Fraudulent Misrepresentation and Exclusion Clauses - Bliss Island - Case Study Example

FRAUDULENT MISREPRESENTATION AND EXCLUSION CLAUSES INTRODUCTION This work analyses the specific elements necessary for establishing negligent misrepresentation, and the enforceability of exclusion clauses in contracts. This area of business law is fully supported by cases which establish and clarify the factors, necessary for claiming damages, relying on negligent misrepresentation. Specifically this essay will refer to the case law to establish that in the scenario, that Sandra had made negligent misstatements to Julian and Anna, in order to induce them to form the contract, knowing fully well that they would rely upon her information. The findings of the work suggests that Julian and Anna can claim damages against Sandra for breach of contract. This research further examines whether Julian and Anna can successfully proceed against Sandra for the losses suffered by them, despite the exclusion clause in their hotel room. This research finds that Julian and Anna can claim their losses from Sandra successfully. Julian and Anna had proceeded to Bliss Island to celebrate. They had selected this place after perusing the brochure of this resort, which described it as very beautiful, with excellent diving and outstanding cuisine. These exceptional features were confirmed by Sandra, who administered the resort. In addition, a notice warning the occupants of the resort, about the necessity to safeguard their valuables was placed on the reverse of the door of their room. This notice disowned any responsibility regarding the protection of the personal effects and belongings of the occupants. The issues relating to the elements of misrepresentation have been discussed in the sequel. The representee has to establish the following, in order to prove negligent misrepresentation. These were stipulated in the ruling in Hedley Byrne v Heller. First, the representor should owed a duty to the representee to undertake reasonable care that his statement was reliable and true. Second, the representor should have breached this duty. Third, the representee should have undergone loss or damage, on account of the false representation made to him by the representor.1 An individual to whom a negligent statement had been made can recover damages in tort for the losses undergone by him, on account of that negligent statement. However, the person making the negligent statement should have owed a duty to that person, by virtue of some special relationship betwixt them. This was the judgment in Hedley Byrne v Heller. Such special relationship comes into existence, when an individual provides advice to another person regarding some matter of importance. In addition, such advice should have been provided under circumstances wherein the person offering the advice had been aware or should have been aware that the other party would act on the basis of such advice. Moreover, it should be reasonable to anticipate that the other party would act upon such advice or information. This was the ruling in MLC v Evatt.2 In our problem, Sandra made false statements regarding the resort, in order to induce Julian and Anna to enter into a contract. This invokes the provisions of the Contract Act relating to negligent misrepresentation. In addition, fraud is established upon demonstrating that a false misrepresentation has been made, knowingly, without belief in its veracity, or recklessly with disregard to whether it is true or false. In addition, the misrepresentation should have been made with the intention that it should be acted upon by another party. This was the test established in Derry v Peek.3 These conditions were declared by Herschell LJ, in this case.4 In Gould v Vaggelas, it was held that fraud encompasses situations, wherein the representor did not believe in the truth of his representation or had made with disregard for its veracity or otherwise.5 In Henjo Investment Pty Ltd v Collins Marrickville Pty Ltd,6 the false representation of the representor caused an infringement of the Trade Practices Act 1974.7 This invoked the criminal law and the relevant consumer protection laws.8 It could be construed that information or advice provided in a casual manner, during an informal or social occasion, cannot be relied upon. However, the advice or information could pertain to a business or professional transaction, and the representee could have expressed the importance of his inquiry and the importance attached by him to the representor’s reply. In such instances, the representor will be held liable, regardless of whether the information or advice had been provided, in order to induce the representee to enter into a contract or the latter had sought the information. This was the gist of the judgment in Sans Sebastian v Minister.9 In our problem, the jewellery and wallet of Anna and Julian, respectively, had been stolen from their room, due to the negligence of the caretaker of the hotel. Exclusion clauses are, in general, in the written form. They state that a party to the contract will not be responsible for certain occurrences. For instance, a sports instruction facility will clearly state in the contract that it will not be responsible for any injury resulting from the instruction. Moreover, when one contemplates the parking of one’s vehicle in a public carpark for a fee, the carpark owner will attempt to include a provision in the contract that he will not be responsible for any damage to the parked vehicle, or the theft