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    I am doing a problem Q:

    Gerard is selling his restaurant and attached flat. Stella is interested in buying both from Gerard. Gerard tells her that he has owned the restaurant for 10 years and that the tenant in the flat is a "professional gentleman...who you wouldn't know was there, he is so quiet". Stella also asked why Gerard was selling. He said he was retiring to France.

    After buying, Stella finds out from the staff that Gerard actually owned the restaurant for 5 years. Also the tenant is away on business a lot but on his return plays loud music and is often drunk. Moreover, Stella's restaurant is unprofitable and she finds out Gerard never retired to France but instead he bought another, similar restaurant in the same town a month before selling to Stella.



    Was Gerard silent on the ownership and/or tenant issues? He lied about only owning it for 5 years - is this silence/non-disclosure? Also, could the "quiet tenant" claim be simply an opinion (maybe the loud music didn't bother Gerard??)?.

    Thanks!
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    "Quiet tenant" is an opinion, but Gerard would need to have reasonable grounds for holding that opinion - as in Esso v Marden. He can't claim that the tenant is quiet when he often plays loud music. However, the fact that the tenant is often away on business may constitute reasonable grounds for Gerard holding that opinion.

    Saying that he had owned the restaurant for 10 years when he actually owned it for 5 years is a fairly clear misrepresentation. It certainly isn't silence or non-disclosure; its an outright lie. However, it is questionable how much you would get in damages for that misrep or whether Stella would be able to rescind: it probably doesn't matter too much to the value of the restaurant whether Gerard owned it for 5 years or 10 years.

    No general duty of disclosure in English law, so there is no non-disclosure with regards to the tenant. I think you are muddling together a misrepresentation by silence; and non-disclosure. A misrepresentation by silence is a positive act: its a misrepresentation. A misrep is a legally significant act, it isn't an omission. Non-disclosure is just non-disclosure, there is no legally significant act here, its an omission. They might look similar in the context of a misleading answer to a question: though the answer to the question itself is the misrepresentation: it isn't the non-disclosure that is actionable per se, its the fact that the answer was misleading.
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    thanks so much for clearing that up for me
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    It is implicit within and thus assumed in this case that the behaviour of the tenant in the flat above the restaurant has adversely affected the business below it resulting in a sale for reasons inconsistent with those disclosed by Gerald to Stella during pre-contractual negotiations and that Gerald, setting up business in competition to Stella has materially contributed to the losses suffered by Stella.

    At issue is whether Gerald’s statements amount to an actionable misrepresentation. The effect of such a finding is to render the contract voidable; that is to say, the contract, with its mutuality of rights and obligations thereunder subsists unless and until avoided by Stella.

    Given the commercial unprofitability of the venture, Stella may wish to seek rescission and damages in vindication of her expectation loss. The extent of her remedy will depend upon whether or not there exists any bars to rescission and whether the alleged misstatements by Gerald may be properly classified as fraudulent, negligent or innocent.

    To succeed, the onus probandi is upon Stella to satisfy the court for a finding of fact in her favour that it is more probable than not that before or at the time of the contract Roscorla v Thomas [1842] 3 QBD 234, Gerald made a materially false statement: JEB Fasteners v Mark Bloom & Co [1983] 1 All ER 583 of existing fact: Edgington v Fitzmaurice [1884] 29 Ch D 459 which induced Stella to contract with Gerald: Attwood v Small [1838] 5 Bing NC 97.

    The three statements in question are the length of time Gerald has been in ownership, the reclusive nature of the tenant above the restaurant, and Gerald’s reasons for selling the property.

    Of the first statement, Gerald might argue that it amounts to little more a mere trade puff – a mere eulogistic commendation relating to his entrepreneurial skill as a restauranteer rather than a statement intended to attach to the business itself: Peek v Gurney [1873] LR6 HL 377 and that it would be objectively unreasonable to place reliance upon such a statement as comprising a term of the contract: Heilbut Symons v Buckleton [1913] AC 30.

