Misrepresentation Week 2 PDF

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Misrepresentation Week 2 What is an actionable misrepresentation? 1. 2. 3. 4. 5.

A statement of material fact that is made In writing, orally or by conduct Prior to the contract by one party to another which is False or misleading and which Induced the innocent party to enter into the contract

In writing, orally or conductConduct: spice girls v Aprilia world service BV [2000] The court in the case held that a misrepresentation to Aprilia which is a moto scooter manufacturer was made by the conduct of spice girls. In this case before Aprilia signed a contract with the spice girls to sponsor their concert tour the spice girls appeared in a photo shoot and other promotional material as if all was well and the band was staying together. However, Aprilia was not aware that whilst this image of unity was being portrayed the band knew they were splitting up. Aprilia sued the spice girls for misrepresentation, it argued that the group had falsely represented an image of unity that Aprilia relied on to enter into a longerterm contract with the group. The court agreed with Aprilia and held that in taking part of a photo shoot as well as other promotional activities sold this false image of unity. The spice girls conduct amounted to an actionable misrepresentation. Silences and non-disclosuresIn English law there’s a general rule that silences and nondisclosures do not amount to actionable misrepresentation. o General rule: a party has no obligation to disclose facts that might affect another party’s decision to contracts or not- Keates v Cadogan [1851]. Court held landlord had no obligation to disclose to the tenant that the house he was letting was in a really bad condition. Exceptions: o Half-Truths will be actionable so where a party makes a statement that is true but fails to reveal or conceals other important information. Dimmock V Hallett [1866] and Nottingham patent brick and tile co v butler [1866]. o Changes in circumstances- if a true representation becomes false the representor has a duty to inform the party of this change. With v o’flanagan [1963] o A duty to disclose exists when dealing with Fiduciary or confidential relationships. Fiduciary relationships are relationships of special confidence between certain groups of people with special duties of care imposed on those entrusted with that confidence. E.g. relationship between a solicitor and client, doctor and patient. The

obligation is on the person who is entrusted with that confidence to disclose all relevant material facts to other party. o Contracts uberrimae fidei (contracts of utmost good faith) in these cases a duty to disclose all material facts is imposed regardless of the nature of the relationship between the parties. Insurance is a good example here. The statement must be made before or at the time of the contracto If a statement is made after the contract is formed that statement cannot be said to have influenced the decision of a party to contract with another. o Roscorla V Thomas (1842) the horse seller told the horse buyer that the horse was sound and free from vice. However, the horse was neither sound nor free from vice. The court held that there was no case to answer because the statement was made after the formation of the contract. A pre-contractual statement must be false or misleadingo Damages are available for both fraudulent as well as negligent misrepresentations. o Not innocent misrepresentation. (except rescission as an equitable remedy) The statement must induce the innocent party to enter into the contracto The statement must have been material to the decision of an innocent party to enter the contract o Objective test: if a reasonable person would have been induced by a statement to enter a contract, then there is a presumption that the statement is misrepresentation o The statement must form some part of a reason why the innocent party entered a contract- JEB fasteners ltd v marks blooms & co [1983] o Not necessary for a false/misleading statement to be the only reason as to why an innocent party enters a contract: Edgington V Fitzmaurice [1885] the statement can be one of the reasons that induces the party. o In Edgington, Lord Bowen held- as long as the statement which was misleading was actively present to his mind when he decided the advance the money- it was enough to conclude that the statement induced him into the contract. o The statement can still amount to misrepresentation even if an innocent party was given a chance to discover the truth- Redgrave V hurd [1881] o Redgrave rule will not be applied to cases where a statement that is false or misleading is put into a contract and signed by the partiesPeekay intermak ltd v Australia and new Zealand banking ltd [2006]

o If an innocent party does not rely on a statement, no misrepresentation will be found o If a party was unaware of a statement that was misrepresented to them, they cannot claim they relied on it o If a party is aware of the fact that a statement is misleading or false, they cannot rely on misrepresentation to vitiate a contract. Classification of misrepresentationso Innocent misrepresentations o Fraud related misrepresentations o Negligent misrepresentations

Innocent misrepresentationso Made with reasonable ground to believe they’re true o False statements made without dishonest, deceit or a reckless or careless disregard as to their validity Fault related misrepresentationo Subdivided into fraud-related misrepresentations and negligent misstatements o Fraud related misrepresentation have 2 categories: Actual fraud misrepresentation Fiction of fraud misrepresentation o They are the result of fraud, dishonesty, deceit, negligence or a careless disregard for the truth o Innocent parties can walk away from the contract and not perform their obligations stated in the contract and claim compensation. Actual fraudulent misrepresentationo Common law- based misrepresentation o Based on a tort of deceit – Derry V Peek [1889] Fiction of fraud misrepresentationo Statutory law-based misrepresentation o Section 2(1) of the misrepresentation Act 1967 Actual Fraudulent misrepresentation- common law In Derry it was established where o There was a proof of fraud o A false statement was made Knowingly Without belief in its truth or Recklessly, carelessly as to whether it’s true or false o The reason why you lied or acted dishonestly, does not matter – Akerhielm V de mare [1959] o Contracts based on fraud can be invalidated and an innocent party can claim damages.

o Damages- direct losses and indirect losses. Because its fraud they can sue for damages that weren’t reasonably foreseeable when the fraud was committed Fiction of fraud Misrepresentationo If fictions of fraud are established, it allows innocent parties to walk away from contracts and sue for damages as if actual fraud had been committed – Royscott V Rogerson. o Section 2(1) does not require to prove fraud and meet the darry v peek test. o Instead an innocent party has to prove the Yam seng pte ltd v international trade corp ltd [2013] 1. They entered into a contract with the defendant 2. They did so on reliance and after a representation of fact had been made by the defendant 3. The representation was false 4. As a result of entering into the contract with the defendant they suffered a loss. The act is very significant in contrast with actual fraudulent misrepresentation, because it imposes the burden of proof on the defendant. To show that the defendant had reasonable grounds for believing the accuracy of the false statement. So, they have to prove they made the statement honestly to escape liability. Negligent misrepresentation- is a tort o This form of misrepresentation is based on proving negligence not fraud. It was established in the Hedley byrne & co ltd v heller [1964] o The house of lords for the first time recognised a new category of misrepresentation based on the tort of negligence o A claimant must establish that: 1. A defendant owed them a duty of care 2. There was sufficient proximity between them and the defendant (there was a ‘special relationship’ between them) 3. The defendant breached their duty of care and did not exercise reasonable care and skill. This only applies where someone with specialist knowledge makes a false statement which is relied on by another in entering a contractual relationship. Only applies where there is a close enough relationship with a specialist to establish a duty of care. A claimant can therefore void their contract and claim for damages. Negligent misstatement under Hedley: o Claimant can void contract if possible and sue damages o Requires proof of duty of care or a special relationship between both parties o Does not operate under fiction of fraud

Section 2(1) o The types of damages that claimants can recover are much more limited o Damages are the subject to the test of reasonable foreseeability and remoteness.

■ claimant can rescind a contract and/or sue damages Claimant can void contract and sue for for damages Section 2(1) applies to all statements made without reasonable care no need for■ a specialSection relationship 2(1) applies to all The types of damage that claimants can recover are wider statements made without reasonable care ■ The types of damage that claimants can recover are wider

Section 2(1) o o o...