Liability of Hatchet & Company - Essay Example

Liability of Hatchet & Company Liability of Hatchet & Company for overstating the profits of Giant public limited company (PLC), dashes through from the damages resulting from their misrepresentation. The situation presents myriad of cases with every party placing a claim on another party (MARSON, 2013 p 46). The Giant plc is putting a claim on Hatchet & Company, an accounting firm, for fraudulent misrepresentation by falsely stating their profits on the higher side recklessly without proper verification. The fraudulent misrepresentation then misguides Giant Company’s decision on its potentials in the stocks market. Giant Company with the wrong figures without verification ventures into unsupportive expansions, which in turn lead to economic loss damage for their clients like Henry. Henry lays his claim on Giant Company for negligently sugarcoating their worth by venturing into new operations luring potential customers to buying their new shares. Gloria claim on Henry is for innocent misrepresentation; Henry lures Gloria into the deal by his belief on Giant Company’s new worth without knowing the audit is from a third party who might me wrong. Hatchet & Company the auditing agency is legally liable for the losses suffered by the Giant plc. The liability is when Giant Company can justify that indeed the false profit statement offered by Hatchet and Company is the inducement for their new venture causing their loss. Giant Company hires the services of Hatchet & Company agency trusting their competency as an audit firm (WADLOW, 2011 p 69). Having full trust on the auditors, Giant Company can rescind the claim of negligence in venturing into a new operation basing on false statistics, expansions that help in luring new customers to buy their shares. Business contract laws provide that a plaintiff can convalesce against a defendant on the grounds of fraudulent misrepresentation. The compensations as provided by the law only holds if indeed the information was false. The false information is the root induction of plaintiff into contract and the false information was because of recklessness (GREAT BRITAIN, 2011 p 66). The plaintiff must also justify the losses. Peregrine Systems v KPMG 2002, the Lorna group that was the leading plaintiff in the case was alleging that KPMG the audit firm induced Peregrine to recognize $32.1 million in revenue improperly over parking transactions. The parking facilities which the advisory firm was to buy software at the close of fiscal quarters when Peregrine could not complete legitimate sales. The Lorna Group was of the opinion that in return for parking the software, KPMG were to receive service contracts with end users, who were to purchase the software. The high court judge dismissed the case basing judgment on the findings of the federal investigation stating that the complainant could not provide sufficient evidence to prove the allegation of inducement. The liabilities payable by Hatchet & Company only limits to the damages that result directly to the overstated profits. Giant Company can claim compensation for the losses they incur due to the false statements laid by Hatchet & Company. The amounts claimed by Giant company customers like Henry are not payable as Hatchet & Company debts because the action of overstated profits is not relating directly to customer’s interest in the shares. Rescinding a fraudulent misrepresentation as provided by the misrepresentation act 1967 allows for termination of the contract or recovering the value of the complainant to the original position before the contract. The liabilities that are payable by Hatchet & company covers the loss determinants that relate to overstated profits not those that are relating to the actions that follow secondary to the overstated profits. The main course while determining the indemnities for Giant Company include only payments that will get Giant Company back to its original financial position excluding the loss incurred by a third party. There is no duty owed by Hatchet & Company to Gloria and Henry, the relation between Hatchet & Company and the two individual is remote and do not attract any compensation. The evaluation of Hatchet & company’s obligations excludes the losses suffered by Gloria and Henry. Misrepresentation that results to Henry or Gloria’s loss has no direct link to Hatchet & Company. Henry buys the shares not because Hatchet & Company overstates the benefits of Giant Company but because Giant Company goes into new ventures. There is no evidence of the induction from the overstated profits to Henry purchase of the shares. Redgrave v Hurd (2012), in the case Mr. Redgrave convinces Mr. Hurd that the attorney practice received £300 every year. Redgrave gives permission to proceed and counter check with the office records as evidence, but Mr. Hurd fails to counter check. Mr. Hurd goes into a contract without counter checking only to realize later that the attorney practice only received £ 200. Mr. Hurd then files a case on negligent misrepresentation that Lord Jessel rules allowing for rescind. Mr. Hurd succeeds in the suit even though he is a party because of test for negligence. Liabilities of Hatchet and company are because of fraudulent statement of false figures. The liabilities compensable by Hatchet & Company only limits to the losses resulting from direct induction. The case presents a chain of individuals who have suffered losses tracing the start of the problems at Hatchet & company’s misrepresentation. The parties suffering damages of economic loss include Giant Company because of the false statement of profits by Hatchet & Company. Henry suffers financial loss because of Giant Company’s expansion of the business while Gloria is a victim of innocent misrepresentation; Henry lures her into a contract with Giant Company because of their friendship. Henry induces Gloria into buying the shares innocently without knowing the company worth is not as it appears. All the participants in any contract breach raw should understand their contributions and the indemnities they are entitled to as compensation. The third parties always experience the innocent misrepresentation and may incur much loss comparing to the primary players. In cases where the third parties experience remote relation with the fraudulent misrepresentations, the losses they suffer due to the misrepresentations may end up not being getting any benefit. Part B Effects of Misrepresentation in Negotiations Prior To a Contract Misrepresentation as a concept in the contract law of England and certain other Commonwealth countries refers to a false declaration of fact by one party to another party. A false statement of fact has the upshot of inducing the second party into the contract. Induction is to be actionable; the false statement must influence a party in deciding whether to enter into a contract. For instance, under certain situations, false statements or aptitudes made by the vendor of goods and