Distribution liable for misrepresentation

By Ralf E. Geiling, business journalist
In the event of faulty sales documents, deceptive representations or concealment of significant risks, deceived brokers and intermediaries can hold the product provider or its sales organisation accountable. Their training and sales managers can also be made to pay personally for the failure.
Previously, injured distributors and agents were almost unprotected against the risks of half-true training content of the product providers and thus fell into the liability trap. Many went bankrupt in the process and hardly recovered economically. Now the 10th civil chamber of the regional court Augsburg with judgement of 29 June 2006 (Az. 10 O 1933/05) condemned a selling organization to replace the customer of the mediator the resulted damage due to wrong selling information completely. In the present case the leader of a commercial agent selling had represented a certain investment to the mediators in the context of a product and a selling training as safe and profitable. With this information the agents went into the consultation and found also appropriate investors for this capital investment with their regular customers. When the credit bank demanded several times security achievements, one of the investors quit the loan and the contracts. Considering the repurchase value thereby far less money flowed back than paid in by the investor. Thus this was not content however and required the difference of its financial advisor back. The mediator saw himself deceived by the selling, organized with the customer a complaint against the selling and got right. For the mediator this was only possible, because to it the necessary documents had still submitted. The Munich lawyer Dr. Johannes Fiala explains that it is quite sufficient for the question of immorality that the perpetrator knows the objective circumstances according to general standards: “The sales and training manager is always additionally affected by the duties of the intermediary himself to check fiscal, legal and economic plausibility.” Fiala advises: “A prudent intermediary will always keep all brochures, training materials and transcripts carefully. After all, these documents can be worth hard cash in the event of liability. Without such documents, the intermediary can hardly exonerate himself later, let alone steer the claim in the right direction with his client.” For product providers and sales organizations, as well as for sales and training managers, this raises the question of whether their concepts and sales documents have been demonstrably tested from a tax, legal and economic point of view, or whether they may be a “sham” with high liability risks. But how can dependent sales and product managers or self-employed salespersons and intermediaries limit their personal liability risks? The legislator is primarily interested in protecting the consumer or the customer. The customer should be compensated in case of damage. Also his claims should not go nowhere, only because the responsible person cannot pay. The subsequent insolvency of the responsible party after the customer has been compensated in the event of liability is of no interest to the legislator. It is the responsibility of the responsible party to take appropriate risk precautions for such cases. This precaution consists primarily in communicating only such content in the preparation and dissemination of sales and product information that corresponds to reality from a factual, economic, fiscal and legal point of view and is free of physical and psychological danger for customers or without major economic risks. Also, material facts must not be concealed. Therefore, a private and/or professional indemnity insurance is urgently required for this group of persons, unless the duty of care or the employer’s liability covers risks and damages caused by the employees to the clients. While the legal principle on vicarious liability applies, every rule has exceptions. One of the exceptions may be that the employer or principal leaves his employee or agent out in the cold. Vicarious agents of the product provider are personally liable if: the employee/agent acts as a professional, expert, specialist, consultant or similar. This can give the customer the impression of competence and experience. the personal economic interest of the employee/agent goes beyond his/her mere remuneration/remuneration. This is conceivable in cases of fee-based consulting, for example, if the client pays additional remuneration in addition to the commission. in the case of unlawful acts, especially fraud. the employee/agent violates work instructions, service regulations or other contractual obligations. unclear employee contracts exist without this being apparent at first glance. This area also includes unclear printed matter, such as a business card, which can give rise to self-liability, as it were, as a bogus self-employed person. The employer/client usually only becomes aware when it is held against him that he has neither had training courses and “home-made” sales documents (including software) checked in a qualified manner nor insured. Often the responsible employee/agent/consultant/training manager who has carried out the incomplete or dubious training is liable on the one hand – but also the product provider whose company logo appears on the training and sales documents. Whoever is subject to the liability risk as a responsible person should also have his own contracts closely examined by a lawyer and a special broker with regard to liability for financial losses. But beware: not all risks are insurable. For example, the creditworthiness of the employer or client can play a significant role in the event of a claim. On 28 February 2005, the Federal Court of Justice ruled that an incorrect recommendation to the intermediary for certain conduct is already sufficient to hold the sales or training manager personally liable. The client or employer, i.e. the credit institution, the insurer, the sales organisation, the initiator, the bAV conceptual designer is regularly additionally liable for the sales or training manager from the vicarious liability. On 15 December 2005, the Higher Regional Court of Celle also had to judge such a case conclusively. There the leader of a commercial agent selling had represented an investment to the agents “as safe as a bank investment”. However, the sales manager had no evidence for this and no professional examination competence.

(AssCompact 5/2007, 128)
Courtesy ofwww.asscompact.de.

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About the author

Dr. Johannes Fiala
PhD, MBA, MM

Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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