Ch.9 Misrepresentation PPT university of london PDF

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Ms ArseculeratneCfPS – Contract Law Weekday/Weekend Batch 2021/Ch. 9 MISREPRESENTATIONExpress statements made prior to entering into a contract (i during negotiations) may become➢ Mere Puffs– Noliability arises➢ Termsofthecontract➢ ‘Mere’representationsIf they are terms of the contract then a remedy...

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Ch. 9 MISREPRESENTATION Ms.Nalangi Arseculeratne CfPS – Contract Law Weekday/Weekend Batch 2021/22

Express statements made prior to entering into a contract (i.e during negotiations) may become ➢ Mere Puffs – No liability arises ➢ Terms of the contract ➢ ‘Mere’ representations If they are terms of the contract then a remedy lies for breach of contract should they prove to be false. If they are ‘mere’ representations, and if false remedies available are those for misrepresentation

The factors/principles that court take into account when making this determination refer Chapter 5 To this you can also add• If pre-contractual statement is in the form of a

promise The only possible argument for the claimant is to show that the statement had become a term of the contract.

An actionable misrepresentation (MR) is an unambiguous false statement of existing fact or law which induced a party to enter into the contract. According to the definition the following elements have to be proved to establish actionable MR; 1.An Unambiguous false statement of existing fact or law. a) Statement( Representation) b) Unambiguous c) False d) Statement of existing fact or law 2.It must be addressed to the party mislead 3.The statement induced the other party to enter into the contract

1) An Unambiguous false statement of existing fact or law. .

a) Statement (Representation) This statement is generally by words written or spoken. However, in certain situations by conduct a statement implicity made. Spice Girls Ltd v Aprilla World Service BV -Defendant had agreed to sponsor a Spice Girls Tour. -The group appeared in promotional material before sponsorship contract was concluded as group of 5 when they knew one of them was about to leave the group Held to be a MR by conduct, that none of them was planning to leave the group prior to signing the sponsorship Refer Walters v Morgan

In English Law there is no general duty to disclose material facts to the other party.; Keates v Cadogab This is based on the principle of caveat emptor (let the buyer beware). This would mean by remaining silent one cannot make representation Exceptions exist – where a failure to disclose will be regarded as making a statement of fact- (by silence one is making a representation) i) Contracts which are treated as being ‘of the utmost good faith’ (or uberrimae fidei). Insurance contracts are contracts of utmost good faith, - The insured is under a duty to disclose all facts which a reasonable or prudent insurer would regard as material. The insured is in the best position to know the relevant facts therefore the duty to disclose is placed on him. Lambert v Co-operative Insurance Society Ltd it was stated insured must disclose information relevant to the risk insured, whether or not this has been asked for.

ii) Representation / statement made is falsified by later events Silence can amount to a possible MR Where a person FAILS to correct a representation which when made was true(or believed to be true) but which subsequently to his knowledge , has become false With v O’Flanagan Negotaiations for the sale of a medical practice began at a time when the practice was valued at £2,000. But when the contract of sale was concluded , the practice had become worthless due to ill health of the vendor. Held that vendor was under an obligation to disclose the change of circumstances. According to L. Dunedin in Shankland & Co v Robinson & Co the justification is that when a representation is made , it is deemed to be continuing , so that once it becomes false to the knowledge of the representor and he fails to correct it , it becomes a MR.

iii)Statement literally True but misleading ( half truth) Where a statement is literally true but nevertheless misleading because maker of statement has failed to disclose all relevant information , silence may amount to MR. Dimmock v Hallet A vendor told the prospective purchaser that all property were occupied by tenants. What he did not tell, was that tenants had given notice to quit. This non disclosure (silence) makes what was stated anhalf truth , resulting in silence being a MR. Also see Notss Patent and Tile Co v Butler

b)Unambiguous To prove an actionable MR , the statement must be sufficiently clear. Dimmock v Hallett where the land was described as ‘improvable’ this statement was held to be ambiguous; therefore, not actionable.

