Elements for Establishing Fraudulent Misrepresentation - Case Study Example

Misrepresentation Elvis Eggplant, the director of HappyHippie Pty Ltd provided false information to Manfredi, with the intention of inducing the latter to purchase a vegetarian café form his company. There was as much as 60% inflation in the historical figures made available to Manfredi by Elvis Eggplant. Subsequent to the purchase of the café, Manfredi discovered that he had been provided with highly inflated figures relating to the past and future profitability of the café. This essay described the essential elements for establishing fraudulent misrepresentation and the resulting issue of liability to third parties. Many decided cases, in this area, can be cited as precedents for examining the liability arising from fraudulent misrepresentation. In the present scenario, there is strong evidence to prove that Elvis Eggplant had provided false and overestimated information. This was aimed at inducing Manfredi to form a contract, with respect to the sale of a café, namely, the HappyHippie Pty Ltd. Since, Elvis Eggplant made false and fraudulent representations regarding the sale of the café, with the intention of luring Manfredi, this case attracts the provisions of misrepresentation under the Australian Consumer Law. This work enumerates the possible actions and remedies available to Manfredi. The Australian Consumer Law (ACL) is to be found under the Competition and Consumer Act 2010. 1 Cases of misrepresentation can be brought under the ACL for deceptive or misleading conduct. In Smith v Chadwick, the court ruled that on the basis of evidence the presence of an inducement or inference could be made. For this the following would have to be established. First, the defendants had made a statement to the plaintiff. Second, this statement had the likelihood of inducing a person to enter a contract. Third, the plaintiff had relied upon this statement to form the contract.2 This rule was further supported by the decision in Edgington v Fitzmaurice, wherein the defendant company shares had been purchased by the claimant. The defendant’s prospectus declared that these shares were being offered with the intention of raising funds for the expansion of the company. The reality was that this amount was being raised for meeting its pressing debts. The court held that albeit the company’s statement pertained to a statement of future intent, it was a misrepresentation that was actionable. The court based its decision on the fact that the defendant company did not intend to utilise the money so raised for the purpose of expansion. 3 The law requires representation to be a statement of fact. In general, statements of belief, intention or opinion that are unsubstantiated or not implemented, are not tantamount to misrepresentation. In the event of it being established that the person expressing the opinion could not have reasonably subscribed to that opinion or that statement being a deliberate untruth, the statement can be deemed to be a statement of fact and therefore a misrepresentation.4 Moreover, fraudulent transpires when the person engaging in such activity makes a statement in a careless or reckless manner regarding the veracity of the statement. Finally, negligent misrepresentation transpires when there is a negligent misstatement at common law or negligent misrepresentation, as per the provisions of Section 2(1) of the Misrepresentation Act 1967.5 In our present case, with respect to the false information, there was as much as 60% inflation in the historical figures made available to Manfredi by Elvis Eggplant. Subsequent to the purchase of the café, Manfredi discovered that he had been provided with highly inflated figures relating to the past and future profitability of the café. As such, some important facts were misstated by Elvis Eggplant with an intention to influence Manfred, to enter into the contract. As such, fraudulent misrepresentation takes place when a representation is made deliberately without belief in the truth of the statement. Elements for deciding fraud in cases of false statement were discussed in Derry v Peek. 6 In this case the court opined that fraud transpires whenever a false representation is made, with knowledge of its deceitfulness, when the maker of the representation does not have belief in its truth, or when that person is negligent about its veracity. As such, the statement is characterised by the absence of honesty. In Mutual Life and Citizens’ Assurance Co Ltd v Evatt, it was held that a duty of care is owed by persons who provide advice in a professional context upon serious issues. 