When Words Create Liability: Misrepresentation and Misleading Conduct in Victoria

Commercial transactions are rarely negotiated in silence. Before contracts are exchanged, parties make representations — about the condition of a property, the profitability of a business, the terms on which finance is available, the regulatory status of a development. Most of those representations are made honestly. Some are not. And some, made in good faith, turn out to be false. The legal consequences in each case differ, but in each case they are real.

Victorian law, drawing on both longstanding common law principles and the Australian Consumer Law, provides robust protections for parties who enter contracts in reliance on false or misleading statements. Understanding the distinction between the two regimes — and knowing when each applies — is essential for anyone who negotiates, advises on, or disputes commercial agreements in this state.

Misrepresentation at Common Law

A misrepresentation is a false statement of existing fact, made by one party to another before or at the time of contracting, that induces the other party to enter the contract. Each element of that definition carries weight, and each can become the subject of litigation.

The statement must be one of fact, not merely opinion or prediction. A vendor who says that a business generates a particular annual revenue is making a statement of fact. A vendor who says they believe the business has good prospects is expressing an opinion — and opinions, even unfounded ones, do not ordinarily found a claim in misrepresentation. There is, however, an important qualification. Where a person states an opinion that they do not in fact hold, or states a belief that implies the existence of supporting facts which do not exist, the opinion itself may carry a false factual implication. Courts look carefully at the substance of what was communicated, not merely its grammatical form.

Silence, too, can in certain circumstances constitute misrepresentation. Where a statement was true when made but becomes false before the contract is concluded, the party who made it is under an obligation to correct it. A failure to do so — allowing the other party to proceed in reliance on a representation the maker knows to be no longer accurate — will be treated as a misrepresentation by conduct. Similarly, a statement that is technically true but so partial or incomplete as to create a false impression may ground a claim.

Derry v Peek (1889) 14 App Cas 337 — the fraud standard

The House of Lords established the enduring test for fraudulent misrepresentation: a false statement is fraudulent if made knowingly, without belief in its truth, or recklessly as to whether it is true or false. Crucially, a statement made in honest belief — however unreasonable that belief may have been — is not fraudulent. The distinction between fraud and innocent misrepresentation matters enormously in terms of both the remedies available and the burden of proof. In Victoria, a finding of fraud carries significant consequences and requires clear proof of the state of the representor's mind at the time the statement was made.

At common law, the primary remedy for misrepresentation is rescission — the unwinding of the contract to restore both parties to their pre-contractual positions. Rescission is available for all categories of misrepresentation, whether fraudulent, negligent or innocent. It is, however, a discretionary remedy and subject to bars: if an innocent third party has acquired rights in the subject matter, if the party misled has affirmed the contract with knowledge of the falsity, or if precise restitution is no longer possible, the right to rescind may be lost.

Damages in addition to or in lieu of rescission require a finding of fraud or negligence, or a specific statutory provision. In Victoria, this is where the Australian Consumer Law takes on particular importance.

Misleading and Deceptive Conduct Under the Australian Consumer Law

Section 18 of the Australian Consumer Law — which applies in Victoria by force of the Australian Consumer Law and Fair Trading Act 2012 (Vic) — provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive. The provision is deliberately broad. It extends beyond statements of fact to encompass conduct of any kind, including silence where the circumstances give rise to a reasonable expectation of disclosure.

The reach of section 18 is one of its most practically significant features. Unlike the common law, it does not require proof of fraud or fault of any kind. A statement made honestly and in good faith may still constitute misleading conduct if it creates a false impression in the mind of the audience. The test is objective: would a reasonable person in the position of the representee have been misled? Courts assess this by reference to the audience actually addressed — the sophistication and background knowledge of the person to whom the conduct was directed is relevant to whether they would have been misled.

Demagogue Pty Ltd v Ramensky (1992) 39 FCR 31

The Federal Court established what has become known as the reasonable expectation test for silence as misleading conduct. A vendor of land failed to disclose that the driveway providing access to the property could not be legally used. No statement was made; the silence was complete. The Court held that where the circumstances give rise to a reasonable expectation that a relevant fact would be disclosed, non-disclosure of that fact constitutes conduct that is misleading or deceptive. The principle applies in every property transaction in Victoria today. A vendor's failure to disclose a material fact — a planning encumbrance, a known defect, a pending Council order — may give rise to liability under the Australian Consumer Law regardless of whether any positive representation was made.

