Misrepresentation And Negligence: Two Case Studies

Discuss about the Business Law for Keays v Guardian Newspapers Limited.

In case parties of a contract made a false statement or implied a fact which is untrue in order to induce another party to form a contract, it is considered as misrepresentation. The contractual relationship which is formed based on misrepresentation cannot bind its parties legally to enforce the terms of such contract. It becomes voidable, and the aggravated party has the right to end the contract or bind the parties to its terms. On the other hand, if the actions of people or organisations could cause serious injury to another party, then it is their duty to ensure a standard of care which assists in avoiding harm to another party. In case such care is not maintained by a person or an organisation, then a suit for negligence can be filed by the parties. In such case, the aggrieved party can claim for damages which he/she suffered due to the fault of another party. This report will examine two cases based on these principles in order to provide advice to parties of each case. To clearly understand the topic, various case laws and legislation will be analysed in the report. 

In this case, a false statement is made by Jessica regarding the financial statements of her business, and the issue is whether it can be considered as misrepresentation. In order to advice Angela, it is necessary to understand relevant laws and cases. Firstly, misrepresentation is defined as a false or untrue statement which is made by a party with an objective to attract another party into signing a contract and form a contractual obligation. A contract formed based on misrepresentation of fact is voidable. In such case, the innocent party has the right to either terminate the contract to end the contractual relationship or made the contract valid (Hillman, 2012). Generally, a misrepresentation is made by a party during the stage of negotiation of a contract. The purpose of making a false statement is to induce or attract another party by giving him specific information in order to form a contractual relationship.

The law provides that the false statement made by a party must be related to a fact rather than a personal opinion or a promise (Derry v Peek (1889) 14 App Cas 337 and McConnel v Wright (1903) 1 Ch 546) (Eggers, 2013). For example, if a statement is made by the seller that a property is worth $100,000, then it is considered as a personal opinion. On the other hand, if the seller made in the statement that had paid $100,000 for the property then it is considered as a statement of the fact. Similarly, a promise made by a party cannot be considered as a false representation because it is related to future and it cannot be considered as either true or false at the time when it is made (Dimmock v Hallett (1866) 2 Ch App 21). The statements which are made regarding future events or estimations are considered as a false statement of fact (Esso Petroleum v Mardon (1976) QB 801 and AMEC Mining v Scottish Coal Company (2003) ScotCS 223) (Sergeant and Wieliczko, 2014). It is necessary that the party which is making a false statement must be in a position to know the fact otherwise it cannot be considered as a misrepresentation. 

Case Study 1: Jessica's False Statement and Misrepresentation

It is also necessary that the party to whom a false statement is made must have an intention to carry out the stated intent (Edgington v Fitzmaurice (1885) 29 Ch D 459 and Keays v Guardian Newspapers Limited, Alton, Sarler QBD (2003) EWHC 1565 (QB)) (Freedland et al., 2016). In Australian law, the court uses Parol Evidence Rule (PER) in order to determine whether a statement is considered as a misrepresentation of fact or not. It was given by the court in the judgement of Goss v Lord Nugent (1833) 5 B&AD 58 case (Epstein, Archer and Davis, 2014). The discussions between parties are a contract judged based on PER model in order to consider that whether are considered as a term of the contract or not. In case a party check the validity of the statement which his made another party, then a suit for misrepresentation cannot be filed (Attwood v Small (1838) UKHL J60) (Kodilinye and Kodilinye, 2013). However, if the opportunity to check the fact is not used by the party, then it is considered that the party relied on the false statement based on which a suit for negligence can be filed (Redgrave v Hurd (1881) 20 Ch D 1).

The statement made by Jessica is considered as a false statement because she was in a position to know the facts and Angela carried out the deal based on such statement (Edgington v Fitzmaurice). Jessica could claim that Angela checked the validity of the facts by checking the accounts based on which she did not rely on the statement (Attwood v Small). However, Angela only checked the account of 2007, and she didn’t check the rest based on her reliance on the statement of Jessica; therefore, a suit for misrepresentation can be filed by her (Redgrave v Hurd). The contract between Angela and Jessica is voidable based on which Angela can terminate the contract and claim damages from Jessica for the loss suffered by him. Thus, a claim for misrepresentation can be filed in this case, and Angela can demand damages.

