1st Class Answer: Misrepresentation Problem Question PDF

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An operative misrepresentation renders a contract voidable (if rescinded) 1. It is an incorrect statement which is characterised as a representation rather than a term that induces the representee to enter the contract 2. A contract may be set aside – by process of rescission - if induced by a misre...

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An operative misrepresentation renders a contract voidable (if rescinded) 1. It is an incorrect statement which is characterised as a representation rather than a term that induces the representee to enter the contract 2. A contract may be set aside – by process of rescission - if induced by a misrepresentation of past or existing fact as opposed to an estimate of future events3 or opinion4, even if it is made innocently5. If a representor is in a position to know the facts, then the statement of opinion can amount to an operative misrepresentation 6. As of 2018, false statements of law can trigger an operative misrepresentation claim 7. An operative misrepresentation can be written8, oral9 or through conduct10. Silence typically will not amount to a misrepresentation11, provided that when a party asks questions the seller doesn’t mislead, state half-truths12 or deliberately conceal 13. Though, in insurance contracts there is a duty to disclose all material facts 14. The damages available to Risham is contingent on the type of misrepresentation. The classifications of misrepresentation are; fraudulent, negligent at common law, negligent under statute 15, and wholly innocent16.

False Statement

1 Abram SS Co. v Westville Shipping Co. Ltd [1923] AC 773 2 Laurence Koffman and Elizabeth Macdonald, The Law Of Contract (Oxford University Press 2018). 3 Esso v Mardon [1976] QB 801 4 Bisset v Wilkinson [1927] AC 177 5 Oscar Chess Ltd v Williams [1957] 1 WLR 370 6 Smith v Land and House Property Corporartion (1884) 28 Ch D 7 (CA) 7 Pankhania v LB Hackney [2002] EWHC 2441, [2002] NPC 123 8 Lee v Jones (1864) 17 CBNS 482 9 Blest v Brown (1862) 4 De GF & J 367 10 Spice Girls Ltd v Aprilla World Service BV [2002] EWCA Civ 15 11 Keates v The Earl of Cadogan (1851) 10 CB 591 12 Dimmock v Hallet (1866) LR 2 Ch App 21 (CA) 13 Gordon v Selico Co Ltd (1986) 278 EG 53 (CA) 14 HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 15 Misrepresentation Act 1967 16 William Sindall plc v Cambridgeshire County Council (1994) (CA)

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For Risham’s claim to be successful some criteria must be contented. There must be a false statement of fact or law which would have induced a reasonable person into the contact17. Statement (i) is likely to amount to an untrue statement of fact rather than a mere “puff”18 as Chris offering to show the figures to Risham demonstrated the intent. What is more, Bowen LJ stated, “if the facts are not equally known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of material fact, for he impliedly states that he knows facts which justify his opinion”19. This case concerned a seller of a hotel who described a tenant as being “a most desirable tenant”, it later emerged that when the misrepresentation was made the tenant was in arrears. Chris could argue that statement (i) was a statement of opinion which typically would not amount to an operative misrepresentation as per Bisset v Wilkinson20. As the statement was based on a fact known to Chris which directly contradicts his statement, it may constitute a statement of fact implicit in “at that price it is an absolute giveaway”, because there may be an implied representation founded on that fact21. Statement (ii) appears to be a statement of future intent. Edgington22 ruled that statements of future intent or conduct would only be actionable in misrepresentation if made falsely. Meaning that statements of future intent would only be actionable if the representor had no intention of carrying out the stated intent23. That being said, a change of circumstance before the contract is concluded would need to be communicated to the representee 24. In With v O’Flanagan 25, the representor stated that the practice he was selling was worth a certain amount. It went down drastically prior to the conclusion of the contract, the seller did not correct the misstatement 17 Sharland v Sharland [2015] UKSC 60 18 Dimmock v Hallett (1866) LR 2 Ch App 21 19 Smith v Land and House Property Corporation (1884) 28 ChD 7 (CA) 20 [1927] AC 177 21 Jill Poole, James Devenney and Adam Shaw-Mellors, Contract Law Concentrate: Law Revision And Study Guide (4th edn, Oxford University Press 2019). 22 Fitzmaurice (1885) 29 ChD 459 (CA) 23 Edgington v Fitmaurice (1885) 29 ChD 459 (CA) 24 With v O’Flanagan [1936] CH 575 (CA) 25 [1936] CH 575 (CA)

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before the conclusion of the contract. Consequently, the courts decided silence, when the representor is aware of a change of circumstance, will amount to a misrepresentation. Chris changing his mind after the contract had concluded will not amount to a misrepresentation26.

