Revenue forecasts and growth projections are representations about future matters. Under section 4 of the ACL, such representations are taken to be misleading unless the maker had reasonable grounds for making them. A seller who presents an optimistic multi-year forecast without supporting data or methodology takes on real legal risk.

Customer and Contract Disclosures

Representing that customer relationships are stable when key customers have signalled they will not renew, or failing to disclose that a major contract is terminable on change of control, may constitute misleading conduct by omission. In transaction contexts, courts have found that silence can be as misleading as a positive misstatement.

Lease and Property Terms

Misrepresenting the terms, remaining duration or renewal options of a commercial lease central to the business can give rise to ACL claims. This is particularly significant in hospitality, retail and food service businesses where location drives much of the value.

Employee and Workforce Information

Failing to disclose known redundancies, unresolved workplace disputes, underpaid entitlements or critical dependencies on specific staff members may create ACL exposure where a buyer can establish they were misled about what they were acquiring.

The Reliance Requirement

To recover damages under section 236 of the ACL, the plaintiff must prove that the misleading conduct caused their loss. This requires demonstrating reliance — that they entered into the transaction, or on terms they would not otherwise have accepted, because of the conduct.

Courts look at the practical reality of due diligence. If a buyer had a full opportunity to investigate and chose not to, it becomes harder (though not impossible) to establish reliance. Equally, where a seller gave assurances that discouraged further investigation, courts have been willing to infer reliance even where some due diligence was conducted.

As the High Court affirmed in Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, the question of reliance is assessed objectively: whether the conduct was likely to induce the particular transaction, not merely whether a reasonable person would have been misled.

What Remedies Are Available to Buyers?

A buyer who has been misled in a business acquisition may have several remedies available under the ACL and at general law.

Damages Under Section 236

Section 236 of the ACL allows a person who suffered loss because of misleading conduct to recover that loss by way of damages. Damages are typically assessed as the difference between the price paid and the true value of what was acquired. This is sometimes described as the diminution in value measure.

Compensation and Contract Orders Under Section 243

A court may make a range of additional orders under section 243, including:

• Requiring a refund of money paid
• Directing the variation or rescission of a contract
• Declaring a contract void
• Ordering payment of money to compensate for loss or damage

Rescission

In serious cases, a buyer may seek to rescind the business sale agreement entirely and restore both parties to their position before the contract. Rescission is a discretionary remedy. Where the business has been substantially changed since acquisition, or third parties have acquired interests, full rescission may not be available.

Injunctions Under Section 232

Where misleading conduct is ongoing, a court may grant an injunction restraining it. This remedy is most commonly sought in the period before settlement.

Seller Defences and Risk Reduction

Sellers facing a misleading conduct claim may be able to rely on several arguments in response.

Reasonableness of conduct: A seller who took reasonable steps to ensure accuracy, relied in good faith on professional advisers, and disclosed known limitations in the material provided is in a stronger defensive position. Liability under the ACL is strict, but the extent of damages and the exercise of discretion in granting relief may be affected by the seller’s conduct and good faith.

Contractual limitations: Business sale agreements often contain entire agreement clauses and clauses excluding reliance on pre-contractual representations. These have limited effectiveness against ACL claims. Section 64A of the ACL confirms that provisions attempting to exclude or restrict the ACL are void where the parties are consumers. In commercial transactions between businesses, such clauses may carry more weight but are not a complete answer.

Buyer knowledge: If a buyer was aware of a relevant matter before entering into the contract, or conducted their own investigation that revealed the relevant facts, it becomes harder to establish that the seller’s conduct caused the loss.

Practical Steps for Buyers

If you believe you have been misled in a business sale:

1. Document everything promptly. Collect all representations made during the acquisition process: emails, information memoranda, management presentations, data room materials and meeting notes.
2. Obtain expert evidence on value. Quantifying loss requires an independent assessment of the true value of what you acquired, compared to the price paid.
3. Act quickly. Limitation periods apply. A claim in contract must generally be brought within six years. ACL claims also run from when the cause of action accrued.
4. Consider all available remedies. Damages are not the only option. Rescission, claims against the seller’s professional advisers, and recovery through professional indemnity insurance may all be relevant.
5. Seek legal advice immediately. The line between a commercial disappointment and an actionable misleading conduct claim turns on specific facts and careful legal analysis.

Practical Steps for Sellers

To reduce your exposure before and during a sale:

1. Get the disclosure right. Provide accurate, complete information. If financial records are unaudited, say so clearly. If forecasts are based on assumptions, set out those assumptions in the information provided.
2. Update representations that change. If a key customer departs, or a major contract is terminated, between exchange and settlement — disclose it promptly.
3. Review what you say in documents that are not legally binding. Information memoranda, teasers and management presentations can all be the subject of misleading conduct claims even though they precede the binding sale agreement.
4. Take legal advice on the disclosure schedule. A carefully drafted disclosure schedule, reviewed by a commercial litigation lawyer, can substantially reduce your exposure.

Related Reading

For more on your rights in commercial disputes, see our articles on misleading and deceptive conduct remedies in Australia and the commercial litigation lawyers Brisbane service page.

Frequently Asked Questions

Do I have to prove the seller intended to mislead me?

No. Under the Australian Consumer Law, misleading and deceptive conduct can be established without proving any dishonest intent. The question is whether the conduct was objectively misleading, not whether the seller meant to deceive. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.

Can I still bring a claim if I had legal advice during the acquisition?

Yes. Having received legal or financial advice during due diligence does not necessarily defeat a misleading conduct claim. Courts have found reliance on the seller’s representations established even where buyers had professional advisers, particularly where the seller actively discouraged further investigation or provided assurances that the disclosed materials were complete. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.

What if the sale agreement contains a clause excluding reliance on representations?

Such clauses have limited effectiveness against ACL claims and are generally ineffective where the conduct amounts to fraud or where specific statutory provisions override them. You should obtain legal advice before assuming a contractual clause bars your claim. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.

Can Boss Lawyers help if I was misled in a business sale?

Yes. Boss Lawyers acts for both buyers and sellers in business sale disputes involving misleading and deceptive conduct under the Australian Consumer Law. Contact Mark Harley on 1300 267 711 or visit our commercial litigation lawyers Brisbane page to discuss your matter. This is general information only and is not legal advice. Obtain professional advice specific to your circumstances.

If you are involved in misleading or deceptive conduct in a business sale in Queensland, Boss Lawyers can help. Contact our commercial litigation lawyers Brisbane for strategic advice on protecting your position.

Disputes involving misleading or deceptive conduct in business sales often overlap with shareholder disputes, joint venture disagreements, and breakdown of commercial partnerships. If your dispute involves multiple parties or a business relationship breakdown, our shareholder dispute lawyers Brisbane can help you understand all available legal remedies.

This is general information only and is not legal advice. You should obtain professional advice specific to your circumstances.