    Stella might counter this with the rejoinder that as a matter of law the question of whether or not a representation was relied on must be determined subjectively: Smith v Chadwick [1884] 9 App Cas 187. In this case, the length of time Gerald has been the owner of a business was a material fact upon which she placed reliance since the longer a business is owned, the greater the value of the goodwill a business generates and is directly related to the value to be placed upon it as a viable concern. In any event, such a misrepresentation does not have to be the sole inducing factor upon which she relied as long as it was one of possibly a number of factors which induced her to contract: Edgington v Fitzmaurice [1884] 29 Ch D 459.

    A similar line of reasoning obtains in relation to the statement concerning the tenant. As a matter of law, the mere expression of opinion which turns out to be false does not amount to a misrepresentation of fact Bisset v Wilkinson [1927] AC 117 but a statement of opinion may involve an implied misrepresentation of fact where the representor is in a better position to know the true facts for he impliedly states that he knows the facts which justify his opinion. Just as in the case of Smith v Land House Property Corporation [1884] 28 Ch D 7 in which the resident of a hotel was similarly described by the vendor as ‘a most desirable tenant’’ the assertion being that nothing has occurred in the relations between landlord and tenant which can be considered to make the tenant an undesirable one – an assertion of a specific fact. In Smith, the bankrupt tenant was unable to pay his rent to the purchasing hotelier.

    In this case, the concealment of the existence of the loud drunken activities of the tenant above the restaurant may well be held to be an actionable misrepresentation if it is a statement which induced Stella to contract.

    Of the third statement, Gerald may seek to pray in aid of the general rule at common law of Caveat Emptore meaning that there exists no implied duty upon Gerald to reveal the existence of his competing restaurant Keates v Earl of Cadogan [1851] 10 CB 591 unless specifically asked; for example, if there is any other information the purchaser has a right to know: Sykes v Taylor-Rose [2004] All ER D 4668 (Feb). Neither is there any general duty upon Stella to seek to inquire: Redgrave v Hurd [1881] 20 ChD 1, since neither Gerald nor Stella appear to exist as fiduciaries in relation to each other to imply a duty of full disclosure: Tate v Williamson [1866] 2 Ch App 55 nor is it contract unerrimae fidei all of which required material disclosure. Nor one in which a special relationship may be said to exist as in Esso Petroleum v Mardon [1976] 2 All ER 5 giving rise to a duty of care at common law.

    Although there is silence regarding the existence of the second restaurant during the pre-contractual stage, it is arguable that an actionable misrepresentation occurs by conduct: Spice Girls Ltd v Aprilia World Service BV [2002] EMLR 27, and there will often be a considerable overlap between an oral statement and physical conduct: Walters v Morgan [1861] 3 DF & J Thus, in a case on similar facts, in East v Maurer [1991] 2 All ER 733, the Court of Appeal awarded damages to the claimant who had purchased one of the two hairdressing salons owned by the defendant who had stated to the applicant in pre-contractual negotiations that he did not intend working in his other salon and would probably move to Switzerland. In fact, the vendor’s loyal clientele had followed him to his new salon nearby where he continued to work full time with the result that despite the best efforts of the claimant, his salon had never become profitable due to the presence of the defendant in his other salon.

    If Stella is able to discharge the legal and evidential burden sufficient for a finding of fact that an actionable misrepresentation has occurred in one or more of the above cases, then as a matter of law, the onus probandi will ‘shift’ to Gerald to demonstrate that although he made the false representation, that Stella did not rely on the statement in question or waived it, or relied instead on her own knowledge: Redgrave v Hurd [1881] 20 ChD 1. If he fails, then liability is established and the remedies available to Stella will depend upon whether the misrepresentation was made fraudulently, negligently or innocently.

    You do not appear to require further advice on remedies although you will certainly need to analyse and apply them in light of your conclusions in order to fully address the question.

    Regards
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    (Original post by Iolis)
    It is implicit within and thus assumed in this case that the behaviour of the tenant in the flat above the restaurant has adversely affected the business below it resulting in a sale for reasons inconsistent with those disclosed by Gerald to Stella during pre-contractual negotiations and that Gerald, setting up business in competition to Stella has materially contributed to the losses suffered by Stella.

    At issue is whether Gerald’s statements amount to an actionable misrepresentation. The effect of such a finding is to render the contract voidable; that is to say, the contract, with its mutuality of rights and obligations thereunder subsists unless and until avoided by Stella.