7 In our problem, Elvis Eggplant breached his duty of care towards Manfredi, while disclosing facts with respect to Happy Hippie café. Hence he is liable for fraudulent misrepresentation under the provisions of Australian law. The second element in the concept of fraudulent misrepresentation is reliance on the representation made by the representor. In Derry v Peek, the defendant had stated in a company prospectus that it was entitled to employ steam powered trams, instead of the horse powered ones. During that epoch, the Board of Trade had to sanction the use of steam powered trams, and such sanction was refused to the defendant. The claimant, under the mistaken belief that steam powered trams would be used by the company, purchased shares in it. 8 Subsequently, he filed a claim for fraudulent misrepresentation. The court held that there had been no fraudulent misrepresentation, as the company had genuinely believed that it would receive the approval. Whilst delivering the judgment, the court defined fraudulent misrepresentation as a statement that had been made knowing it to be false, without belief in its veracity, or in a reckless or careless manner regarding its truth.9 Moreover, in Gould v Vaggelas, the court held that there had to be a causal relationship between the representation and the formation of contract. In the event of the representee not relying upon the representation there could be no case, even if the representation was false and fraudulent. 10 In Esso Petroleum Co Ltd v Mardon, 11 an attempt was made by the defendant to commission a petrol station in a busy area. The council stipulated some alterations to the defendant’s plan, which the latter carried out and then constructed the petrol station. These changes brought about a reduction in the profitability of the petrol station. 12 The defendant, due to negligence, did not change the estimated petrol consumption, at the time of leasing the petrol station to the plaintiff. The latter was awarded damages by the court for the negligent misrepresentation by the defendant. The court held that a person who induced another by a negligent misrepresentation to form a contract could be rendered liable for damages. As such, a duty of care was implied in a contract, which was imposed under the tort of negligence. 13 In addition, reliance is crucial for determining a relationship of proximity in cases involving negligent misstatement. The decisions in Mutual Life and Citizens Assurance Co Ltd v Evatt14 and San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979, 15 reiterated the following. An individual, to his detriment, should have acted upon or desisted from actions relying upon the statement of the representor, for claiming against fraudulent misrepresentation. As such there should be detriment due to reliance upon the statement.16 In our present case, Manfred relied upon the statement made by Elvis Eggplant and proceeded to purchase the Happy Hippie café, As such reliance and inducement to make a contract can be deduced from this case. Moreover, the Trade Practices Act 1974 prohibits conduct that is deceptive, misleading, or has the likelihood of deceiving or misleading.17 It was believed that this provision had taken into consideration the employment of beneficial, as well detrimental terms that were sufficiently specific. 18 The remedy provided by law for negligent or fraudulent misrepresentation is that of damages. In addition, rescission is available as a remedy for all categories of misrepresentation. Evaluation of the damages to be awarded is with the objective of restoring the position of the injured party that had been in existence, prior to his forming the contract. An example of damages is the amount of actual loss resulting from having formed the contract 19 This essay establishes the factors required to demonstrate fraudulent misstatement on the basis of relevant case law, and it has applied the same to the facts of the scenario. It is established that Elvis Eggplant had provided inflated information with regard to the profits of the café, in order to induce Manfredi, to enter into the sale contract. In addition, Elvis Eggplant had concealed the true information relating to the accounts of the café in the past. This clearly indicates the presence of fraudulent misrepresentation. Hence, Manfredi can make a claim against Elvis Eggplant for fraudulent misrepresentation. Manfredi can rescind the contract and make a claim, for damages for breach of contract and fraud under the provisions of law. BIBLIOGRAPHY A Articles/Books/Reports Christensen, Sharon, and WD Duncan, Professional Liability and Property Transactions (The Federation Press, 2004) Hocking, Barbara Ann, Liability for Negligent Words (Federation Press, 1999) Latimer, Paul, Australian Business Law 2012 (CCH Australia Limited, 2012) 384 The Law Handbook, Australian consumer law (2014) McNaughton, Anne, ‘An Australian Consumer Law’ (2010) 22(3) Legaldate 10 Sweeting, Valerie, ‘Misrepresentation in contracts’ (1998) 19(2) Credit Control 14 Utz, Clayton, The Australian Consumer Law Willett, Chris, ‘The functions of transparency in regulating contract terms: UK and Australian approaches’ (2011) 60(2) International & Comparative Law Quarterly 355 B Cases Derry v Peek [1889] 5 TLR 625 Edgington v Fitzmaurice [1885] 29 Ch D 459 Esso Petroleum Co Ltd v Mardon [1976] 1 QB 801 Gould v Vaggelas [1985] 157 CLR 215 Mutual Life and Citizens’ Assurance Co Ltd v Evatt [1970] 122 CLR 628 San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 Smith v Chadwick [1884] 9 App Cas 187 C Legislation Competition and Consumer Act 2010 (Cth) Trade Practices Act 1974 (Cth) Read More