Law of representation
In New Zealand, representation is governed through the Contractual Remedies Act of 1979. In particular, section 4 covers statements made during contract negotiations. Here, it is affirmed that when a contract contains a statement that prevents inquiry into a promise or statement or act that can be a representation of the terms of a contract before enactment of the contract, the court will be entitled to ignore this prohibition. The exception can only be made once it has been ascertained that the matter is conclusive. Conclusiveness is determined by looking at a number of issues like: presence of advisors by the parties, the amount in question, the issue under dispute as well as the level of bargaining between the two parties1.
Section 6 of the same Act covers the matter of damages for failed representation by stating that if it has been proven that an individual entered into a contract as a result of misrepresentation, then that party will be entitled to the same level of damages that would not have occurred if the representation had been included in the broken contract. Conversely, one shall not be granted damages for deceit or negligence.
Case of Ware v Johnson
In this case, Mr. Johnson had sold a kiwifruit orchard to the plaintiff and stated in the contract that the orchard was in good condition. However, Johnson had used a persistent herbicide – Krovar which had not been included in the contract. The plaintiff felt that this constituted misrepresentation because failure to include the information induced Ware to get into the contract. Furthermore, the plaintiff asserted that the promise made by Johnson was also a misrepresentation because he asserted that the orchard would yield its crop in two years time but the kiwi fruit failed to do so.
The judge held that this was indeed a misrepresentation and that the plaintiff was entitled to damages for loss of profits amounting to $150, 0002.
The judge made this decision based on the facts surrounding the conclusiveness of the contract as explained in s 4 of the Contractual Remedies Act. The plaintiff and his wife entered into the contract after having decided that certain particulars were available before making the agreements. This means that the terms and conditions of the agreement were explicit in terms of the rights and obligations of the parties. Failure to include the issue of herbicides was indeed a misrepresentation and therefore necessitated application of the Contractual Remedies Act which entitles the plaintiff to damages for loss3.
The general rule to be derived from this case is that statements concerning future states of property cannot be classified as misrepresentation. Although the plaintiff wanted to get damages for a promise on the future yield of the orchard, it was found that this was inconsistent with misrepresentation because it represented the genuine views of Johnson at that time. However, he was able to get compensation as a result of lack of information on a vital part of the contract which was the use of herbicides4.
Case of Bisset v Wilkinson
In the latter case, the appellant – Bisset was asking for a reversal of the ruling made by the Supreme Court on accusations of false misrepresentation in the stated contract. Wilkinson asserted that he was induced into the contract by a verbal statement made by the seller on the quality of the property. However, the court of appeal ruled that this was not a matter of false misrepresentation because the statements made by the appellant were merely an opinion rather than a representation that should have been made part of the contract. This reversed judgement made earlier by the Supreme Court5.
Section 4 of the Contractual remedies act 1979 specifically states that a court shall inquire into statements made by the parties involved in a contract in order to ascertain whether there is conclusiveness between them. This is determined by looking at the matters around the case. In the above case, the judge made an inquiry into the material facts of the contract, the knowledge of the two entities and the actual condition of the property. It was decided that the representation made by the appellant was one of his own opinion concerning the production capacity of the sheep farm rather than a true fact of the case. The judge came to this conclusion because it was established that the seller/ appellant had no knowledge of the carrying capacity of sheep in the property under question since he had never engaged in farming in that land. He’s estimation of the carrying capacity of that farm was therefore based on speculation because the extent of knowledge of the said party could not be relied upon6.
This case therefore illustrates that when matters of false representation are being handled in court, a distinction should be made with regard to whether the statement was a fact or whether it was an opinion. Such differences can be determined by the knowledge level of the vendor and the buyer. If the vendor has experience with regard to the actual property under question then his opinion will be a statement of fact and will constitute misrepresentation as covered in section 4 of the Contractual Remedies Act. On the other hand, if this is not so, a buyer should not pay attention to the statement made by the vendor because that would be an opinion7.
