Pre-Contractual Statements and Representation PDF

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Notes from lecture on pre-contractual statements and representation of contract...

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Pre-contractual statements and representations Whether the contract can be avoided because of a statement or representation made during the lead up to the making of a contract. Statements made in the leading up to a contract may: Become terms in the contract; be actionable representations, or be statements having no legal effect. Is the statement a term in the contract? The question whether a particular statement has become a term of the contract depends on the objective determination of what was intended – relevant considerations may be (Heilbut Symons & Co v Buckleton):     

What words were used? At what stage of the transaction was the crucial statement made? What was the effect on the innocent party? Was the oral statement followed by a reduction of the terms to writing? Had the person who made the statement special skill or knowledge as compared the other party?

Those are just some things to consider. Need to look at the facts of the case specifically. Birch v Paramount Estates- note that statements or promises as to the future do not qualify as representations and so in order for there to be a remedy in situations where the promise is not fulfilled it will be necessary to show that it has contractual effect. CCLA Part 2 Subpart 3 requires that misrepresentation has induced the injured party to enter the contract in order for damages or cancellation to be available. Misrepresentation Elements 1. 2. 3. 4.

There was a misrepresentation The misrepresentation was made by or on behalf of another party to the contract. The misrepresentation was made to the plaintiff. The misrepresentation induced the plaintiff to enter the contract.

ELEMENT 1 – THERE WAS A MISREP So – was there a representation made? As per Spice Girls v Apirilia World Service 1. Though the representation must be one of fact, representations as to the future or of opinion frequently contain implied representations with regard to the present or to the knowledge of the representor… 2. A representation once made is likely to have a continuing effect. So if made for the purpose of an intended transaction it will continue until the transaction is completed or abandoned or the representation ceases to be operative on the mind of the representee. 3. If at a time when it is continuing the representor discovers that the representation was false when made or has become false since, he should correct it… 4. The meaning and effect of a statement or of conduct must be ascertained in the light of the circumstances pertaining at the time. Those circumstances will include the course of the negotiations and any earlier representations.

What is a misrep? Not defined by the CCLA. At common law a representation is a statement of fact made during the course of negotiations before a contract is made. A misrepresentation is a false representation. Party is entitled to damages for innocent or fraudulent misrep according to s 35(1) CCLA. What is a statement of fact? A statement of existing or past fact which is verifiable as being true or false at the time it is made. Puffery, statement of opinion, statement of intention or promise as to the future and statement of law are not statements of fact generally. What is a mere puff? Advertising hyperbole is not something that is intended to be relied upon and it is not something that a reasonable person would expect to be able to rely on (Dimmock v Hallett). The statements need to be looked at in context to determine their meaning (Easterbrook v Hopkins). What is a statement of opinion? Where it is clear that a person is merely stating an opinion there will be no misrepresentation if the opinion turns out to be wrong (Wakelin v RH & EA Jackson). If the other party acts on the statement without checking the accuracy he or she does this at their own risk. Exceptions to the general rules are when the representor never held the opinion in the first place, misrepresenting the state of his or her mind, when although the representor did hold the opinion, no reasonable person could have held it and that the facts were not equally known to the parties and an opinion was given by one who should have known the facts or who was in a far stronger position to ascertain those facts (Brown v Rafael). What is a statement of intention or promise? Generally statements of intention and promises as to the future made to induce a contract do not give rise to an action in misrep – the remedy here lies in breach of contract or not at all. A statement of future intention can be regarded as a misrep of existing fact if the representor did not intend or did not have the ability to put the intention into effect. In such cases there is a misrepresentation of the representor’s state of mind (Edgington v Fitzmaurice) – a misrepresentation as to the state of a man’s mind is, therefore, a misrepresentation of fact. What appears to be a statement concerning the future may in reality be, or it may imply, a representation to a present fact (Buxton v The Birches Time Share Resort). Forecasts as to future performance – budget forecasts can imply a statement of present fact (New Zealand Motor Bodies v Emslie). What is a statement of law? Traditionally misstatements of law have not been actionable as everyone should know the law. However the Courts have been prepared to find that a false statement of law can be actionable provided the person to whom it was made could reasonably be expected to rely on it when entering into a contract – for example where there have been: wilful misrepresentations of the law, statements of mixed law and fact, representations as to the

nature or effect of private rights and statements of law where the representor knows or should that the representee will rely on the representors superior knowledge of the law. Generally silence does not constitute misrepresentation – Normally there must be some positive statement or conduct on the part of the representor before the false representation will amount to misrepresentation – caveat emptor. Generally, there is no duty to disclose information and a failure to disclose is not a misrepresentation. Will amount to a misrepresentation only when there is a duty to speak, as where the misconception has been created by the vendors conduct, or in the course of negotiations shows that the vendors failure to remove the misconception amounts in affect to an adoption of its truth (Dell v Beasley). Silence can constitute a misrepresentation only if it is the duty of a contracting party to disclose the fact which is within its knowledge (March Construction Ltd v Christchurch City Council.) Half truths Typical case where an answer given to a specific question, although theoretically true, constitutes a misrepresentation for the reason that it does not indicate the true position (Wakelin v RH & EA Jackson). A representation has a continuing effect A representation once made is likely to have a continuing effect. So if made for the purpose of an intended transaction it will continue until the transaction is completed or abandoned or the representation ceases to be operative on the mind of the representee (With v O’Flannagan). If at a time when it is continuing the representor discovers that the representation was false when made or has become false since, he should correct it (With v O’Flannagan). The position is based on a duty to communicate the change of circumstances (Spice Girls Ltd v Aprilia World Service). Silence affirming a misconception – In certain limited circumstances misrepresentation can arise from silence. The question of whether or not a representation has been made is a question of fact. Defendants as vendors must have known that unless attention was drawn to the true factual situation… (King v Wilkinson).

