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Enngiash Llarw

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Assignment Two: Introduction to English Law


My Aim of this assignment is to asses the positions of Sandy, Len and Starburst Electronics. There seems to be several points in which there may be legal issues. They are Fraudulent Misrepresentation, Negligence and Exclusion Clauses. I am going to examine these areas and try to give the suitable legal advice to all three parties.

The Scenario

White goods PLC is a large manufacturer of washing machines. Starburst Electronics are a high street retailer, who buys a number of machines from White Goods PLC. During negotiations for this sale, Arthur, a White Goods PLC salesman, tells the Starburst buyer that's the machine's are "very efficient" and have an "A class energy rating." The machines are bought partly because of this statement, but also in part because the White Goods PLC brand is very popular and sells very well. Most of the machines are bought by starburst customers within a week of the contract between the two being agreed, but the majority of the machines are returned to the stores within a month of there sale because,

(a) Some Customers, such as Sandy, have noticed that the machine has difficulties being stabilized and this has lead to clothes being damaged;

(b) Some other customers, such as Len, have read in a leading consumer magazine that the machines really are only class E energy rated (a very low rating indicating that they are not very efficient)

Starburst seeks to avoid repaying Len by relying upon condition 4 of their standard term contract, which reads:

"The company accepts no responsibility for the accuracy of statements issued on behalf of manufacturers of equipment that the company sells to the public."

It transpires that White Goods PLC have been deliberately misleading the public about the energy rating on its products for years.

Firstly in this case, the relationship between the two companies has to be considered. The relationship between White Goods PLC and Starburst Electronics is based on a contract which has been agreed on false terms. This is called a fraudulent Misrepresentation Contract. This means that a person(s) give a "false representation of a material fact made knowing it to be false, or believing it to be false, or recklessly not caring whether it is false or not" - Smith and Keenan (Law for Business-page 166). The salesman representing White Goods PLC has purposely mislead the buyer for Starburst Electronics by telling him that the washing machines he is selling have an "A" class rating and are "Very efficient." The starburst buyer is within his rights to expect a level of honesty and knowledge from a fellow colleague, and therefore believes what the salesman is telling him. This leads to misrepresentation during the negotiations of the contract. This misrepresentation involves an area in which Starburst are going to use as a selling point for the machines, and a point which has largely influenced Starburst into entering the contract with White Goods PLC.

This was discovered by two customers, Sandy and Len after purchasing the machines from Starburst. It is considered to be fraudulent misrepresentation because the salesman from White Goods knows that what he is telling the buyer is not correct and is purposely giving him false information in order to make his product more attractive and to complete his sale. This type of misrepresentation is in most cases enough to make the contract void.

In this case my advice to Starburst Electronics would be to claim under the grounds of misrepresentation, leading to breach of contract. This law is stated under the 1967 misrepresentation Act. If successful in this claim Starburst are able to collect damages White Goods PLC if it were found that the statements they made were negligent.

The main case for this area is the case of Derry v Peek (1889). In this case a similar kind of thing happened. A tramway group released a prospectus inviting consumers to buy shares in the company and stating within the prospectus that they could run trams on steam and mechanical power. This was allowed by an act of parliament as long as it was also agreed by the board of trade. It was expected that the board of trade would accept, but as later showed they did in fact reject the plans. The directors were not found to be guilty of fraud as they generally believed the statement in the prospectus to be true.

This is very similar to another case which effects Starbursts case. The case of Parker v Armstrong (1994) where due to fraudulent misrepresentation Parker falsely invested money. He was later repaid damages by the court.

It is in Starbursts interest to make there claim as quickly as possible, stating all of the damage that this has caused them. Not only have they received damage in the way of economic loss but the fact that this is now been made public by a big, trusted magazine could also result in starburst's reputation being completely ruined. The fact that White Goods have been misleading them and all of their customers for years alone should prove enough for starburst to have a good case.

In the case of Sandy and Len, as I can see it there looks to be two different routes they can take. Firstly they could try to sue Starburst Electronics for the inept products and the false description of the product. The problem with this type of claim would be that upon purchase they would have agreed to a contract of sale, which would have included the clause/condition No 4. After purchasing and signing the contract this clause in effect clears any claim they may have had against Starburst Electronics. They could both argue that although this is a condition within the contract, the condition is not valid as they would be breaching a standard duty which they owe to all customers, which is that they will provide good quality products. I feel although it seems wrong and unjust, that Sandy and Len would find it very difficult to sue on these terms.

A case which is similar to this is Hedley Byrne v Heller (1964), where an advertising firm requested financial information in order to complete business with a connected company. Heller who was giving the credit information twice concluded that the company in hand were of sound financial state. Later after an agreed contract and investment the company went into liquidation. Hedley



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