Types of Misrepresentation PDF

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Types of Misrepresentation:    

Fraudulent Misrepresentation Negligent Misrepresentation Innocent Misrepresentation Section 2(1) Misrepresentation

Remedies: Remedies potentially available for all types - mutual dismantling of parties benefits received under contract. Damages only available as of right for fraudulent misrepresentation (tort of deceit) negligent misrepresentation at common law or under S.2(1) of the Misrepresentation Act 1967 Fraudulent Misrepresentation Derry v Peak (1889) 14 App Cas 337 o

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Prospectus for a tram co indicated that it had the right to use steam power. The directors had assumed that the Board of Transport would give the necessary permission for this, but they did not. The plaintiff's had bought shares in reliance on the statement and sued for the tort of deceit. Tort of deceit = fraudulent misrepresentation (old legal language) The House of Lords held that for an action for deceit it was necessary to show fraud. This meant in the words of L Herschell that a false representation must be prove to have been made "(1) knowingly; or (2 )without belief in its truth; or (3) recklessly, careless whether it be true or false" On the facts, the defendants were not liable because they honestly believed in the truth of their statement. Statements made with a lack of care or negligence are not fraudulent. L. Herschell noted difference between negligence and fraud – a false statement honestly believed does not amount to fraud

Thomas Witter v TBP Industries Ltd (1996) 2 All ER Mere negligence in insufficient - there must be knowledge of falsity or reckless disregard for truth. Remains valid law today. There is a threshold for misrepresentation and it will be policed.

Negligent Misrepresentation: In certain situations, damages for the tort of negligence may be recoverable in relation to misstatements. The law governing this area comes from:

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Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 The plaintiff's asked their bank to give their opinion on the financial standing of a firm. The bank gave a positive report, plaintiff's entered into an agreement with the business, soon after

it went into liquidation owing money to the plaintiff's. They sued arguing the statements were made negligently. o

HOL held that the bank owed a duty of care to the plaintiff, and so could be liable for the consequence of negligent statements which caused economic loss. However, on the facts the bank was protected by a “without responsibility” disclaimer which it had attached to its advice. However, in the absence of this, the ban would have been liable.

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Nevertheless, the case established the possibility of taking action in the tort of negligence in relation to statements taken without proper care which result in economic loss as long as a duty of care existed between the parties.

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2 requirements:

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a)The maker of the statement must reasonably foresee that the person to whom the statement would rely on it, and suffer loss if it was untrue

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b) There must be “proximity” between the parties – this will usually be satisfied where there is a contract between the parties.

Duty of Care: In tort law, a duty of care is a legal obligation which is imposed on an individual requiring adherence to a standard of reasonable care while performing any acts that could foreseeably harm others. It is the first element that must be established to proceed with an action in negligence. The claimant must be able to show a duty of care imposed by law which the defendant has breached. In turn, breaching a duty may subject an individual to liability.

Esso Petroleum v Mardon (1976) QB 801 o o

English courts appear willing to find an assumption of responsibility (duty of care) wherever X gives advice having held himself out as having expertise such as he knows Y will rely on it. Liability applied if it was reasonable for Y to rely on the statement of X

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Professional comments are obviously more likely to create duty of care that one in a social setting.

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Expert valuer of oil company made a representation about potential sales of a certain garage to a prospective tenant.

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Clearly possessed a special skill, experience and knowledge.

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Reasonable M would rely on his advice

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Courts of Appeal held a duty of care existed.

Innocent Misrepresentation: Statement which representor believes to be true and which a reasonable person would believe to be true - I.e. not fraudulent, not negligent, not within s.2(1) This is now a residual category. Remedy: rescission (and indemnity)

Lead v International Galleries (1950) 2 KB 86 o

"Salisbury Cathedral" by John Constable was what Leaf thought he was buying on March 8, 1944 from International Galleries. International Galleries said it was a Constable. Leaf paid £85. Five years later when he tried to auction it at Christies, L was told that it was not a Constable. He claimed rescission of the contract against International Galleries, to get back his money

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‘It is true that the plaintiff bought the picture on the faith of the representation, innocently made, that it was a painting by Constable. It is true that this was a representation of great importance, which went to the root of the contract and induced him to buy’ (Jenkins LJ)

Section 2(1) Misrepresentation: o

In 1967 the legislator improved the position of the representee still further by reversing the burden of proof in cases of non-fraudulent misrepresentation with Section 2(1) Misrepresentation Act 1967:

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Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true. (escape clause)

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Its an interference by parliament into common law.

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If someone makes a representation and it causes a loss even if it is innocent you are entitled to the damages.

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Making available the remedy in damages to those that suffered under negligent/innocent misrepresentation.

Section 2 (1) Misrepresentation Thus if…. a a contracting innocent party; b enters a contract after a misrepresentation has been made to

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c that representation was made by the other contracting party; d representor would be liable if that representation were fraudulent. Then … representor is liable under s.2(1) unless he proves both: a he had reasonable grounds to believe it, and b he did believe it up to time of contracting.

Key Points on s.2 (1)  

used for non-fraudulent misrepresentation. The circumstances you would use S. 2(1) are mostly where a claimant would want to receive damages instead of rescission as remedy.

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In particular, it might cover a situation where a negligent misrepresentation happens when a representation made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate.

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If no "special relationship" exists, there may be a misrepresentation under section 2(1) of the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.

Reasonable grounds to believe it:

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Howard Marine & Dredging v Ogden (1978) QB 547 O hired two dredging barges from the defendant, HM for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact the entry in Lloyds register was wrong. The capacity was in fact much lower. Work carried out by O took much longer and cost a great deal more to perform. The claimant brought an action for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register. Held: The defendant had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document....