Contract Law - Misrepresentation PDF

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Misrepresentation LW 101 Contract Law (2019/20)Basic idea The law relating to misrepresentation is concerned with the situation where a false statement leads a contracting party to enter into a contract which would otherwise not have been undertaken. The law on misrepresentation is based primarily o...

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Misrepresentation LW101 Contract Law (2019/20)

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Basic idea !The law relating to misrepresentation is concerned with the situation where a false statement leads a contracting party to enter into a contract which would otherwise not have been undertaken. !The law on misrepresentation is based primarily on common law rules, but with statutory intervention in the form of the Misrepresentation Act 1967 affecting the position in relation to remedies. !The contract may be rescinded under the common law. Damages may be claimable. ! !Representor: party making the statement !Representee: the party to whom the statement is addressed

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Overview !1. Is there a representation? !Puff, representation, term !2. Is there a misrepresentation? !2a. False statement !2b. Relating to an existing fact !2c. From one party to another !2d. Inducement !3. Classify the misrepresentation !Innocent, negligent, fraudulent !4. Determine any remedies !Damages, rescission, bars ! !

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Step 1: Is there a representation?

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Overview !1. Is there a representation?

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!Puff, representation, term !2. Is there a misrepresentation? !2a. False statement of existing fact !2b. Relating to an existing fact !2c. From one party to another !2d. Inducement !3. Classify the misrepresentation !Innocent, negligent, fraudulent !4. Determine any remedies !Damages, rescission, bars ! ! 6

Terms vs representation vs mere puff !Pre-contractual statements (each has different remedies): !1. Mere puff (à no legal effect) !eg ‘best pizza in the world’ !2. Representation (à non-contractual legal effect) !statement which asserts the truth of a given state of affairs and invites reliance upon it, but does not give an enforceable guarantee of its truth !3. Term (à contractual legal effect) !an enforceable contractual undertaking to do, or refrain from doing, something, or to guarantee the truth of something ◦the obligations that each party to the contract assumes ◦the rights and benefits that each is entitled to !In this topic we are concerned with (mis)representations !We will cover statements within the contract (ie terms) when we discuss breach of contract later !Terms and representations are usually mutually exclusive !But representations can become terms !In this topic we are concerned with representations regardless of whether or not they have become terms

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Term ! !Determined on the intentions of the parties objectively by words and conduct

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!Oscar Chess Ltd v Williams (1957) !Several factors are taken in to account when determining whether a pre-contractual statement is a term !Heilbut, Symons & Co v Buckleton [1913] AC 30 !These factors are: !(i) Written contract – term written into contract !(ii) Accepting responsibility / advising on verification !(iii) Importance of the truth of the statement !(iv) Special knowledge !(v) Time between statement and contract ! ! 8

(i) Written contract – term written into contract ! !If a contract is recorded in writing, the presumption is that the document records the complete terms of the contract !In such written contract, the statement will only be a term if it is included in the written document !Heilbut Symons v Buckleton [1913] AC 30 !Parol evidence rules applies !Parties are excluded from introducing other evidence to explain the terms of the contract !(Exceptions eg collateral terms) 9

(ii) Accepting responsibility / advising on verification ! !Responsibility !If a party accepts responsibility for a statement it is likely to be a term !Schawel v Reade (1913) !‘You need not look for anything; the horse is perfectly sound. If there was anything wrong with this horse, I should tell you. !Verification !If a party advises the other party to verify the truth of a statement, it is unlikely to be a term

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!Ecay v Godfrey (1947) !Seller said boat was sound but advised buyer to have it surveyed ! 10

(iii) Importance of the truth of the statement ! !The more important a statement, the more likely it is to be a term !Couchman v Hill (1947) !Statement that a heifer was ‘unserved’ (not pregnant) held a term because seller knew importance of this to the buyer. !If a statement was so important that the person to whom it was made would not have made the contract without it, it is likely to be treated as a contract term !Bannerman v White (1861) !Buyer made clear they did not want the hops if they had been treated with certain chemicals, so seller assured buyer that the chemical had not been used. Held: term. ! ! 11

(iv) Special knowledge of the maker ! !If the statement maker has special knowledge, the statement is likely to be regarded as a term !Dick Bentley v Harold Smith [1965] 1 WLR 623 !Car dealer, who was asked to find a ‘well vetted’ Bentley, said it had done 20,000 miles since engine refit. But it had in fact done 100,000 miles. Held: statement was a term as dealer had special knowledge. !Oscar Chess v Williams [1957] 1 WLR 370 !Private seller car said it was a ‘1948 Morris 10’ relying on the log book. Car was in fact a 1939 model. Held: statement was a misrepresentation, as seller and buyer both had equal knowledge. !