In relation to statement (iii) Chris falsely stated that there were two other interested parties, when in fact Risham was the only interested party. Chris made this statement intending to induce Risham into the contract. As far as Risham was aware there were other interested parties that may take her place if she wasn’t to make a swift decision. Had Chris not made this statement Risham may have conducted more research in order to make an informed decision or possibly bought elsewhere. Inducement/Reliance

There is a presumption that fraudulent misrepresentations are made to induce the representee into entering the contract27. If Chris is aware of Risham’s motive in entering the contract, he may argue that his false statements were not the main reason for Risham entering the contract, therefore the statements did not induce Risham into entering the contract28. Regardless, the statement need not be the sole reason for Risham entering the contract, but it must be one of the reasons Risham entered the contract29. Nonetheless, if the courts decide that Risham would have entered the contract withstanding the misrepresentation her claim will fail 30. There can be no inducement or reliance if Risham was unaware of the statement 31, Chris directly communicated the misrepresentation to Risham, making her expressly aware. Declining to check the facts would not negate this reliance 32. In Redgrave33, a solicitor bought into partnership after the solicitors’ misrepresented the annual 26 Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch) 27 Edwards v Ashik [2014] EWHC 2454 (Ch) (CA) 28 Attwood v Small [1835-42] All Er Rep 258 (HL) 29 Edgington v Fitmaurice (1885) 29 ChD 459 (CA) 30 JEB Fasteners v Marks, Bloom & Co [1983] 1 All ER 583 31 Horsfall v Thomas [1862] 1 H&C 90 32 Redgrave v Hurd (1881) 20 ChD 1 (CA) 33 Redgrave v Hurd (1881) 20 ChD 1 (CA)

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income as £300, although the solicitor declined the opportunity to verify the facts this did not negate his reliance but in fact reinforced it. It is also worth mentioning, presently the damages awarded to an innocent party post Redgrave 34 can be reduced to take into account their contributory negligence. This case can be contrasted with Attwood35 in which the purchaser was not able to demonstrate reliance because they had relied on their agents in checking the validity of the statement. The fact that Risham did not verify the facts only supports her reliance on statement (i). Statements (i) and (iii) made by Chris are false statements of fact that have induced Risham into entering the contract, and to which Risham has relied on, thus making the misrepresentation is actionable. If there is a non-reliance clause in the contract between Chris and Risham, then the clause will subject to a reasonableness test36, confirmed in 201837.

Type of Misrepresentation As defined by Lord Herschell a fraudulent misrepresentation is one which is made either: knowing it to be false, without belief in its truth, or careless as to whether it be true or false38. As per Derry39 statements (i) and (iii) would amount to statements Chris knew were false, amounting to a fraudulent misrepresentation, triggering liability in the tort deceit40. On the basis that this is fraudulent misrepresentation, Risham would be entitled to more severe remedies. Remedies The remedies for misrepresentation are rescission, damages and indemnity. Indemnity is not a claim for damages, it’s limited but it is useful in innocent 34 Redgrave v Hurd (1881) 20 ChD 1 (CA) 35 Attwood v Small [1835-42] All Er Rep 258 (HL) 36 Misrepresentation Act 1967, s 3 37 First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 38 Derry v Peek (1889) 5 T.L.R. 625 (HL) 39 Peek (1889) 5 T.L.R. 625 (HL) 40 Andrew Burrows, A Casebook On Contract (6th edn, Hart Pub 2018).

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misrepresentation cases as damages are not as of right. It covers expenses or losses incurred as a result of entering the contract 41. Damages, a common law remedy is available as of right, it would be assessed following tortious principles as it is not a term of the contract, and Risham may be able to claim all direct losses stemming from fraud irrespective of whether the losses were foreseeable 42. Damages are readily available for fraudulent, and as of the 1960s 43 available for negligent misrepresentation claims. For wholly innocent misrepresentation, it is at the court’s discretion44. Conversely, rescission is available for all types of misrepresentation. Whether this equitable remedy will be available to Risham is subject to the four bars. From the facts, Risham has not affirmed the contract by words or conduct45. In Lloyd 1958 46 the defendant accepted the payment for half the repairs after becoming aware of the defects thus lost the right to rescind. Lapse of time can also indicate affirmation47, when the representee becomes aware of the misstatement and allows the time to pass before taking action. Though, in negligent misrepresentation cases such as Leaf48 the time starts from the when the contract is entered into. Opposingly, in Doyle49, a fraudulent misrepresentation case, the time starts to tick from when the misrepresentation has been discovered. Risham sought legal advice when she became aware of the misstatements so there has not been a delay50. The innocent party may also be unable to rescind the contract where a third party acquires rights to goods, unless they have taken steps to demonstrate they no longer want to bound by contract51. From what we know, Risham has not sold on the business onto a third party so there would be no infringement on a third-party

41 Whittington v Seale-Hayne (1900) 82 LT 49 42 Doyle v Olby [1969] 2 QB 158, Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 (HL) 43 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 44 Misrepresentation Act 1967, s 2(2) 45 Long v Lloyd [1958] 1 WLR 753 (CA) 46 Long 1 WLR 753 (CA) 47 Clough v London and North Western Railway CO. (1871) LR 7 Ex 26 at 35 48 International Galleries [1950] 2 KB 86 (CA) 49 Olby [1969] 2 QB 158 50 Leaf v International Galleries [1950] 2 KB 86 (CA) 51 Car & Universal Credit v Caldwell [1964] 2 WLR 600

