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Published: Fri, 02 Feb 2018

The degree of reliance on the statement

In advising Derek as to whether he is likely to have a successful claim based on misrepresentation, it must first be determined if the actions of Edgar were in fact fraudulent. Misrepresentation is defined as ‘a false statement of fact that induces another to enter into a contract.’ [1] The statement must be one of fact and not merely of opinion in order for it to be considered misleading.

The degree of reliance on the statement is of significance in determining possible outcomes. Edgar’s statement that the shop was an ‘absolute goldmine’, and that the takings averaged £20,000 each year was confirmed by his accountant. This is a statement of fact and not of opinion. [2] Three months later, Derek discovered that the takings had only averaged £12,000 for the last five years. This would have been deemed fraudulent following the case of Derry v Peek, [3] where Lord Herschell stated that misrepresentation is present when ‘a false statement is made knowingly or without belief in its truth or recklessly careless whether it is true of false.’ [4] However, because Derek relied on his accountant, it cannot be said that the statement made by Edgar induced the contract. The scenario is similar to the facts in Attwood v Small, [5] the court rejected the claimant’s action as they relied on the reports made by their own mining engineers, and not on the statement made by the defendant.

All misrepresentations which are not fraudulent are presumed to be negligent misrepresentations. Negligent misrepresentation can either be negligent misrepresentation under s 2(1) of Act 1967or negligent misstatement under Hedley Byrne & Co. Ltd v Heller & Partners Ltd, [6] For an action in negligent misstatement, there is no need for a contract, but there must be a ‘special relationship’ between the parties. Derek may bring an action against Fred, as he relied on his confirmation regarding the takings of the shop.

Damages for fraudulent misrepresentation are available at common law, in the case of Royscot Trust Ltd v Rogerson, [7] it was held that damages for negligent misrepresentation are the same as those of fraudulent misrepresentation. Damages under negligent misrepresentation are reasonable foreseeable.

Rescission puts the parties in the position they would have been in had the contract not been entered into and, is available to all types of misrepresentation. The bars to rescission are: affirm of the contract; unreasonable lapse of time; not possible restitution in intergrum; and when the third party has acquired an interest for value. The damages in fraud are awarded based on causation, as considered in Doyle v Olby, [8] where the defendant was liable for all damages stemming from the misrepresentation, regardless of whether he could reasonable foresee it.

The other contentious statement Edgar made is regarding customs doubling upon completion of the housing complex. A statement of opinion is defined in Cheshire, Fifoot and Furmston, as a ‘statement of a belief based on grounds incapable of actual proof’. [9] Similarly, in Bisset v Wilkinson [10] , it was held that the farmer’s statement could not have been considered fact since the land had never held sheep and, could therefore only have been a genuine opinion. In Derek’s case, Edgar’s statement regarding the possible future increase in customers could only amount to an opinion as it was dependant on the completion of the nearby housing.

Edgar ensured that the heating system in the shop was excellent. This statement clearly seems to be a misrepresentation, as this information was not true because Derek discovered that the heating system was unsatisfactory and had been in need of constant repair for several years. The statement therefore constitutes a misrepresentation as in Curtis v Chemical Cleaning & Dyeing Co Ltd, [11] where Lord Denning stated ‘…any behaviour by words or conduct, is sufficient to be a misrepresentation if it is such as to mislead the other…If it conveys a false misrepresentation, that is enough.’

In conclusion, Derek can bring a claim for fraudulent misrepresentation against Edgar under s 2(1) of the Misrepresentation Act 1967, as he entered into the contract because he thought that the statements made by him were real and honest. Under the Act he can claim damages. Also, he is able to sue Fred for negligence under negligent misstatement at common law.


A contract can be void because it deprives the freedom of a person, restricts his future, or is contrary to the public interest. In situations like these, the principle of restraint of trade applies and such contracts are prima facie void. In Cheshire, Fifoot and Furmston restraint of trade is defined as ‘one by which a party restricts his future liberty to carry on his trade, business or profession in such manner and with such persons as he chooses.’ [12] However, if the terms are reasonable for both parties and for public interest, then the contract is enforceable.

The case of Sam and Derek is dealing with the relation of employer and employee. For the restraint to be enforceable, there must be a legitimate interest worthy of protection, the clause must be reasonable as to the parties’ interest and, it must be reasonable with regards to the public interests.

The court considers trade secrets and business connections as legitimate interests worthy of protection. In the case of Herbert Morris Ltd v Saxelby, [13] it was stated that the defendant was a standard engineer, not privy to any trade secrets and the contract was therefore void as there was no interest of worthy protection. Sam is a grocer’s assistant and, therefore, there are likely no trade secrets he was had access to.

It must be determined that the restriction was reasonable and this includes the area, duration and, scope of the restraint. In the case of Mason v Provident Clothing and Supply Co, [14] it was held that the area of restraint was too wide and the restriction was therefore void. It is the court’s discretion to decide whether the restraint of a ten-mile radius of any town where Derek has a shop, is considered reasonable.

