Misrepresentation inducing a party to enter into a contract – negligent misstatement – contract and commercial Law Act
Mudaliar v Sharma [2024] NZHC 1432 per O’Gorman J.
Paran Mudaliar and Rohineet Sharma were old friends, going back to when they were living in Fiji. They reconnected in New Zealand. Mudaliar has used Sharma as his lawyer for the conveyance of various properties.
The New Zealand Lawyers and Conveyancers Disciplinary Tribunal removed Sharma from the roll of barristers and solicitors in 2015. Sharma and Mudaliar were in dispute as to whether Sharma had discussed this with Mudaliar. Mudaliar continued to use Sharma’s firm during 2015.
In 2015 Sharma informed Mudaliar of a Campbelltown project he was planning to undertake in New South Wales with two other partners. The plan was to construct 99 units and Sharma and Mudaliar hoped to profit A$1 million each.
Two agreements for the sale and purchase of property in Campbelltown were signed in June 2015. The deposit was a total of A$400,000.
One week later, Mudaliar was sent trust account details of the real estate agent selling the property and he paid A$380,000 into the trust account.
A key factual contention in the case was whether Sharma had represented to Mudaliar that he himself had made payments at this point. Mudaliar maintained Sharma had represented he that had already invested.
By August, Mudaliar had not received any documentation about his investment and emailed Sharma. Sharmar sent a draft deed confirming Mudaliar’s investment “towards the purchase of the land” and noted Mudaliar should have paid A$400,000 not A$380,000. Mudaliar accepted the mistake and signed the deed. Mudaliar later argued he did not know his payment was the deposit for the property.
Mudaliar visited Sydney in July the following year and was surprised to see no progress on the property.
For reasons that were somewhat unclear to the court but related to a lack of pre-sales and/or ability to obtain finance, the project had not proceeded. Mudaliar attempted to get back his investment which led to these this proceeding.
Legal reasoning
The High Court explained how a party can be liable for misrepresentation made to another contracting party, which induces the latter to enter the contract under the Contract and Commercial Law Act 2017 (CCLA).
A party seeking to establish misrepresentation must show proof that the representor intended to induce the representee to contract, or that the representor’s conduct was such that an ordinary person in the shoes of the representee would be induced to enter the contract.
The court however found that the provisions of the deed were not sufficient to satisfy the certainty requirements for formation of a contract. The court said the danger in not agreeing and documenting arrangements properly is that there are no contractual remedies when things go wrong. The court could not fill the material gaps in the deed with the presumed intentions of a contractual nature.
The court said even if the deed were treated as a sufficiently certain contract, the CCLA claim would fail because of the requirement to establish misrepresentations.
Negligent misstatement and misrepresentation
The High Court explained that a representation of some future event may amount to a representation of present fact if it implies that there is a current factual basis for the view expressed about the future.
The court explained how in some circumstances the maintaining of silence or the failure to raise a matter may also amount to a misrepresentation. Mudaliar believed Sharma represented the deposit had already been paid and the property purchased; therefore his contribution was not towards the deposit.
Under the negligent misstatement cause of action, Mudaliar alleged that funds would not have been advanced but for Sharma’s negligent misstatements.
In terms of these pleaded contract and tort claims, the High Court was not satisfied that there was any express or implied representation that the deposit had been paid. Mudaliar’s decision to make payment into the real estate agent’s trust account was consistent with him constructively knowing or suspecting his payment was being used for a deposit. The court also concluded there were no situations which amounted to silent misrepresentation.
The High Court did not consider Sharma’s status as a struck off lawyer significantly changed the analysis.
Applicable principles: Negligent misstatement – contractual misrepresentation – silence amounting to misrepresentation – contract formation
Held: Mudaliar’s claim was dismissed.
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