    Given the commercial unprofitability of the venture, Stella may wish to seek rescission and damages in vindication of her expectation loss. The extent of her remedy will depend upon whether or not there exists any bars to rescission and whether the alleged misstatements by Gerald may be properly classified as fraudulent, negligent or innocent.

    To succeed, the onus probandi is upon Stella to satisfy the court for a finding of fact in her favour that it is more probable than not that before or at the time of the contract Roscorla v Thomas [1842] 3 QBD 234, Gerald made a materially false statement: JEB Fasteners v Mark Bloom & Co [1983] 1 All ER 583 of existing fact: Edgington v Fitzmaurice [1884] 29 Ch D 459 which induced Stella to contract with Gerald: Attwood v Small [1838] 5 Bing NC 97.

    The three statements in question are the length of time Gerald has been in ownership, the reclusive nature of the tenant above the restaurant, and Gerald’s reasons for selling the property.

    Of the first statement, Gerald might argue that it amounts to little more a mere trade puff – a mere eulogistic commendation relating to his entrepreneurial skill as a restauranteer rather than a statement intended to attach to the business itself: Peek v Gurney [1873] LR6 HL 377 and that it would be objectively unreasonable to place reliance upon such a statement as comprising a term of the contract: Heilbut Symons v Buckleton [1913] AC 30.

    Stella might counter this with the rejoinder that as a matter of law the question of whether or not a representation was relied on must be determined subjectively: Smith v Chadwick [1884] 9 App Cas 187. In this case, the length of time Gerald has been the owner of a business was a material fact upon which she placed reliance since the longer a business is owned, the greater the value of the goodwill a business generates and is directly related to the value to be placed upon it as a viable concern. In any event, such a misrepresentation does not have to be the sole inducing factor upon which she relied as long as it was one of possibly a number of factors which induced her to contract: Edgington v Fitzmaurice [1884] 29 Ch D 459.

    A similar line of reasoning obtains in relation to the statement concerning the tenant. As a matter of law, the mere expression of opinion which turns out to be false does not amount to a misrepresentation of fact Bisset v Wilkinson [1927] AC 117 but a statement of opinion may involve an implied misrepresentation of fact where the representor is in a better position to know the true facts for he impliedly states that he knows the facts which justify his opinion. Just as in the case of Smith v Land House Property Corporation [1884] 28 Ch D 7 in which the resident of a hotel was similarly described by the vendor as ‘a most desirable tenant’’ the assertion being that nothing has occurred in the relations between landlord and tenant which can be considered to make the tenant an undesirable one – an assertion of a specific fact. In Smith, the bankrupt tenant was unable to pay his rent to the purchasing hotelier.

    In this case, the concealment of the existence of the loud drunken activities of the tenant above the restaurant may well be held to be an actionable misrepresentation if it is a statement which induced Stella to contract.

    Of the third statement, Gerald may seek to pray in aid of the general rule at common law of Caveat Emptore meaning that there exists no implied duty upon Gerald to reveal the existence of his competing restaurant Keates v Earl of Cadogan [1851] 10 CB 591 unless specifically asked; for example, if there is any other information the purchaser has a right to know: Sykes v Taylor-Rose [2004] All ER D 4668 (Feb). Neither is there any general duty upon Stella to seek to inquire: Redgrave v Hurd [1881] 20 ChD 1, since neither Gerald nor Stella appear to exist as fiduciaries in relation to each other to imply a duty of full disclosure: Tate v Williamson [1866] 2 Ch App 55 nor is it contract unerrimae fidei all of which required material disclosure. Nor one in which a special relationship may be said to exist as in Esso Petroleum v Mardon [1976] 2 All ER 5 giving rise to a duty of care at common law.

    Although there is silence regarding the existence of the second restaurant during the pre-contractual stage, it is arguable that an actionable misrepresentation occurs by conduct: Spice Girls Ltd v Aprilia World Service BV [2002] EMLR 27, and there will often be a considerable overlap between an oral statement and physical conduct: Walters v Morgan [1861] 3 DF & J Thus, in a case on similar facts, in East v Maurer [1991] 2 All ER 733, the Court of Appeal awarded damages to the claimant who had purchased one of the two hairdressing salons owned by the defendant who had stated to the applicant in pre-contractual negotiations that he did not intend working in his other salon and would probably move to Switzerland. In fact, the vendor’s loyal clientele had followed him to his new salon nearby where he continued to work full time with the result that despite the best efforts of the claimant, his salon had never become profitable due to the presence of the defendant in his other salon.

