LAW100 Business Law Representations Essay.

Discuss about the LAW100 Business Law Representations.

Material facts are that Ellen is a graduate of the College of Alternative Medicine and was looking to start her own business. She decided to open a meditation studio and looked around the inner city suburb of Paddington for suitable premises. She eventually found a terrace house near Oxford Street, Sydney, NSW.

Before entry into a lease agreement, Ellen sought an independent advice from the Local Council. Being specific on her working environment, she inquired as to the calmness of the area. The council gave her its word that it was calm. After entry into the contract, it came to her realization that the place was never going to be a quiet environment. As a consequence her activities have reduced, his customers dissatisfied resulting to her inability to uphold the financial obligations under the lease agreement.

Issues

The excerpt discloses the following issues

1. Misrepresentation
2. Remedies available for misrepresentation

• Breach of contract

1. Vicarious liability

Laws and legal rules applicable

The following laws are applicable

1. Trade Practices Act, Australian Consumer Law and Fair Trading Act. Whereas Trade Practices Act deals with misleading and deceptive conducts; Australian Consumer Law and Fair Trading Act covers unconscionable tendencies in contracts.  
2. Common law: classifies misrepresentation into fraudulent and innocent misrepresentation.Further, it dichotomizes innocent misrepresentation into negligent and non-negligent and proceeds to state their remedies.  
3. Equity: whereas, common law remedy is damages, equity introduced a number of remedies that are to augment the inadequacy of damages; among them and which touches specifically on misrepresentation is rescission.
4. Torts law: this establishes a duty, breach and damages. It is an alternative remedy to contractual remedies under misrepresentation.

The freedom of contract under common law gives the parties to a contract the capacity to shape their terms in whatsoever manner provided they meet their intentions and the course is to pursue a legal agenda. Essentials of a valid contract must be in existence in an agreement for its enforceability; for instance offer and acceptance, consideration, intention to create legal relationship must be there. Above all, it must be devoid of vitiating factors such as misrepresentation, undue influence, duress and mistake.

In Spice Girls v Aprilia World service B. V. (2002): it was held that misrepresentation can take many forms, the conduct of a party may constitute a statement, for instance where a party who is supposed to inform another remains silent about a fact they are privy to by their conduct they are deemed to have misrepresented.  

The effect of misrepresentation is that, the induced party enters the contract on account of a misconceived notion. Whereas there exists within common law, a concept of caveat emptor, that the buyer is called upon to conduct all the due diligence and assistance by the seller is not guaranteed, as was held in Oscar Chess Limited v Williams (2000): where it was the view of the court that an inexperienced car dealer is not expected to vouch guarantee statements about cars the he/she deals in; also as was in MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liquidation) [2010]: the representee is not expected to rely in all unreasonable sentiments which may constitute mere puffs truth of which are not guaranteed by the maker.

Laws and legal rules applicable

Additionally; in Avon Insurance PLC v Swire Fraser Ltd (2000); the court held that where the statement so made is substantially correct, the representee cannot rely on the same to impugn the contract. In the same vein, where the representee does not rely on the representation or makes verification or independent judgment, he/she cannot not be heard to rely on misrepresentation to defeat the contract. The above notwithstanding, the innocent parties are not left without a remedy as the equitable principle provides: ‘ubi jus ibi remedium’.

The facts reveal that the statements were made by the Council worker and not the Landlord, owing to the principle of privity of contract, he/she is not concerned with the Ellen’s private arrangements. Failure by Ellen to honor her obligations to pay rent is an act of breach of contract. The landlord is therefore entitled to remedies for breach e.g. specific performance, repudiation.      

In Hedley Byrne & Co. v. Heller & Partners Ltd (1964): the court held that where there is misrepresentation, depending on the type as classified under common law, remedy can lie either in torts or under contract. The innocent party is under liberty to decide which avenue best serves his/her interest within the context of the circumstances. Further, it was the holding of the court that where a misrepresentation is from a party to the contract, the best avenue is contractual remedies; on the other hand if the party making a false statement is a non-party to the contract, torts provides the appropriate redress.