of goods from it, during the time that it is parked in that place.10 Such clauses are recognised by the law, provided they have been included in the contract, in the proper manner, and provided that they do not violate the law. The invalid inclusion of an exclusion clause in a contract transpires when it is not brought to the notice of the other party, and when it is included after the conclusion of the contract. A signed contract, incorporating an exclusion clause, will usually render it valid. In the absence of a signed contract, but when there are printed documents or signs declaring these terms, the exclusion clauses are deemed valid, only when they are brought to the notice of the other party, prior to the conclusion of the contract.11 In Thornton v Shoe Lane Parking Ltd,12 a car driver had entered a car park and obtained a parking ticket from a machine. It was held that the car driver was bound only by the terms that had been brought to his notice, prior to his taking the ticket. Moreover, the court held that the contract had been formed, only when the car driver had received the ticket from the machine. Thus, the car park owner could not rely upon an exclusion clause, which had been printed on the reverse of this ticket, as the presence of this exclusion clause had not been brought to his notice, before he had purchased the ticket.13 In our problem, such notice was visible on the back of the door of their hotel room, which they Julian and Anna entered only after completing the contract. Significantly, in Parker v South Easter Railway Co,14 wherein Parker deposited his bag in the cloak room and was provided with a ticket, there had been a message printed upon it which directed the bearer of the ticket to read the instructions on the reverse of it. These instructions stated that the company was not responsible for the loss of any item deposited in their cloakroom. Parker was informed that his bag was not traceable, when he returned to collect it. The court ruled that sufficient notice of the exclusion clause had been provided to Parker since the exclusion term had been printed on the ticket, and notice of the same had been conveyed to him clearly.15 Consequently, the exclusion clause was deemed to be enforceable. With regard to bailments, in City of Sydney Council v West,16 Windeyer J, stated that the common law imposed certain obligations upon bailees. Specifically, when a person undertakes to a do a thing in a specific manner, or to keep a thing in a certain place, with certain conditions to safeguard it, and if these are not upheld, then the contract is deemed to have been breached.17 As a consequence, a contractual clause that provides protection from damage to the bailed goods, will not provide protection to the bailee. Furthermore, in Byers v Dorotea Pty Ltd, the purchaser had been induced to conclude purchase contracts, with respect to units on the Gold Coast. Specifically, he had been provided with representations regarding the presence of a swimming pool, and the superior finishing of these units.18 These proved to be false statements, and Pincus J ruled that the exclusion clause in the contract could not provide the vendor with protection against these false statements. In the normal course, the representee is entitled to a remedy in equity, regarding the misrepresentation. In addition, the representee can decide to rescind the contract. Furthermore, the representee will be entitled to recover damages in tort for deceit, with regard to the fraud perpetrated upon him. This essay established the factors necessary to prove negligent misstatement, and the relevant legal norms were applied to the facts of the scenario. It was proved that Sandra made false statements to Julian and Anna, with the malafide intention of inducing them to enter into an agreement. Her negligent and false representation had been relied upon by Anna and Julian. However, to their great disappointment, all the statements made by Sandra proved to be false. Consequently, Julian and Anna have valid claims against Sandra for damages relating to breach of contract under the misrepresentation law. In addition, the resort company cannot rely on the exclusion clauses, since these had not been incorporated in the contract. Moreover, the notice was not visible prominently, as it had been pasted to the reverse of the door. Julian and Anna can successfully claim damages for breach of contract, and also damages in tort for the losses suffered by them from the company’s negligence, resulting in the theft of their goods and jewellery. BIBLIOGRAPHY A Articles/Books/Reports Clark, Eugene, Cyber Law in Australia (Kluwer Law International, 2010) DiMatteo, Larry A, Qi Zhou, Severine Saintier and Keith Rowley, Commercial Contract Law: Transatlantic Perspectives (Cambridge University Press, 2013) Gillies, Peter, Business Law (Federation Press, 12th ed, 2004) Gillies, Peter, Concise Contract Law (Federation Press, 1988) B Cases City of Sydney Council v West Derry v Peek (1889) LR 14 App Cas 337 Gould v Vaggelas (1985) 157 CLR 215 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 Henjo Investment Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83 Mutual Life & Citizens' Assurance Co Ltd v Evatt [1968] HCA 74 Parker v South Eastern Railway [1877] 2 CPD 416 San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 Thornton v Shoe Lane Parking Ltd (1971) 1 All ER 686 C Legislation Trade Practices Act 1974 (Cth) D Other Exclusion Clauses (4 January 2011) Legal Services Commission of South Australia Read More