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(v) Time between statement and contract ! !The longer the time, the less likely for statement to be a term !Routledge v Mckay [1954] 1 WLR 615 !Buyer took a few days to think over buying a motorcycle after having been told the year or registration which was incorrect. Held: misrepresentation. ! ! 13

Representation !Behn v Burness (1863) 3 B & S 751 !‘[A] representation is a statement, or assertion, made by one party to the other, before or at the time of the contract, of some matter or circumstance relating to it.’ !Elements: !Statement made before or at the time of entry into a contract !Statement made by a party (representor) to the counterparty (representee) !Inducement of representee to enter into the contract !

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Mere puff !Vague and exaggerated statements which would be unreasonable to rely on as they are not intended to part of the contract. !Dimmock v Hallett (1866) LR 2 Ch App 21 !Stated land was ‘fertile and improvable’. Held: only exceptionally would this be a representation.

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Step 2: Is there a misrepresentation?

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Overview !1. Is there a representation? !Puff, representation, term !2. Is there a misrepresentation?

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!2a. False statement !2b. Relating to an existing fact !2c. From one party to another !2d. Inducement !3. Classify the misrepresentation !Innocent, negligent, fraudulent !4. Determine any remedies !Damages, rescission, bars ! ! 17

Misrepresentation !A false statement of existing fact made by one party to another which induces the representee ! !Four requirements: !a. False statement !b. From one party to another !c. Relating to an existing fact !d. Inducement ! !All four requirements must be met for there to be a misrepresentation. !General rules and exceptions apply to these requirements…

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(a) False statement Includes words ! !Curtis v Chemical Cleaning & Dyeing Co. (1951) 1 KB 805 !Curtis took a dress to dry cleaner, where she was asked to sign a document. The sales assistant advised Curtis that the document excluded liability for damage to beading and sequins. !However, the clause actually excluded liability for all types of damage. Held: misrepresentation.

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Includes words (implied)

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! !IFE Fund SA v Goldman Sachs International [2006] EWHC 2887 !The test is: “what a reasonable person would have inferred was being implicitly represented by the representor’s words and conduct in their context” !Webster and others v Liddington and others [2014] EWCA Civ 560 !Doctors’ brochure contained information provided by drug manufacturers. Information on side effects excluded. !Held: misrepresentation 20

Includes conduct ! !Walters v Morgan (1861) 3 DF & J 718 !Held: ‘a nod or a wink, or a shake of the head, or a smile… intended to induce’ can be a misrepresentation by conduct 21

Includes conduct (implied) ! !Spice Girls Ltd v Aprilia World Service BV (2002) !The pop group took part in a photo shoot and promotions for AWS scooters prior to signing a sponsorship agreement for their tour. A few weeks later, one member, Geri Halliwell, left. !Held: that this amounted to a misrepresentation by conduct. !The misrepresentation was that the band did not know or had no reasonable grounds to believe that any member of the group had an intention to leave before the sponsorship contract ended. This was false as one member of the group admitted to the others that she intended to leave prior to the photoshoot. !The representation was implied by conduct. 22

(b) Relating to an existing fact (i) Statements of law can be statements of existing fact ! !Kleinwort Benson v Lincoln City Council [1998] 4 All ER 513 !A statement as to the law may be a misrepresentation if it was reasonable, in all the circumstances, for the representee to rely

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upon it !Pankhania v Hackney LBC [2004] All ER (D) 205 !Claimants purchased property induced by a representation that the current occupiers of the property were contractual licensees, whose occupation could be terminated on giving 3 months notice. In fact the current occupant was in fact a tenant protected under the Landlord and Tenant Act 1954. !This was a misrepresentation as to law which had previously been assumed not to be an actionable misrepresentation. The High Court held that actions based on misrepresentation of law could now be actionable based upon that change of law. The claimant's action was therefore successful. ! 23

