Advanced Contact And Tort

  1. Dr House decides to sell his private medical practice. In May, Dr Chase expresses an interest in purchasing the business and negotiations begin. Dr House, in the course of the negotiations, tells Dr Chase that “I am very busy at present and have more work than I could possibly want” and that his practice would be “an excellent opportunity for a young doctor such as yourself.” Dr House offers to show Dr Chase the accounts, which he informs him show a profit of £80,000 per annum, but Dr Chase is so impressed that he decides not to bother. He is relieved to hear that Dr House is planning to retire, as he knows him to be popular with his patients. He asks, however, for more time to consider his position. Dr House (falsely) tells him that he has two more doctors coming to visit the practice the next day and he fully expects one of them to make him an offer. This prompts Dr Chase to offer the full asking price immediately, which Dr House accepts.

Having operated the practice for six months, it becomes clear to Dr Chase that there is no way the practice could possibly have shown a profit of £80,000 per annum. His own accountant examines the accounts and informs him that the sum was greatly exaggerated. He has also found out that, having taken a round-the-world cruise, Dr House plans to set up a private medical practice nearby and has already been contacting his former patients to inform them of this fact. Dr Chase fully expects many of his patients to move to Dr House's practice and, if this occurs, his accountant informs him that the practice will no longer be financially viable.

Advise Dr Chase. Would it have made any difference if the contract had contained a term that Dr House would retire after the sale of his practice?

Act Coursework

Chemistry And Law

In order to assess Dr C's best course of action, it is necessary to explore the statements made by Dr H to Dr C, and to consider whether any of them can be regarded as terms of the contract or amount to actionable misrepresentations.

It is submitted that none of the statements made by Dr H to Dr C are terms of the contract; prima facie neither party intended any of the statements to be incorporated as terms of the contract; Heilbut Symons & Co v Buckleton [1913]. Furthermore, it would be illogical to make such an inference for Dr H does not promise Dr C anything, and therefore one must consider these statements as potential misrepresentations which may be actionable under the Misrepresentation Act 1967 or under the common law's tort of deceit.

For liability to be imposed on Dr H, an actionable misrepresentation must exist: “(1) an unambiguous false statement of fact (2) which is addressed to the party misled and (3) which induces that party to enter into a contract”.

  1. Did Dr H Make Any False Statements Of Facts To Dr C?

Dr H's first statement “I am very busy at the moment I have more work than I could possibly want”, is vague; it is an opinion of his current situation which does not necessarily relate to the medical practice. By itself this statement of opinion is unlikely to be considered an actionable statement of fact.

Dr H's second statement that his practice would be “an excellent opportunity for a young doctor such as yourself” is a mere puff or an opinion. It was held in Dimmock v Hallett (1866) that the defendant's statement that the land was “fertile and improvable” was not a statement of fact. Furthermore, a statement of opinion will not generally be held to be a statement of fact,; Bissett v Wilkinson [1927]. However if the representor knows facts which make his opinion untenable; Smith v Land & House Property Corporation (1884), or if one makes an opinion which they do not genuinely hold; Edgington v Fitzmaurice, a misstatement of opinion may be considered an actionable misrepresentation. Therefore, if the practice was in severe financial difficulty it could be argued that he could not or did not honestly hold that opinion.

In addition this statement may be too imprecise and lack the unambiguous requirement to amount to a misrepresentation, but if one were to look at this statement together with Dr H's proceeding representations, it is argued that the misrepresentations give substance to each other and Dr H's conduct as a whole amounts to an actionable misrepresentation; for together “they paint a picture which is false”; Spice Girl v Aprilia World Service BV.

Dr H's third statement about the state of accounts is now to be considered. If there is a substantial difference between the actual profits shown in the accounts and the profits as represented by Dr H this will amount to an actionable misrepresentation. The position under current law is that it was irrelevant that Dr C was given the opportunity to verify the accounts which would have enabled him to find out the truth; Redgrave v Hurd (1881). It has been held that “it is not enough to show that the claimant could have discovered the truth but that he did discover it”; Intermark Ltd v Anz Banking Group Ltd.

Dr C is advised that although in principle the House of Lords decision in Redgrave is still good law, the courts may be sceptical about finding this representation actionable if the misrepresentation is held to be non-fraudulent and they consider that it was unreasonable of him not to have found out the true situation; Treital.

Dr H's fourth statement about the two doctors is a false statement. It is submitted that this will be an actionable misrepresentation. It was held in the House of Lords case Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997], that the false statement made by the defendant to the claimant that he had other bidders involved, amounted to an actionable misrepresentation and the defendant was held liable for fraudulent misrepresentation.