c) False Representation or statement is false where  its wholly incorrect or  misleading to a material extent as in Dimmock v Hallett (1866) ,With v O’Flanagan and Spice Girls Ltd v Aprilia World Service BV

d) Statement of existing fact or law Statement of fact refers to what exist or what existed. Therefore ,the following three categories of statements will NOT constitute a statement of existing fact ➢ Mere Puffs are not statements of fact

Commendatory statements are so vague that it will not become incorporated in to contract as a term nor a statement of fact. e.g. You will not regret buying a bicycle from me ➢ Statement as to intention are not statements of fact ➢ Statement of opinion or belief is not a statement of

fact Bisset v Wilkinson -Vendor of a farm which had not been used for sheep farming before, represented to a prospective purchaser that in his judgment , the land could carry 2,000 sheep. -It was later revealed that it could not carry that many sheep. -There was no actionable MR, as vendor’s statement was only his honest opinion.

Exceptions exist. (situations where statement of opinion/ intention become false statements of facts)1. where the person expressing the opinion is aware of facts which indicate that the opinion cannot be sustained. Smith v Land House Corporation -Vendor of land described tenant ‘’ as most desirable’’ to prospective purchaser - Vendor who was also the landlord knew that this tenant was always behind with his rent - Vendor was in a stronger position to know the truth and it indicated that his opinion was unfounded therefore a statement of fact Esso Petroleum Co Ltd v Mardon Indicate that a statement made by an expert in the subject , could be taken as a statement of fact as he holds himself out as making the statement with reasonable care and skill ( what is the distinction between Bisset and Esso petroleum?)

2. Where the person expressing his opinion or intention does not believe it, at the time that it is made or does not have the intention stated. Edgington v Fitzmaurice it was held that the ‘state of a man’s mind is as much a fact as the state of his digestion’. This means where a person does NOT truly hold the opinion or intention expressed it is a false statement as to the state of his mind- a false statement of fact. (Also see facts of above case on lecture notes) False statements of law traditionally not regarded as misrepresentation. It seems, however now actionable MR may exist - If it can be proved that a person’s statement of law ,is not believed by the person making it, then the principle in Edgington v Fitzmaurice will apply, so that the statement will be treated as a misrepresentation of the person’s state of mind

2)It must be addressed to the party mislead The representation/ statement can be communicated directly to the party mislead(claimant) or communicated to third party with intention that it is passed to claimant; Commercial Banking Co of Sydney v RH Brown and Co 3)The statement induced the other party

to enter into the contract The statement need not be the sole or main reason that induced Claimant in to contract, it must merely be one of the factors;Edgington v Fitsmaurice It is insufficient to show that claimant was encouraged to make the contract, it must be shown that the representation was a ‘real and substantial part’ of the claimant’s decision to enter into the contract. if the misrepresentation would have induced a reasonable person, then the court will presume that it did induce representee to enter into the contract; Museprime Properties v Adhill properties (1991)

In the following situations claimant will be unable to establish inducement➢ The representee was aware( not merely suspected) that statement was untrue

It

is irrelevant that claimant had the opportunity to discover the untruth of the statement but did not take the opportunity. Redgrave v Hurd ;the purchaser of a solicitor’s practice had the opportunity to consult documents which would have revealed the falsity of the seller’s statement about the practice’s income(but did not). This did not prevent a claim in MR.

Hayward v Zurich Insurance Co plc suspicion that a statement is false is not enough ,as it falls short of actual awareness ➢ Where

representee relied on his own judgment or upon an independent report specially obtained.

