Law

January 14, 2024

Tasheera Thompson

Negligent misstatement and contract law

Instructions:
White Sands Developers are owners of vast interests in the hotel industry. They agree to
purchase 100 acres of a seaside property called "Tavanore" from Magnum Milks Ltd. They
intend to build a large hotel with five golf courses as well as villas and apartments. It is to be
marketed by White Sands as "a golfer's paradise". White Sands also entered into a lease to
rent from Magnum another 100 acres, "Heaven's Gate", on which they propose to build
upscale residences for overseas and local socialites. In a separate contract they purchase from
Magnum heavy duty construction equipment which has been in storage since 1997. Wanting
to sell the equipment, Magnum represents the equipment as no more than five years old.
White Sands engaged the services of Ace and Peters, chartered surveyors. Ace and Peters
undertake to engage engineers to verify the suitability of the land for the proposed
development. White Sands is also relying on Ace and Peters to conduct its business with the
usual "due diligence" expected of them as experienced professionals.
White Sands later discover that:

A. 10 acres of the "Tavanore" property are protected under the Wildlife Protection Act as a
sanctuary for exotic birds
B. 20 acres of "Heaven's Gate" consist of large sinkholes and swamps and are unsuitable for
the proposed development. The other 80 acres are suitable.
C. The equipment is over 10 years old.

White Sands refuse to pay any further rent on "Heaven's Gate" and want to sue Magnum for
misrepresentation with respect to the equipment.

They also want to sue Ace and Peters for negligence. Magnum, on the other hand, want to be
paid their arrears of rent and/or recover possession of "Heaven's Gate"

Activity

a) Explain the elements of the tort of negligent misstatement. [ 5 marks]

Negligent misstatement, simply stated, refers to situations where statements are carelessly
made, written or oral and is relied on by another party to their disadvantage. In British law,
the tort of negligent misstatement is encapsulated in the landmark case of Hedley Byrne &
Co Ltd v Heller & Partners Ltd [1964]. This case established the principle that a duty of care
could arise in the provision of information leading to economic loss. The elements, as
outlined in this case, include :
1. Duty of Care: The defendant owed a duty of care to the plaintiff.
2. Breach of Duty: The defendant breached that duty by providing inaccurate information.
3. Reliance: The plaintiff reasonably relied on the information provided by the defendant.
4. Damage: The plaintiff suffered damages as a result of the reliance on the inaccurate
information.

b) Discuss whether White Sands are likely to succeed in a claim against Ace and
Peters for negligent misstatement. [ 5 marks]

Negligent misstatement occurs when an individual or entity, owing a duty of care to

another, provides inaccurate information due to a failure to exercise reasonable care and
diligence. In this context, the tort involves a breach of duty where the party responsible for
providing information fails to meet the expected standard of care, leading to false or
misleading statements. In a claim for negligent misstatement, the necessity of a contractual
or existing legal relationship is nullified, as the focal point is a special relationship and
"sufficient proximity" between parties. Drawing from the decisive case of Hedley Byrne v
Heller, where positive statements about a company's financial standing led to substantial
losses ( the appellants, concerned about Easipower Ltd's financial stability, asked their bank
to inquire with Easipower's bankers, the respondents. The respondents, responding 'in
confidence, and without liability,' affirmed Easipower's credibility for a contract of £8,000 to
£9,000. Months later, when the appellants inquired about a £100,000 per annum contract, the
respondents again expressed confidence in Easipower. However, after Easipower went into
liquidation, the appellants suffered a loss of over £17,000 and sought damages from the
respondents, alleging negligent statements. The court held that even if negligence could be
established, the respondents were not liable due to an adequate disclaimer that excluded their
assumption of a legal duty of care.) , White Sands, akin to the appellants, can assert that Ace
and Peters, with their expertise, owed them a duty of care in due diligence. Building on the
precedent, particularly the criteria highlighted in Caparo Industries Plc v Dickman [1990],
foreseeability and proximity become crucial.
In the case of White Sands and Ace and Peters, the chartered surveyors engaged by White
Sands owe a duty of care to conduct due diligence and verify the suitability of the land for
development. Ace and Peters neglected this duty and failed to uncover the protected wildlife
sanctuary and unsuitable land, as such, breach of duty of care owed to White Sands, White
Sands' reliance on the information provided by Ace and Peters, and the damages incurred due
to the reliance on inaccurate information constitutes to the elements of Negligent
Misstatement . This renders White Sands' claim plausible.
 c) Giving reasons for your answer, identify the type of contractual
misrepresentation demonstrated by the facts above. Discuss the likelihood of
success in a claim by White Sands against Magnum for the contractual
misrepresentation identified. [10 marks]

