Statements made in the course of negotiations can have a legal effect.
Misleading or deceptive statements can result in liability.
Links
That's Not What I Thought We Agreed!
The law once drew a very sharp line between a contract as a promise that the law would enforce, and other kinds of promises, assurance or statements that the law wouldn’t enforce. The answer “that’s not in the contract” is no longer a killer argument in a commercial dispute.
The modern law recognizes the harm that can arise because of what is said in the course of negotiation. What is said or written about the quality of goods or services or their fitness for particular purposes can be very costly for the receiving party, if those statements turn out to be wrong.
Trade practices legislation at national and state level establishes principles that are used by businesses and consumers alike to protect their interests when they are victims of misleading representations (even if what was said was a mistake rather than a deliberate attempt to mislead).
Section 52 of the Trade Practices Act is well known as a principal mechanism for dealing with loss arising for instance from misleading advertising and many other kinds of misleading statements or dealings. Section 53 of the same Act deals with false representations in relation to the supply of goods or services, while section 53A deals with similar kinds of conduct in relation to land.
Verbal discussions can also be a minefield of uncertainty in commercial relationships if they creep into the contractual relationship (either before or after a contract is concluded). While contract clauses cannot exclude liability such as that provided for by section 52, they can provide evidence of what the parties are taking into account in entering into the contract. Exclusion of prior representations is important for this reason.
More important however, is paying careful attention to any claims in advertising or negotiation of an agreement and ensuring these are accurate before they reach customers or business partners. Any claims that induce a party to enter into the agreement and prove to be false (as well as representing poor business practice) expose the business to potential liability and/or to prosecution for breach of Trade Practices legislation. Further, even after a business relationship is established, misleading conduct may still be a problem for parties careless about accuracy.
While prevention is always better than cure, if a business is in this situation, either as victim, or having engaged in conduct that may amount to breach of trade practices legislation, early legal advice may assist in either obtaining a suitable remedy or in limiting potential harm facing the business.