Legal Analysis of Misrepresentation and Breach of Contract in Ellen's Case

Facts
Material facts are that Ellen is a graduate of the College of Alternative Medicine and was looking
to start her own business. She decided to open a meditation studio and looked around the inner
city suburb of Paddington for suitable premises. She eventually found a terrace house near
Oxford Street, Sydney, NSW.
Before entry into a lease agreement, Ellen sought an independent advice from the Local Council.
Being specific on her working environment, she inquired as to the calmness of the area. The
council gave her its word that it was calm. After entry into the contract, it came to her realization
that the place was never going to be a quiet environment. As a consequence her activities have
reduced, his customers dissatisfied resulting to her inability to uphold the financial obligations
under the lease agreement.
Issues
The excerpt discloses the following issues
i. Misrepresentation
ii. Remedies available for misrepresentation
iii. Breach of contract
iv. Vicarious liability
Laws and legal rules applicable
The following laws are applicable
a) Trade Practices Act, Australian Consumer Law and Fair Trading Act. Whereas Trade
Practices Act deals with misleading and deceptive conducts; Australian Consumer Law
and Fair Trading Act covers unconscionable tendencies in contracts.
b) Common law: classifies misrepresentation into fraudulent and innocent
misrepresentation.1 Further, it dichotomizes innocent misrepresentation into negligent
and non-negligent and proceeds to state their remedies.2
1 Barton Philip, ‘The Effect of Pre-Contractual Representations’, (2013), Legalwise Contract Risk Management
Seminar, Melbourne.
2 Ibid

c) Equity: whereas, common law remedy is damages, equity introduced a number of
remedies that are to augment the inadequacy of damages; among them and which touches
specifically on misrepresentation is rescission.3
d) Torts law: this establishes a duty, breach and damages. It is an alternative remedy to
contractual remedies under misrepresentation.
Application
The freedom of contract under common law gives the parties to a contract the capacity to shape
their terms in whatsoever manner provided they meet their intentions and the course is to pursue
a legal agenda. Essentials of a valid contract must be in existence in an agreement for its
enforceability; for instance offer and acceptance, consideration, intention to create legal
relationship must be there. Above all, it must be devoid of vitiating factors such as
misrepresentation, undue influence, duress and mistake.4
Misrepresentation has been defined as,
‘An untrue statement of fact made by one party to the other which was intended and did induce
the latter to enter into the contract’,5
In Spice Girls v Aprilia World service B. V. (2002):6 it was held that misrepresentation can take
many forms, the conduct of a party may constitute a statement, for instance where a party who is
supposed to inform another remains silent about a fact they are privy to by their conduct they are
deemed to have misrepresented.
The effect of misrepresentation is that, the induced party enters the contract on account of a
misconceived notion. Whereas there exists within common law, a concept of caveat emptor, that
the buyer is called upon to conduct all the due diligence and assistance by the seller is not
guaranteed, as was held in Oscar Chess Limited v Williams (2000):7 where it was the view of the
court that an inexperienced car dealer is not expected to vouch guarantee statements about cars
3 Emily M. Weitzenböck, ‘English Law of Contract: Misrepresentation’, (2012), Norwegian Research Center for
Computers & Law.
4 Hoffer Stephanie, ‘misrepresentation: the restatement’s second mistake’, (2014), University Of Illinois Law
Review.
5 Emily M. Weitzenböck, ‘English Law of Contract: Misrepresentation’, (2012), Norwegian Research Center for
Computers & Law.
6 ChD 24 Feb 2000
7 EWCA Civ 5, 1 WLR 370

the he/she deals in; also as was in MWH Australia Pty Ltd v Wynton Stone Australia Pty Ltd (in
liquidation) [2010]:8 the representee is not expected to rely in all unreasonable sentiments which
may constitute mere puffs truth of which are not guaranteed by the maker.
Additionally; in Avon Insurance PLC v Swire Fraser Ltd (2000); the court held that where the
statement so made is substantially correct, the representee cannot rely on the same to impugn the
contract. In the same vein, where the representee does not rely on the representation or makes
verification or independent judgment, he/she cannot not be heard to rely on misrepresentation to
defeat the contract.9 The above notwithstanding, the innocent parties are not left without a
remedy as the equitable principle provides: ‘ubi jus ibi remedium’.10
The facts reveal that the statements were made by the Council worker and not the Landlord,
owing to the principle of privity of contract, he/she is not concerned with the Ellen’s private
arrangements. Failure by Ellen to honor her obligations to pay rent is an act of breach of
contract. The landlord is therefore entitled to remedies for breach e.g. specific performance,
repudiation.
In Hedley Byrne & Co. v. Heller & Partners Ltd (1964):11 the court held that where there is
misrepresentation, depending on the type as classified under common law, remedy can lie either
in torts or under contract. The innocent party is under liberty to decide which avenue best serves
his/her interest within the context of the circumstances. Further, it was the holding of the court
that where a misrepresentation is from a party to the contract, the best avenue is contractual
remedies; on the other hand if the party making a false statement is a non-party to the contract,
torts provides the appropriate redress.
In Derry v Peek (1889):12 it was held that for a court to found fraudulent two essential facts must
be established; the party making the statements lacked belief in the truth of the representation;
made them recklessly, not caring whether it was true or false. In that case the redress would be
damages for fraud and rescission of the contract. In this case, the court concurred with the
8 VSCA 245 at [90], 31 VR 575 at 597 – 8.
9 Smith v Chandwick (1884)
10 < www.duhaime.org>legaldictionary >
11 A.C. 465, [1963] 2 All E.R. 575. [19631 3 W.L.R. 101 (H.L.),
12 14 App Cas 337).