Misrepresentation Seminar Five PDF

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Misrepresentation Edgington v Fitzmaurice (1885)  A statement of intention is not a statement of fact nor is a promise of fact.  A person who misrepresents his present intention does make a false statement of fact because the state of his intention is a matter of fact.  Edgington against the Hon. J. T. Fitzmaurice,  Early in November, 1880, the Plaintiff (Edgington), who was a shareholder of the company, received a prospectus or circular which had been issued by order of the directors inviting subscriptions for debenture bonds to the amount of £25,000 with interest at 6 per cent  They also stated that they would use to the money to complete alterations and additions to the buildings and purchase their own horses and vans and to further develop the arrangements for the direct supply of cheap fish.  Those statements were impeached because: (1) they were framed to lead a person to believe that the debentures would be a charge on the property of the company; (2) it failed to mention a second mortgage on the property; (3) it failed to state that the entire 21,500 pound mortgage was due in full on April 5, 1884; and, (4) that the real object of the debentures was to pay off present company liabilities and that the company could not complete its planned purchases of equipment as advertised. The trial court found for Plaintiffs. Defendants appealed. Esso Petroleum v Mardon (1976)  A statement of opinion or belief, which proves to be unfounded, is not a false statement of fact.  Negligent misstatement  Case concerned the lease of a petrol station. Esso employee estimated to Mardon the throughput of petrol over a 3-year period. Mardon took the lease on the strength of this information, but it proved to be incorrect. Held that it was a negligent misstatement that afforded a remedy in tort.  Mr Mardon entered a tenancy agreement with Esso Petroleum in respect of a new Petrol station. Esso's experts had estimated that the petrol station would sell 200,000 gallons of petrol.  This estimate was based on figures that were prepared prior to planning application. The planning permission changed the prominence of the petrol station that would have an adverse affect on the sales rate. Esso made no amendments to the estimate.  The rent under the tenancy was also based on the erroneous estimate. Consequently it became impossible for Mr Mardon to run the petrol station profitably. In fact, despite his best endeavours the petrol station only sold 78,000 gallons in the first year and made a loss of £5,800.  The Court of Appeal held that there was no action for misrepresentation as the statement was an estimate of future sales rather than a statement of fact. However, the claimant was entitled to damages based on either negligent misstatement at common law or breach of warranty of a collateral contract.

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“not in the business of giving advice, it was significant that they were experienced and had special knowledge and skill in estimating the petrol throughput at a filling station, whereas the plaintiff didn’t”

JEB Fasteners v Marks, Bloom & Co (1983)  The defendant’s accountants prepared accounts for client and negligently overstated the value of the stock. It was held that though the auditors should have foreseen the accounts being relied upon for the purposes of a takeover, there was no reasonable reliance as they weren’t directly concerned with the value of stock and were therefore, not liable.  The defendants negligently prepared the accounts of a company, which was taken over by the claimants, who had reservations about them, but they nevertheless decided to proceed with the takeover because they wished to acquire the services of the two directors of the company.  The takeover was not a commercial success and the claimants brought an action claiming the negligence on the account.  The court ruled that the accounts did not induce the contract, but the want for services of the two directors of the company. R v A-G for England and Wales (2003) Privy Council  After the Gulf War, an SAS soldier of the Bravo Two Zero patrol was told to sign a confidentiality agreement or be demoted. He signed. Then he returned to New Zealand. He got a publishing contract for his memoirs, about material in the Gulf War.  The New Zealand Court of Appeal denied an injunction, but allowed an account of profits and an assessment of damages for breach of contract. R appealed to the Privy Council, contending the contract was under duress when he signed, given the threat of demotion.  An appeal, by a former member of 22 SAS Regiment and a member of patrol B20 (Bravo Two Zero), against the Court of Appeal of New Zealand's decision that the confidentiality contract entered into by him was valid was dismissed since there had been no duress or undue influence. Pesticcio v Hunt (2004) High Court Chancery Division  CA held in Pesticcio v Hunt [2004] EWCA Civ 372, that the court may set aside a transaction as having been procured by undue influence, although the actions of the person who had derived benefit from it cannot be considered as wrongful, and claimant had taken advice from a solicitor at the appropriate time.  Mr Pesticcio with his widowed mother, Mary Pesticcio (Mary). Bernard was admitted to hospital following a serious fall at home. He was in a coma and suffered brain damage. He stayed in hospital for six months. On discharge from hospital he was transferred to St Albans Nursing Home. While Bernard was in hospital a solicitor, Miss Dawn Tindall, who had been contacted by Maureen or Caroline, visited him.  If Mary vacated the House, and Bernard remained owner, it would be taken into account as part of his assets by the local authority when considering his ability to pay towards the nursing home fees. It seemed

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unlikely that Bernard would ever leave the nursing home. According to Miss Tindall, Bernard wanted to give the House to Maureen, so that she could look after Mary, who was keen for him to enter into the Deed of Gift. Maureen sold the House to her daughter's boy friend, Alan Huet, for £50,000, of which £47,500 was lent by Abbey National Plc on the security of the House. With the proceeds Maureen and her husband bought a new house. The judge did not regard the explanations as reasonable or satisfactory: as Mary was living in the House at the time it would not be taken into account in assessing his liability to pay fees; if a transfer was made to avoid such liability it could be set aside at the instance of the local authority; the terms of the Deed afforded no protection for Mary's care by Maureen; the gift deprived Bernard of well over 90% of his assets; and, if Bernard had been left with £18,000, it would not have been taken into account in assessing his liability to pay fees.

