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Misrepresentation
Intro
Identify the loss and damages that was suffered by the Claimant Identify the statements that are in issue Identify the Claimant and the Defendant Course of action : Misrepresentation OR Breach of Contract
Misrepresentation is concerned with the effect of statements made by the parties prior to entering into a contract. These statements may become terms of the contract or they may be ‘mere’ representations.
The difference will lie in the course of Action that can be brought and the remedies that are available
This distinction was very important before 1967. Prior to 1967 the remedies for misrepresentation were limited; and when a misrepresentation was incorporated as a contractual term the remedy of rescission for misrepresentation was lost.
Therefore the, parties had to go through great lengths to persuade courts that statements were intended to be terms in order to secure a remedy.
This has however been changed by the Misrepresentation Act 1967. a. There are now much more extensive remedies in damages available for misrepresentation (under section 2 of the Act) and
b. Section 1(a) provides that a contract may be rescinded for misrepresentation, even if the misrepresentation is also a term of the contract.
If they are terms of the contract then a remedy lies for breach of contract.
If they are ‘mere’ representations then, should they prove to be false, then the remedies available are for misrepresentation.
CONTRACTUAL CARTOGRAPHY TEST
When a Statement is made, it could be a Term, Representation or Mere Puff.
Mere Puffs are vague exaggerated statements – Sales Talk which are Not Actionable.
If the courts are uncertain as to whether the statements are Terms or Representations, they would apply certain guidelines to help them decide
Heilbut, Symons & Co v Buckleton (1913) Lord Moulton - it all depends on the intention (objectively ascertained) of the parties. Do their words and conduct indicate to a reasonable person that the statement was intended to be mere representation or, alternatively, that it was intended to be a contractual term?
Some of the factors / guidelines:
A. The importance of the statements to the parties
i. Where the buyer attaches importance to the statement and would not have entered into the contract if the statement was not true
Bannerman v White (1861) TERM
ii. Where the buyer specifically ask the seller to confirm a statement in the catalogue before the sale
Couchman v Hill TERM
iii. Where the statement was made not in the same transaction as the sale, this would most likely not be a term - Hopkins v Tanqueray
B. The relative degree of knowledge / skill between the parties
The issue here would be whether the person making the statement had special knowledge or skill as compared to the other party. If the answer is yes, then the courts would most likely infer the statement as a term.
Oscar Chess v Williams (1957) REPRESENTATION
Dick Bentley v Harold Smith Motors Ltd (1965) TERM
Thus a statement could be:
Not Actionable Breach of Contract Misrepresentations
Representations are statements made during negotiations / pre-contract statements to induce the other party to enter into a contract. Some of these statements would end up as terms of the contract and some would remain representations. However if the party relied on the representations to enter into the contract, then he can sue if the representations are false.
If it a Mere Representation, then the following must be discussed:
Actionable
Misrepresentation
Types of
Misrepresentation
Remedies for
Misrepresentation
Mere Puff
Vague & Exaggerated Statements
Terms
Forms part of the Contract
Representations
Pre- contract statements made during negotiations
Misrepresentation
Actionable
Misrepresentation
Types of
Misrepresentation
Remedies for
Misrepresentation
Unambiguous False
Statement of Fact or Law
Addressed to the
Other Party
Induced him to enter
into the Contract (^) Damages Rescission
Fraudulent Misrepresentation Negligent^ Misrepresentation^ @ Common Law
Negligent Misrepresentation under Section 2 Misrepresentation Act 1967
Innocent Misrepresentation
When the whole truth was not disclosed – half truth Dimmock v Hallett (1866)
Contracts of the utmost good faith’ (or uberrimae fidei). Parties are obliged to disclose relevant information, even if it is not asked for - Lambert v Co-operative Insurance Society Ltd [1975]
Duty to act in Good Faith
Recent cases considered the desirability of a more general duty upon contractors to act in good faith extending beyond the negotiation of a contract. Leggatt J the enthusiastic supporter in Y am Seng Pte Ltd v International Trade Corp Ltd [2013] HC Novus Aviation Ltd v Alubaf Arab International Bank BSC [2016] HC
Sheikh Tahnoon Bin Saeed Shakhboot Al Nehayan v Ioannis Kent [2018]. He stated that a duty ‘to act reasonably and with fair dealing having regard to the interests of the parties was an essential feature of any relational contract, which he defines as a contract where parties are committed to collaborating with each other, usually on an extended basis, in ways that are hard, or impossible to specify in advance.
Bates v Post Office Ltd (No 3) [2019] EWHC,
New Balance v Liverpool FC {2019] EWHC
Conduct - A statement may be express but may also be made by conduct - Spice Girls
Fact or law - statement of opinion is not a misrepresentation - Bisset v Wilkinson [1927]
Exceptions where a person can be sued for Opinions.
a. Person expressing the opinion is aware of facts which indicate that the opinion cannot be sustained.