Lord Herschell in Derry v Peek (1889) described fraudulent misrepresentation as a false

statement that is “made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly,
careless as to whether it be true or false.” The information presented reveals a clear instance
of fraudulent misrepresentation in the business dealings between White Sands Developers
and Magnum Specifically, Magnum's assertion that the heavy-duty construction equipment is
no more than five years old, when it has been in storage since 1997, represents a deliberate
falsehood aimed at deceiving White Sands. The intent to deceive aligns with the legal criteria
for fraudulent misrepresentation, notably established in the precedent case of Derry v Peek
[1889] (In Derry v Peek (1889), a tramway company's prospectus, issued by directors, falsely
claimed the right to use steam instead of horses based on a special Act. The plaintiff, buying
shares on this statement, later faced the Board of Trade's refusal for steam use, leading to the
company's winding up. The House of Lords held that in an action for deceit,
misrepresentation alone isn't sufficient; additional proof is required to establish liability.
Fraud is proven when a false statement is made knowingly, without belief in its truth, or
recklessly. The defendants, making a careless but honest statement, weren't fraudulent. The
burden of proof lies with the plaintiff, and tactically, proving fraud, as outlined by Lord
Herschell, may be challenging. The remedy in the tort of deceit is rescission and damages.)
Derry v Peek set a stringent standard for fraudulent misrepresentation, requiring proof
that the maker of the statement knew it to be false or was reckless as to its truth or falsity. In
the context of White Sands' dealings with Magnum, the intentional misrepresentation of the
equipment's age becomes a pivotal element in establishing fraudulent intent.
Assessing the likelihood of success in a claim by White Sands against Magnum for
fraudulent misrepresentation, White Sands has robust grounds for pursuing said claim . The
deliberate nature of Magnum's misrepresentation, coupled with the significant financial
implications for White Sands, positions this case squarely within the realm of fraudulent
misrepresentation.
White Sands can assert that they justifiably relied on Magnum's false information to their
detriment, resulting in substantial damages. The impact of this deliberate misrepresentation
on White Sands' decision-making and financial position provides a compelling argument for
damages to be awarded in their favour.
In conclusion, considering the fraudulent misrepresentation demonstrated by Magnum,
White Sands has a strong chance of success in a legal claim against Magnum. The precedent
set by Derry v Peek not only underlines the gravity of fraudulent intent but also positions
White Sands favourably to secure a favourable outcome and financial redress for the damages
incurred.
 d) Explain to Magnum how it may recover possession of "Heaven's Gate". (10
marks] ,

In the pursuit of reclaiming possession of "Heaven's Gate," Magnum must navigate a

strategic and legally sound process. This involves a meticulous review of the lease
agreement, identification of breaches, formal communication, etc . Rescission is a remedy
that allows a party to a contract to cancel the agreement due to a fundamental breach or other
valid reasons. In this case, the fact that White Sands Developers stopped paying rent for
"Heaven's Gate" could be construed as a breach of contract, providing Magnum with a
potential basis for invoking rescission.

1. *Breach of Contract:*
First and foremost, Magnum should meticulously document and establish the breach of
contract by White Sands. The cessation of rent payments constitutes a material breach,
affecting the agreed-upon terms of the lease.

2. *Notice of Intention to Rescind:*

Magnum should formally communicate its intention to rescind the lease agreement to
White Sands. This communication should outline the specific breaches of contract,
emphasising the non-payment of rent, and express Magnum's intention to terminate the lease
through rescission.

3. *Reasonable Timeframe for Remedy:*

Magnum should provide White Sands with a reasonable timeframe to remedy the breach,
such as by resuming rent payments and rectifying any other outstanding issues. This aligns
with the principle of fairness and reasonableness in contract law.

4. *Rescission through Legal Proceedings:*

If White Sands fails to remedy the breach within the stipulated time frame, Magnum may
initiate legal proceedings to enforce rescission. This involves seeking a court order to
formally cancel the lease agreement, effectively recovering possession of "Heaven's Gate."

5. *Consideration of Unconscionability or Duress:*

Magnum should also explore whether any factors such as unconscionability or duress might
have influenced White Sands' decision to stop rent payments. If White Sands was forced into
this position due to unfair circumstances, it could impact the legal standing of the rescission.

6. *Retrieval of Possession:*
Once the rescission is legally enforced, Magnum may regain possession of "Heaven's
Gate." This may involve serving formal notice to White Sands to vacate the premises, and if
necessary, seeking the assistance of law enforcement to enforce the eviction.
By adhering to this strategic and legally informed process, Magnum can maximise the
chances of successfully recovering possession of "Heaven's Gate" while minimising legal
complications.