Privity of contract and privity of estate. Whether parties not in privity of contract or estate could sue each other?
In property law, sub-tenancy arises when the tenant transfers his/her part of the leasehold interests to a third party. The original lease becomes the head-lease, and the arising lease between the tenant and a third party becomes a sublease. The original landlord remains as the head-landlord, and the original tenant remains as the head-tenant, but the third party becomes a sub-tenant. When a sublease arises, the new relationships remain as follows.
The rules regarding the privity of contracts and privity of estates were summarized in the ruling by Joyce J the main lessor cannot commence an action against a subtenant for a breach of the positive lease agreement between the sub-tenant and the head-tenant. The main lessor can only seek to raise an action against the head-tenant who can then be liable for the breach of their lease agreement. An exception to this rule is only when the agreement between the head-tenant and the sub-tenant concern land and this should be expressly stated in the head-landlord and head-tenant agreement.
On analysis, Jane and MPP are the ones who contracted for the lease. Therefore, these are the head landlord and the head tenant. Both parties are in the privity of the contract and the privity of the estate. People in the privity of a contract can sue each other over the contract as found in Tweddle v Atkinson. People in privity of an estate can also sue each other over matters of the estate. On the other hand, MPP as the head landlord cannot sue Sam. Sam is a subtenant and he is not in the privity of contract nor is he in the privity of the estate. Applying the rules stated in Hua Chiao Commercial Bank Ltd v Chiaphua Industries, the main landlord cannot sue a subtenant. This same rule applies even in cases where the head tenant and the subtenant states that they allow the head tenant to have entered into the house for the purpose of making repairs. For instance, in Amsprop Trading Ltd v Harris Distribution Ltd, the court dropped the claim by the head landlord (Amsprop) seeking to paid repairs by the subtenant. Similarly, MPP claim against Sam would fail.
Conclusion
MPP can only sue Jane as they are both in the privity of contract and privity of estate. A claim against Sam would fail as they are neither in the privity of contract nor in the privity of estate.
Rescissions of a contract where conveyance has already happened. Can a misrepresentation be a ground for rescission when conveyancing has been completed? When does a misrepresentation become material to the sale of land?
In contracts relating to conveyancing, equity will only allow rescissions on completed conveyance where there is a fraudulent misrepresentation. This proposition was first provided in the case of Wilde v Gibson. The purchaser sought to rescind the conveyance after the vendor concealed the defects in the title but the court dismissed the claim since there was an innocent misrepresentation; the vendor was not aware of the defects. The authority places an obligation to the purchaser to prevent innocent mistakes by conducting a search before conveyancing. Despite this rule applying in equity, the Australian court emphasized on the same rationale in Taylor v. Johnson, and in the ruling of Walker v. Boyle. Also, where there is a substantial deficiency on the subject matter, the court will allow the purchaser to resile the contract as stated by the court in Rudd v. Lascelles. Again, in Leighton Properties Pty Ltd v. Hurley, the court allowed the purchaser to rescind the contract since the building unit varied significantly from the represented plan.
The law of tort requires a proof of negligent misrepresentation of the seller or its agent. Both the vendor and his agent must be in breach of a duty to care. In Roots v. Oentory Pty Ltd, the court affirmed that real estate agents owe a duty of care to the purchaser’s in respect to the information they provide. Under the provisions of the Trade Practices Act, the s.52(1) provisions of this section prevent any corporation from engaging in misleading or deceptive conduct. the Under s 53(a) as false representation is any untrue statement about goods or services, quality, grade, standard, style or model.
On application, it the first step is to identify a false representation in by Sam to Kohn, and the representation must be fraud or intentional (not innocent). While looking at Wilde v Gibson, the reason why the rescission failed was because the vendor was not aware of the defects. However, in the situation of Sam and Kohn, Sam was aware of that there was no swimming pool, but he chose to include it in the advertisement. This certifies to be a fraudulent representation which would allow Kohn to rescind the contract.
An application of the tort of negligence will have the same effect, the case of Roots v. Oentory Pty Ltd demonstrated that a duty of care exists on the party of the agents. In MacCormick v Nowland, the agent was found in breach for describing the property as constructed with bricks, and as being located next to parkland when was constructed with of concrete and not close to parkland. Also, in the case of Benlist Pty Ltd v Olivetti Australia Pty Ltd, the agent was found to be in breach of the duty of care for wrong information in the advertisement. And in Ackers v Austcorp International Ltd, the court refused a defense that the purchaser should have carried out sufficient search. In this regard, Sam owed a duty of care to ensure that the advertisement carried true information.
On application of the provisions of the Trade Practices Act, Sam was a corporation that was not supposed to engage in any misleading conducts. Where the provisions are violated, the court may allow rescission. In Zhang –v– VP302 SPV & Ors, the court allowed rescission on the fact that the claimant relied on the defendants’ misrepresentation.
Conclusion
Kohn would be allowed to rescind the contract base on the application of the principles of equity, common law, and the Australian Trade Practices Act, 1974 (Cth).
Difference between a representation, and a sale’s puff.
The general rule is that a “puff” or a mere boost or exaggerated statements in pre-contractual statements and should not be taken seriously, and do not have any legal consequences. These statements have no sense to a reasonable person; hence they have no legal repercussions. For instance, a car may be stated to be ‘comfortable.’ However, sometimes there seems to be a thin line between a puff and a representation as found in Carlill v Carbolic Smoke Ball Company.
