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JUR5260 Spring 2009 – Misrepresentation
Overview
A. What = representation? A statement which induces entry into a contract but which is not part – i.e., a term
- of the contract. B. What = misrepresentation? An untrue statement of fact made by one party to the other which was intended to and did induce the latter to enter into the contract. C. What = result in case of misrepresentation? A contract entered into as result of misrepresentation is voidable. D. What = remedy in case of misrepresentation? Rescission. Damages in tort or under Misrepresentation Act 1967 may also be available.
Elements of misrepresentation
A. Untrue statement of fact Test of falsity = whether statement is “substantially correct” – see Avon Insurance plc. v. Swire Fraser Ltd. (2000) per Rix J. The notion of “statement” can extend to mere conduct without words. See, e.g., Spice Girls v. Aprilia World Service B.V. (2002). The following are not untrue statements of fact: (i) a “mere puff” or “sales patter” – see, e.g., Dimmock v. Hallett (1866) (ii) statements of intention, unless at time of stating intention the party did not actually have such intention – see, e.g., Edgington v. Fitzmaurice (1885) (iii) statements of opinion, unless maker of the statement did not actually hold opinion or had no reasonable grounds on which to base opinion – see, e.g., Bisset v. Wilkinson (1927); Smith v. Land & House Property Corp. (1884); Humming Bird Motors Ltd. v. Hobbs (1986) (iv) representations of law, unless made dishonestly or without reasonable basis – see, e.g., Pankhania v. London Borough of Hackney (2002) (v) silence (see below).
Disclosure duty? No duty to disclose facts which if known would affect other party’s decision to enter into contract – see, e.g., Keates v. The Earl of Cadogan (1851); Turner v. Green (1895); Bell v. Lever Bros. Ltd. (1932) However, silence will amount to misrepresentation in four situations: (i) half-truths – if party makes statement which is in fact true they may still be guilty of misrepresentation by what is left unsaid: see, e.g., Dimmock v. Hallett (1866);
(ii) change of circumstances – if statement, which was true at time it was first made, becomes (due to change of circumstances) no longer true (prior to contract being made), then party who made statement has duty to inform other party about change: see With v. O’Flanagan (1936) (iii) contracts “uberrimae fidei” (of utmost good faith) – e.g., insurance contracts, which require that persons applying for insurance must disclose all facts that would influence insurer in deciding whether to accept risk (iv) certain confidential or fiduciary relationships – e.g., solicitor and client, principal and agent, partners.
B. Party to contract Misrepresentation must be made by party to contract, though it can be made via party’s agent. No remedy in contract law for misrepresentation made by non- party; there may be, however, remedy in tort (see below).
C. Inducement To be actionable, misrepresentation must influence party in deciding whether or not to enter into contract. Misrepresentation need not be sole inducement, just one of the inducements. See Edgington v. Fitzmaurice (1885) (above). Thus, misrepresentation is not actionable if representee: (i) never knew of its existence – Horsfall v. Thomas (1862) (ii) did not allow it to affect their judgement – Smith v. Chadwick (1884); Attwood v. Small (1838)
Verification duty? Fact that innocent party is given opportunity to discover truth does not prevent statement being misrepresentation. No duty on party to check truth of representation – Redgrave v. Hurd (1881)
Types of misrepresentation
Need to differentiate between different types of misrepresentation in order to determine the available remedies. A. Fraudulent misrepresentation (deceit) = false statement made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless about whether it be true or false – Derry v. Peek (1889) B. Non-fraudulent (innocent) misrepresentation Cf. Negligent misstatement at common law – arises in context of “special relationship” between persons; in such context, maker of statement is under duty of care at common law to do all that is reasonable to ensure that statement is correct: Hedley Byrne v. Heller & Pnrs. (1964). This tort provides remedy where misstatement made by non-party to contract.
misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission , if of opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause to the other party .” Measure of damages here is at court’s discretion. Damages in lieu of rescission usually assumed as not available if right to rescind has already been lost. Cf. Thomas Witter v. TBP Industries (1996) per Jacobs J.
For wholly “innocent” (non-fraudulent) misrep.: Section 2(2) may give monetary relief in cases of wholly innocent misrepresentation, but up to court to decide. Note too possibility to get indemnity in connection with action for rescission – see, e.g., Whittington v. Seale-Hayne (1900).
Misrepresentations which become terms See s. 1 MA: right to rescission for misrep. not lost when misrep. becomes term.
Limiting liability for misrepresentation Contractual clauses attempting to exclude or limit liability for misrep. are construed strictly – see, e.g., Thomas Witter v. TBP Industries Ltd. (1996); Inntrepeneur Pub Co. v. East Crown Ltd. (2000). Also several statutory controls, the central of which is s. 3 MA: “If a contract contains a term which would exclude or restrict — (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him before the contract was made; or (b) any remedy available to another party to the contract by reason of such a misrepresentation, that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section 11(1) of the Unfair Contract Terms Act 1977; and it is for those claiming that the term satisfies that requirement to show that it does.” However, some types of clauses (e.g., “no-reliance” clauses) may not be caught by s. 3 MA.