Smith v Land House Corporation [1884] The Landlord knew the Tenant was behind with the rent. He cannot be described as a ‘most desirable tenant’.
b. If representor has particular expertise, skill or knowledge in relation to the thing which he said, the inference that the representor is aware of facts that support his opinion is more easily raised.
Esso Petroleum Co Ltd v Mardon [1976]
c. Evidence that the person making the statement does not believe it at the time that it is made. Proof that the maker of the statement was aware of contradictory facts may prove that they did not believe the statement was true.
Statement of Intention Edgington v Fitzmaurice [1885], where it was held that the ‘state of a man’s mind is as much a fact as the state of his digestion’. The speaker represents the fact that he or she believes that what is being said is true, whereas in fact no such belief is held.
Notts Patent Brick & Tile Co. v Butler Purchaser of land asked if land was subjected to any restrictive covenants. The solicitor replied that he was not aware of any such covenants. In fact he had not even bothered to check if there was. That was the reason for his ignorance.
Held: Although the statement was literally true (he was not aware) but it still amounted to a misrepresentation as he had not checked.
Statements of law were not actionable. Now House of Lords has recognised the possibility of restitutionary remedies for mistake of law - Kleinwort Benson Ltd v Lincoln City Council [1999], the same approach may well apply in the area of misrepresentation - Pankhania v Hackney London Borough Council.
B. Addressed to the other party
The statement must be addressed to the party that is being misled.
It can be:
Direct Communication of the
representation to the Representee
Representation addressed to a Third
Party with the intention that it be
passed to the Representee –
Commercial Banking Co. of Sydney v
RH Brown & Co.
Hayward v Zurich Insurance Co plc [2016] SC - an insurance company’s suspicion that the victim of a workplace accident was greatly exaggerating his injury fell short of an actual awareness on their part that his claims were untrue. When evidence of the victim’s fraud was obtained the insurance company was able to rescind the settlement agreement they had entered with him.
The representee relied upon some other inducement / He made his own inquiries Attwood v Small [1838]
The ‘representee’ was not aware of the misrepresentation
Horsfall v Thomas [1862 ] claimant sold a gun which exploded when fired because a metal plug had been used to conceal a defect in the gun’s barrel. The use of such a plug could have amounted to a representation by conduct that the barrel was sound and free of defects. However, as the defendant did not inspect the gun he was not aware of the misrepresentation and so it could not be said to have induced him to purchase it.
The representee would have entered the contract even if aware of the untruth
The misrepresentation, must be a ‘material’ one - one upon which a reasonable person might have relied.
Materiality is now best thought of as relevant only to the burden of proof in relation to inducement
- Museprime v Adhill (1990).
If the misrepresentation is not a material one (i.e. it is one upon which a reasonable representee would not rely (e.g. this car can really fly)) the burden of proving inducement will shift to the representee who must positively prove that it was reliance upon the representation that caused him to enter a subsequent contract - Dadourian Group International Inc v Simms [2009].
Museprime v Adhill (1990)
If the misrep would have induced a reasonable person to enter into the contract, then the courts will presume that it did so induce the Representee to contract.
It will then be up to the Representor to show that the Representee did not rely on the representation = JEB Fasteners v Bloom
If the misrep would NOT have induced a reasonable person to enter into the contract, then the courts will presume that it did NOT so induce the Representee to contract.
It will then be up to the Representeer to show that the representation did in fact induce him to enter into the contract = Dadourian Group International Inc v Simms [2009].
There are FOUR types of misrepresentation. The category of misrep will determine the different types of remedies that are available to the Claimant.
A. Fraudulent
- The contract can be set aside – Rescission
- Tort of deceit.
- Requirements in Derry v Peek [1889 ] HL Lord Herschell 3 propositions:
- Proof of fraud and nothing less
- Fraud proven when the false representation is made: a) Knowingly or b) Without belief in its truth or c) Recklessly / carelessly whether it is true or not – without regard to its truth
Angus v Clifford (1891)
- If fraud is proven, motif of the guilty person is immaterial Polhill v Walter – the representor knew that the statement was false but made it for the benefit of his principle and for to benefit himself. He made it with good motive. Irrelevant
- Burden of proof is with the Claimant (representee) to prove fraud and the burden is a heavy one.
- Fraud is a serious allegation and it is difficult to prove. Cannot simply allege unless there is good grounds for it.
Categories / Types of Misrepresentation
C. Statutory misrepresentation – under the Misrepresentation Act 1967.
Section 2(1) - 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 the facts represented were true.
The Act created the fact or fiction argument
Where a misrepresentation has been made by One contracting party to another, which induced him to enter into the contract (Actionable Misrep), the party making the misrepresentation is liable to the other in damages unless he can prove:
He had reasonable grounds to believe AND Did believe up to the point that the contract was made that his statement was true
Burden of proof shifts to the representor to prove that he had reasonable grounds to believe and did believe that the statement they made was true. This is a heavy burden of proof. It may not be easy to satisfy.
