Court Decision Making in Breaches of Contracts

Answer TWO questions only. One from Section A, one from Section B.

1. 1. Advise Donna whether there are any remedies available against Gianni.
   2. ‘The rules the courts have developed to decide the level of damages to be awarded for breach of contract are arbitrary and no consistent principle can be discerned from the decisions made by the courts.’ Discuss.

A.

A misrepresentation is a false statement of fact, inducing another to enter into a contract. Misrepresentation can take various forms, such as fraudulent or negligent, the latter falling under innocent misrepresentation and each carries with it particular rights to damages in court and different burdens of proof. To activate rescission or claim damages, the representee (the one who is induced into the contract) must involve the court to rescind the contract or to grant relief which may have flowed directly from rescission, such as monies paid. Rescission may also clear the representee from obligations enforceable under the terms of the contract.

Only under fraudulent or negligent misrepresentation, meaning fraud or negligence must be proven, can damages be claimed. Statutory misrepresentation allows the representee to claim damages under a contract merely by proving that the representee suffered loss (Misrepresentation Act 1967, s.2(1)).

When making a claim under misrepresentation, the first thing to be proven is that the representor made a statement which qualifies as a misrepresentation. Gianni must have made a misrepresentation in order to allow Donna to bring any claims. A representation is a statement made to a representee by a representor, related to the representee by way of verbal or written denial, affirmation, description of otherwise by matter of fact. A clear distinction must exist between who the representee and representor are, required to be two distinct persons in substance and in law (Re Ambrose Lake Tin and Copper Mining Co, ex p Taylor, ex p Moss (1880) 14 ChD 390 at 396–397, CA). Here, Gianni is the representor and Donna the representee, clearly two distinct individuals. Gianni made five primary statements, which Donna could claim were subject to misrepresentation. The first was that Gianni told Donna that the purchase would be the best bargain in town. This is a statement, but not one of fact per se. A statement which qualifies as mere advertising puff, a statement made to promote the sale of a seller’s goods, does not qualify as a representation (Fenton v Browne (1807) 14 Ves 144, McKeown v Boudard-Peveril Gear Co (1896) 65 LJ Ch 735, CA). Gianni is the seller and in an attempt to sell his good, he will provide the ‘best’, ‘most-valued’, ‘great idea’ type jargon that will promote his sale and as advertising does by its very nature, induce a buyer into buying. Every buyer will be aware of these gimmicks and should not be persuaded that these are true statements of fact.

Gianni also told Donna that ‘on Saturdays especially, you can hardly move in the place, it’s so busy.’ This is a statement of opinion or belief bordering on fact and therefore qualifies as a representation of opinion (Edgington v Fitzmaurice (1885) 29 ChD 459 at 483, CA; Angus v Clifford [1891] 2 Ch 449 at 470, CA). Donna could attempt to argue that the statement made was a statement of fact but in all reality, the statement would rather qualify as that of one made in belief or opinion as what one person qualifies as an opinion of how busy it is, is not the same as that of another person’s perception of busy. Gianni did qualify the statement by stating that the place is so busy you can hardly move, but again this may also be a statement of opinion. This could also border on a statement made a mere advertising puff to make Donna believe it is a good purchase and to attract her to the transaction. Donna should have known how busy the store was on a Saturday as she should have had some experience with the location and the store before purchase. In Smith v Land and House Property Corpn ((1884) 28 ChD 7 at 15-16 CA) it was decided that where the representor and the representee are both privy to the same facts, then it can not be determined that the representee was induced by an opinion.

Gianni also informed Donna of the monthly profits which of course she would have wanted to know as it would have severely induced her to enter into the contract as the primary reason for the purchase would have been financial and business development. Donna did not check the account, despite Gianni advising her to do so and ultimately it transpires that the statement made by Gianni was incorrect and the account are actually at £600 for the last five months rather than £6,000 per month. Gianni genuinely believed in his statement but made it wrongly and Donna could potentially claim under negligent misrepresentation as Gianni, being the owner should have known the answer to this particular question, holding expertise by his position. This is touched upon later.

