Business depends upon trust. But what happens when you enter into a contract because the other party made an important representation that turns out to be false?
That issue arose in Direct Shopping Guide Zambia Ltd v Zambian Inside Ltd [2017] ZMSC 265.
The dispute involved a representation by the appellant concerning its status as an approved printer. That representation mattered to the transaction. The trial court found fraudulent misrepresentation and granted relief including rescission and damages. The Supreme Court upheld the decision.
The case gives businesses a powerful reminder:
A contract built upon material fraudulent misrepresentation can be undone. Consider some everyday business representations:
- “We are licensed to perform this work.”
- “We are an authorised dealer.”
- “We have regulatory approval.”
- “We own this technology.”
- “We are authorised to provide this service.”
If such a statement is important to your decision to enter into the contract, and it is materially false, the consequences can be serious. This is one reason due diligence before signing is so important. Ask:
- Who exactly am I contracting with?
- Does the company have the licences or approvals it claims?
- Can important representations be independently verified?
- Are those representations recorded in writing?
- Who owns the assets or intellectual property involved?
There was another important lesson from the case. The trial court had the advantage of seeing and hearing the witnesses. The Supreme Court recognised the importance of those credibility findings and declined to disturb the findings without sufficient justification.
For businesses, however, the practical lesson is much simpler:
Do not build an important transaction on assumptions. Verify what you are being told.
And if you are the person making representations to secure a contract, remember: A lie told before the contract is signed can come back to destroy the contract afterwards.
For legal advice on contracts, commercial disputes, misrepresentation and business transactions, contact Dzekedzeke and Company.
Based on Direct Shopping Guide Zambia Ltd v Zambian Inside Ltd (Appeal No. 48 of 2010) [2017] ZMSC 265.