Case of Herbison v Papakura video
In this case, the defendant and vendor of a video recorder business included a warranty in the contract that the business would produce a turnover of a certain amount. The contract however has a disclaimer that the buyer should only depend upon his own judgement in purchasing the commodities; he added that warranties and representation made by the seller should not be considered. The plaintiff alleged misrepresentation by asserting that the warranty offered in the contract was not forthcoming. (They had to close the business after continued losses) 8
The judge held that the contract was indeed breached due to misrepresentation because the figures included in the warranty were much higher than was true. They were also considered part of the contract terms. This was deliberate misleading of the client. However, because of the presence of a disclaimer the existence of these misrepresentations was of no effect and the vendor was therefore not liable.
Section 4 (1) of the contractual Remedies Act was applicable in this matter because the contract had a disclaimer that precluded the Court from further investigation. However, in order to do so, the court had to weigh out the factors of the case in order to ensure that conclusiveness existed. The facts were in the favour of the vendor because the parties had equal bargaining strengths, the wording of the disclaimer was clear and the experience of the purchaser was also substantial9.
The rule that can be derived from this case is that when a disclaimer exists in a contract, then the vendor can be freed from any damages that emanate out of breach of the contract once the facts of the case are in his favour.
Application of the law relating to s4 contractual remedies Act to Julie’s case
Julie’s case is closest to the Herbison v Papakura video Ltd case because she signed a contract that had a disclaimer. In the latter case, it was found that the knowledge of both the buyer and seller were at par. Similarly, Julie and Richard were in more or less the same position and the disclaimer may absolve Richard from paying damages resulting from misrepresentation. The court may decide that Richard’s statements were not at all related to the facts on the ground because he had never run that particular cafe and was in no way aware of the kind of returns that the cafe could bring; this same conclusion was reached in the Bisset v Wilkinson case where the vendor had never run the actual property and his statement was more of an opinion than a fact. Richard can argue that he got notification for the City inspectorate after he had already sold the property to Julie10. According to s 4 of contractual Remedies, a provision to prevent further inquiry can be upheld if the matters around the case favour conclusiveness. Since it is not clear whether Richard had been informed of the seat restrictions before or after the contract then it may be argued that his assertions were sincere and that he did not misrepresent. She should not sue this individual for damages.
References
Ware v Johnson [1984] 2 NZLR 518.
Westen electric v Welsh Development [1982] 2 ALL ER 629.
Bisset v Wilkinson [1927] AC 177.
Herbison v Papakura Video Ltd – [1987] 2 NZLR 527.
John Burrows, Jeremy Finn and Steven Todd (2007). Law of Contract in New Zealand, LexisNexis.
Contractual Remedies Act 1979 No 11 (as at 01 January 2008), Public Act.
Valda Video Ltd and Kriby v United Video Franchising CP 123/00 2001.
Beck, A. (1997). Contract. New Zealand Law Review, 1(1), 35.
Weinrib, E. (2003). Punishment and disgorgement as contract remedies. Chi. Kent.L. Rev, 55(78), 24.
Kull. A. (1992) Mistake, frustration and the windfall principle of contract remedies. Hastings L. J. 43, 1, 94.
Footnotes
- Contractual Remedies Act 1979 No 11 (2008), Public Act.
- Ware v Johnson [1984] 2 NZLR 518.
- Weinrib, E. (2003). Punishment and disgorgement as contract remedies. Chi. Kent.L. Rev, 55(78), 24.
- Beck, A. (1997). Contract. New Zealand Law Review, 1(1), 35.
- Bisset v Wilkinson [1927] AC 177.
- Westen electric v Welsh Development [1982] 2 ALL ER 629.
- John Burrows, Jeremy Finn and Steven Todd (2007). Law of Contract in New Zealand, LexisNexis.
- Herbison v Papakura Video Ltd – [1987] 2 NZLR 527.
- Valda Video Ltd and Kriby v United Video Franchising CP 123/00 2001.
- Kull. A. (1992) Mistake, frustration and the windfall principle of contract remedies. Hastings L. J. 43, 1, 94.