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right’s52 nor is restitution in Risham’s case in integrum. Contrastingly, in Dickson53 the plaintiff was unable to recover the value of the shares that he had invested due to the defendant’s misrepresentation, so damages were awarded in lieu of rescission54. Risham does not appear to have not lost the right to ab intio the contract, as none of these bars appear to apply in her case. Advice Risham should make a claim for

fraudulent misrepresentation in regard to

statements (i) and (iii). This is a fraudulent misrepresentation, so Risham can claim generous damages and set the contract aside through a process of recession. In conformity with Derry55, Risham as the claimant will have to prove that these misstatements were made fraudulently. Presently, liability cannot be excluded for fraudulent misrepresentation56, so Chris will have no defence.

LIST OF AUTHORITIES CASES 1.

Abram SS Co. v Westville Shipping Co. Ltd [1923] AC 773

2.

Attwood v Small [1835-42] All Er Rep 258 (HL)

3.

Bisset v Wilkinson [1927] AC 177

4.

Car & Universal Credit v Caldwell [1964] 2 WLR 600

5.

Clough v London and North Western Railway Co. (1871) LR 7 Ex 26 at 35

6.

Dickson v Clarke (1858) EB & E 148 , 120 ER 463 (Queen’s Bench)

7.

Derry v Peek (1889) 5 T.L.R. 625 (HL)

8.

Dimmock v Hallet (1866) LR 2 Ch App 21 (CA)

9.

Doyle v Olby [1969] 2 QB 158

52 Car & Universal Credit v Caldwell [1964] 2 WLR 600 53 Clarke (1858) EB & E 148, 120 ER 463 (QB) 54 Misrepresentation Act 1967, s 2(2) 55 Peek (1889) 5 T.L.R. 625 56 S. Pearson & Son ltd v Dublin Corp [1907] AC 351

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10. Edgington v Fitzmaurice (1885) 29 ChD 459 (CA) 11. Edwards v Ashik [2014] EWHC 2454 (Ch) (CA) 12. Esso v Mardon [1976] QB 801 (CA) 13. First Tower Trustees Ltd and another v CDS (Superstores International) Ltd [2018] EWCA Civ 1396 14. Gordon v Selico Co Ltd (1986) 278 EG 53 (CA) 15. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 16. HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6 17. Horsfall v Thomas [1862] 1 H&C 90 18. Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch) 19. Keates v The Earl of Cadogan (1851) 10 CB 591 20. Leaf v International Galleries [1950] 2 KB 86 (CA) 21. Lee v Jones (1864) 17 CBNS 482 22. Long v Lloyd [1958] 1 WLR 753 (CA) 23. Oscar Chess Ltd v Williams [1957] 1 WLR 370 24. Pankhania v LB Hackney [2002] EWHC 2441, [2002] NPC 123 25.

Poole J, Devenney J, and Shaw-Mellors A, Contract Law Concentrate: Law Revision And Study Guide (4th edn, Oxford University Press 2019)

26. Derry v Peek (1889) 5 T.L.R. 625 27. Redgrave v Hurd (1881) 20 ChD 1 (CA) 28. S. Pearson & Son ltd v Dublin Corp [1907] AC 351 29. Smith v Land and House Property Corporation (1884) 28 Ch D 7 (CA) 30. Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254 (HL) 31. Spice Girls Ltd v Aprilla World Service BV [2002] EWCA Civ 15 32. Whittington v Seale-Hayne (1900) 82 LT 49 33. William Sindall plc v Cambridgeshire County Council (1994) (CA) 34. With v O’Flanagan [1936] CH 575 (CA)

STATUTE 1.

Misrepresentation Act 1967

2.

Misrepresentation Act 1967, s 2(2)

3.

Misrepresentation Act 1967, s 3

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SECONDARY SOURCES 1.

Burrows A, A Casebook On Contract (6th edn, Hart Pub 2018)

2.

H. Beale, 'Damages in Lieu of Rescission for Misrepresentation' (1995) 111 LQR 60

3.

H. Beale, 'Points on Misrepresentation' (1995) 111 LQR 385

4.

Laurence Koffman and Elizabeth Macdonald, The Law Of Contract (Oxford University Press 2018).

5.

Law Commission and Scottish Law Commission, Consumer Redress for Misleading and Aggressive Practises, Scot Law Com No 226 (2012)

6.

Lee R, 'Proof Of Inducement In The Law On Misrepresentation' [2017] Lloyd's Maritime and Commercial Law Quarterly

7.

P.S. Atiyah and G. H. Trietel, 'Misrepresentation Act 1967' (1967) 30 MLR 369...