In Derry v Peek (1889): it was held that for a court to found fraudulent two essential facts must be established; the party making the statements lacked belief in the truth of the representation; made them recklessly, not caring whether it was true or false. In that case the redress would be damages for fraud and rescission of the contract. In this case, the court concurred with the finding in Hedley Byrne & Co. v. Heller & Partners Ltd (1964) that both contract law and tort law remedy misrepresentation.

According to the court in Hedley Byrne & Co. v. Heller & Partners Ltd (1964): where a party elects to move under tort law, he/she must prove existence of duty of care, breach of that duty and damages as a result of the breach.

The first facet is the existence of the duty of care. The lex classicus here is Donoghue v Stevenson (1932). In that particular case, Lord Atkin opined that one must take reasonable care to avoid foreseeable acts and omission that are likely to injure his/her neighbor; a neighbor was defined to mean persons who are directly affected by acts and omissions. Elucidating on the neighbor’s principle, the court in Caparo Industries Plc v Dickman (1990): held that three key ingredients of duty of care must be established for a claim of negligence to succeed:

• Reasonable foresight
• Sufficient proximity
• It must be Fair and just to impose the duty

Conclusion

The second facet is that there must be breach of the duty of care. In this regard, the court inquires as to the reasonability of the act judging from the ordinary standards expected of the particular field of operation. As was in Haynes v Harwood (1934): where negligence draw from a medical field, the point of reference is a reasonable doctor of same expertise as the defendant faced with the same situation subject of determination before the court.    

The third and last aspect is the damage. The plaintiff must prove that the damage suffered, resulted directly from or as a consequence of the acts and omissions of the defendant. In Hedley Byrne & Co. v. Heller & Partners Ltd (1964): it was held that the losses claimed must flow directly from the acts and omissions and not remote. Meaning that the flow of events must not be interrupted by other events, hence the ‘but for test; that were it not for the actions of the defendant the damage would not have occurred.

To have a claim against the Council, the council officer must be proved to have been the employee or agent of the Council and that he/she acted within the scope of employment. As was in Yewens v Noakes (1880): once it has been established that the employee was within the course of duty, the employer is vicariously liable for the damages caused to the plaintiff.

Conclusion

From the above application of the legal principles, the only inescapable conclusion is that:

The Council Officer made negligent misstatements having regard to the breach of duty of care he/she owed to Ellen

Ellen has a claim against the Council having been the employer of the author of the negligent misstatement. It is vicariously liable for the economic loss that Ellen has suffered being that the loss flows directly from the acts and omissions of its employer.

Ellen cannot rescind the contract; first, the misrepresentation was made by a non-party to the contract. Owing to privity of contract, she cannot absolve herself of the responsibility under the contract based on acts of a non-party to the contract. She is in breach of the lease agreement by failing to make payments her losses notwithstanding. 

Barton Philip, ‘The Effect of Pre-Contractual Representations’, (2013), Legalwise Contract Risk Management Seminar, Melbourne.

Cleaver Fulton Rankin, ‘the tort of negligence-establishing a duty of care’, (2016), <www.cfrlaw.co.uk/article/2806>

Emily M. Weitzenböck, ‘English Law of Contract: Misrepresentation’, (2012), Norwegian Research Center for Computers & Law.

Hoffer Stephanie, ‘misrepresentation: the restatement’s second mistake’, (2014), University Of Illinois Law Review.

Rottenttenstein, ‘what is ‘’breach of duty’’?’ (2014) < www.rotlaw.com/legal-library/what-is-breach-of-duty/>

Statutes

Australian Consumer Law

Fair Trading Act

Trade Practices Act

Cases

Caparo Industries Plc v Dickman (1990) 2 AC 605

Derry v Peek (1889) 14 App Cas 337).

Donoghue v Stevenson (1932). AC 562

Haynes v Harwood (1934) All ER Rep. at P. 108

Hedley Byrne & Co. v. Heller & Partners Ltd (1964) A.C. 465, [1963] 2 All E.R. 575. [19631 3 W.L.R. 101 (H.L.),

MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in liquidation) [2010] VSCA 245 at [90], 31 VR 575 at 597 – 8.

Oscar Chess Limited v Williams (2000) EWCA Civ 5, 1 WLR 370

Smith v Chandwick (1884)

Spice Girls v Aprilia World service B. V. (2002) ChD 24 Feb 2000

Yewens v Noakes (1880): 6 QBD 530