Assignment of Australian Business Law
Introduction
This essay will discuss the requirements for establishing the presence of fraudulent misrepresentation in relation to the matter between Bob Wheelie and Mr Spoke. The argument in favour of Bob will be supported by relevant statue and case law. The situation considered will prove the elements of fraudulent misrepresentation were present in the deceptive actions taken by Mr Spoke in order to gain agreement on the sale. Firstly, there was a false statement of fact. Secondly the statement induced Bob into entering the contract. Thirdly Mr Spoke made the misrepresentation knowing it was false and would cause an incorrect impression. And lastly the innocent party suffered an economic loss as a result. This essay will also discuss the remedies available to Bob.
Discussion
The overarching statutory legislation that prohibits deceptive and unfair business conduct is contained in Section 18 of the Australian Consumer Law (ACL). The section provides a guide to what is considered normal conduct but does not provide definitions of what misleading and deceptive conduct is. This section of the ACL states that “It is unlawful for a business to make statements in trade or commerce that:
- is misleading or deceptive
- or is likely to mislead or deceive.”[1]
Misleading and deceptive conduct in the course of business relates to conduct that is unlawful as it creates a misleading overall impression to the intended party. Mr Spoke has definitely displayed deceptive behaviour in his approach to the sale of his business. In his pre-contractual representations he has not provided a true and accurate picture of the state of his business. In the case of Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83, key facts were misrepresented to the buyers. The court held that there is a duty to disclose all information before entering into an agreement. This case supports the fact there is no obligation for Bob to check the statement or information, even though there is an opportunity to do so, failure to discover the truth will not prevent reliance on misleading and deceptive conduct.[2]
The first factor involved in proving fraudulent misrepresentation is to demonstrate that a false representation of fact was made. The representation made must be put forward as a statement of fact not an opinion or statement of law. The statement does not have to be oral it can be written or through conduct. In this scenario the false statement was made by way of providing fraudulent accounts to Bob Wheelie. These accounts presented an inaccurate picture of the profitability of the bike shop that was being sold. In the case Alati v Kruger (1955) 94 CLR 216 it was held that misrepresentations were made in the form of statements in the contract in regard to the earnings of the business purchased by Kruger.[3] As it is with this scenario, the intention of the statements made by Alati was to lead Kruger to believe the business earnings were greater than they actually were. In passing judgement the following was said, “To describe the appellant’s business in June, which was the month of the contract, as one in which the average takings were £100 a week was to create an entirely erroneous idea of its capacity”[4]
The next factor to prove is whether the representation was intended to induce and did induce the representee into contract. Mr Spoke is driven by the fact he wants to retire, and in order for this to happen the sale of his business needs to occur. To secure a sale he has presented duplicitous financial information to Bob. His intention was to create an image of a successful, profitable and sustainable business. Bob has little knowledge about running a business and due to his unhappiness in his employment at the time of finding the opportunity; he was vulnerable to the deceptive information. The information provided to Bob has formed the basis for entering into the contract of sale. Mr Spoke would have been aware that representing the business in this way would have been an influencing factor in Bob’s agreement. In the case of Gould v Vaggelas (1985) 157 CLR 215 at 251, Brennan CJ spoke of the need for a misrepresentation to be “one of the real inducements to the plaintiff to do whatever caused his loss”.[5] This case is important as it sets out what the rules of inducement are. “Notwithstanding that a representation is both false and fraudulent, if the representee does not rely upon it he has no case.
- If a material representation is made which is calculated to induce the representee to enter into a contract and that person in fact enters into a contract there arises a fair inference of fact that he was induced to do so by the representation.
- The inference may be rebutted, e.g. by showing that the representee, before he entered into the contract, either was possessed of actual knowledge of the true facts and knew them to be true or alternatively, made it plain that whether he knew the true facts or not he did not rely on the representation.