See Attwood v Small (Lecture notes)

➢ The representee has not allowed the MR to affect

his judgment(as he regards the representation as being unimportant)

See Smith v Chadwick ➢ The

‘representee’ was not aware of the misrepresentation Horsfall v Thomas A metal plug had been used to conceal a defect in the gun’s barrel, this amounted to a representation by conduct that the barrel was sound and free of defects. However, as the defendant did not inspect the gun he was not aware of the misrepresentation and so it could not be said to have induced him to purchase it. ➢ The representee would have entered the contract

even if aware of the untruth The representor must prove, that the representee would have entered the contract even if he had been in possession of the full facts ;Atlantic Lines & Navigation Co Inc v Hallam Ltd (The Lucy) [1983]

EFFECT OF MR ON VALIDITY OF CONTRACT The contract becomes VOIDABLE

This means the contract is valid until the representee chooses to avoid the contract by seeking remedy of rescission. It is must be noted that the representee may either choose to avoid the contract or affirm the contract. REMEDIES FOR MR Two principle remedies exist; 1. Rescission 2. Damages

The remedies available for misrepresentation will depend on the type of MR. This becomes especially relevant when seeking damages for MR. Fraudulent MR – is defined in Derry v Peek -Where the maker of the statement knows or believes that the statement is untrue, or makes it not caring whether it is true or false. There must be proof of fraud and nothing short of this is sufficient. The burden of proof remains with the claimant to prove fraud and the burden is a heavy one. Negligent MR -Where a person makes a statement believing in its truth but has no reasonable grounds to hold that belief , the person has acted negligently. Liability of for negligent MR can arise either under Common Law or under s.2(1) MR Act 1967 Innocent MR- Where the maker of the statement genuinely believes it is true, and has reasonable grounds for his belief then the action only lies for innocent misrepresentation.

Rescission The remedy of rescission is not automatic upon establishing actionable MR – The remedy must be sought if the claimant chooses to avoid the contract. Rescission’ means that the contract is set aside, and the parties are put in to their pre contractual position - Any goods or money which have been exchanged must be returned. Rescission is available whether the representation was innocent, negligent or fraudulent. Rescission can be effected by giving notice to D or relevant third parties. see Car & Universal Finance Co v Caldwell

Bars to rescission.- The remedy is lost if these bars apply. ➢ The remedy may be lost where claimant

becomes aware of the other party’s misrepresentation, but continues with the contract, and thus ‘affirms’ it:

Long v Lloyd The purchaser of a car after having discovered certain misrepresentations made by the seller continued to use the car for awhile and thereafter attempted to seek rescission. Held the remedy was not available because the buyer had affirmed the contract after discovering the MR.

Claimant would have affirmed the contract if 1) If C was aware of the circumstances that give rise to MR 2) C was aware he has the legal right to rescind (dual Knowledge test ;Peyman v Lanjani )

➢ Rescission is unavailable where there is

a significant lapse of time between the making of the contract and the discovery of the misrepresentation. The maxim of ‘ delay defeats equity’ applies; Leaf v International Galleries When will time start to run against claimant? For fraudulent MR from the time he discovered the MR and not when MR is made. It has recently been suggested that the time at which the representee became aware of the of the right to rescind for misrepresentation may affect availability of rescission ;Salt v Stratstone Specialist Ltd

➢ Where restitution is impossible.

Since the idea of rescission is to restore the parties to the pre contractual position, if property which has been transferred has been consumed or mixed with other property, rescission will not be permitted. See Lagunas Nitrate Co. v Lagunas Syndicate (Lecture notes) Exception - if property has been used (rather than consumed), it will not necessarily prevent rescission, if a payment of money to cover the use can be made; ;Erlanger v New Sombrero Phosphate Co ➢ Where rescission would affect the rights of a third

party. The most obvious example is where goods have been sold to the ‘misrepresentor’, who has then sold them on to an innocent third party before the contract has been avoided. The courts will not require the third party to return the goods to the original owner. This is why parties in this type of situation try to argue that the contract is void for mistake (see Chapter 8).

Remedy of Damages A contractual claim for damages does not lie for MR . The claim may be made either under common law in tort or under the Misrepresentation Act 1967. How the claim for damages is to be made is dependant on type of MR.