(ii) Opinions are not statements of existing fact generally !Bisset v Wilkinson (1927) AC 177 !A farmer in NZ told the C that a certain area of law would support 2000 sheep, though he had never carried on sheep farming on the land, and the purchaser was aware of this. The C bought the land but it failed to support 2000 sheep. He sought to rescind the contract on the ground of misrepresentation. !Held: this was not misrepresentation. The farmer’s view on the matter was merely an expression of an opinion, and not a statement of fact. ! 24

But opinions can be statements of fact if… !1) The representor has special knowledge, skill or information may be held to have warranted his/her opinion (‘experts’) !Esso Petroleum Ltd v Mardon [1976] QB 801 !Esso bought site for service station. Estimated 200k gallons per annum. Thus, M became tenant. Only reached 78k. !Held: representation. !The CoA took the view that in the circumstances it involved a

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representation that proper care had been taken in giving it and that it was a statement of fact. If a person who has, or professes to have, special knowledge or skill makes a representation (be it advice, info, or opinion) with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct and the advice, info, or opinion is reliable. 25

But opinions can be statements of fact if… !2) The statement of opinion is dishonest (or contradicted by other facts known to representor) !Smith v Land & House Property (1884) 28 Ch D 7 !Defendant made a statement that a tenant was ‘most desirable’. While this looked like an opinion, he knew that the tenant had been in arrears of rent for a long time. !Held: ‘if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.’ ! ! 26

(iii) Statements of intention are not statements of fact generally ! !Wales v Wadham [1977] 1 WLR 199 !Before a divorce, wife represented she did not have an intention to remarry. She honestly thought this at the time it she said this. !Held: No misrepresentation as honestly believed. !Kleinwort Benson Ltd v Malaysia Mining Corporation [1989] 1 WLR 379 !M refused to guarantee the debt of a company to K, but instead gave K a ‘letter of comfort’ stating that ‘it is our policy to ensure that the business of [the company] is at all times in a position to meet its liabilities to you under the above arrangements’.

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!Held: no misrepresentation, as M honestly held this intention when it was stated. 27

!But statements of intention can be statements of fact if… ! !It is clear that the person making the statement did not, at that time, have any intention of so acting. !Edgington v Fitzmaurice (1885) 29 Ch D 459 !Company directors sent shareholders a prospectus inviting subscriptions for debenture bonds. It said money would go to alter their buildings, buy horses, vans and expand into supplying fish. !But the actual purpose was to pay off debts, because the company was in trouble. !Mr Edgington sought to recover money for deceit. The CoA held that this statement of intention could be treated as a representation as to the director’s state of mind at the time that the prospectus was issued, and so could be treated as a statement of fact. !Held: “the state of a man's mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact”. ! ! ! 28

(c) From one party to another (i) Addressed to the party misled !Directly !Or via a third party !Commercial Banking Co of Sydney v R H Brown & Co [1972] 2 Lloyd's Rep 360 !Statement made to claimant’s bank to be passed on to claimant.

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!But representations made to third parties do not count as actionable misrepresentations !Peek v Gurney (1873) LR 6 HL 377 29

!Dowie v Crystal Palace FC [2007] EWHC 13 !Dowie was employed as the manager of Crystal Palace FC on a fixed-term contract. This contract contained a compensation clause requiring Mr Dowie to pay to the club a fee of £1,000,000 if he left prior to 8 June 2008. !On 17 May 2006 Mr Dowie spoke to the chairman of Charlton Athletic FC and an interest was expressed by both parties in Mr Dowie becoming Charlton manager. !Mr Dowie then spoke to the club’s chairman on 20 May 2006, explaining dissatisfaction with not seeing his family and his wish to move to the north of England to be nearer to them. Mr Dowie denied having a contract of any sort with Charlton Athletic FC. !It was then agreed that the compensation clause would not be enforced against Mr Dowie if he, in return, did not bring any financial claims against the club that he may have. !Held: Mr Dowie had made false representations which had induced Crystal Palace FC to enter the compromise agreement. He had misrepresented that he wanted to move to the north of England, that he had not been in contact with Charlton Athletic FC, and that he had no intention of joining Charlton Athletic FC when in fact they had made a conditional offer to him. 30