Unlike a puff, a representation is a serious statement that is intended to be taken by the other party seriously. A representation may also turn into a contractual term, and where that representation turns out to be false, it has an action of misrepresentation. Innocent misrepresentation does not cancel the contract, but the innocent party is allowed to sue for damages. A determination whether the representation was a term or mere representation requires examination of four factors. The parole evidence rule provides that pre-contractual statements not included in the written contract are not applicable. One authority for this rule is Gordon v Macgregor where the court refused to admit statements in the negotiation. The second rule regards the importance put on the statement and whether it causes reliance from the other party, such state constitutes a term. In Bannerman v White, a statement asserting that there was no Sulphur in hops was ruled to be a term. Where the person making the statement is an expert making it to someone with no expertise, such would be construed as a term. For instance, a statement made by the car dealer was taken to be a term when made to the claimant who had no expertise in cars. Lastly, if there is a short time difference between when the statement was given and when the contract was completed, the statement would be a term. In Routledge v Mckay, the duration was longer thus allowing the claimant to exercise free will other than reliance on the inducement.
A determination of the statement given by Sam that the house had a swimming pool would require the application of the rules mentioned above. Like explained in Carlill v Carbolic Smokeball Co, the line between a puff and representation is very fine. Therefore, since Kohn states that he relied on the statement to enter into the contract, this would require a test whether the statement was a term or a representation. On application of the parole evidence, the statement would not be admitted as found in Gordon v Macgregor. However, a test on the importance and reliance of the statement would confirm that the statement was a term. Since Kohn points out that this swimming pool was the main reason for entering into the contract, the statement would not be a puff. The same rationale was held in Carlill v Carbolic Smokeball Co where a statement that induced the other party was construed to be a term. Again, a test on the expertise of the party’s states that where one party is an expert in the field while the other one is not, that statement would be taken a term. In this case, Sam is an expert as an agent in real estate while Kohn is not. Therefore, the statement would be taken as a term. Even though Kohn took a DIY kit, DIY cannot be regarded as reasonable knowledge. Again, the ruling in Ackers v Austcorp International Ltd refuted a defense that the other party should have conducted an examination.
Conclusion
The statement was a term since there was reliance, and varying knowledge of the parties.
What are the remedies available for fraudulent misrepresentation?
There are two possible remedies that the court may award for a claim of misrepresentation. These are damages, and equitable remedy of rescission. Damages are mainly the financial payments meant to compensate the innocent party as a restoration to the place the party would have been had there be no misrepresentation. However, these damages are different from those of breach of a contract. Damages from in fraudulent misrepresentation are awarded from the tort of deceit. Also, their assessment of these damages is the loss that accrued directly from entering into that contract regardless of foreseeability during misrepresentation or not. For instance, Smith New Court Securities v Scrimgeour Vickers, the court awarded all losses that resulted directly from the fraudulent misrepresentation.
As noted, damages apply only where monetary reward would be sufficient to restore the claimant to a position he would have been had the misrepresentation not happened. Where damages are impossible, an award of rescission allows orders both parties to return all the benefits they had received. For instance, Coastal Estates Pty. Ltd. v. Melevende, the appellant was ordered to return all the money including the deposits and the monthly installments since he had fraudulently induced the claimant into the sale of the land contract. Also, where the misrepresentation caused substantial variance, the court will award rescission.
On analysis, even though Kohn is awarded damages, there is no damages cable of providing him with a swimming pool. Besides, the permission to make the 50M pool was denied or MPP was never able to secure it. Therefore, monetary damages would not be adequate for the restoration of Kohn.
An analysis of rescission seems to favor the case of Kohn since the misrepresentation causes substantial variance. In the case of Rudd v Lascelles, a substantial variance was set to be a suitable ground for rescission. Again, the recent case of Zhang –v– VP302 SPV & Ors will provide favorable support for acquiring rescission.
Conclusion
Rescission would be the best possible remedy that would be available for Kohn against both Sam and MPP.
Hepburn, Samantha, Australian Principles of Property Law (Routledge, 2013)
Ackers v Austcorp International Ltd [2009] FCA 432
Amsprop Trading Ltd v Harris Distribution Ltd (1997) 1 WLR 1025
Bannerman v White (1861) 10 CBNS 844
Benlist Pty ltd v Olivetti Australia Pty ltd [1990] ATPR 41-043
Carlill v Carbolic Smokeball Co (1892) 1892 EWCA Civ
Dick Bentley Productions v Harold Smith Motors (1965) 1 WLR 623
Gordon v Macgregor (1909) 8 CLR 316
Hua Chiao Commercial Bank Ltd v Chiaphua Industries [1987] AC 99
Leighton Properties Pty Ltd v Hurley & Anor [1984] FC 042; [1984] 2 Qd R 534
MacCormick v Nowland [1988] ATPR 40-852
Roots v Oentory Pty Ltd (I9831) 2 Qd R 745
Routledge v Mckay (1954) 1 WLR 615
Rudd v Lascelles (1900) 1 Ch 815
Smith New Court Securities v Scrimgeour Vickers [1996] UKHL 3
South of England Dairies, Ltd v Baker 2
Taylor v Johnson [1983] 151 CLR 422
Tweddle v Atkinson [1861] 1 B & S 393; 121 ER 762;
Walker v Boyle (I982) 1 WLR 495
Wilde v Gibson (1848) 1 HLC 605
Zhang –v– VP302 SPV & Ors [2009] NSWSC 73
Trade Practices Act 1974 (Cwth)
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