Legal Aspects of Contracts Administration

This document discusses the legal aspects of contracts administration in the context of fraudulent and misleading representation. It explores the rules and regulations surrounding pre-contractual misrepresentation and the remedies available in case of breach of contract. The document also highlights the ethical aspects of contracts and provides examples of judicial interpretations.

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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

out fraudulent or unsound it will be breach of warranty as its expertise can be treated as a
receipt of warranty(Mawrey and Riley-Smith, 2012).
Conclusion- Therefore, from the discussions above it can be concluded that rescission of
contract may not lead to restoration of parties to their original state but carrying on over such
agreement must leads to more exploitation farmers in Peru . Also Diego’s preference was his
environmentally active instincts and environmental friendly attitude that make him
fulfillinghis obligations towards Corporate social responsibilities. So Diego must acts in
direction of rescission of such contracts keeping pace with his obligations. Also sue EcoPure
for the compensation for deterioration of his and his cafeterias reputation to make EcoPure do
not make such fraudulent misrepresentations again. Diego can also sue advertising company
against displaying fraudulent information and misleading its audience that also leads him
towards sufferings. And as the contract was signed for three years only so Diego's actions
must skewed towards environment restoration as his commercial loss can get compensated by
filing plea against EcoPure. But he can not file any plea for environmental loss in any Court.
Question 2:
Introduction
In this era of globalisation, International borders are no longer barriers to business. The
borderless trade also boosting up competition among various traders in particular and
countries in general. This increased level of competition leads companies to make fraudulent
representations to sustain their commercial activities and to protect their commercial
interests. National and International trade is the backbone of every country's economy which
is required for the prosperity of people. Commercial activities are totally dependent upon
public so transparency and accountability are the needs of business but the level of
competition leads traders involving into malpractices. To ensure autonomy of trade between
trading partners countries have devised contract laws which increases transparency and
accountability measures of trade in particular country. Here we will understand about
Schedule 2 of competition and consumer Act 2010 in context of Australia. Australian
Consumer law have all its provisions under Schedule 2 of competition and contract act. The
discussion here is about the fraudulent and deceptive practices by Australia based company
EcoPure while concluding a contract with a Cafe for the supply of coffee beans by claiming
deceptive and fraudulent representation using a commercial advertisement.

Why contracts
The main motive behind making any contract is to attain autonomy between contracting
parties on their own comfort. It also needs transparent flow of information between parties so
that they can work for mutual sustainability and durability. Contracts also fuse a sense of
security against any apprehension of breach.
Present context-
EcoPure presents commercial advertisement with misleading claims and Diego, who owns a
cafe serving environmental friendly coffee gets attracted towards EcoPure due to its
fraudulent claims. In this act EcoPure signs a contract with Diego which latter person thought
is in accordance with natural practices that he thrives to do.
Legal Aspects
As given by section 18 of Australian Contract law prohibits any person from getting engaged
any kind of conduct that seems misleading or deceptive or likely to be in future. Here Sofia
engaged in such activity without saying anything rather shaking hand with a smile.
Also common law states that pre-contractual misrepresentation said to happen when a party
makes false representation oral, written or in conduct. Here Sofia was aware about the false
presentation of claims in the advertisement.
As per Australian Competition and Consumer Commission (ACCC) , the ways in which any
business interacts with consumers doesn't matter at all whether its through commercial
advertisement, celebrity endorsements, logos, attractive packaging or through e-commerce- a
Consumer will always have right to get accurate and truthful information about the service or
product.
Ethical aspects-
 Contacts are mutual agreements that requires transparency lacking which creates
apprehension among parties.
 All the factors of production must be given duly adequate wages and opportunities to
raise their socioeconomic status.
 Core values of contracting parties must be given adequate representation.

 Apprehension needed to be resolved so while concluding contracts , various
provisions are needed to get discussed to inculcate a sense of mutual trust.
 Countries must take care about the protection of flora and fauna within their
jurisdiction as in present context Lady Ga Ga parrots are on the verge of extinction
(Schroeter, 2013).
Judicial Interpretation
While dealing with cases of breach of contract due to misrepresentation and fraudulent
representation or deceptive declarations by contracting parties in Australian courts the
verdicts does not have uniformity rather depends upon the individuality of cases as can be
explained by various cases as follow-
 In Alati v Kruger case it was held that rescission of contract is only possible if both
the contracting parties can get restored to their original states i.e. Restitutio in
integrum.
 In Esso petroleum v Mardon(1976) , it was held that speculations or statements by
any entity who has expertise in their respective fields are statement of warranty and
acts as a sound and reliable receipt of warranty , if the speculations or statements
comes to be unsound this can lead to rescission of contracts (Alati, 2015).
 In With v O' Flanagan case (1936), it was held that if statement made was true at the
time of conclusion of contract but becomes false during the course of negotiations,
then the personal who is aware about the reality is under obligation to disclose the
reality to other party. As in the present context expected by Sofia to disclose reality to
Diego (Flanagan and Speight, 2014).
 In Horsfall v Thomas (1862), it was held that if a person does not aware of the
misrepresentation before getting into contract he couldn't have been induced in the
agreement by other party. As here in present context Diego is unaware about the
misrepresentation by Sofia (on behalf of EcoPure), he must not have been inducted
into agreement by EcoPure (Tiwari et al., 2012).
As given above various individual cases have their respective verdicts held by courts. But in
majority of cases misrepresentation leads to rescission of the contract.

Conclusion-
Fraudulent misrepresentation sometimes are the necessity of contract for the sake of factors
of production but here in present context it was practiced for the interest of party which has
more say in the contract which leads to secrecy. Also misleading information affects the
farmers of Peruvian farmland because it creates a sense of relaxation among the corrupt
government officials regarding International contexts. Also even by donating for its
Corporate Social Responsibilities for the schools in Peru , EcoPure needs to spread false
information accounts to its preferences towards personal interests which must be avoided by
such a party which have International footprints and expertise in its area of business.

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