Gianni told Donna that planning permission had been applied for. Later Gianni found out this had been denied yet failed to inform Donna of this. Gianni also told Donna she should have no problem in converting the cellar into an 80-seat restaurant. Silence does not qualify as a misrepresentation but by not telling Donna about the new information that he had received, Gianni was engaging in a continuing misrepresentation as he was continuing to maintain that which he initially said, despite this now having become untrue and therefore a misrepresentation. Had Gianni never made any mention of planning permission, then his complete silence throughout the transaction would have never amounted to misrepresentation (Stikeman v Dawson (1847) 1 De G & Sm 90 at 104). The second statement, also being a forecast can also be deemed a misrepresentation as it is a statement that the representor expects (Re Metropolitan Coal Consumers’ Association Ltd, Karberg’s Case [1892] 3 Ch 1 at 11, CA). Further, a person with particular expertise or who could be expected to have particular expertise and gives advice on that area for which he hold that expertise, then he could be held to be under a duty to use reasonable care when applying that advice in a setting upon which reliance is placed on the advice given and if the person giving advice fails in his duty, he could be liable for damage for negligence (Esso Petroleum Co Ltd v Mardon [1976] QB 801, [1976] 2 All ER 5, CA).

A misrepresentation is fraudulent if the representor knew or believed the statement to be false when made. Even non-belief in the truth of a statement will be seen as fraud (Taylor v Ashton (1843) 11 M & W 401 at 415). Any statement made by Gianni which he did not totally believe was 100% true, will have been made fraudulently under the rules of civil liability. This is the same as if the statement would have been made knowingly falsely. The statements made by Gianni with regard to planning permission and the capacity ability of the store were made fraudulently as Gianni will have been deemed to have expertise in these areas and if he did not wholly believe in the truth of what he was saying. Donna will have claims in the court for the two statements made.

Innocent misrepresentation can results in a cause of action both at common law and under the Misrepresentation Act 1967 (Candler v Crane, Christmas & Co [1951] 2 KB 164). There are two classes of innocent misrepresentation which also known as non-fraudulent misrepresentation. The first is misrepresentation made without fault which would allow rescission as a right to remedy and the second is made through negligence and would give the court the right to grant damages and rescission. A misrepresentation is innocent only when made with honest belief in its truth (Sykes v Taylor-Rose [2004] All ER (D) 468 (Feb), CA). Negligence concerns an omission of skills or competence even care could be considered, as in contract to the factor of dishonesty required in fraudulent misrepresentation. In Bell v Lever Bros Ltd ([1932] AC 161, HL), a lapse of memory could qualify as negligent misrepresentation, so Gianni’s incompetence in remembering the true figures in the accounts would give Donna redress under negligent misrepresentation.

If Gianni attempted to incorporate the representations he made into the contract, thereby having Donna agree to accept them by signing the contract, he does not remove his liability under misrepresentation as making the statement a contractual term does not stop the statement from being misrepresentation and giving Donna redress in the courts.

Donna could seek redress under both negligent and fraudulent misrepresentation. Donna could also get the courts to declare the contract rescinded. This means the contract is still valid but can be set aside by either party to the contract. It does not render the contract void as it is. Donna may not want to set the contract aside as she would lose the property and would rather just desire compensation for the losses she suffered rather than be returned to the position she was in before taking on the contract which was without the property. Donna invested time, and will have lost money as well as potentially reputation amongst any existing clients and this can only be compensated in damages. Donna would be seeking compensation under both negligent and fraudulent misrepresentation. The level of damages that are available to Donna will be reflected in the loss she suffered from the representation that were made which were misrepresentations.

B.

When discussing the damages a claimant can claim in court, these can take a wide variety of forms. Tangible assets, which includes actual hard cash, are clearly included, being easily replaced by a cash insertion from the defendant under order of the court. Other injuries can also be covered by damages, such as loss of feelings, reputation, suffering inconvenience and stress and even other mentally recognised disorders or discomforts by damages (Archer v Brown [1985] QB 401). Further damages can include other side-effects which may have been caused by entering into the contract. These include, loss of the contract which was entered into on the basis of the misrepresentation, loss of money paid to any third party involved, loss of profits (Barley v Walford (1846) 9 QB 197), appointments or earnings or injury to property, expenses or any detriment which would offer pecuniary compensation can also be (Mullett v Mason (1866) LR 1 CP 559). Further, and finally, if the claimant’s mere belief in a representation causes any physical or mental damage, then this can also be considered by the court in the calculation towards damages (Wilkinson v Downton [1897] 2 QB 57).

The claim under fraudulent and negligent misrepresentation are tortious claims. A tortious claim, subject to the damage for deceit, can exist based on a duty to care, independent of any contractual or fiduciary duties (Le Lievre v Gould [1893] 1 QB 491, CA). In order to establish a duty of care, a causal connection needs to be established between the loss that was suffered by the claimant and a breach of duty of care engaged in by the defendant. The breach of duty must have directly caused the loss suffered. The remoteness of the damages suffered also plays a role, as if the damages are too far removed from what would have come from the misrepresentation made, then the losses in question would not qualify as being compensated (Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, Derry v Peek (1889) 14 App Cas 337 at 359). Often this is again a question for the courts and is often left to their interpretation of previous case law as to whether the loss qualifies. Not only are the calculation of actual damages left to the discretion of the court but also the causal connection. This allows a huge room for error on part of the court and individual interpretation by judges. The judicial system in the UK provides some check on this by allowing an appeals system to work. One court is under the scrutiny of another, excepting of course when a claimant reaches the House of Lords which is the final point of judgment.

