Misrepresentation - exam notes PDF

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Misrepresentation 1 Misrepresentation Vitiating factors vitiate consent Definition: a misrepresentation is a 1. statement of fact and 2. The fact is false that 3. induces the other party to enter into a contract Three Conditions that should be satisfied 1. A statement of fact 2. The fact is false 3....

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Misrepresentation

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Misrepresentation Vitiating factors -> vitiate consent De fin i t i on :a misrepresentation is a 1. statement of fact and 2. The fact is false that 3. induces the other party to enter into a contract Three Conditions that should be satisfied 1. A statement of fact 2. The fact is false 3. The said statement should induce the other party to enter into a contract  Te r mi sap r o mi s e , Re p r e s e n t a t i o ni sas t a t e me nt Thet i met h es t a t e me n ti sma d e , t hei mp o r t a nc e Not all misrepresentations are actionable  Something may be merely a puff If something is a misrepresentation, it can be either: o mere misrepresentation [external to the contract] o misrepresentation that becomes a term of the contract [internal part of the contract]

1. A Statement  Spoken or written words do constitute statement Courts have, however, interpreted the term ‘statement’ broadly – Gordon v Sellico Facts: in order to conceal the rotten woods. They cover up with the paint Legal principle: If anyone is trying to hide something/ not conveyed before making the contract. It is a misrepresentation Court ruling: the court held that a deliberate attempt to conceal dry rot patches (conduct) by painting them amounted to misrepresentation Spice Girls v Aprilia World Services The court held that the fact of group participating in a photo shoot and promotional materials despite knowing that Halliwell will be leaving the group amounted to misrepresentation

Silence The general rule is that silence does not amount to misrepresentation – the doctrine of caveat emptor

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Misrepresentation Exceptions: A) Half-truths (if you speak, tell the whole truth) Dimmock v Hallet  Court held that it was misrepresentation to describe a property for sale as fully let, without disclosing that the tenants had given notice to quit

B) Change of circumstances  Legal principle: If a truthful statement subsequently (after the representation was made) becomes misleading due to changed circumstances, then the false impression should be corrected *Timing is the key With v O’Flanagan: Facts: The defendant gave information to the plaintiff about income from his medical practice; by the time the contract was signed, the income fell drastically, but the defendant did not disclose this C) Uberrimae fidei (utmost good faith) contracts  Impose a duty to disclose all material facts in contracts of utmost good faith,  e.g., insurance, family settlement- need to show the financial status during a divorce D) Active Steps to conceal  will amount to misrepresentation Horsfall v Thomas 1862 - a serious defect in the gun was deliberately concealed through the insertion of a metal plug.

Fact  The false statement should be generally about the past or present fact  Not opinion Economides v Commercial Union Assurance plc 1988 Facts  A son was held not to have misrepresentation to an insurance company when he incorrectly stated the value of his parent’s belongings Court  Because they were not his belongings  And he was in no better position than the insurers to know the actual value Bisset v Wilkinson Facts

 Seller’s statement about a certain piece of land being able to

support 2,000 sheep  the seller had never worked the land as sheep farmer; the land did Court

not have the estimated capacity  it is only an opinion not a misrepresentation  Because the vendor has not previously used the land and have no expertise

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Misrepresentation Privy council said “if a reasonable man who possessed the same knowledge as the statement maker, would not have held the same opinion, the statement-maker’s opinion nevertheless constitutes a misrepresentation.”

Expert forecasts  May constitute misrepresentation if the statement was made negligently by an apparent expert with the intention of it being relied upon. (Esso Petroleum Co Ltd v Mardon 1976) Exception: if the party gave an opinion he would not believe it -> it is a misrepresentation the state of mind can be if you said what you do not think it is  A statement of intention as to the future conduct does not amount to misrepresentation if the intention changes in future  Exception: Misrepresenting the state of mind Wales v Wadham Facts

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the husband offered to pay his wife £13,000 in lieu of periodic maintenance; wife in the past had expressed her intent not to marry; but later on she remarried - whether she correctly represent her state of mind The wife in Wadham changed her intention to remarry, but why did the court not impose a duty on her to disclose this to her former husband?  The Court highlighted the continuing nature of misrepresentation – if the representation that a person made in the past became false subsequently, s/he should inform the other party (Jones v Dumbrell)

Issue Court

Glory Gold Ltd v Star Play Facts: lease of the II floor to set up a Chinese restaurant; despite the alleged representation that the III floor will not be leased to open a Chinese restaurant, it was done so Court: No misrepresentation, because when the representation is made the statement is true

2. False  What is false can sometimes be a relative question (i.e., a matter of degree)  In such circumstances, courts may consider if a reasonable person would regard the statement to be ‘substantially correct’ or not