The second requirement illustrated in Fitch v Dewes, [15] where it was held that the lifelong restraint against a solicitor’s clerk was reasonable because to protect the lawful interests his former employer. The duration of the restraint Derek imposes on Sam is reasonable as he did not do anything more than to protect his business.

The scope of the restraint cannot be unreasonable. In Attwood v Lamont, [16] the restraint against the employee covered all the businesses of his department store, even though the defendant was a tailor and cutter in the tailoring department only. The restraint seems to be reasonable because Derek didn’t restrain Sam from working outside the grocery industry.

The last significant point is to establish whether the restriction is reasonable as regard to the public interest. The public, in this situation, are the citizens within a ten-mile radius of towns where Derek’s businesses are located. In the case of Wyatt v Kreglinger and Fernau, [17] the Court of Appeal held that the restraint was too wide and contrary to the public interest, as it would deprive society of the services of an experienced wool tester. On the other hand, in Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co, [18] it was held that the restraint was reasonable in the public interest as the business was for the good of the society.

Following the above cases, Sam has the right to collaborate with his friend because he is not acting against his employer’s interest as the business provides completely different services and is located to villages faraway from Derek business, also can be considered good for the public interest. However, it is entirely up to the courts, and they may find that Sam’s contract can be enforced.


The doctrine of frustration applies when, after a contract is made, some unforeseeable events take place thus making it impossible to perform the contract with the terms the parties had initially agreed. This will automatically lead to the termination of obligations of contract by which the parties are bound. In the case of Taylor v Caldwell (1863), [19] it was held that both parties are released from their obligations as the destruction of the music hall was an unforeseeable event, therefore the contract was frustrated.

In the present case, Bob is alleging that the contract was frustrated because of the apple blight. However, given that he was advised to spray against apple blight, but failed to do, because it was a rare disease and had never before infected orchards in the area, Derek may argue that the frustration was self-induced. According to the case of Maritime National Fish Ltd v Ocean Trawlers Ltd [1935], [20] it was held that the supervening event was under the control of the appellants, therefore frustration cannot apply.

The Law Reform (Frustrated Contracts) Act 1943 arises when a contract is frustrated. According to s 1(2), all money paid is recoverable and all sums payable cease to be payable. Expenses are awarded at the courts’ discretion.

It is important to determine whether either party was in breach of the contract. When a breach take place the contract is not terminated until the innocent party accepts or repudiates the breach. When the breach is very serious and goes contrary to the root of the contract, then the innocent party has the right to refuse to complete his duties and receive the other’s breach as repudiation.

The remedies of a breach are based on whether the term broken was a condition, warranty, or an innominate term. A condition is as a major term of the contract, and a warranty is a minor term. An innominate term is neither a condition nor a warranty and is applied by the courts. The fact that the apples must look perfect will likely be classified as an innominate term by the courts. Therefore, Derek can claim for damages aiming to stand in the position he would have been in had the contract been performed according to the original terms.

Derek expects the apples to be of good quality, as would anyone else in his position; as a result, he refused to accept the crop. Therefore, the contract can be seen as breached when Bob delivered the infected apples. In the case of Chiemgauer Membran Und Zeltbau GmbH v New Millennium Experience Co. Ltd, [21] the court stated that the innocent party must accept the repudiatory breach made by the defendant to have the right to claim for any benefits would have been earned if the contract was completely performed.

The damages arising from the breach must not be too remote. In Hadley v Baxendale, [22] the court held that three factors must be considered when assessing damages: whether the losses stemmed naturally from the breach; whether the losses were within the reasonable contemplation of the parties and, whether the defendants were aware of the the presence of any special circumstances. Bob will likely not be liable for losses arising from the breach that can be regarded as ‘too remote’ and will only be liable for those losses which are within his contemplation at the time of the formation of the contract. Following the case of Victoria Laundry (Windsor) Ltd v Newman Industries Ltd [1949], [23] where it was held that the plaintiffs did not inform the defendants that they had a lucrative dyeing contract, and as a result, they were not liable for the loss of profit. Similarly, Bob was unaware of Derek’s has a lucrative contract with the hotel chain and will likely not be liable for the losses.

However, the case of Heron II, [24] seems to reject a part of the decision of the above case, as the defendants were held liable for the loss of profits. Lord Reid said that the important question is:

on the information available to the defendant when the contract was made, he should, or the reasonable man in his position would, have realised that such loss was sufficiently likely to result from the breach of contract to make it proper to hold that the loss flowed naturally from the breach of contract or that loss of that kind should have been within his contemplation

The innocent party must take reasonable steps to mitigate his losses. In the case of Yetton v Eastwood Froy Ltd [1967], [25] it was held that the claimant should have accepted any work was available to him in order to mitigate his loss. Derek could have mitigated his losses by selling to a local cider maker, however, he did not because it would have resulted in a very large loss of profits.

In conclusion, Derek can claim for damages arising from Bob’s breach of contract. It is in the court’s discretion to award him the profits he would have earned from the contract with the hotel or the normal profits he would have made had he sold the apples to the cider maker.

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