Various defences exist for the defendant to minimise or annihilate any liability. The claimant’s knowledge of the truth is one, as a defendant who knows the truth is not being deceived and so does not suffer from misrepresentation (Eaglesfield v Marquis of Londonderry (1878) 26 WR 540 at 541, HL). This knowledge of claimant must be wholly complete and not partial, a fragmentary knowledge of the true facts is not enough and would not qualify as such, relieving the defendant. The knowledge must also be actual and not implied, meaning the claimant must have direct access to the knowledge and it must be shown that the claimant actually knows it rather than be deduced to know it because the information was available. The claimant will not suffer from not retrieving information that was available.

The general rules applied in quantification by the courts is to return the claimant to the position he would have been in had the representation not been made. Although the loss need not be foreseeable, it must have been directly caused by the misrepresentation so a causal connection is often important to obtain as was outlined earlier (Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 267). The claim for deceit, which is the tortious claim under which negligent and fraudulent misrepresentation both fall, is a measure of equitable damages under which damages are payable to compensate the entire loss sustained, regardless of returning the claimant to the position in which they would have been had the misrepresention not occurred. This loss that is sustained, is calculated according to the entire loss sustained in the past and the loss sustained by the claimant in the future, clearly an estimation and to the discretion of the courts once again.

When the court assess damages where property or assets have been lost by the claimant, which are not recoverable due to the nature of the asset, then the calculation of the sum due under damages, is done via addition of present values. If a claim is made under contract and the situation exists where the claimant paid monies and in return for this payment did not receive anything, then the claimant will receive the monies returned in full. Interest, business reputation, time lost and effort inserted are all aspects which are not included in the calculation and so are lost to the claimant.

The court is free to decide how much is awarded, what is awarded and allowed to be awarded under the established causal connection found by the court. This total discretion gives the court much room to play, and could result in a plethora of outcomes both capable of surprising the claimant and the defendant. However, the court is regulated and the system would not function is certain rules, especially those set in precedence were not followed. The award of damages, however, varies from case to case as the evidence adduced and presented is always so variant. Ultimately, the courts attempt be fair and equitable and in doing so will apply all the facts of the case to the outcome granted.

References:

Angus v Clifford [1891] 2 Ch 449 at 470, CA

Appleby, G. (2001). Contract Law. Sweet and Maxwell: London.

Archer v Brown [1985] QB 401

Barley v Walford (1846) 9 QB 197

Bell v Lever Bros Ltd [1932] AC 161, HL,

Bisset v Wilkinson ([1927] AC 177, PC

Candler v Crane, Christmas & Co [1951] 2 KB 164

Derry v Peek (1889) 14 App Cas 337 at 359

Eaglesfield v Marquis of Londonderry (1878) 26 WR 540 at 541, HL

Edgington v Fitzmaurice (1885) 29 ChD 459 at 483, CA

Esso Petroleum Co Ltd v Mardon [1976] QB 801, [1976] 2 All ER 5, CA

Fenton v Browne (1807) 14 Ves 144

Halsburys Law Online: www.butterworths.co.uk/halsburys.

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

Le Lievre v Gould [1893] 1 QB 491, CA

Mafo v Adams [1970] 1 QB 548, [1969] 3 All ER 1404, CA

McKeown v Boudard-Peveril Gear Co (1896) 65 LJ Ch 735, CA

Misrepresentation Act 1967, HM Stationery Office online.

Mullett v Mason (1866) LR 1 CP 559

Re Ambrose Lake Tin and Copper Mining Co, ex p Taylor, ex p Moss (1880) 14 ChD 390 at 396–397, CA

Re Metropolitan Coal Consumers’ Association Ltd, Karberg’s Case [1892] 3 Ch 1 at 11, CA

Smith, J.C. and Thomas, (2000). A Casebook on Contract. Sweet and Maxwell: London.

Smith v Land and House Property Corpn (1884) 28 ChD 7 at 15–16, CA, per Bowen LJ

Smith New Court Securities Ltd v Citibank NA [1997] AC 254 at 267

Stikeman v Dawson (1847) 1 De G & Sm 90 at 104

Sykes v Taylor-Rose [2004] All ER (D) 468 (Feb), CA

Taylor v Ashton (1843) 11 M & W 401 at 415

Wilkinson v Downton [1897] 2 QB 57