DIRECTORS’ LIABILITY - 28.03.2007

Can we walk away?

First shot

We’ve had loads of queries from directors on this very issue - a listings directory/ad brochure firm makes contact (usually by phone) inviting you to join. All sorts of promises are made but all too often they fail to materialise. Although contracts made over the phone are legally binding, under the Sale of Goods and Services Act 1982 there are various requirements that must be met. The most important is that you must actually sign something to confirm your acceptance of the charges. Additionally, you should have been given (in writing) the name of the directory plus the name and address of the person producing it.

Tip. If, like many directors, you only agreed to a listing over the phone, the Act won’t have been complied with, rendering the contract unlawful and invalid. As well as demanding a full refund, make it clear that if the money’s not forthcoming, you’ll inform Trading Standards who have the authority to prosecute.

The next move

Even if you did sign an agreement in accordance with the Act, you can still play the misrepresentation card. In other words, if the salesman promised you loads of business and this was one of the main reasons for concluding the deal, but it’s failed to materialise, this promise amounts to a misrepresentation and again, you can walk away.

Entirely wrong

Of course salespeople make wild promises all the time - that’s part of their job. To counter this, the directory company has probably inserted an “entire agreement” clause into the contract. Its aim is to make what’s said in the contract the “be all and end all”, so that anything said prior to the contract can be ignored. However, clauses like this are generally worded in a way that attempts to exclude liability for anything that’s said, and are therefore open to challenge under the Unfair Contract Terms Act 1977 on the basis that they are unreasonable. The burden of proving that the clause is reasonable will be with the directory company and assuming they’re the big guy and you’re the little guy, this will very much be an uphill task for them.

Tip 1. Read the wording of any entire agreement clause carefully. Chances are it’s been poorly drafted and therefore won’t have the desired effect of excluding their misrepresentations (sales promises etc). There’s every likelihood it won’t make any reference to fraudulent misrepresentations (which is precisely what they do) and is therefore open to a successful challenge because it’s unreasonable to have a blanket exclusion on every type of misrepresentation. Additionally, if the clause just says it contains the whole agreement between the parties, it won’t actually be effective to exclude any misrepresentations. There has to be a second limb to the clause saying specifically that the party hasn’t relied on any representations, and this is often omitted.

Tip 2. The bottom line is this - get the small print wording checked by a lawyer. They’ll be able to tell you pretty quickly just how strong your case is. In our experience, the majority of companies duped into a directory listing are in a very strong position to get their money back.