Large-scale acquisitions often come with disclaimers seeking to exclude liability under the Australian Consumer Law (ACL) for misleading and deceptive representations. Are they worth the paper they are written on? Perhaps not, according to the Victorian Court of Appeal in Viterra Malt Pty Ltd v Cargill Australia Limited [2023] VSCA 157.
The judgment has cast doubt on the effectiveness of relying on disclaimers to avoid liability for engaging in misleading or deceptive conduct during an acquisition. Clauses considered ineffective, on the particular facts raised in the judgment, include:
- no representation clauses, which purport to state that no responsibility is accepted as to the accuracy and completeness of information provided;
- no reliance clauses, which purport to state that a party agrees to not rely, and/or has not relied, upon any representations, but rely on their own investigations; and
- exclusion clauses, which purport to exclude, release or limit parties' liability.
Cargill acquires a business from Viterra
Cargill Australia Ltd bought the entire share capital of Joe White Maltings Pty Ltd from Viterra Malt Pty Ltd. During the sale process, which included an indicative and a final bid, Viterra provided information about Joe White's business to Cargill, and Cargill used that information in formulating its successful bids.
Cargill alleged that Viterra made a series of misrepresentations and did not disclose certain practices of Joe White that included Joe White routinely, and without informing customers, supplying malt that did not comply with customers’ contractual requirements and specifications. If it had been aware of these practices, Cargill said it would not have acquired Joe White.
Both the trial judge and Court of Appeal concluded in Cargill's favour on these points. Viterra pointed to the disclaimers it has included with the information provided to Cargill, which said:
- no representations were made by Viterra, and no responsibility was accepted as to the accuracy and completeness of information provided ("no representation clauses");
- Cargill agreed to not rely, and/or had not relied, upon any representations, but would rely on their own investigations ("no reliance clauses"); and
- Viterra's liability to Cargill was excluded, released or limited ("exclusion clauses").
The law on disclaimers for misleading or deceptive conduct and fraud generally
The Court's comprehensive analysis on the effect of disclaimers as they relate to misleading or deceptive conduct and fraud concluded:
- Contractual provisions cannot absolve a party from liability for the party's own fraud (whether the provision is contained in a contract induced by fraud, or in a separate contract not induced by fraud);
- Contractual provisions might be effective to absolve a party from liability for the fraud of that party's agent, but general words would not suffice. The exclusions of liability for an agent's fraud would have to be clear and unmistakable (such as to alert the contracting party of the extraordinary nature of the clause);
- No representation clauses and no reliance clauses and other forms of disclaimers can have an evidentiary effect that negates an integer of liability in relation to misleading or deceptive conduct (for example, they may alter the character of a representation which was made or may render conduct not misleading or deceptive). Such provisions, however, cannot otherwise have the effect of absolving a party from liability for misleading or deceptive conduct, even where their express terms purport to do so;
- When assessing whether conduct is misleading or deceptive, it is important to assess the entirety of the relevant conduct as a whole (which includes an assessment of no representation clauses, no reliance clauses or other disclaimers); and
- Exclusion clauses which purport to absolve liability under the ACL for misleading or deceptive conduct which has occurred or caused loss cannot have effect in accordance with their terms where they are contained in a contract which the claimant has been misled into entering. This principle also extends to any contract which purports to absolve a misrepresentor from liability for misleading or deceptive conduct, even if the claimant was not misled into entering the contract.
Exclusion clauses
With specific reference to the Viterra Parties "exclusion" clauses and their submission that section 236 of the ACL was a private right capable of being renounced, the Court concluded that "A party cannot ‘contract out’ of s 236 [of the ACL] in advance of any misleading or deceptive conduct having occurred. … That would permit private parties to undermine the operation of s 18, by removing an important aspect of its enforcement, albeit in advance of any contravention… an award of damages under s 236 is not solely for the private benefit of the claimant. It is also for the benefit of the community generally… [allowing parties to exclude liability through contract would] undermine the efficacy of s 18 and the purposes of the Australian Consumer Law in prohibiting that form of conduct in trade and commerce."
No representation clauses
The Viterra "no representation" clauses were considered ineffective as statements that "no representations, express or implied, were made" cannot be given effect when, as a matter of fact, representations were made.
Moreover, a general assertion that the Viterra Parties would not "vouch for" the accuracy of the representations would not relevantly affect the implied representation arising from non-disclosure of the dishonest real means by which Joe White had achieved the results it had.
A disclaimer of completeness in the information provided may alert an intending buyer to the possibility, or even the likelihood, of an omission due to carelessness or incompetence, or due to a failure to appreciate the importance of some matter, or due to a genuinely held belief that some matter need not be disclosed. It does not alert a party to the possible existence of concealed dishonest practices which have underpinned the financial performance of the business.
No reliance clauses
Viterra's "no reliance" clauses did not prevent Cargill relying on the misrepresentations. Cargill's indicative bid was in fact proven to be based on the information provided in the Information Memorandum and was submitted on the assumption that the information was true and accurate, and its covering letter with its Final Bid expressly stated that they had concluded their due diligence based on the information provided "in the process".