Disclosure and Misleading Conduct – Where Most Disputes Arise
- 18 Jun 2026
- Corporate and Commercial Law Commercial Disputes
The most significant litigation risk in business sales continues to be inadequate disclosure.
We frequently act in matters where a vendor has failed to disclose a material issue—sometimes inadvertently, but with serious consequences. This often involves licensing restrictions, regulatory non-compliance, or overstated financial performance.
The Courts have made it clear that silence can be misleading where it creates a false impression. In Collins Marrickville Pty Ltd v Henjo Investments Pty Ltd (1987) 39 FCR 546, a restaurant was represented as seating 128 patrons when it was only licensed for 84. The vendor's failure to disclose this fact was held to be misleading, as it directly affected goodwill and profitability.
Similarly, in GA Nominees Pty Ltd v Barden Motors Pty Ltd (1997) 42 NSWLR 699, a vendor deliberately concealed zoning and licensing restrictions in responses to requisitions. The Court found fraudulent misrepresentation, demonstrating that incomplete or misleading answers during due diligence can expose vendors to significant liability.
More recently, in Badger v John Kagelaris Pty Ltd [2019], the Court went further and imposed personal liability on individuals behind the vendor entities. The purchaser had relied on inflated customer numbers and profit figures; in reality, nearly half of the customers were inactive. The buyer recovered substantial damages, underscoring that the "corporate veil" will not always shield those involved.
For business clients, the message is practical. Vendors must ensure full and accurate disclosure. Purchasers must conduct rigorous due diligence. With the right legal guidance, these risks can be identified and managed before they become disputes.
For professional legal advice, contact Maclarens Lawyers on (02) 9682 3777
