Misrepresentation in Business Deals: Key Warning Signs

In business transactions, trust is essential. Whether you are buying a business, entering into a commercial contract, or negotiating a major deal, decisions are often based on information provided by the other party. If that information is incorrect or misleading, the consequences can be costly.

Misrepresentation in contracts occurs when one party provides false or misleading information that persuades another party to proceed with a business deal or contract. Where that information proves to be untrue and causes loss, the innocent party may be entitled to legal remedies. Importantly, liability is not limited to representations made directly by a business. A company may also be responsible for statements made by its employees or agents acting on its behalf. It may also be liable where it adopts, endorses, or presents as its own a representation originally made by a third-party during negotiations.

Warning Signs of Misrepresentation in Deals

Inconsistent Information

Changes to financial figures or key facts during negotiations without a clear explanation should raise concerns.

Lack of Supporting Evidence

Be cautious where significant claims cannot be substantiated with documents or data.

Pressure to Complete Quickly

One of the biggest negotiation risks is being encouraged to sign before carrying out proper due diligence.

Verbal Assurances

If important promises are not included in the contract, they may be difficult to enforce later.

Evasive Answers

Reluctance to answer questions about finances, liabilities, disputes, or compliance issues can be a warning sign.

Fraudulent Misrepresentation

Fraudulent misrepresentation occurs where a false statement is made knowingly or recklessly to persuade another party to enter into a contract. It is the most serious form of misrepresentation and can lead to substantial damages claims.

Negligent Misrepresentation

A negligent misrepresentation occurs where a statement is made carelessly or without reasonable grounds for believing it to be true. The test is objective and there is no requirement to prove fraud. Once it is established that the statement was false, the burden shifts to the maker of the statement to show that they had reasonable grounds for believing it to be true.

What to Do if Misled in a Business Deal

If you believe you have been misled:

-       Keep copies of all communications and documents;

-       Preserve evidence of any representations made during negotiations;

-       Seek legal advice promptly; and

-       Avoid taking steps that could affect your legal position before obtaining advice.

Depending on the circumstances, you may be able to rescind the contract and seek compensation for your losses.

How a Commercial Misrepresentation Solicitor Can Help

A commercial misrepresentation solicitor can assess the strength of a claim, advise on available remedies, and help protect your position.

At MSB Solicitors, our commercial litigation team regularly advises businesses and individuals on disputes involving misrepresentation in contracts, fraudulent misrepresentation, and other commercial negotiation risks.

If you are concerned about the warning signs of misrepresentation in deals or need advice on what to do if misled in a business deal, contact our team today.