3. Inducing the other party to enter into the contract Actually acted upon

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 General requirement: the representee should actually act upon the misrepresentation to enter into the contract Representee makes his own investigations to determine the truth of the statement  may be held to have relied on his own judgment in entering into the contract rather than being said to have been induced by the original statement

Attwood v Small  Court rejected the misrepresentation claim because the buyer of a mine had relied on his agents’ estimate (rather than on the false statement of the seller) as to the capacity of the mine

Types of misrepresentation 1. Fraudulent  A statement made dishonestly  The intent to defraud the other party is crucial Derry v Peek  Lord Herschell define fraud is proved when it is shown that a false representation has been made (1) Knowingly; or (2) Without belief in its truth; or (3) Recklessly, careless whether it be true or false

2. Negligent  When the representor makes a false statement because of failure to exercise reasonable care as to the veracity of the statement

3. Innocent  Residuary category of misrepresentation  Where the person makes a false statement HONESTLY (NO FRAUD) and WITHOUT being negligent

Remedies for misrepresentation  If the misrepresentation is actionable, the injured party can always affirm the contract by ignoring the mispresentation

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Misrepresentation

 Even after affirmation Fraudelent misrepresentation Negligent misrepresentation

Damages can still be sought

 Or rescind the contract and seek damage Innocent misrepresentation Cannot seek damage unless sue under MO Can only get indemnity

Recession  Available for all types of misrep  Require when the representee has given notice to the representor

Bars to recession i. Lapse of time At what point the time starts to run? Fraudulent The time when the fraud is discovered or reasonably been discovered Innocent/negligence Run from the time of contract formation Le a fvI nt e r na t i o na lGa l l e r i e s - innocent representation about the painter of a sold painting; misrepresentation was discovered after 5 years

Salt v Stratstone Specialist Ltd, [2015] EWCA Civ 745 - rejecting a car about 1 year after it was delivered, on the ground that the car was not “brand new” as promised the Court of Appeal held that the right to rescind the contract was not lost in this case because of lapse of time

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Affirmation of the contract

 If after becoming aware of the misrepresentation, the representee shows an intention to affirm the contract by express words or conduct, rescission is then not possible Peyman v Lanjani - the court held that since the plaintiff did not know about his right to rescind, they said right was not lost when he proceeded with the contract

Long v Lloyd 1958 Facts: the plaintiff was induced into purchasing a lorry said to be in first class. However, after the first journey, several serious defects were discovered. Court: the second journey was affirmation to the contract. Rejected rescission

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iii. Restitution is impossible  If restitution is no longer possible, the right to rescind is lost Clarke v Dickson Facts: Plaintiff was induced to buy shares in a company by misrepresentation. He sought to recover the money later, at a time when the company was being wound up. Court: held the restitution was not possible

 If the deterioration or decline in value of the subject matter is due to some external cause not related to the misrepresentation. It will not bar rescission (Armstrong v Jackson – where shares could be returned despite major fall in value)

iv. No partial recession  Contract cannot be rescinded in part (Bank of China Hong Kong Ltd v Well Lok Printing Ltd) Indemnity  The party injured of innocent representation can recover the benefits or advantages it conferred on the other party

Misrepresentation Ordinance

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 If there is a fraudulent misrepresentation, the injured party can rescind the contract and seek damages at common law  The Misrepresentation Ordinance does not change this position  If there is negligent misrepresentation, one can rescind the contract under common law  But MO changes the position regarding damages  It is quite difficult for the D to discharge the burden of proving that there was a reasonable ground to believe that the facts represented were true Howard Marine v Ogden (based on his recollection of a statement in Llyod’s Register, a manger of HM made an untrue representation to Ogden about the capacity of their barges) shows this If there is innocent misrepresentation, then the legal remedies are as follows:  right to rescind the contract [common law]  right to indemnity [common law]  court may award damages in lieu of rescission if it would be equitable to do so [Sec 3(2) of the MO] Section 2 of the MO provides that if the misrepresentation has become a term of the contract and/or the contract has been performed, the injured party can still rescind the contract even if there was no fraud Importance of Section 2: Give the option for the claimant to choose; misrepresentation can be both inside and outside the contract. Even if the misrepresentation became the terms of the contract, you still have the rights to rescind. Section 3: Measure of damages under  Because of the ‘fraud fiction’, the measure of damages under Section 3(1) is tortious (the tort of deceit) rather than for negligent misrepresentation at common law  In deceit, all losses which directly flow from misrepresentation can be recovered, whereas only reasonably foreseeable losses are recoverable in negligence Common law: file case for deceit, recover all losses directly flow from misrepresentation - no limit Section 3. Not about fraud, when D cannot establish reasonable grounds to believe, no need to establish fraud in s3. Forget about negligence, and get compensation as if there was fraud....