This principle has particular resonance in property and business sale transactions. Vendors and their agents must be alert to the difference between what has been said and what a reasonable purchaser would have expected to be told. The two are not always the same, and the gap between them is where section 18 claims are made.

The Distinction Between the Two Regimes

Understanding when the common law and when the Australian Consumer Law applies — and how they interact — is not merely academic. The regimes differ in meaningful ways that affect strategy, remedies and exposure.

Common Law Misrepresentation	Australian Consumer Law — Section 18
Applies to all contracts regardless of commercial context.	Requires conduct "in trade or commerce" — does not apply to purely private transactions.
Requires a statement of existing fact.	Extends to any misleading conduct, including predictions, opinions and silence.
Silence generally not actionable unless a duty to speak exists.	No requirement to prove fault — strict liability in effect.
Fraud must be proven to recover damages beyond rescission.	Damages available as of right where loss is proven.
Rescission subject to equitable bars.	Wide remedial discretion including contract variation and injunction.

The "in trade or commerce" limitation under the Australian Consumer Law is worth dwelling on. An individual selling their own home in a purely private capacity may not be engaged in trade or commerce for the purposes of the provision. A company selling a business, a developer selling a property off the plan, or a real estate agent making representations on behalf of a vendor will almost invariably be so engaged. In practice, the Australian Consumer Law applies to the vast majority of commercial and property transactions in Victoria, and its operation sits alongside — rather than displacing — the common law.

Inducement and Reliance

Whether under the common law or the Australian Consumer Law, a claim will not succeed unless the false or misleading statement actually induced the claimant to enter the contract. The statement need not be the sole reason for entry — it is enough that it materially contributed to the decision. But if the claimant knew the statement was false before contracting, or relied entirely on their own independent inquiries rather than on the representation, the necessary causal link is broken.

A party is not, however, required to have conducted exhaustive due diligence in order to rely on a representation made to them. The mere fact that the truth could have been discovered by investigation does not deprive a misled party of their remedy. Vendors and their advisers cannot make a false statement and then argue that the other side should have been more sceptical.

The law does not reward those who mislead simply because their audience could, with sufficient effort, have seen through them.

Exclusion Clauses and Entire Agreement Provisions

It has become common practice to include in commercial contracts entire agreement clauses — provisions stating that the contract represents the whole of the parties' agreement and that neither party has relied on any prior representation. The intention is to exclude liability for pre-contractual statements. That intention is frequently unrealised.

Victorian courts, consistent with the approach taken across Australian jurisdictions, have held that an entire agreement clause or non-reliance provision cannot, by itself, defeat a claim under section 18 of the Australian Consumer Law. To permit it would allow the very agreement obtained by misleading conduct to contain the clause that destroys the remedy for it — a result that the legislation is designed to prevent. Exclusion of liability for misrepresentation under the Australian Consumer Law is subject to the court's assessment of what is fair and reasonable in all the circumstances.

Practical Implications for Vendors, Purchasers and Advisers

For vendors and their agents: representations made in marketing materials, information memoranda, due diligence responses and during negotiations are not without legal consequence once the contract is signed. The contract does not quarantine liability for what was said before it. The discipline of ensuring that pre-contractual communications are accurate, complete and consistent with the contractual documents is not administrative caution — it is legal risk management.

For purchasers and their advisers: where a transaction has gone wrong and the cause can be traced to something that was said — or not said — before the contract was executed, a claim in misrepresentation or misleading conduct may provide a remedy even where the contract itself offers none. The factual record of what was represented, and when, and by whom, is critical. We recommend that pre-contractual representations of any significance be confirmed in writing as a matter of course.

Key Principle

A party who enters a contract in reliance on a false or misleading statement — whether made deliberately, carelessly or in complete good faith — may be entitled to rescind the contract, recover damages, or both. In Victoria, the Australian Consumer Law operates alongside the common law to ensure that the obligations of honesty and disclosure in commercial dealings carry genuine legal consequence.

Next in this series: unconscionable conduct — when the law intervenes to protect a party whose vulnerability was exploited at the bargaining table.

This article is intended for general informational purposes only and does not constitute legal advice. Claims involving misrepresentation and misleading conduct are highly fact-specific, and the interaction between common law and statutory remedies requires careful analysis in each case. If you have a matter involving a pre-contractual representation or a dispute arising from misleading conduct, you should seek advice from a qualified Victorian solicitor. CMH Lawyers practises in property law, commercial law, litigation and dispute resolution.