In the present scenario, the Smith family suffered significant losses because of the health issues faced by Andy which was caused due to drinking remains of a cockroach from the cola bottle. The issue is whether a suit can be filed against the cola manufacturer based on the negligence due to which Andy suffered serious injury. Before giving advice, it is necessary to understand the elements which are required to be fulfilled in order to constitute a claim for negligence. While performing specific actions, a person or company owes a duty of care to ensure that such action did not cause a serious injury to another party (Bismark et al., 2012). This duty is imposed over the party by the law which is mandatory to be fulfilled. In case such duty is not maintained or breached by the party and due to such breach, another innocent party suffered losses than a claim for negligence can be filed. Based on this claim, the innocent party has the right to claim damages from the breaching party in order to compensate for the loss suffered. Donoghue v Stevenson (1932) AC 562 is an important case in which the court lied down the principles of negligence. In this case, the judgement of the court was given based on the ‘neighbour test’. Mr Donoghue become violently ill due to drinking remains of a snail which was present in her drink due to negligence of the café worker (Greiner, 2014). 

Elements of Negligence

The court accepted her claim by providing that she had fulfilled the elements of the neighbour test. The elements of the test include closeness in the relationship of parties and foreseeability of the harm (Dorset Yacht Co Ltd v Home Office (1970) AC 1004) (Petrin, 2013). While claiming damages, it is necessary to prove that a duty of care is owed by the party. There are a number of cases in which it was held that a manufacturer owed a duty towards customers. In Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) HCA 61 case, it was held that a duty of care is owed during packing of goods by a manufacturer. Presence of a duty of care is importance without which a claim for negligence cannot be constructed (British Railways Board v Herrington (1972) AC 877). It is necessary that the party which owed the duty must have breached it by not maintaining a level of care which any reasonable person would have in such particular situation (Vaughan v Menlove (1837) 3 Bing. NC 467). In case of consumers, companies are required to maintain a standard of care issued under the Competition and Consumer Act 2010 (Cth) in order to avoid a suit for negligence. Foreseeability of the harm is a key element of contract based on which a party is required to maintain a duty of care to avoid a suit for negligence (Australian Safeway Stores Pty Ltd v Zaluzna (1987) HCA 7) (Hayward, 2013).

However, foreseeability of a risk did not itself creating a legal duty of care (Agar v Hyde (2001) 75 ALJ 504). Not all accidents are caused by negligence for example a doctor might not able to save the life of a patient due to severe injury (Stuart v Kirkland-Veenstra (2009) HCA 15) (Townsend and Luck, 2009). It is necessary that the losses suffered by the party are caused as a direct consequence of the breach of duty by a party who is required to maintain a duty of care. An innocent party cannot claim for damages which are suffered due to an accident which did not occurred due to the breach of duty of a party. Furthermore, the damages must not be too remote in order to claim damages for negligence. The remoteness of damages is a key factor which is evaluated by the court while providing a judgement for a case of negligence (Bismark et al., 2012). The damages which are too remote are not required to be compensated by the party who breached the duty of care. In order to decide remoteness, the court uses ‘but for’ test. In this case, the court evaluate that an accident would not have occurred but for the breach of duty by the party an injury is suffered by the innocent party (Yates v Jones (1990) Aust Torts Reports). Based on which a claim for damages can be filed by the party. 

Case Study 2: Andy's Injury and Negligence

The severe injury suffered by Andy was caused due to drinking the remains of a cockroach. He did not know that the cola bottle had remains of a cockroach which was there due to the failure of maintaining a standard of care by Acme Cola Company Limited. The manufacturer had a duty of care to ensure that drinks are safe for people (Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd). A duty was there, and the manufacturer breached such duty due to which Andy suffered an injury. The damages were not too remote, and they were caused due to direct consequences of actions of the manufacturer. Thus, it is advised that the Smith family should file a suit for negligence and demand damages for the injury suffered by Andy.

