Misrepresentation - Contract law notes. PDF

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Misrepresentation – renders contract voidable i. still exits but set aside by representee - Law relating to misrep found in: Common law & MRA 1967 – remedy depends of type of misrep – generally rescission and or damages – right to rescind may be lost (subject to four bars) – innocent misrep ...

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Misrepresentation – renders contract voidable i.e. still exits but set aside by representee - Law relating to misrep found in: Common law & MRA 1967 – remedy depends of type of misrep – generally rescission and or damages – right to rescind may be lost (subject to four bars) – innocent misrep damages subject to courts discretion MRA 1967 s 2 (2). A misrepresentation is a false statement of fact or law that induces the representee to enter a contract. Where a statement made during the course of negotiations is classed as a representation rather than a term an action for misrepresentation may be available where the statement turns out to be untrue. Three types of misrepresentation: innocent misrepresentation, negligent misrepresentation and fraudulent misrepresentation. FALSE STATEMENT + INDUCEMENT – EXCLUSION OF LIABILITY = ACTIONABLE MISREP False statement of fact or law not opinion or estimate of future events: o Bisset v Wilkinson (sheep farm – estimation – not actionable) o

Esso Petroleum v Mardon (petrol station – estimation)

A statement of opinion may amount to an actionable misrep where the representor was in a position to know the facts: o

Smith v Land & House Property Corp (‘most desirable tenant’ arrears)

A statement as to future intent can not amount to a misrep unless the representor had no intention of carrying out the stated intent: o

Edgington v Fitzmaurice (no intention to use money to expand business, paid companies debts instead)

False statement of law will now amount to an actionable misrep: o Pankhania v Hackney [2002] (not mere licenses – full protected business tenants) Silence will not generally amount to a misrepresentation – no duty to disclose: o Keates v The Earl of Cadogan – no duty of disclosure o Smith v Hughes (didn’t mislead) Exceptions o Half-truths – Dimmock v Hallet (tenants had given notice to quit) o Change in circumstance – With v O’Flanagan ) (effect of ill health on practice should have been notified) (obligation to disclose change of circumstance) o Duty to disclose all material facts in insurance contract - HIH Casualty and General Insurance Ltd v Chase Manhattan Bank Statement can be made by conduct: o

Gordon v Selico Co Ltd (concealment of dry rot)

o

Spice Girls Ltd v Aprilla World Service BV (concealment of band member leaving)

Established false statement? Now representee to demonstrate that the false statement induced them to enter the contract. There can be no inducement or reliance if the representee was unaware of the false statement: o o o

Horsfall v Thomas (hadn’t inspected gun on buying it – thus no inducement) Attwood v Small (agent checked validity of stattement – no reliance) Redgrade v Hurd (old solitor) (declining to check fact does not negate reliance)

Recent example: Peekay Intermark v Australia & NZ Banking Group [2006] Now determine the type of Misrep Fraudulent – assessed on the Tort of deceit – not contractual principles Lord Herschell defined fraudulent misrepresentation in Derry v Peek as a statement which is made either: i) knowing it to be false, ii) without belief in its truth, or iii) recklessly, careless as to whether it be true or false The burden of proof lies on the claimant: Derry v Peek Negligent under common law – made honestly but without reasonable care – before 1960s no liability for negligent statements – Hedley Byrne v Heller 1964 – C to prove Test – Esso v Marden o Special relationship required o Defendant must have special skill in subject area of the contract o Must be reasonable for C to rely on statement o D must reasonably know C will rely on the statement Negligent under statute – MRA 1967 deals with non-fraud misrep – under s.2 (1) MRA a statement made without reasonable grounds for belief in its truth – Burden of proof on D (representor) to demonstrate reasonable belief in its truth. “fiction of fraud” o Burden of proof difficult to discharge – Howard v Ogden o Benefits of MRA: burden of proof reversed, no requirement to establish special relationship , more money (damages) Wholly innocent – when representor can demonstrate reasonable grounds for belief in truth in statement – default category… If not fraud or negligent then innocent Remedies Rescission – equitable remedy - available for all types of misrep - subject to four bars – parties restored to pre-contractual positions (parties return benefits). Bars to rescission – can result in injured party losing rights to rescind o Affirmation – demonstrating willingness to continue contract through words or conduct: Long v Lloyd (accepting half payment for defects) o Lapse of time – right to rescind after lapse of time – negligent & fraudulent time starts from time of o o

discovery – innocent from time of entering contract: Leaf v International Galleries Restitution in integrum (is impossible) – impossible to restore parties to pre-contractual position goods perished or consumed: Clarke v Dickson Third party rights acquired – (i.e. product sold on good faith) as to not prejudice third party : Car & Universal Credit v Cadwell

o

Court orders damages under s 2 (2) instead rescission

Indemnity - NOT A CLAIM FOR DAMAGES – COVERS COSTS INCURRED UNDER CONTRACT BEING RESCINDED – limited – useful for innocent misrep as damages are not available as of right – test : whether expenses or losses were incurred as a result of entering contract - Whittington v Seale –Hayne Damages – available as of right (discretion of courts in innocent misrep s2(2) mra) o In innocent misrep – discretion on courts – either damages or rescission (cannot have both – in lieu – instead of) o Damages in innocent assessed according to contractual principles – William Sindall pls v Cambridgeshire council o Under s 2 (2) if right to rescind is lost so has right to damages - Salt v Stratstone Specialist Ltd o o o

o o o o

In fraudulent – innocent party entitled to rescind (ab intio) and claim damages Damages assessed according to tortious principles(tort of deceit) as representation is not a term of contract - Doyle v Olby damage not need to be foreseeable – must be directly flowing from transaction – entitled to claim consequential losses - Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd Not possible to exclude liability – damages cannot be reduced for contributory negligence In Negligent common law – damages for all losses which are reasonably foreseeable consequence of representation damages can be reduced for contributory negligence tort damages available – aim to place injured party in position he would have been in had the tor been committed

o o

In Negligent under MRA 1967 s2 (1) – assessed as if representation was fraudulent ‘the fiction of fraud’ Can claim for all losses flowing from misrep – foreseeability not considered: Royscott trust v Rogerson

Exclusion of liability o Governed by s3 MRA 1967 - Liability can be excluded if the clause is reasonable under s11 UCTA 1977. o At common law it is not possible for a party to exclude liability for his own fraud – S. Pearson & Son ltd v Dublin Corp...