When is a house not a house?

If one party promises that they will build the other party a house each year, is it OK to build them a Lego house to fulfil the promise?

Guiseppe Reina negotiated a clause in his contract with Arminia Bielefeld that the soccer club would build him a house for each year of his contract that he fulfilled. According to some sources, the club presented him with a Lego house each year. What is not in doubt is that because the type and size of the houses were not specified, the club and Reina had a legal disagreement about what was acceptable to honour the promise. The point about this dispute is that parties always make promises in their responses to quotes, tenders and bids. How do we know if the promises are serious, or are enforceable in law?

What does the law say?

The law allows 'puffery', marketing statements that are so outrageous that the other party should not rely on them or expect the statement to be objectively true. Would you really expect to grow wings after drinking Red Bull? On the other hand, the law does not allow misleading or deceptive conduct or misrepresentation. Misrepresentation is 'a false statement that gives a misleading impression and persuades the other party to do something because they relied upon it'.

The problem for bidders

The prospect has asked a question in the RFP. The bidders suspect that it is a'knockout' question; unless their response is judged acceptable by the evaluation team, they won't make the shortlist.

As long as the bidder can correctly meet the requirement 100%, all is well. But what if the truth is 90% compliance? Or 75%? As an example, supposing the question asks that bidders provide case studies of work in the prospect's sector, and the bidding company has no direct client experience. But some of the staff working for the bidder do have relevant sectoral experience, gained in a previous job with another company. What would you do?

Is this misrepresentation?

Supposing the bidder does not directly mention that they have no direct experience in the prospect's sector, and instead states:

"We can draw on staff with experience in your sector"

That is objectively true. As the client's RFP solicits promises on which they intend to rely, the bidder knows that the client will rely on this statement being true. But if the client asked a simple closed question, for example, 'Do you have experience of working in our sector?' and a bidder responded 'yes' when they did not, this would be misleading and deceptive conduct.

The Twilight Zone

The Federal Court found that a statement that an app was "the #1 property app in Australia" was puffery. The basis of the judgement was that the phrase makes a claim of superiority, but has no supporting evidence that might induce the reader to rely upon the claim. According to the Judge, the claim ‘merely invites the question '#1 in what way?'' There is no objective way of measuring 'best'.

But a statement that an app has ‘the most property listings in Sydney’ was a misrepresentation, because it did not have more listings that a competitor.

The Judge found that the 'most property listings' claim represented that the ‘app and website [had] more property listings in Sydney than any other comparable app or website’, which was not true. The number of listings can be objectively measured and the app did not have more listings that a competitor.

Mixing facts and half truths

This judgement might imply that it is OK to make outrageous claims ("best") as long as no supporting information is provided that might induce the reader to rely on that claim. The problem is that when puffery is included alongside representations on which the reader is expected to rely, the statement which might be puffery on its own may be reclassified as a representation which the reader might reasonably rely on. In the example above, when the '#1 Claim' was featured in the same advertisement as the 'Most Listings Claim', the specificity of the combined claim made it such that any ordinary or reasonable member of the target audience ‘would understand it as a representation which he or she could reasonably rely on.’ Both representations need to be accurate and true.

So what?

If you are responding to an RFP you will be making promises which you know the client is going to rely on. So here are five top tips:

1. Only make statements that you know to be true
2. Provide facts and documented evidence to support claims
3. Note important limitations or exemptions. If your company doesn't have sectoral experience, don't state that you have!
4. When reviewing RFP responses prior to submission, consider if any statements have been drafted in a deliberately misleading way
5. Sales-speak ("the most trusted solution!") might be puffery in another context, but when included in the same document as representations that are evidence-based they may become actionable if they can be shown to be false. Remove these statements!

Postscript

Guiseppe Reina did not sue Bielefeld for misrepresentation and stayed at the club for three years. While he did not get three houses, he did get a severance payment when he was sold to Borussia Dortmund, where he flopped and is listed as one of their worst ever signings. Perhaps he should have insisted on getting the houses, and become a property mogul instead?