chattels concerning the quality or nature of his or her produce might constitute misrepresentation (KEENAN, & SMITH, 2007 p 201). In most judicial systems for an action to have a successful justification as misrepresentation, the complainant must meet certain criteria. First he or she must certify that there is a false statement of past or existing fact, a false statement was direct to the petitioning party. Lastly, the false statement is the root initiation of the accusing party to contract. In prosecutions with successful certification of misrepresentation, the effect can either be avoidance of the contract or rescinding the contract within a sensible time under the Specific Relief Act 1963. In cases, which the plaintiff thinks he or she is right and so believe there is no aspect of misrepresentation, there can be performance of an insistence action. The plaintiff at a position in which he would have been if the representations made had been true (GREAT BRITAIN, MUNBY, & DRUMMOND, 2009 p 123). On the commitment of any default, the plaintiff is entitled to damages for non-performance. The effects of misrepresentation correlate to the various types of misrepresentation. The various types of misrepresentation include fraudulent misrepresentation, negligent misrepresentation and wholly innocent misrepresentation. Fraudulent misrepresentation1 is the case in which the perpetrator gives false statement knowingly, without the credence of its truth or recklessly without certifying whether it is true or false. Fraudulent misrepresentation attracts the complainant’s claim of compensation for all the fatalities because of the misrepresentation. The BSkyB v EDS (2010) is an illustration of consequences of committing fraudulent misrepresentation. The jury found out that EDS had provided false information as to its capacity in delivering the project within a specific period and particularly. It also noted that it had proper investigative evidence to support its ability (POOLE, 2014 p 234). The judge also found that it was because of the misrepresentations BSkyB had induction to enter into a contract with EDS. Payable damages resulting from the misrepresentation were an estimated £200 million or more. The provisional limit liability in the contract was £30 million but together the parties agreed that such a limit is not practical to bound liability for fraudulent misrepresentation. Negligent misrepresentation2 is a case in which an individual makes a statement without rational grounds for certainty in its truth. The burden of justification is solely on the party giving representation to validate they had sensible grounds for trusting the statement to be true. Howard Marine v Ogden (1978) case the complainant, Ogden, borrowed the service of two dredging barges from the respondent, Howard Marine (HM), for £1,800 every week to help in doing some excavation works for Northumbrian Water Authority (NWA). While stating the size of the barge HM said 850 referring from Lloyd’s register, which was low comparing to the actual position (Fortgang, 2007 p 145). The work afterwards took longer and at extra cost; the misrepresentation is out of negligence as HM reported the Lloyd’s value without doubt or verification. The defendant failed to discharge the weight of proof by establishing they had reasonable grounds for believing the registration document to having the correct values. Innocent misrepresentation3 is neither fraudulent nor negligent the defendant honestly trusts the statement and has good grounds for his or her belief. The respondent can justify a belief in such statements that the jury deem false. Seddon v The North Eastern Salt Company Ltd (1905), the plaintiff Seddon procured the commercial entity belonging to the North Eastern Salt Company Pty Ltd by obtaining all of the shares in the company. After some time, he tries, seeking a contract to have the purchase set aside because of a misrepresentation supposedly made earlier as to the apparent trading loss of the company. In the case there is no assertion of fraud, in addition, the charge of fraud upon the respondents has proper explicit renouncement. Remedies available for misrepresentation are dependent and specific for every type of misrepresentation. Rescission is the only remedy that can salvage almost all the misrepresentation. Rescission places the parties at the positions they were prior to commencement of the contract (CARTWRIGHT, 2012 p 50). However, right to rescind may be lost in certain conditions. Solution for fraudulent representation provides for the innocent party’s cancellation of the contract and claims the damages. The compensation for the damage is not basing on the contractual principles for the damages in deceit. Therefore, there is no requirement for the damages to be predictable. The case Doyle v Olby (1969), the plaintiff, Doyle, purchased a business entity from the respondent. Olby, masking behind several fraudulent misrepresentations concerning the productivity and operations of the company (CARTWRIGHT, 2012 p 50). The high court judge evaluated damages on contractual values as to what position the claimant would have been in if the statements been true and awarded a sum of £1,500. According to the misrepresentation Act of 1967 similar solutions, exist for negligent misrepresentation as if they were fraudulent. Royscott v Rogerson (1991) involving, a car dealer and finance company (Andrews, 2011 p 265). The case is about a car dealer misstating the particulars of a sale to an investment company, which happens to be the claimant. The judge upheld both the claims insisting on compensation for the induced amount only. The 1967 Act provides no provision for double compensations and, therefore, innocent misrepresentation according to act are damages in lieu of rescission. Remedies for misrepresentation can face barriers in cases where the respondent loses the right to cancellation of the contract. Bibliography Andrews, N. (2011). Contract Law Cambridge University press Burrows, A. S. (2012) A Restatement of the English Law of Unjust Enrichment Oxford, United Kingdom, Oxford University Press. Cartwright, J. (2012). Misrepresentation, Mistake and Non-Disclosure Fortgang, J. (2007). New Law Journal: Knucklehead v Good fellow Retrieved on November 3, 2014 http://www.newlawjournal.co.uk/nlj/content/knucklehead-v-goodfellow Great Britain, Munby, J. L., & Drummond Young, J. E. D. Y. (2009) Consumer Insurance Law: Pre-Contract Disclosure and Misrepresentation. London, the Stationery Office. Great Britain. (2011). Consumer Redress for Misleading and Aggressive Practices: A Joint Consultation Paper. Norwich, TSO. Keenan, D. J., & Smith, K. (2007). Smith & Keenan's English Law: text and cases Harlow, Pearson Longman. Marson, J. (2013). Business Law Oxford, Oxford University press Poole, J. (2014). Textbook on Contract Law [S.l.], Oxford University Press Wadlow, C. (2011). The Law of Passing-Off: Unfair Competition by Misrepresentation London, Sweet & Maxwell/Thomson Reuters Read More