The purchaser who hesitates is lost: court rules on claims regimes under a sale agreement and the Australian Consumer Law

The Federal Court has recently released a decision in Optic Security Australia 2 Pty Limited v YC Investments (NT) Pty Ltd regarding claims made by a buyer for breach of contractual warranties and statutory misleading or deceptive conduct in the context of a sale of a business.

IN BRIEF

• The Federal Court has recently handed down a decision in Optic Security Australia 2 Pty Ltd v YC Investments (NT) Pty Ltd¹ in relation to claims by a purchaser in connection with a sale of a business for breaches of warranties in the share purchase agreement and misleading or deceptive conduct under the Australian Consumer Law (ACL).
• The purchaser’s claims were unsuccessful on both counts. However, the decision contains interesting observations regarding the application of contractual time limits for warranty breaches, which barred the relevant contractual claim in the circumstances.
• In relation to the ACL claims, the decision follows previous authority that a contractual provision limiting the time under which a claim can be made under the ACL would be contrary to public policy. This was the right decision in the circumstances, however an appellate court decision in relation to this issue would be welcomed as it is respectfully submitted that the courts may have gone too far in restricting the ability of private parties to exclude statutory rights under the ACL.
• The court’s judgment also points out that a representation which is in respect to a future matter can include a representation taking the form of opinion or prediction that an event will occur in the future, consistent with prior authority.
• The case is a useful reminder that claims regimes in private M&A deals are important and need to be carefully considered when purchasers are proposing their cause of action. It also demonstrates that care is needed to methodically work through a claim for statutory misleading or deceptive conduct to enable the desired outcome to be achieved.

BACKGROUND

The recent Federal Court decision of Optic Security Australia 2 Pty Ltd v YC Investments (NT) Pty Ltd involved a purchaser claiming against the vendor for what it said were breaches of warranties in the Share Purchase Agreement (SPA) as well as for misleading or deceptive conduct under the Australian Consumer Law (ACL). The purchaser, Optic Security Australia 2 Pty Limited (Optic2), had agreed to acquire the STS Group. The STS Group included Security & Technology Services (NT) Pty Ltd, which had a subcontract with a builder for the construction of security-related communications facilities at the Tindal air force space in the Northern Territory.

The sale completed in November 2018. Over the course of 2019, the purchaser began to have questions surrounding the profitability of the subcontract, culminating in a claims notice being served on the seller on 17 May 2020, with proceedings commenced in November 2020.

The claim for breach of warranty was time barred and the claim under the Australian Consumer Law failed for a number of reasons including because key evidence was not put on by Optic2.

CONCLUSION

Claims regimes in private M&A deals are important and need to be carefully considered when purchasers are proposing their cause of action. The terms of those provisions are of course also very important.

The Federal Court’s recent decision also demonstrates that for anyone thinking that statutory actions for misleading or deceptive conduct can be made and enjoyed at will, that is not the case, and care is needed to methodically work through the various limbs of those actions so the desired outcome is achieved.