The abovementioned statements were all addressed by Dr H to Dr C; therefore the second requirement that the misrepresentation be addressed to the party misled is fulfilled.

  1. Dr C Hearing That Dr H Is Planning To Retire:

It must be considered whether Dr C heard this from Dr H himself. If this is the case, it can be considered a statement of intention. If this intention was honestly held by Dr H at the time he conveyed it to Dr C, it will not amount to a statement of fact; Kleintwort Benson Ltd v Pan Asia Mining Corp Berhad (1989) and Wales v Wadham [1977]. However, if Dr H never held this intention, he will have made a misrepresentation, because he will have misrepresented his actual intention; Edgington v Fitzmaurice (1885).

On the other hand if Dr C heard this from a third party, he may have a claim against whoever it was that he heard it from, if it can be shown that the statement induced him to enter into the contract. Possibly in tort, if the misrepresentation was fraudulent or negligent; Hedley Byrne v Heller [1964], or on the grounds of a collateral contract e.g. Wells (Merstham Ltd v Buckland Sand & Silica).

  1. Did The Misrepresentation/S Induce Dr C To Contract?

Assuming that the court considers that one or more of the statements made by Dr H to Dr C is a misrepresentation, Dr C must prove that the misrepresentation was an inducement to enter into the contract. It need not be the “but for” reason for entering the contract nor “the” reason; Edgington v Fitzmaurice. The inducement requirement is easily fulfilled,.

Dr C's misrepresentation about the accounts would have affected the judgement of the reasonable person in deciding whether to enter into the contract; Museprime Properties Ltd v Adhill Properties Ltd (1991), and therefore the ambiguous requirement of materiality will be fulfilled.

Inducement will not need to be shown if fraud is proved. The court will presume that it did as long as the court is satisfied that the misrepresentation was “actively present” in Dr C's mind when the contract was made; Ross Rover Ltd v Cambridge City Football Club Ltd [2007].

It is noted that if the representation about the two doctors is considered fraudulent, the immateriality of the representation will not defeat Dr C's claim; Smith v kay (1859).

It is submitted that on this basis the inducement/materiality requirement will not prove problematic in Dr C's claim.

What Type Of Misrepresentation Has Dr H Made?

For fraud to be proved, “it must be shown that a false representation has been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false”. The onus of proof is on Dr C to show that Dr H did not honestly believe in the truth of his misrepresentation, if this is not established fraud will not be proved; Akerheilm v Rolf de Mare [1959]. It is noted that fraud is difficult to prove and that an unreasonable belief of the truth of a statement will not by itself constitute fraud; Angus v Clifton [1891]. However, fraud will be found if Dr H knew that his statement was false irrespective of his motive in stating it; Polhill v Walter (1832).

It is submitted that Dr H knew that his statement about the two doctors coming to visit was false. Whether the statement about the accounts would amount to fraud is debateable, but if the former can be proved then this will be sufficient.

If Dr H is not held to be fraudulent, then his action will be considered under s.2(1) Misrepresentation Act 1967. Dr C will not have to prove that Dr H has been negligent. Under s.2(1) the onus of proof is reversed and it is for Dr H to prove that he “honestly believed and had reasonable grounds to believe in the truth of his statement”. Howard Marine & Dredging Company Ltd V Odgen & Sons Ltd [1978] highlights the difficulty in rebutting this presumption; the Court of Appeal interpreted s.2(1) as imposing an absolute obligation on the misrepresentor not to state facts which he had no reasonable grounds for believing were true. Dr H will struggle to rebut this presumption.

Dr C is advised to pursue an action for fraudulent misrepresentation under the tort of deceit at common law and a concurrent action under s.2(1) of the Misrepresentation Act 1967.

Remedies Available To Dr C In Fraud And Under S.2(1)

In principle Dr C may be awarded damages and/or rescission.

Dr C is advised that rescission is available in all cases of misrepresentation. If fraud is not proved, but his action is successful under s.2(1), the Courts under s.2(2) will have discretion to award damages in lieu of rescission. Although if rescission is barred, damages will not be awarded.

Rescission will be barred if it is shown that Dr C has continued to run the medical practice after discovering the misrepresentation, it will be considered that he has affirmed the contract. Although affirmation will not have occurred if Dr C has continued to use the property in order to verify the suspicion of the misrepresentation; Long v Lloyds.

