Contracting out of fair trading protections: public interest trumps the freedom to contract
Overseas companies conducting business in Australia often express disbelief that protections arising under the Australian Consumer Law (ACL) apply equally to business-to-business transactions. However, a recent decision of the Victorian Supreme Court of Appeal confirms that exact principle: namely, that private parties are unable to contract out of the remedies available for misleading and deceptive conduct under the ACL. Commodities trader, Cargill Australia, was successful in an appeal lodged by another commodities trader, Viterra Malt, in which it argued, among other things, that Viterra had contracted out of any liability arising from incorrect or misleading information when it sold its maltings business to Cargill in 2013.
In 2013, Cargill and Viterra negotiated Cargill’s purchase of Joe White Maltings (JWM) from Viterra. As part of the due diligence process, Cargill executed a Confidentiality Deed. Clause 10.3 of the Deed relevantly provided that:
10.3 Release by Recipient
Subject to clause 10.4 (‘Representations’) [Cargill] unconditionally and irrevocably releases [Viterra] and its Representatives from any liability which (notwithstanding the disclaimer in clause 10.1 (‘Disclaimer by Discloser’)) may arise, whether directly or indirectly, in relation to, in connection with, or as a result of the provision of the Confidential Information or any reliance placed by any person on any Confidential Information or the non disclosure of any Information, including any liability resulting from any negligence, default or lack of care on the part of [Viterra] or any of its Representatives or from any misrepresentation or any other cause (Clause 10.3 Release).
Cargill completed the purchase of JWM later in 2013 by way of an acquisition agreement.
Cargill subsequently brought proceedings against Viterra alleging that (relevantly) Viterra had engaged in misleading and deceptive conduct regarding various elements of JWM’s business practices. Viterra defended the claims on several grounds, including that it could not be liable to Cargill for any misleading information due to the operation of the Clause 10.3 Release. In 2022, the Victorian Supreme Court found in favour of Cargill on the basis that Viterra had engaged in the alleged misleading and deceptive conduct in connection with various aspects of JWM’s operational practices.
Viterra appealed that decision on several grounds, one being that the primary judge was wrong in holding that the Clause 10.3 Release was unenforceable as it purported to prospectively release Viterra from liability for misleading or deceptive conduct under the ACL. Significantly, Viterra argued that while the parties could not contract out of the ACL’s prohibition on misleading and conduct, they were free to contract out of their right to seek relief under that Act. The Court of Appeal judgment covers over 20 grounds of appeal, however, the ground on which this updates focuses is whether the Deed could operate to prevent Cargill from commencing a misleading and deceptive conduct claim against Viterra.
The Court of Appeal decision
The Court considered whether the Deed contravened public policy, in that the Clause 10.3 Release is associated with or in furtherance of an illegal purpose. This principle would be applicable if the Court found that the ACL established a public interest in the right of a party to seek damages under the ACL, rather than merely conferring that right for an individual party’s benefit. In doing so, the Court:
- Acknowledged that it is well established that the ACL is concerned with the protection of the public interest by preventing practices and conduct that are contrary to the public interest. It also recognised that there is a clear public interest in prohibiting conduct in trade and commerce that is misleading or deceptive.
- Accepted that an individual might benefit from the receipt of damages under the ACL and yet choose not to pursue damages. Despite this possibility, the Court considered that there was a complex interrelation between misleading and deceptive conduct and the remedies available for such conduct. It was ultimately not possible for the Court to separate the more individualistic right to damages with the other remedies available for misleading or deceptive conduct.
- Discussed that the remedies themselves play an important role in achieving the ACL’s purposes. In particular, the remedies available for a breach of the misleading and deceptive conduct provision as a whole provide for a variety of potential consequences and the effectiveness of the misleading and deceptive conduct provision will be undermined by removing one of those remedies.
For those reasons, the Court considered that an award of damages under the relevant section of the ACL is not just solely for the benefit of an individual, but for the community generally. Accordingly, the Court concluded that it was against public policy for the Deed to prevent a party from being found liable for misleading and deceptive conduct. Interestingly, the Court distinguished the position under a settlement agreement under which a party could release another person from a known past liability under the ACL and the Clause 10.3 Release, which prevented liability for an ACL claim from ever arising in the first place.
The Court’s decision is a serious warning to businesses about the scope of limited liability clauses. It is clear from the Court’s reasons that there are important public policy considerations concerning why companies are unable to contract out of their liability arising from misleading and deceptive conduct. What remains to be seen is whether the Court’s observations regarding the settlement of a known past ACL claim will influence the drafting of acquisition agreements. In other words, whether vendors might try to draft around the Court’s ruling and compromise a prospective ACL claim and, if so, whether such clauses will be enforceable. Given the judgments public policy foundations, we think that this approach will be difficult.
Other ways in which parties can seek to protect themselves from these types of claims include:
- limiting the representations made by, for example, providing access to a data room without offering further comment;
- drafting “No representation” and “no reliance” clauses that document any representations made and record agreement that those were the only representations made and relied upon when entering into an acquisition agreement;
- document the reasons and rationale for making any representations to the other party;
- engaging experts (such as accountants) to verify the accuracy of any representations; and
- offering training to key personnel involved in a transaction about what conduct could be interpreted as misleading or deceptive to reduce the risk of unwittingly misleading the other party.
Finally, the Court’s decision further justifies companies bringing action against other parties both in contract and under the ACL, with confidence that remedies under the ACL will be applicable notwithstanding any contractual clauses to the contrary. Parties have more reason to rely on the ACL as a ‘catch-all’ cause of action that, as the current law stands, cannot be limited by contract.
Note: On 21 July 2023, Viterra filed a special leave application with the High Court arguing that the Victorian Court of Appeal was wrong in finding that precluding liability for misleading and deceptive conduct was contrary to public policy. We will provide an update when the High Court hears the special leave application.
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