Conclusion

In conclusion, in case any fact which is relevant to a contract is made by a party which is false and based on such fact, another party signs a contract, then a suit can be filed for misrepresentation. As discussed in the first case, the statement made by Jessica was false, and Angela entered into a contract with her based on such statement. Jessica cannot rely on the defence that Angela checks the book of accounts because she only checks the books of 2007. Thus, she relied on the false statement made by Jessica due to which the contract becomes voidable. As discussed above, a claim for negligence can be filed in the second case. The injuries suffered by Andy are caused due to the remains of cockroach which were present in the cola bottle because of the negligence of the cola manufacturer. A duty of care is owned by the manufacturer which was breached due to failure to maintain a standard of care based on which the injury is suffered by Andy. Based on which, a suit for negligence can be filed, and a claim for damages suffered by the Smith family can be recovered from the cola manufacturer.

References List

Agar v Hyde (2001) 75 ALJ 504

AMEC Mining v Scottish Coal Company (2003) ScotCS 223

Attwood v Small (1838) UKHL J60

Australian Safeway Stores Pty Ltd v Zaluzna (1987) HCA 7

Bismark, M.M., Gogos, A.J., McCombe, D., Clark, R.B., Gruen, R.L. and Studdert, D.M. (2012) Legal disputes over informed consent for cosmetic procedures: a descriptive study of negligence claims and complaints in Australia. Journal of Plastic, Reconstructive & Aesthetic Surgery, 65(11), pp.1506-1512.

British Railways Board v Herrington (1972) AC 877

Competition and Consumer Act 2010 (Cth)

Derry v Peek (1889) 14 App Cas 337

Dimmock v Hallett (1866) 2 Ch App 21

Donoghue v Stevenson (1932) AC 562

Dorset Yacht Co Ltd v Home Office (1970) AC 1004

Edgington v Fitzmaurice (1885) 29 Ch D 459

Eggers, P.M. (2013) Deceit: The Lie of the Law. Florida: CRC Press.

Epstein, D.G., Archer, T. and Davis, S. (2014) Extrinsic Evidence, Parol Evidence, and the Parol Evidence Rule: a Call for Courts to Use the Reasoning of the Restatements Rather than the Rhetoric of Common Law. NML Rev., 44, p.49.

Esso Petroleum v Mardon (1976) QB 801

Freedland, M., Bogg, A., Cabrelli, D., Collins, H., Countouris, N., Davies, A.C.L., Deakin, S. and Prassl, J. eds. (2016) The contract of employment. England: Oxford University Press.

Goss v Lord Nugent (1833) 5 B&AD 58

Greiner, R. (2014) Environmental duty of care: from ethical principle towards a code of practice for the grazing industry in Queensland (Australia). Journal of agricultural and environmental ethics, 27(4), pp.527-547.

Hayward, B. (2013) Tort, cinema and violent crime: An Australian perspective. Alternative Law Journal, 38(4), pp.255-259.

Hillman, R.A. (2012) The richness of contract law: An analysis and critique of contemporary theories of contract law (Vol. 28). Berlin: Springer Science & Business Media.

Keays v Guardian Newspapers Limited, Alton, Sarler QBD (2003) EWHC 1565 (QB)

Kodilinye, G. and Kodilinye, M. (2013) Commonwealth Caribbean contract law. Abingdon-on-Thames: Routledge.

McConnel v Wright (1903) 1 Ch 546

Norton Australia Pty Ltd v Streets Ice Cream Pty Ltd (1968) HCA 61

Petrin, M. (2013) Assumption of responsibility in corporate groups: Chandler v Cape plc. The Modern Law Review, 76(3), pp.603-619.

Redgrave v Hurd (1881) 20 Ch D 1

Stuart v Kirkland-Veenstra (2009) HCA 15

Townsend, R. and Luck, M. (2009) Protective jurisdiction, patient autonomy and paramedics: the challenges of applying the NSW Mental Health Act. Australasian Journal of Paramedicine, 7(4).

Vaughan v Menlove (1837) 3 Bing. NC 467

Yates v Jones (1990) Aust Torts Reports