Claimant = Prove that a misrepresentation was made and that it induced the contract – Actionable Misrep.
Defendant will be liable for Damages unless = Can prove that there were reasonable grounds to belief and did believe up to the time the contract was made that the statement was true.
Howard Marine and Dredging Co v Ogden and Sons (1978) Foster v Action Aviation Ltd [2013].
Compare with:
Al-Hasawi v Nottingham Forrest FC Ltd [2019]
D. Innocent
Elements of a misrepresentation can be proved but the maker of the statement genuinely believes it is true, and does not act negligently (at common law or under statute, as above) in making it then the action only lies for innocent misrepresentation.
The types of remedies available will depend on the type of Misrepresentation that is established. The Claimant could claim Damages and / or Restitution
A. Damages
Measure of damages – will also depend on the type of misrepresentation that is established.
I. Fraudulent Misrep –
a. Damages recoverable in the Tort of Deceit
b. Aim: Damages for deceit, being tortious, putting the claimant into the position he or she would have been in had the misrepresentation not been made (the tort not being committed).
Reliance Interest and not Expectation Loss.
c. All losses / damages which are directly attributable to the deceit are recoverable, whether or not the Defendant has foreseen the losses.
The normal rules of ‘remoteness’ which apply to contract or tort do not operate in this situation: Doyle v Olby (Ironmongers) Ltd [1969]; Smith New Court Securities Ltd v Scrimgeour Vickers Ltd
d. Contributory Negligence does not apply to fraudulent misrepresentation
e. Exemplary / Punitive damages may be awarded. Aggravated damages
f. As a general principle the claimant cannot claim loss of profits on the contract. In some circumstances, however, some damages of this kind may be recovered.
East v Maurer [1991]
Remedies for Misrepresentation
IV. Innocent Misrep
a. Traditional Common Law
- The only remedy is rescission
- The courts have mitigated the harshness of this by saying that the representation is a term and thus a breach or the representation is a collateral contract
b. Section 2(2) Misrepresentation Act 1967
Courts have discretion to award damages in lieu of rescission
- Discretionary and not as of right
- Courts have a broad discretion to do what is equitable. They must consider the nature of the misrepresentation in relation to the subject matter and the loss that would be caused to the parties if the contract is upheld or rescinded. It would depend on the facts of the case – William Sindall plc v Cambridgeshire CC, Lord Hoffman
- Damages in lieu – cannot claim both the remedies
Does the Claimant have the right to ask for damages if the right to rescind has been lost due to the existence of one of the limitations?
Even if he has lost the right to rescind, he does not If the Claimant lost the right to lose the right to claim the damages = so long as rescind, then he loses the right he had that right to rescind in the past to damages as well
This means at the time of awarding damages there must be a subsisting right to rescission. Damages unavailable where there was once a past right to rescind but that right had
Thomas Witter Ltd v TBP Industries
Govt of Zanzibar v British Aerospace (Lancester House) Ltd
Supported by Salt v Stratstone
Specialist Ltd (2015) CA
subsequently been lost because of the ‘bars’ to rescission. This was supported by the Court of Appeal in Salt v Stratstone Specialist Ltd [2015].
B. Rescission
- Available for ALL types of misrep - Fraudulent, Negligent and Innocent.
- The contract is set aside, and the parties put into the position they would have been in had the contract never been made. Any goods or money which have been exchanged must be returned
- Must be sought by the claimant: it does not occur automatically.
- Party must elect to Rescind the contract or Affirm it
- Misrep renders a contract ‘voidable’ rather than ‘void’. Contract is Valid until it is set aside at the option of the Representee.
- Exercised by giving notice to the other party.
- Rescission can be effected by giving notice to relevant third parties- Car & Universal Finance Co v Caldwell [1965].
- Partial rescission in a non-severable contract is not allowed – T.B.B. Bank Plc v Camfield
Limitation / Bars to Rescission
Affirmation Aware of the misrepresentation and still continues with the contract, and thus ‘affirms’ it: Long v Lloyd [1958].
Lapse of time Significant lapse of time between the making of the contract and the discovery of the misrepresentation - Leaf v International Galleries [1950] unless fraudulent.
Restitution is impossible
Third Party Rights
Note: Court also has a discretion under sec 2(2) of the Misrepresentation Act 1967 to award damages instead of rescission, where it is equitable to do so.
Exclusion of liability
S.3 of the Misrepresentation Act 1967 , the exclusion or limitation of liability for misrepresentation is subject to the requirement of reasonableness set out in s.11 UCTA 1977. ‘Entire agreement’ clauses are generally regarded as falling within the scope of s.3. UCTA.
