2018/ZA/06: Hamad is fed up of working as a busy and successful male
model. He decides to open a coffee shop. He has heard that Imogen is
interested in selling her coffee shop located in a trendy part of town. On 1st
January Hamad and Imogen meet to discuss the terms of a sale. Imogen tells
Hamad that the coffee shop is making a profit of £5,000 per month. She
produces a set of accounts which Hamad inspects and which supports her
statement. Hamad is confident that his reputation will enable him to increase
profits by 50%.
On 1st March Hamad agrees to buy the coffee shop for £500,000 and opens for
business two months later after he has spent £100,000 refurbishing the coffee shop.
Hamad operates the coffee shop for three months but the profits never exceed
£2,000 per month because Starbursts, a national coffee shop chain, opened a coffee
shop a few streets away on 1st February. Imogen met a friend for a coffee in the
new Starbursts on its opening day. Hamad is especially annoyed as if he had not
bought the coffee shop he would have invested the money in his sister’s internet
company which is now making large profits.
Advise Hamad as to whether on the above facts Imogen is liable to him under the
law of misrepresentation.
The issue at hand is whether Hamad (H) has a claim for misrepresentation against
Imogen (I). A misrepresentation is defined as a false statement of fact or law which
is addressed to another party during negotiations which induces the contract but
did not become a term of the contract. The contented statement in this scenario is
the statement of profits.
The first issue to consider is whether the aforenoted statement is a term or
representation. In Oscar Chess v Williams, it was established when a party to the
contract has special knowledge the statements made are more likely to be held as a
term. In the case of Bannerman v White, it was held that the more importance the
parties place on a matter of the contract, the greater the likelihood it will be a term
of the contract. Furthermore, in the case of Esso Petroleum v Mardon, if reliance
upon the statement is evidenced it may be held as a term to the contract. However,
in the case of Routledge v McKay, it was held that if a time gap existed in
between the statement and the finalization of the contract, the likelihood of it being
a representation is greater, since the gap in time evinces a lack of reliance. In this
scenario, H meets I to discuss the term of sales on the 1 st of January. In the
negotiations (as per the facts), the profitability of the business is held to be an
important matter to the contract, this can be evinced by the fact that I produce
financial records to substantiate his statements, upon which H relies on, as he is
confident to expand profits from where it already stands. However, it can be seen
that the deal has been finalized on the 1 st of March, which is nearly a gap of 2
,months. Thus, on a balance of probabilities, the court may regard I’s statement as a
mere representation.
The next issue is whether the representation amounts to a false representation of
fact. A factual statement is a statement where the truth or falsehood of it is readily
and objectively ascertainable. The case of Bisset establishes that estimated
opinions will not be actionable under the law of misrepresentations. In this scenario
the profit valuations are not estimations, and they are not unambiguous, as I is
merely producing documentation to validate her statement that the coffee shop “is”
making a profit of 5000 (ie: the past profit information). If the documents were
provided to substantiate the future forecast of profit, then such would likely not be
actionable under MR (Dimmock v Hallet).
In Keats v Earl of Cadogan, it was held that there was no general duty to disclose.
On this regard, I may claim that she did not have a duty to disclose information of
the opening of Starbursts to H. However, in the case of With v O’Flanaghan, the
courts held that if due to a change in circumstances rendered a statement to
become untrue, then there existed an obligation to disclose. On January 1 st the
statements on profit were true. However, after the 1 st of February the truth of the
profit margins were no more, and thus I had a duty to disclose. It is submitted that,
the representation on the profits will amount to a false representation of fact. Thus,
where a seller makes a statement there is an added onus, that he must ensure that
the representations are made accurately.
The next issue is whether the misrepresentation induced H. For actionability under
the law of MR inducement is required, which is a presumption difficult to rebut
(Hayward v Zurich Insurance), however it need not be the sole reason for
entering into the contract (Edgington v Fitzmaurice). In RZB v Royal Bank of
Scotland it was established that the representation must play a real and
substantial role in contracting. In this scenario, the representation of the profits can
be said to have played a substantial role in contracting as H is confident in
increasing its established profits by 50%. Furthermore, this evinces H’s reliance,
where otherwise the lack of reliance would invalidate the suit (Horsfall v Thomas).
I may argue that H had a whole month to discover Starburst before finalizing the
contract. However, Redgrave v Hurd provided that the discoverability of the
misrepresentation had no bearing. Thus, it is submitted that I has induced H.
The next issue is what type of MR may H claim. Fraudulent MR is where the
defendant knowingly, recklessly, and without belief in its truth made the false
representation. This will be a heavy burden of proof on the claimant (Derry v
Peek). If suit is brought under Negligent MR under common law, the claimant must
provide that a special relationship giving rise to a duty of care existed on part of the
defendant (Hedley Byrne v Heller). Under S.2(1) of the Misrepresentations Act of
1967, the burden of proof falls on the representor (Foster v Action Services),
where the defendant is liable, unless he can prove that he had reasonable grounds
to believe the representation was true. Here, H is only required to prove that there
, was a false statement, which has been provided in a previous argument. Therefore,
it is advisable that H bring his action under the Act, on account of the factors that
the burden of proof is less than that of Fraudulent MR, and there is no requirement
to establish a special relationship as in Common law.
