Contract Law Update - You can't exclude liability for misleading or deceptive conduct: Victorian Court of Appeal

What you need to know

• The Victorian Court of Appeal has reconsidered and confirmed that exclusion clauses attempting to contract out of liability for misleading or deceptive conduct will be ineffective because they are contrary to public policy.
• No representation clauses, no reliance clauses and other disclaimers may be relevant factual evidence when assessing whether a party engaged in misleading or deceptive conduct as a whole. 
• Clauses which provide for caps on damages, which exclude consequential loss, indemnities and waivers are likely to be ineffective to the extent that they attempt to contract out of liability for misleading or deceptive conduct.
• Parties can still agree to settle a claim (or potential claim) for misleading or deceptive conduct, but courts will interpret settlement clauses strictly.

What you need to do

• Draft exclusion clauses and disclaimers carefully and precisely.  To the extent they seek to absolve a party from misleading or deceptive conduct or fraud, they will not be effective.
• Where appropriate, consider other mechanisms to manage the risk of misleading or deceptive conduct claims (including due diligence, and ongoing processes to verify key representations).  

Watch this space

• The High Court is yet to provide a determinative view on the issue and an application for special leave to appeal to the High Court may yet be brought.  

Background

In 2013, Cargill acquired the entire share capital of malt producer Joe White from the Viterra companies (Viterra) for A$420 million.  After the sale, it emerged that Joe White had routinely been providing its customers with malt that did not meet customers' specifications, and had not disclosed the failures to meet specifications (or had falsely claimed to have met them).

Cargill claimed that Viterra made misleading or deceptive representations about Joe White's business practices — in breach of s 18 of the Australian Consumer Law (ACL) — and that Cargill had acquired Joe White in reliance on those representations and would not have proceeded with the acquisition had it not been misled or deceived.

Cargill succeeded in its claim both at first instance and on appeal. It has been awarded damages of A$169 million (the difference between the price paid for Joe White, and the true value of the business at the time of purchase in 2013), plus damages in the nature of interest of A$124 million.

Contractual framework

The proceedings largely focused on three types of contractual provisions that Viterra claimed excluded, released or limited any liability it may have had for misleading or deceptive conduct.

• Exclusion clauses: Under which Viterra disclaimed all liability for loss suffered by anyone using the information provided (including due to misrepresentations) and Cargill agreed not to bring legal proceedings against Viterra in relation to the information provided (except in the case of fraud or wilful misconduct).
• No representation clauses: Under which Viterra made no representations and accepted no responsibility as to the accuracy and completeness of information. 
• No reliance clauses: Under which Cargill agreed not to rely on any representations made by Viterra and to rely solely on its own investigations and analysis in evaluating the transaction.

Court of Appeal decision

The Victorian Court of Appeal dismissed Viterra's arguments.  

• Exclusion clauses are ineffective: Parties to a contract cannot contract out of liability for misleading or deceptive conduct under the ACL.  It would be contrary to public policy to allow a party to evade liability for misleading or deceptive conduct, and to deprive the wronged party of remedies under the ACL.
• Disclaimers may still be relevant evidence: While disclaimers (such as no representation clauses and no reliance clauses) cannot exclude liability, they can be evidence that a party's conduct was in fact not misleading or deceptive.  They can also be evidence that the counterparty in fact did not rely on the allegedly misleading or deceptive conduct, or did not suffer loss because of that conduct. 
• Settling a dispute: The Court also clarified the difference between  contracting out (impermissible) and settling a dispute (permissible).  As noted above, parties cannot contract out of liability for future misleading or deceptive conduct, as a way of preventing each other from ever making a claim for such conduct.  However, once there is a claim (or potential claim) for misleading or deceptive conduct, the parties may settle it, noting that settlement clauses will be interpreted by courts strictly.

Implications

Still unclear whether parties can limit the time for bringing claims

The Court noted recent authorities concerning time limits for bringing claims.

• Limitation of actions: The Court acknowledged recent High Court authority that a defendant may contract out of their right to rely on a statutory limitation period. 
• Time limits: The Court did not clarify whether parties can agree to time limits on bringing claims for misleading or deceptive conduct, or whether these provisions are contrary to public policy, but noted that there are conflicting cases on the issue. 

Disclaimers may be important

The proper use of disclaimer clauses can be effective, particularly in helping to establish that a party did not rely on previous representations or conduct.  However, care needs to be taken to ensure the disclaimers are brought to the other party's attention and agreed.  The indiscriminate use of disclaimer clauses can, in itself, raise misleading conduct and other issues, including potentially being an unfair contract term.  (For more information see: Competition and consumer law penalties drastically increased plus unfair contract terms prohibited (ashurst.com)).

Contractual releases

Companies should seek advice when drafting releases (including in share purchase agreements and business sale agreements) to ensure that they operate as intended, and are not unintentionally framed as attempts to contract out of liability for misleading or deceptive conduct.

While the Court did not specifically discuss indemnities or waivers in relation to misleading or deceptive conduct, advice should similarly be sought when drafting such clauses.

The case is Viterra Malt Pty Ltd v Cargill Australia Limited [2023] VSCA 157.

Authors: Lucinda Hill, Partner; Justin Jones, Partner; Andrew Westcott, Counsel; Stephanie Cameron, Senior Associate; Oscar Han, Lawyer.