(ii) ‘Half-truth’ may amount to misrepresentation ! !Dimmock v Hallett (1866) LR 2 Ch App 21 !Sale of farms by auction. Vendor said farms fully let. But did not disclose that the tenants had already given notice to leave by the time the auction took place. !‘The purchaser, therefore, would be led to suppose, as to these farms, that he was purchasing with continuing tenancies at fixed rents, whereas he would, in fact, have to find tenants immediately after the completion of his purchase.’ !

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(iii) Silence not enough generally ! !No general duty of disclsure !Banque Keyser Ullman SA v Skandia (UK) Insurance Co Ltd [1990] QB 665 !No general duty of disclosure. Even where one party is aware that the other is contracting on the basis of a misunderstanding of some fact relating to the contract, there will generally be no liability. The law imposes a negative obligation not to tell falsehoods; not a positive obligation to tell the truth. Requires positive representation 32

!Keates v Earl of Cadogan (1851) 20 LJCP 76 !D let house to C knowing he wanted immediate occupation, but did not tell him house was uninhabitable. !Held: in absence of fraud, D under no implied duty to disclose the state of the house. Caveat emptor: contracting parties should not be expected to share every bit of relevant information with each other !“It is not contended by the plaintiff that any misrepresentation was made; nor was it alleged that the plaintiff was acting on the impression produced by the conduct of the defendant as to the state of the house, or that he was not to make investigations before he began to reside in it. I think, therefore, that the defendant is entitled to our judgment, there being no obligation on the defendant to say anything about the state of the house, and no allegation of deceit.” !Sykes v Taylor-Rose [2004] EWCA 299 !Held: no misrepresentation when house sellers answered "no" to the question: "Is there any information which you think the buyer may have a right to know?“ and they did not disclose that there had been a murder at the house previously. ! 33

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But silence can be enough if… ! !1) Active/deliberate concealment !Gordon v Selico (1986) 18 H.L.R. 219 !Prior to the first inspection of a house by the plaintiffs, the second defendants had instructed some painters to conceal patches of dry rot from view, by painting them. The plaintiffs obtained a detailed survey of the flat in February 1979, which concluded that no dry rot had been found. The plaintiffs moved into their flat on January 1, 1980, and subsequently discovered extensive dry rot in a number of rooms. !Court of Appeal held that ordinarily, a misrepresentation is made by a statement of supposed fact, or otherwise a statement of intent. However, the painting of dry rot to conceal it amounted to a misrepresentation. ! ! 34

But silence can be enough if… ! !2) Subsequent falsification (before conclusion of contract) !With v O'Flanagan [1936] Ch 575 !Doctor was selling his practice. He told a potential purchaser that the practice had an annual income of £2000 per annum. This was true at the time but the doctor got sick and the business declined in profitability. By the time it was sold, the average weekly taking was only £5. The purchaser sought to rescind the contract. !The CoA held that the failure to notify the purchaser of the fact that the earlier statement was no longer true amounted to a misrepresentation. !Held: Mr W could rescind either because there was a duty to point out the change in circumstance or because the representation continued till the point when the contract was signed. !A ‘representation made as a matter of inducement to enter a contract is to be treated as a continuing representation’ (ie duty to correct previously correct representations).

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!But representor escapes liability if corrected before contract is concluded !Peekay Intermark v Australia and New Zealand Banking Group [2006] EWCA Civ 386 !Misrepresentation made over telephone but contract documents were accurate !Duty to correct may (Trail v Baring (1864)) or may not (Wales v Wadham (1977); Livesey v Jenkins (1985)) apply to statements of intention. 35

But silence can be enough if… ! !3) Certain contracts of ‘utmost good faith’ (uberrimae fidei) !eg insurance contracts !Lambert v Co-Operative Insurance Society [1975] 2 Lloyd's Rep 485 !Mrs Lambert was renewing the insurance on her jewellery and failed to disclo...