The next issue is what remedies are available for H. If claimed under fraudulent MR,
all losses which are directly attributed to the deceit are recoverable, regardless of
foreseeability (Dolyle v Olby Iron Mongers). Contrastingly, if claimed under
common law negligent MR, losses which are reasonably foreseeable are only
claimable (The Wagon Mound). Furthermore, if plead under common law H may
receive a lesser number of damages if evidence suggest that there is contributory
negligence on his part (Gran Gelato v Richcliff). Under statutory MR, H may claim
damages assessed at the level of Tort of Deceit, same as in fraudulent MR (Royscot
v Rogerson). At this level H may also have a claim for loss of profits per the stance
held in the case of East v Maurer however this is subject to evidence that it was
directly linked to the fraud. On January 1 st the statements on profit may have been
true, unless it can be established that the profit evaluation were inflated by I to hide
the fact that a competitor is around the block, the loss of profit may not be
claimable. However, all other losses flowing from the deceit are recoverable to H.
Similar to the remedy of damages, recission seeks to restore the parties to their pre-
contractual state, as if the contract never existed. However, Rescission is subject to
several bars. The bars of laches (Leaf v International Galleries) and consumption
(Lagunas Nitrate v Lagunas Syndicate) are the most operable bars in this case.
The facts provide that H brought the business on March 1 st and opened for business
on May 1st (2 months later), this may evidence a lapse of time which may invalidate
the remedy of rescission. Discuss the dual knowledge test … During this time H has
also spent a 100,000 in renovating the shop, which evinces the fact that he may
have consumed the property. In the case of Clarke v Dickson, it was held that if
the property has been consumed or mixed with other property, then rescission will
not be permitted. The fact that H has renovated the shop for 2 months spending a
100,000 suggests that the shop has gone under major changes and is not in its
original state of purchase. Thus, restitution in integrum will be impossible.
Alternatively, if the representation were to be construed as a term to the contract, it
first needs to be ascertained whether the term is a condition, warranty or
innominate term. Considering the lack of specification in the negotiations between I
and H, this may be an innominate term. In this situation if the term of profits goes to
the root of the contract, H may claim rescission and damages (Hong Kong Fir
Shipping v Kawasaki).
2017/ZB/05 - MISREP
Colin is the Manager of the Barton Bulldogs, a second division football club. He has
three ‘star’ players: Lionel, Pepe and Mario.
model. He decides to open a coffee shop. He has heard that Imogen is
interested in selling her coffee shop located in a trendy part of town. On 1st
January Hamad and Imogen meet to discuss the terms of a sale. Imogen tells
Hamad that the coffee shop is making a profit of £5,000 per month. She
produces a set of accounts which Hamad inspects and which supports her
statement. Hamad is confident that his reputation will enable him to increase
profits by 50%.
On 1st March Hamad agrees to buy the coffee shop for £500,000 and opens for
business two months later after he has spent £100,000 refurbishing the coffee shop.
Hamad operates the coffee shop for three months but the profits never exceed
£2,000 per month because Starbursts, a national coffee shop chain, opened a coffee
shop a few streets away on 1st February. Imogen met a friend for a coffee in the
new Starbursts on its opening day. Hamad is especially annoyed as if he had not
bought the coffee shop he would have invested the money in his sister’s internet
company which is now making large profits.
Advise Hamad as to whether on the above facts Imogen is liable to him under the
law of misrepresentation.
The issue at hand is whether Hamad (H) has a claim for misrepresentation against
Imogen (I). A misrepresentation is defined as a false statement of fact or law which
is addressed to another party during negotiations which induces the contract but
did not become a term of the contract. The contented statement in this scenario is
the statement of profits.
The first issue to consider is whether the aforenoted statement is a term or
representation. In Oscar Chess v Williams, it was established when a party to the
contract has special knowledge the statements made are more likely to be held as a
term. In the case of Bannerman v White, it was held that the more importance the
parties place on a matter of the contract, the greater the likelihood it will be a term
of the contract. Furthermore, in the case of Esso Petroleum v Mardon, if reliance
upon the statement is evidenced it may be held as a term to the contract. However,
in the case of Routledge v McKay, it was held that if a time gap existed in
between the statement and the finalization of the contract, the likelihood of it being
a representation is greater, since the gap in time evinces a lack of reliance. In this
scenario, H meets I to discuss the term of sales on the 1 st of January. In the
negotiations (as per the facts), the profitability of the business is held to be an
important matter to the contract, this can be evinced by the fact that I produce
financial records to substantiate his statements, upon which H relies on, as he is
confident to expand profits from where it already stands. However, it can be seen
that the deal has been finalized on the 1 st of March, which is nearly a gap of 2
,months. Thus, on a balance of probabilities, the court may regard I’s statement as a
mere representation.