Furthermore rescission may be barred if the court considers that a reasonable period of time has elapsed since the date of contract; Leaf v International Galleries [1950]. Although the period was five years in that case, and only six months in the present case, it cannot be said with certainty that courts will not consider this length of time a bar to rescission. There is no time limit where fraud is proved.

Considering that Dr H is intending to set up another medical practice it is suggested that he is likely to be in a position to make restitution in integrum.

Dr C is required to notify Dr H if he wants to rescind the contract; Car & Universal Finance Co Ltd v Caldwell, Dr C is advised that the courts will be more willing to rescind the contract if fraud is proved; Spence v Crawford (1939)

Further, Dr C is advised that the court would not award both remedies; i.e. damages and rescission, if it results in him recovering twice over for the same loss; Archer v Brown [1985] at 415.

The damages awardable to Dr C under s.2(1) of the Act have been held to be those which are awardable in the tort of deceit. The section has been read to apply the measure of damages “as if” the defendant had been fraudulent; Royscott v Rogerson. It will therefore be presumed that had the misrepresentation not been made, Dr C would have not entered into the contract. and he will be able to claim. “all the damages directly flowing form the tortious act of fraudulent inducement which was not rendered too remote by the plaintiffs own conduct whether or not the defendant could have foreseen the loss” CA in Doyle v Olby (Ironmongers) Ltd, approved in Smith New Court Securities Ltd per Lord Browne-Wilksinson and Lord Steyn. Smith New Court Securities Ltd.

Dr C is warned however, that if fraud is not proved, he may in practice not be awarded such extensive damages under s.2(1) as would be awarded in fraud. For it has been argued; that the “fiction of fraud” should be used to establish liability and not to measure the damages awardable, that the losses in Royscott were foreseeable, therefore need not be attributed to the “fiction of fraud”, and further that their Lordships in Smith New Court declined to comment on the correctness of the “fiction of fraud” principle, may mean that in practice the courts may be wary to award such substantial damages in non-fraudulent cases.

However, if the Royscott principle is to be followed, it would mean that the damages that would be awarded to Dr C will be the same whether Dr H is held liable in fraud or under s.2(1). Those damages which will as far as possible put him in the position had he not entered the contract; such as the following:

“Classic consequential loss” i.e. lost opportunity costs; East v Maurer, Dr C may be awarded a sum of money which he could have been expected to make as profit had he bought another medical practice in the same area.

Diminution in value; Dr C may be awarded the difference between the contractual price and the value of the property at the time of contract (although this may be a later date in order to fully compensate Dr C) ; per Lord Browne-Wilkinson Smith New Court Securities Ltd per Lord Browne-Wilkinson.

However if it is considered that the representation about the profits was not fraudulent; it may be possible for Dr C to argue that the medical practice was an “already flawed asset”, the value of which, fell when the flaw was discovered, i.e. when Dr C discovered that the medical practice was not as profitable as represented. The difference in value may be recoverable Smith New Court Securities Ltd v Scrimgoeur Vickers.

Dr C is advised that he should take all reasonable steps to mitigate his loss; Downs v Chappell [1977]

In summary, Dr C is advised to pursue an action for fraud under the tort of deceit and a concurrent action under s.2(1). Rescission of the contract may be possible, if so Dr H will be transferred the medical practice and Dr C the purchase price. In addition, Dr C may also be awarded “loss of opportunity” damages and any expenditure wasted as a result of entering into the contract. If rescission is not available Dr C may be awarded “loss of opportunity” damages, wasted expenditure, and possibly the devaluation(if there is any) in the medical practice as a result of the fraud or/and the devaluation as a result of the “existing flaw”.

Would It Have Made Any Difference If The Contract Had Contained A Term That Dr House Would Retire After The Sale Of His Practice?:

Prima facie it would not appear that Dr H has breached the contract. If this is the case he could pursue a claim for anticipatory breach.

If Dr H had breached the contract, he would be able to, by way of right claim damages. Those damages would be awarded so as to protect his expectation interest. Robinson v Harman. Dr C will be entitled to be put into the position in which he would have been if the contract had been performed i.e. the profits he would have made had Dr H not breached the contract, less the profit he was making. It is noted if it was incorporated as a term a term he would still be able to pursue an action under the Misrepresentation Act by virtue of s.1(a). Considering the decision in East v Maurer and more recently in Clef Aquataine, it is submitted that the damages recoverable in an action for misrepresentation would not differ substantially to those recoverable for breach of contract. The only difference potentially is if his medical practice could be shown to have been more profitable than the other medical practices in the area. For this is how the damages would be assessed for breach of contract; they would be assessed on what his position would be had the contract been performed, Obtain an injunction