Torts & Contracts II: Week 8 Presentation

Facts Helen advertised her lawn mowing business for sale in the newspaper stating it was a well-established local business with weekly profits of over $500. Fred replies to the ad. Helen shows Fred a statement indicating that average weekly profits in the last financial year was $520, although this was no longer the case since then due to Helens declining health. She offered to show Fred books of the business for the period since that covered by the statement, but Fred was too busy to inspect them. Helen told Fred of an expected increase in demand for lawn mowing services, so those figures would improve, but did not have any research to support the statement. Fred buys business for $10,000 by signing a written contract which contained nothing on the takings or profits of the business. Fred phones Helen after he only made an average weekly profit of $300 after 6 weeks, to which Helen responded that it takes time for customers to get used to a new owner. Fred told her that he wanted compensation if things dont improve. Things dont get any better a year later, Freds attitude loses him more customers, and the business only earns $150 per week. The business is now only worth $3000.

Common Law (i) Is the Helens representation false? The falsity of a statement is assessed at the time K is entered into, not when it is made (With v OFlanagan) We can firstly establish that Helens statements in the newspaper ad and the statement indicating her average takings of $520 per week in the previous financial year were clearly no longer the case when K was concluded with Fred, as reflected in the business substantial decline subsequent to that period. Yes, representation is false. *The false representation must be material to the contract *The little gold mine & handing over statement (material) (ii) Was Fred induced into K by Helens misrepresentation despite failing to make his own investigations into the veracity of Helens statement when given the chance to? Failure of a buyer to conduct own investigations to ascertain the truth of the seller s statement does not break the effect of the seller s misrepresentation (Redgrave v Hurd) We can assume that Fred was induced into K by this representation, on the presumption, which is also given in Redgrave v Hurd that if a false representation is calculated to induce the buyer into K, and the buyer does in fact enter K, we

can presume that the buyer did enter relying upon the misrepresentation. Yes, statement did induce K.

*Usually do not have a duty of disclosure but there is a duty when circumstancs change *How does common law treat opinion it is not a misrepresentation, except for fraud (iii) Is Fred entitled to rescind K? Look at limiting factors which might apply. 1. Affirmation Has Fred affirmed K by electing to continue with the business even though he sensed that something was fishy? In order to legally affirm a K, you need a threshold amount of knowledge about the falsity of the seller s pre-contractual representation AND the right to rescind K (Coastal Estates v Melevende) Even though Fred had stated to Helen of his desire for compensation if the business doesnt improve, it doesnt appear on the facts that Fred expressly knew of his right to rescind K. Affirmation does not apply 2. Restitutio impossible Can Fred and Helen be restored in their original positions if K is rescinded? Substantial restitution is sufficient since its not always possible to turn back events precisely. To this end, it is possible to effect the reversal of the transaction by making appropriate adjustments to ensure that parties are able to occupy equivalent positions (Alati v Kruger) On the facts, Im guessing substantial restitution is possible not sure how to do this exactly Restitutio impossible (probably) does not apply 3. Lapse of time Was the amount of time which lapsed after Fred entered into K sufficiently long enough to indicate that he had elected to continue? In order to preserve the integrity and certainty of contracts, you cannot have parties rescinding after too long a period of time (Leaf v International Galleries) In that particular case, the period of time was 5 years. On the facts of this case, 1 year is probably not long enough to deprive Fred of the right to rescind. Lapse of time does not apply (iv) Is Fred entitled to damages owing to Helens misrepresentation? Since the question says not to discuss liability for deceit or negligent misstatement, the only option we have left is for Fred to claim damages under innocent misrepresentation, which is clearly not possible. Also, because no reference to profits or takings of the business was included in

the written contract, Fred cannot claim damages under breach of contract by Helen. Therefore, Freds only option under common law is to rescind.

Statute (i) Has Helen engaged in misleading or deceptive conduct in contravention of ACL? (Schedule 2 in Consumer and Competition Act 2010 Cth) Stipulated under s 18 ACL Clearly yes, on the facts given. Persons = can be corporations (natural persons and juristic people)

Statutory Limitations (ii) Did the transaction between Fred and Helen occur within trade or commerce? Sale of a business does count as trade or commercial activity (Bevanere v Lubidineuse) Clearly, sale of business in the given scenario. Trade and commerce does not include real property (iii) Does Helens misrepresentation amount to conduct within the meaning of s 2(2) ACL? We can see from s 2(2)(a) that engaging in conduct includes refusing to do any act, and further in s 2(2)(c) that refusing to do an act includes deliberately refraining from doing that act. Yes, the fact that Helen deliberately refrained from informing Fred of the business declining state amounts to conduct within the meaning of s 2(2).

*After s 18 has been contravened: look to s 236 (can claim damages) (iv) Does Helens conduct qualify as misleading or deceptive or is likely to mislead or deceive? Strict liability (Hornsby BIC v Sydney BIC) Here, we are looking at a case that involves conduct directed at a particular person (as opposed to the public at large/section of the public Campomar v Nike: whether a hypothetical, reasonable person within the class of prospective buyers is likely to be misled/deceived?). And to assess whether this type of conduct directed at individuals is misleading/deceptive we look at their characteristics (Butcher v Lachlan Elder) We can probably infer from the facts that Fred was not sufficiently equipped to look out for himself, so it was reasonable that he took Helen s word for it regarding the state of the business. Yes, Helens conduct was misleading or deceptive

(v)

Does Helens failure to disclose information about the business declining profit amount to misleading or deceptive conduct? Failure to disclose a fact is misleading or deceptive if there is a reasonable expectation that some relevant fact would be disclosed (Demagogue v Ramensky) The fact that the profits of a business which is being sold to a buyer has been suffering considerable decline recently is clearly something which should be reasonably expected to be disclosed before entry into K. Yes.

(vi) Is Helens prediction about an improvement in profits misleading? Representation is taken to be misleading if a person makes a representation about any future matter without any reasonable grounds (s 4(1)(a) and (b) ACL) On the facts, Helen did not have any market research to support her statement regarding increasing demand for lawn mowing services, so therefore she did not have any reasonable grounds for making this statement. Yes, prediction about the future is misleading. Entitlement to Recovery (vii) Is Freds loss caused by Helens conduct? s 236(1)(a) ACL: if the claimant suffers loss or damage because of the conduct of another person, he is entitled to recovery Yes, causation is satisfied, as Fred was induced into the K by Helens misrepresentation, as established by common law (Q: can you bring in common law elements when working through the statutory requirements?) (viii) What measure of loss would Fred be entitled to? Need to look at what the claimant lost as a result of the seller s misleading conduct, and the position the claimant would have been in had he/she not been misled (Marks v GIO) Fred lost $7000 in the value of the business, and loss in weekly profits for 1 year. Had he not been misled, he would not have entered into the transaction at all. Damages would be $7,000 (follows the approach under tort ?) *Is reasonable foreseeability relevant, and first and second limb of Hadley v Baxendale *Assessed more like the tortious measure rather than contracts measure (court will not be constrained) 2a) clauses like that are usually upheld when there is innocent misrepresentation and not for tort of deceit 2b) may assess on breach of contract & Accounting Systems deceptive and misleading conduct does include false warrantys

2c) Court is less likely to order rescission where 3rd partys interests would be affected