1. 18 months ago, Green began negotiations with Hansen to buy his dental practice in the village of Hobly. At the beginning of negotiations Hansen assured Green that there was no practice within a 40-mile radius of the village and told him, further, that the practice grossed about £60,000 per annum. Accounts were available but Green chose not to look at them. Hansen’s asking price for the practice was £250,000. Green, knowing Hansen was in severe financial difficulties, offered £200,000 provided Hansen signed the contract there and then. Green also makes veiled threats about telling Hansen’s wife, Tina, about Hansen’s affair with his dental nurse. Hansen signed the contract, albeit reluctantly. It has now transpired that the practice had never grossed over £50,000 per annum. Furthermore, two months after the negotiations started (but before the sale was completed) a new practice opened up two miles away, taking many of Hansen’s patients. Hansen did not tell Green about the new practice, though he knew of it being set up. Nevertheless Green continued with the practice in the hope that he would be able to build it up. Green raised a loan of £150,000 towards the purchase price of £200,000, on which interest of £800 per month is payable. After a year he has failed to improve the situation despite considerable further injections of capital to buy impressive new equipment. Advise Green and Hansen. What do Green and Hansen want? Hansen wants the contract to be upheld while achieving more money, since the price for the practise was lower than he wanted. Green wants to end the contract, as the practise isn’t doing that well. Misrepresentation There was no practice within a 40-mile radius of the village- is it a false statement or law prior to making the contract addressed to the party misled which induces the contract. Is this false statement material? Negotiations lasted for 6 months approx and the statement became false 2 months into the

contract. Furthermore, two months after the negotiations started (but before the sale was completed) a new practice opened up two miles away, taking many of Hansen’s patients. Hansen did not tell Green about the new practice, though he knew of it being set up. Authority is With v O'Flanagan [1936] Ch 575 "So again, if a statement has been made which is true at the time, but which during the course of negotiations becomes untrue, then the person who knows that it has become untrue is under an obligation to disclose to the other the change of circumstances” therefore it is a misrepresentation, may be negligence That the practice grossed about £60,000 per annum. Accounts were available but Green chose not to look at them. Hansen’s asking price for the practice was £250,000.It has now transpired that the practice had never grossed over £50,000 per annum. Could be fraudulent misrepresentation, made a reckless claim and induced the contract. Hansen wanted to gain money and therefore it was a material fact and created inducement. Authority is Esso Petroleum v Mardon Green, knowing Hansen was in severe financial difficulties, offered £200,000 provided Hansen signed the contract there and then. Green also makes veiled threats about telling Hansen’s wife, Tina, about Hansen’s affair with his dental nurse. Hansen signed the contract, albeit reluctantly. Economic duress has Hansen is in financial difficulties and the pressure induced the contract, no other alternative and contract could be void. Authority- universal sential. Stilk case, DC builders v Rees. -Additional information on the actual value of the dentist practice. Blackmail through the affair with the dental nurse. During the duress, the innocent party (Hansen) can make the contract voidable. If the contract features threat to the individual, it is automatically void. What is a misrepresentation?  The law does not recognise the duty to disclose material facts known to one contracting party but not to the other.  It is a duty to not make false statements of fact or law to the other contracting party thereby to induce him to enter into the contract.  Unambiguous, false statement of fact or law, which is addressed to the party, misled which is material and which induces a contract.  If the statement becomes an express term of the contract, and that statement turns out to be untrue, then an action would lie in breach of contract.  Crystal Palace FC v Dowie [2007] EWHC 1392 Requirements for a misrepresentation 1. The first element of misrepresentation is that there must be a false statement of existing fact: a. The representation must be an unambiguous false statement of existing fact.