- The representation need not be the sole inducement. It is sufficient so long as it play some part, even if only minor, in contributing to the formation of the contract.”[6]
For misrepresentation to be actionable a person must negotiate a contract and make false representations with the intention to deceive with regard to the subject matter. This was the case with Holmes v Jones (1907) 4 CLR 1692. “Here the defendants knew, or ought to have known, that the statements were false. Having once made false statements under circumstances likely to deceive the purchasers, the defendants were primâ facie liable for the consequences, unless they made a clear and distinct correction, and brought it home to the minds of the purchasers.” [7]
The last factor to discuss in proving false misrepresentation is whether the initiator of the contract made false representation knowing it to be untrue. It is reasonable to assume that Mr Spoke was well aware that the financial information provided to Bob was untruthful. As the owner of the business he would have the knowledge of the actual records and the poor financial performance of his shop. His actions are defined by Lord Herschell in Derry v Peak (1889) as a false statement “made knowingly, or without belief in its truth, or recklessly, careless as to whether it to be true or false”. [8] The decision of this case defines what the limits of deceit are and these have been discussed throughout this essay. Due to the deceitful conduct of Mr Spokes the parties have not really agreed to contract, as there was no mutual understanding because Bob has relied upon a false statement of fact.
Misleading and deceptive conduct may lead to civil remedies such as injunctions or damages. Remedies available to Bob if he was to pursue legal action would be rescission of the contract or he may elect to continue on with it and seek damages. For Bob to be eligible for damages he has to suffer a loss. He has discovered the fraud in the early stages of his business but he has given up his job so he has already suffered financial loss. His expenses will be greater than first planned now that he is aware of the poor financial state of the shop. He has limited time to have the contract rescinded; now he is aware of the deception involved.
Conclusion
This essay has shown that the necessary elements of fraudulent misrepresentation exist in the matter of Bob Wheelie and Mr Spoke. It is clear that Mr Spoke’s conduct has been misleading and deceptive. The fraudulent records provided to Bob to enter into the contract of sale. And it is also evident that the fraudulent information is the sole reason for agreeing to make the purchase. Bob would be able to void the contract once fraud is proven through the tort of deceit. The contract will remain intact until deceit can be proven.
Bibliography
Australian Competition & Consumer Commission, Misleading and Deceptive Conduct viewed 14 September 2015 https://www.accc.gov.au/publications/advertising-selling/advertising-and-selling-guide/avoid-misleading-or-deceptive-claims-or-conduct/misleading-or-deceptive-conduct
Australian Contract Law, Australian Consumer Law (Cth), Misleading and Deceptive Conduct, viewed 14 September 2015 http://www.australiancontractlaw.com/legislation/cthacl.html
Edelman, J, Unnecessary Causation, 2015, 89 ALJ 20 http://www.westlaw.com.au.ezproxy.canberra.edu.au/
Gibson & Fraser, Business Law for University of Canberra (Pearson Australia 2014)
Grave. D, Watterson. L & Mould. H, Causation, loss and damage: Challenges for the new shareholder class action, 2009, 27 C&SLJ 483
http://www.westlaw.com.au.ezproxy.canberra.edu.au/
Misleading or deceptive conduct.doc https://think.io/pub/…/Misrepresentation%20at%20Common%20Law.doc
Cases
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83,
Alati v Kruger (1955) 94 CLR 216
Gould v Vaggelas (1985) 157 CLR 215 at 251
Holmes v Jones (1907) 4 CLR 1692
Derry v Peak (1889) 14 AC 337 at 374
[1] Australian Contract Law, Australian Consumer Law (Cth), Misleading and Deceptive Conduct, viewed 14 September 2015 http://www.australiancontractlaw.com/legislation/cthacl.html
[2] Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 79 ALR 83
[3] Alati v Kruger (1955) 94 CLR 216
[4] Alati v Kruger (1955) 94 CLR 216
[5] Edelman, J, Unnecessary Causation, 2015, 89 ALJ 20 http://www.westlaw.com.au.ezproxy.canberra.edu.au
[6] Misleading or deceptive conduct.doc https://think.io/pub/…/Misrepresentation%20at%20Common%20Law.doc
[7] Holmes v Jones (1907) 4 CLR 1692
[8] Lord Herschell in Derry v Peek (1889) 14 AC 337 at 374
