Be careful what you say in negotiations

Statements made during negotiations can result in binding obligations regardless of written agreements to the contrary.

A lender made oral representations to a borrower regarding the ability to redenominate a loan and was held liable for misrepresentation causing the borrower to suffer economic loss.

A couple borrowed money from a lender, who they claimed made oral representations to them that the currency of the loan could be redenominated upon request.

The loan agreement simply provided that the lender "may" convert the currency of the loan. When the lender failed to redenominate the loan currency, the borrowers sued the lender for misrepresentation causing economic loss and won in the High Court.

The Court of Appeal dismissed the lender's appeal, agreeing with the High Court's decision that the lender had, in oral discussion, misrepresented to the borrowers its ability to redenominate the currency, and this misrepresentation induced the borrower to commit to an offshore loan in Swiss francs which caused the borrower substantial loss.

This case is an important reminder for lenders (and borrowers) that the Courts will override the terms of written contracts where there is an express agreement to the contrary between the parties. It is critical that all parties take care during the documentation process as statements made during negotiations may result in binding obligations.

Enquiries and information

For more information on any of the cases, articles and features in Financial Services Quarterly, please email Rachel Gowing or call on 64 9 916 8825.