    If Stella is able to discharge the legal and evidential burden sufficient for a finding of fact that an actionable misrepresentation has occurred in one or more of the above cases, then as a matter of law, the onus probandi will ‘shift’ to Gerald to demonstrate that although he made the false representation, that Stella did not rely on the statement in question or waived it, or relied instead on her own knowledge: Redgrave v Hurd [1881] 20 ChD 1. If he fails, then liability is established and the remedies available to Stella will depend upon whether the misrepresentation was made fraudulently, negligently or innocently.

    You do not appear to require further advice on remedies although you will certainly need to analyse and apply them in light of your conclusions in order to fully address the question.

    Regards

    wow, great info (i'm still working my way through it lol!), thanks so much.

    Just wondering, with regard to the retiring to France statement...could I say that this is a statement of intention/future conduct which is rarely actionable unless Gerard knew at the time that he had no intention of carrying out his plans. He bought another restaurant a month before selling to Stella, thus he knew he had no intention of retiring to France.? Thanks!
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    I should perhaps have mentioned that you should first consider and then dismiss, if necessary whether there exists any bars to rescision such as, for example, affirmation: Long v Lloyd [1958] 2 All ER 402 and effluxion of time: Leaf v International Galleries [1950] 2 KB 806 and then move on to consider remedies.

    However, addressing the more general point you make about promises as to the future. In other words, the distinction that exists between a representation of existing fact and a promise which is more than a representation of fact. It is an undertaking to do something or not to do something. A representation, by contacts, simply asserts the existence of a given state of affairs which is either true or false.

    Like most examination problem-based questions, the examiner likes to give you a scenario which invites consideration of an issue that lies at the edge of controversy at the cusp of the law, the purpose being to invite argument one way or the other.

    In this case, you cannot assume that Stella had actual or constructive notice of the existence of Gerald's second restaurant since there is no basis for you to draw that conclusion from the facts. Equally, Gerald may not argue that Stella would have discovered it by due diligence:Redgrave v Hurd [1881] 20 ChD 1. He might, however argue that his statement of intention that he was retiring to France was a statement of future intention not amounting to an actionable misrepresentation. You might like to have a look at British Airways Board v Taylor [1976] 1 All ER 65. In that case, BOAC had promised the applicant a seat on a flight from London to Bermuda. It was overbooked and the passenger was refused a seat. Althoough the House of Lords held that BA were not in breach of section 14(1)(b) Trade Descriptions Act 1968 of recklessly making a false statement about the provision of services, the House of Lords nevertheles held that there was evidence that justified the court of first instance finding that there had been a false statement of fact. In such a scenario you could do worse than pray in aid of dicta from Lord Wilberforce in the case:

    Lord Wilberforce: "My Lords, the distinction in law between a promise as to future action, which may be broken or kept, and a statement as to existing fact, which may be true of false, is clear enough. There may be inherent in a promise an implied statement as to fact, and where this is really the case, the court can attach appropriate consequences to any falsity in, or recklessness in the making of, that statement.".

    The question is of course is whether it was objectively reasonable for Stella to have relied upon the statement as affecting her decision to purchase in the belief that the vendor was not (Currently) in commercial competition with her. Look also at the decision in East v Maurer [1991] 2 All ER 733 in relation to the statement by the vendor that he would probablyy retire to Switzerland. Compare the two cases and argue your case on the facts and reach a conclusion one way or the other - you will be given credit for whatever conclusion you arrive at.

    East v Maurer [1991] 2 All ER 733 is also interesting for the way in which the court approached the question as to the quantum of damages to be awarded to the purchaser for his loss of profit!

    Admittedly, you only have about forty minutes to address your problem in an examination which will vanish in a flash! However, practising problem-based questions as you are doing here is perhaps the most effective way of ensuring you hit the ground running in an exam!
 
 
 
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