Legal Aspects of Contracts Administration

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LEGAL ASPECTS OF
CONTRACTS
ADMINISTRATION
Business Law
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5/3/2019

Question 1:
Issue- Fraudulent and misleading Representation of contract.
In this case Diego owns a cafe with a reputation of serving environmental friendly coffee
comes in contract with EcoPure Coffee company, convinced by the claims made by company
in commercial advertisement by showing the misleading representation of the conditions of
farmers in Peruvian farmlands from where EcoPure was importing coffee beans (Prawitt,
Sharp and Wood, 2011). The advertisement contains claims about the growing prosperity of
the farmers due to corporate social responsibility undertaken by EcoPure . As Diego is very
much concerned about environment so he signed a three year contract for his commitment to
corporate social responsibility and environmentally sustainable principles. But after signing
the contract it was revealed by a investigative journalist that all the claims made in
commercial advertisement were misleading and fraudulent (Ruedin, 2012)
.
RULES- In commercial contracts it is mentioned in Common law that any false
representation whether orally writing or in conduct liable to be fall under the category of pre-
contractual misrepresentation (Taylor, 2013) . Under s18 of Australian Consumer Law it
was prohibited to engage in misleading or deceptive conduct which is in real sense
misleading or likely to deceive in trade or commercial conduct. Though here the reference to
trade or commercial conduct does not include any completely private business and includes
almost all of the commercial conduct (Mäntysaari, 2009). A range of remedies are available
whenever breach of section 18 of Australian Consumer Law occurs. As given in Alati v.
Kruger(1955) by Australian High court where purchase of store was happened and seller
made some fraudulent speculations about the earnings from store just to make that deal
happen. In this case when it was come under the knowledge of buyer that the speculations
were misleading and fraudulent, he approached court for rescission of the contract. In this
case it was held by High court that if restoration of contracting parties to their original state is
possible only then rescission can be ordered i.e. Restitutio in integrum under common
law(Burrows, 2011). This clearly states that rescission of contract is only possible when
restitution can take place. Also in some cases court has examined mere opinion against fact
that in which fact has been given more preference over opinion. As in Edgington v
Fitznaurice(1885) case, the appeal court held matter of fact as misleading representation and
held that plaintiffhas right to rescind the contract. Also schedule 2 of Competition and

Consumers Act prohibits any kind of fraudulent or misleading pre-contractual to maintain
level playing field in commercial contracts. Also in Esso Petroleum v Mardon (1976) in
which Esso petroleum's representative made false speculations regarding throughput of petrol
gallons at a specific site which was far more than reality . Here court held the expertise of
Esso petroleum regarding forecast of throughput and held it as a warranty and verdicts that if
forecast becomes unsound then it will be breach of warranty and allowed it as a ground to
rescind contract(Quimbee, 2019) .
Application- Applying the above rules to the fact of concerned case, it is evident prima facie
that managing director of EcoPure Ltd. Sofia was aware about the realities of the conditions
of Peruvian farmers and the fact here is that the company is obliging corporate social
responsibilities as given in the case that the donations meant for schools in Peru has been
stolen by corrupt Peruvian government officials. It is also a fact that the Company is
preferring commercial activity and exploiting farmers on its side if the company is known
about the real conditions of farmers there. Real issue here regarding contract is the
commercial advertisement placed by EcoPure with misleading and fraudulent facts even after
being aware about the real facts that leads a well established Cafe serving environmental
friendly coffee to come in contract with the EcoPure(Higgins, 2016). Here Diego is really
concerned about environment and the facts shown by company in commercial advertisement
are the only ground for concluding the contract. Here in the opinion of Diego the facts shown
by EcoPure in advertisement are true. But Investigative journalist exposed the reality of
EcoPure that leads to deteriorating the reputation of Diego's Cafe. So here if rescission of
contract brings prosperity to Diego then contract can be rescinded as given in Restitutio in
integrum under common law i.e. rescission can only be practiced if it restore contracting
parties to original state which is not likely to happen. And if we prefer fact above opinion
then it is factually evident by journalist that EcoPure made fraudulent pre-contractual
promises that leads to rescission of contract. Here in this case restitutio in integrum gives that
restoration to original state seems less possible. Also in Esso Petroleum v. Mardon case
(Mawrey and Riley-Smith, 2012) court gives preference to the expertise of certain firm
working in a specific field and held it liable to breach the contract if its expertise comes to be
unsound. As here EcoPure is expert in its field and giving a commercial advertisement on a
national television enhances its accountability towards its promises and it somehow comes