Claiming damages for fraudulent MR Where MR is fraudulent damages may be claimed by suing under the tort of deceit. The aim of damages in fraudulent MR ( measure of damages)- is to put claimant to the position he would have been had the MR had NOT been made. This means reliance loss can be claimed and not expectation loss. (Doyle v Olby) Advantages for claiming damages on the basis of fraudulent MR 1)All reliance loss- foreseeable and unforeseeable consequential losses are covered. 2) Covers loss of profit which claimant would have obtained from entering into some OTHER transaction if MR had not been made; East v Maurer but does not cover loss profits suffered from the contract actually made. Disadvantages – 1)It is not easy to prove fraud( heavy burden- suspicion is not enough)

Claiming damages for negligent MR at common law The law governing this area is found in Hedley Byrne v Heller - damages for MR is claimed in an action in the tort of negligence . The disadvantages of claiming damages for negligent MR at common law1)The claimant has the burden of proving the Hedley Bryne Requirements- it must be shown that the maker of the statement and the person relying on it are in a ‘special relationship’ giving rise to a duty of care. The two key elements in this regard that must be proved is 1) an assumption of responsibility by the representor and 2) reasonable reliance by the representee 2) Reliance loss that is reasonably foreseeable consequence of the MR can be claimed. 3)If claimant was also at fault , damages payable maybe reduced on grounds of contributory negligence; Gran Gelato v Richcliff

Advantage of claiming damages for negligent MR at common law1)where the statement cannot be categorized as a statement of fact. It may be actionable under Hedley Byrne, without the need to show that it meets the strict requirements of being a misrepresentation

The better option for claimant to be advised to use the action provided by s.2(1) of the Misrepresentation Act 1967, since under the Act the burden of proof is with representor.

Statutory Misrepresentation – Negligent MR under S.2(1) of the Misrepresentation Act 1967.

Advantages of claiming damages for negligent MR under S.2(1) Misrepresentation Act 19671)The burden to prove fraud is on Claimant but if claim for damages is under the Act, it shifts the burden of proof to the representor(D) to prove that he had reasonable grounds to believe that statement was true. (similarly if claiming damages for negligent MR at common law , the burden to prove Hedley Byrne requirements are on claimant)

2)Burden of proof to prove reasonable grounds is a heavy burden and cannot be easily discharged- as seen in Howard Marine & Dredging Co Ltd v A Ogden & Sons (Lecture notes) Compare with AlHasawi v Nottingham Forrest FC Ltd( Lecture notes).

3)A claim under the Act has creates the ‘fiction of fraud’-the remedy provided is the same as if the statement was made fraudulently. This means similar to fraudulent MR all losses are recoverable , not simply those that were reasonably foreseeable;Royscot Trust Ltd V Rogerson 4)Unliklely that damages payable under s.2(1) maybe reduced on the ground of Claimant’s contributory negligence ( Gran Gelato v Richcliff) ascContributory negligence is not available to an action in deceit

Claiming damages for innocent MR The traditional common law rule is that damages are not awarded for innocent MR. However ,S.2(2) MR Act provides that where an application is made for rescission , court at its discretion may award damages INSTEAD of rescission. The wording of S.2(2) makes the following clear✓ S.2(2) does not give the claimant the right to claim damages for innocent MR but its at the discretion of court. ✓ C claimant cannot have both rescission and damages

for innocent MR.

✓ For court to grant damages instead of rescission

implies that at the time of awarding damages , claimant has right to rescission.- if claimant has lost right to rescind as far as S.2(2) is concerned claimant will go empty handed.

The measure of damages should be less than the measure available in S.2(1) for negligent MR as representor is less culpable

Exclusion of liability for MR  B2C contracts – such an exclusion will be subject to a test of fairness under the CRA 2015  B2B contracts – such an exclusion is

regulated by s.3 of the Misrepresentation Act 1967, as amended by s.8 of the Unfair Contract Terms Act 1977. This requires that any clause which attempts to limit liability for misrepresentation must satisfy the requirement of reasonableness set out in s.11 of the UCTA...