The next issue is whether the representation amounts to a false representation of
fact. A factual statement is a statement where the truth or falsehood of it is readily
and objectively ascertainable. The case of Bisset establishes that estimated
opinions will not be actionable under the law of misrepresentations. In this scenario
the profit valuations are not estimations, and they are not unambiguous, as I is
merely producing documentation to validate her statement that the coffee shop “is”
making a profit of 5000 (ie: the past profit information). If the documents were
provided to substantiate the future forecast of profit, then such would likely not be
actionable under MR (Dimmock v Hallet).
In Keats v Earl of Cadogan, it was held that there was no general duty to disclose.
On this regard, I may claim that she did not have a duty to disclose information of
the opening of Starbursts to H. However, in the case of With v O’Flanaghan, the
courts held that if due to a change in circumstances rendered a statement to
become untrue, then there existed an obligation to disclose. On January 1 st the
statements on profit were true. However, after the 1 st of February the truth of the
profit margins were no more, and thus I had a duty to disclose. It is submitted that,
the representation on the profits will amount to a false representation of fact. Thus,
where a seller makes a statement there is an added onus, that he must ensure that
the representations are made accurately.
The next issue is whether the misrepresentation induced H. For actionability under
the law of MR inducement is required, which is a presumption difficult to rebut
(Hayward v Zurich Insurance), however it need not be the sole reason for
entering into the contract (Edgington v Fitzmaurice). In RZB v Royal Bank of
Scotland it was established that the representation must play a real and
substantial role in contracting. In this scenario, the representation of the profits can
be said to have played a substantial role in contracting as H is confident in
increasing its established profits by 50%. Furthermore, this evinces H’s reliance,
where otherwise the lack of reliance would invalidate the suit (Horsfall v Thomas).
I may argue that H had a whole month to discover Starburst before finalizing the
contract. However, Redgrave v Hurd provided that the discoverability of the
misrepresentation had no bearing. Thus, it is submitted that I has induced H.
The next issue is what type of MR may H claim. Fraudulent MR is where the
defendant knowingly, recklessly, and without belief in its truth made the false
representation. This will be a heavy burden of proof on the claimant (Derry v
Peek). If suit is brought under Negligent MR under common law, the claimant must
provide that a special relationship giving rise to a duty of care existed on part of the
defendant (Hedley Byrne v Heller). Under S.2(1) of the Misrepresentations Act of
1967, the burden of proof falls on the representor (Foster v Action Services),
where the defendant is liable, unless he can prove that he had reasonable grounds
to believe the representation was true. Here, H is only required to prove that there
, was a false statement, which has been provided in a previous argument. Therefore,
it is advisable that H bring his action under the Act, on account of the factors that
the burden of proof is less than that of Fraudulent MR, and there is no requirement
to establish a special relationship as in Common law.
The next issue is what remedies are available for H. If claimed under fraudulent MR,
all losses which are directly attributed to the deceit are recoverable, regardless of
foreseeability (Dolyle v Olby Iron Mongers). Contrastingly, if claimed under
common law negligent MR, losses which are reasonably foreseeable are only
claimable (The Wagon Mound). Furthermore, if plead under common law H may
receive a lesser number of damages if evidence suggest that there is contributory
negligence on his part (Gran Gelato v Richcliff). Under statutory MR, H may claim
damages assessed at the level of Tort of Deceit, same as in fraudulent MR (Royscot
v Rogerson). At this level H may also have a claim for loss of profits per the stance
held in the case of East v Maurer however this is subject to evidence that it was
directly linked to the fraud. On January 1 st the statements on profit may have been
true, unless it can be established that the profit evaluation were inflated by I to hide
the fact that a competitor is around the block, the loss of profit may not be
claimable. However, all other losses flowing from the deceit are recoverable to H.
Similar to the remedy of damages, recission seeks to restore the parties to their pre-
contractual state, as if the contract never existed. However, Rescission is subject to
several bars. The bars of laches (Leaf v International Galleries) and consumption
(Lagunas Nitrate v Lagunas Syndicate) are the most operable bars in this case.
The facts provide that H brought the business on March 1 st and opened for business
on May 1st (2 months later), this may evidence a lapse of time which may invalidate
the remedy of rescission. Discuss the dual knowledge test … During this time H has
also spent a 100,000 in renovating the shop, which evinces the fact that he may
have consumed the property. In the case of Clarke v Dickson, it was held that if
the property has been consumed or mixed with other property, then rescission will
not be permitted. The fact that H has renovated the shop for 2 months spending a
100,000 suggests that the shop has gone under major changes and is not in its
original state of purchase. Thus, restitution in integrum will be impossible.
Alternatively, if the representation were to be construed as a term to the contract, it
first needs to be ascertained whether the term is a condition, warranty or
innominate term. Considering the lack of specification in the negotiations between I
and H, this may be an innominate term. In this situation if the term of profits goes to
the root of the contract, H may claim rescission and damages (Hong Kong Fir
Shipping v Kawasaki).
2017/ZB/05 - MISREP
Colin is the Manager of the Barton Bulldogs, a second division football club. He has
three ‘star’ players: Lionel, Pepe and Mario.