Does the representor have to know of the undisclosed fact? It follows that for there to be a misrepresentation by silence it would generally relate to deliberate non-disclosure of a fact known by the representor (Ladstone Holdings Ltd v Leonara Holdings Ltd). But a half truth is not just a non-disclosure – it is an express statement which is misleading because it does not tell the whole truth. Half truth cases involve both a silence and a positive representation. Innocent half truths are not simply representations by silence (Clarkson v Whangamata Metal Supplies Ltd). Situations where there is a duty to disclose

Where the contract arises between parties in a fiduciary relationship, the fiduciary is required to disclose all material facts (Stevens v Premium Real Estate). In contracts uberrimae fidei (contracts requiring utmost good faith), the parties are required to make full disclosure of all material facts known to them whether asked about those facts or not. Examples are contracts of insurance and certain family arrangements, especially those for the settlement of family property. ELEMENT 2 – MISREP MADE BY ANOTHER PARTY TO THE CONTRACT The misrepresentation can be made by the party to the contract or by that party’s agent. (Wakelin v RH & EA Jackson Ltd) – the false statements were made by an employee of the estate agent which was acting for the vendor. Plaintiff could succeed against the vendors for misrep but not the agents because they were not parties to the contract. (King v Wilkinson) – the agents innocent misrepresentation that the boundaries of the property were as fenced induced the purchasers to enter into the contract- the vendors were liable. ELEMENT 3 – MISREP IS MADE TO THE PLAINTIFF A representation made to the agent of an undisclosed principal is a representation made to the principal – provided it is passed on to the principal and acts as an inducement (Ware v Johnson). ELEMENT 4 – MISREP INDUCES THE PLAINTIFF TO ENTER THE CONTRACT Misrepresentation is aimed at relieving parties of obligations entered into because they relied on a material misstatement. Therefore, the plaintiff is required to establish that: he or she was actually misled and the representor intended to induce the contract (subjective approach); OR that the representation was of such a nature it would induce a normal person in the circumstances of the case to enter into the contract (objective approach). It is not enough for a party to say that a representation cause him to act in a particular way. He must also show either that the representor intended him to do so, or that he wilfully used language calculated, or of a nature to induce a normal person in the circumstances of the case to act as the representee did… To view the Act in this way is to be consistent with the objective approach generally taken in regard to the law of contract (Savill v NZI Finance Ltd). The reliance must be reasonable – A material representation is one which would have induced a reasonable person to enter the contract (Savill v NZI Finance). If no reasonable person in the position of the purchaser would have relied on a statement of the type given, it would be a rare case in which the misrepresentation could be said to have induced the purchaser to buy… (Western Park Village Ltd v Baho). Representation need not be the sole or main inducementThe misrepresentation only needs to be one of the factors that induced the representee to contract.

The third requirement of s 35 is inducement. At common law, a representee was not required to establish either that the representation was the sole inducement or that, if the representation had not been made, the contract would not have been entered into. It is enough if he can show that it was a significant factor which influenced him (New Zealand Motor Bodies Ltd v Emslie). Non-inducing statementsWhere the representee is not aware of the representation (Horfsall v Thomas). Where the representee knows the representation to be false. There has to be actual knowledge – the fact that the representee had the means of discovering that it was untrue, or that with reasonable diligence, he could have discovered it to be, is not enough (Redgrave v Hurd). Where the representee does not act on the representation – the representee relies on some other independent investigation, assessment or opinion (Attwood v Small) or the representor corrects the inaccurate statement before the final agreement (Holmes v Jones). REMEDIES FOR MISREP Damages S 35 (1)(a) – CCLA provides that if a party to a contract has established an actionable misrepresentation he shall be entitled to damages from the other party in the same manner and to the same extent as if the representation were a term of the contract. The measure of damages is as far as possible to put the plaintiff in the position he would have been in if his rights had been observed and the contract had been performed as represented. That is a difference between the value of what he received and what he would have received if the representation had been true (Hughes v Huppert). No damages under the tort of negligence – s 35(1)(b) CCLA makes it clear that it is no longer possible to sue in tort for negligent misrepresentation. If the negligent misrepresentation is made by an agent who is not a party to the contract, an action will be possible in tort. CancellationS 37 CCLA provides a code governing the circumstances in which a party to a contract may cancel the contract for misrepresentation or repudiation or breach. S 37(1)(a) states that a party to a contract may cancel if he has been induced to enter it by a misrepresentation .. made on or behalf of another party to that contract. Other provisions in s 37 and s 38 sets out when a party may exercise the right to cancel. S 41 and s 42 set out the rules applying to cancellation....