Archive for March, 2011

Be Careful What You Promise

Thursday, March 24th, 2011

I was driving to Court last week and heard about an interesting story of a mother who enrolled her daughter in nursery school and who then pulled her daughter out after only a few weeks because her daughter’s preparation for tests that will get her into an Ivy League school were being compromised. You will find the full story here.

While we can all have our views on the merits of the mother or of her lawsuit or of the pre-school, this does raise a couple of interesting issues. Firstly, how much “hype” can one make of one’s business. Secondly, how can one protect one’s business from a lawsuit such as this. Thirdly, what can you do if you are faced with a lawsuit like this.

There is nothing to stop someone from “puffing up” his/her business. For example, outside of Nathan Philip’s Square in Toronto there are several hot dog carts. One of them advertises (and the former owner used to yell out for one and all to hear) that its hot dogs are “The best in North America”. Personally, I prefer the guy two cart’s down, but I never took it for Gospel truth that the first cart’s hot dogs were actually the best in North America – how could I, I haven’t eaten hot dogs across the continent to be able to confirm or deny the assertion! I am sure that very few people would actually believe that the hype and then, if they had a “better” hot dog the next day, would be able to sue the owner for misrepresenting the hot dogs. However, the more specific you make your representations and the more you try to entice people to your product or service compared to another, the more likely you may cross the line and run into problems like this lady’s lawsuit against the pre-school. The article gives some details of what is on the pre-school’s web site but it doesn’t indicate how extensive the promises or representations were. As such, I cannot (and will not) say whether the mother’s claim has any merit or not.

So, what can you do to protect yourself from lawsuits like this. The easy, lawyer’s answer is simple: don’t make representations or promises that you cannot keep. And with that, every marketing department in every business across the continent cries foul and how lawyers are screwing everything up. While it is easy advice, it is not particularly realistic advise since I know that most of my clients won’t follow it. So what is the realistic advice? Two things: (a) try and keep the representations as reasonable as possible and (b) make sure that all of your contracts have a clause that provides that the purchaser / customer is not relying upon any conditions, statements, representation, etc. not otherwise included in the agreement. This way, they cannot say “but I saw your sign and it said XYZ” because you will be able to say “yes, but even if that is the case, the contract doesn’t say XYZ, so you agreed that you were not relying upon XYZ.” Is this a guaranteed defence? No – nothing’s that easy. But, you’re a heck of a lot better off with such a clause than without it.

And finally, what do you do if you face such a lawsuit. Well, the first question is how much are you being sued for? In this case, it’s $19,000 – so in Ontario that would be a claim in Small Claims Court. Above $25,000 and you are in the Superior Court.  Why does this matter?  Because you do not need a lawyer to defend yourself in Small Claims Court (and technically, you do not either in Superior Court but the rules are less “user friendly” than in Small Claims Court so it can be a daunting task).  First and foremost, do not ignore the lawsuit – no matter how trivial or silly it may seem. If you do so, you run the easy risk that you will have a default judgment against you. Beyond that, however, the amount of the “fight” you put into your defence will depend on how important the claim is and how much money you are willing to spend on the defence. Another issue to consider, though, is whether your general business insurance policy is broad enough to cover this type of claim. Most are not, but some might be, so it might be worthwhile to take a look or to ask your insurance agent.

Ultimately, though, “problematic” customers or former-customers are just a part of the joys of running your own business and if someone wants to sue you for what appears to be a trivial claim, there’s nothing you can do to stop the lawsuit from coming. The only question is how quickly you can end it.

Something to think about.