b. The need for a statement underlines the point that a failure to disclose information will not generally constitute a representation. c. Courts have flexibility on what they conclude to be a statement. d. ‘Mere Puff’ has been concluded to vague statements that can not constitute in an actionable misrepresentation Dimmock v Hallett (1866)- Turner concluded that the labelling of a field as ‘fertile and improvable’ does not allow the party to set aside the existing contract. Unless in extreme cases Carlill v Carbolic Smokeball co (1893)- Smokeball advertisement offering £100 for anyone who caught the flu after using the product. e. A statement of opinion or belief, which proves to be unfounded, is not a false statement of fact, Bisset v Wilkinson (1927)- A vendor in a farm in New Zealand represented that the land could hold 2000 sheep and when in fact it could not. It was concluded to be a statement of opinion as the vendor honestly held that opinion. Esso Petroleum v Mardon (1976), cf Smith v Land and House Property Corporation (1884)- Landlord described tenant as ‘most desirable’ and this was untrue and the landlord had superior knowledge on tenant therefore an actionable misrepresentation. f. A statement of intention is neither a statement of fact nor a promise of fact. A person who fails to carry out his stated intention does not thereby make a misrepresentation, Wales’s v Wadham (1977). A person who misrepresents his present intention does make a false statement of fact because the state of his intention is a matter of fact. Edgington v Fitzmaurice (1885) 2. The second element must induce the party to enter into the contract a. The misrepresentation must be known to the misrepresentee and be material How should a misrepresentation be addressed to the party misled?  The representation may be addressed to the claimant by the representor.  The misrepresentation could be addressed by a third party with the intention that it can be passed on to the claimant, Commercial Banking Co of Sydney v RH Brown and Co (1972). What are the types of misrepresentation? 1. Fraudulent misrepresentation to being a ground on which a contract can be set aside constitutes the tort of deceit. Derry v Peek [1889] 14 App Cas 337 case defined Lord Herschell: “A false statement made knowingly or without belief in its truth or recklessly, careless whether it be true or false” 2. Negligent misstatement- Hedley Byrne & Co Ltd v Heller and Partners Ltd [1964] AC 465 - In this case, the House of Lords widened the scope of tortious liability for negligent misrepresentation. Success depends on the proof of a special relationship between the parties. If there is such a relationship, the defendant utters negligent words knowing that the claimant would rely on them and the claimant does actually rely on them,

then there may be an action for negligent misrepresentation. Burden of proof is on the representee (claimant). 3. Negligent misrepresentation is under the Misrepresentation Act 1967 section 2 (1) and common law, Hedley Byrne. 4. Innocent misrepresentation is neither fraudulent nor negligent. What are the remedies? 1. Setting aside the contract, which was, induced through misrepresentation, Rescission- Put them back to their original position before the contract. 2. The innocent party may affirm 3. Lapse of time leads to affirm 4. Can receive damages under Misrepresentation Act 1967 section 2, the court has the decision to award damages, the court digression. 5. May be able to claim through Tort in negligence or fraudulent misrepresentation. What is duress?  There are three types of duress; o The threat of violence, duress of the individual, Barton v Armstrong (1975)- the threat was a factor influencing the decision to enter into the contract, former chairman threatened current managing director with death if he did not pay a large sum of money for the former chairman’s share. o Threat of damage to goods, duress of good, Skeate v Beale (1840)the dentention of another’s goods does not constitute duress but money paid to release the goods is unlawfully detained could be recovered back in an action for money. This view is no longer followed, replaced with more modern view that duress of goods can be the basic of the claim. The Siboen and The Sibotre (1976). o Economic duress is one party using their superior economic power in an ‘illegitimate’ way to coerce the other contracting party to agree to a particular set of terms.  Illegitimate threats can be threat to commit a crime, threat to commit a tort and threat to commit a breach of contract to exploit the weakness in the person.  The Siboen and The Sibotre (1976)- world recession in shipping industry and the charters demanded regeneration of contract and ship owners had no choice but to agree.  The subjective question of genuine coercion  The absence of a reasonable alternative course of conduct.  Atlas Express v Kafco (1989)- Kafco had no alternative course and A was a carrier to deliver Kafco’s goods to Woolworth. Estimate of 400-600 cartons at £1.10 each. Actually, 200 cartons only and Atlas refused to carry more without £440 per load. Kafco had to agree to protect contract with Woolworth.  The Universal Sentinel [1983]- Workers federation blacked a ship and coerced it to pay in to the fund to secure release.

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This was economic duress with illegitimate pressure – although the court was undecided as to what was legitimate and what was not. The doctrine of economic duress is still uncertain The Atlantic Baron [1978]- Shipyard built tanker for shipping company and were paid in five instalments. Shipyard opened a letter of credit to refund payments made if they should fail. Shipyard demanded increase and company reluctantly agreed as they needed that ship for other contracts. Months later, they sued for the excess and failed. Economic duress had occurred but the open credit letter was sufficient consideration for the fresh agreement and the month’s delay affirmed the contract. Cases of economic duress and duress to goods make a contract voidable, whereas duress to the person renders a contract void (according to Barton v Armstrong).

What is undue influence?  Lord Hoffman in R V A-G for England and Wales (2003) defined undue influence as a principle that a transaction to which a consent has been obtained in unacceptable means, it should not be able to stand. The unfair exploitation by one party of a relationship, which gives him influence over the other.  Two approaches actual undue influence and presumed undue influence.  Actual undue influence overlaps with common law duress, Williams v Bayley (1866)- threat to son amounted to undue influence. In Etridge case it was defined as ‘an equitable wrong’ committed by the dominant party against the other....