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JUR5260 Autumn 2010 – 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 the Misrepresentation Act 1967 may also be available (see below).
NB. No requirement of precontractual “good faith” English law traditionally does not recognize any doctrine of precontractual good faith: see, e.g., Walford v. Myles [1992] 2 AC 128 per House of Lords. However, some signs of greater judicial readiness to recognize such a doctrine have emerged in recent years (see, e.g., Philips Electronique Grand Publique SA v. British Sky Broadcasting Ltd. [1995] EMLR 472), partic. under influence of EU legislation. For further discussion, see, e.g., R. Brownsword, Contract Law: Themes for the Twenty-First Century (OUP, 2006, 2nd^ ed.), chapter 6; E. McKendrick, Contract Law (OUP, 2008, 3rd^ ed.), chapter 15.
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 the time of stating the intention the party did not actually have such an intention – see, e.g., Edgington v. Fitzmaurice (1885) (iii) statements of opinion, unless the maker of the statement did not actually hold the opinion or had no reasonable grounds on which to base the 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 in the abstract , unless made dishonestly or without reasonable basis. However, if representation really deals with application of law to particular facts so that it is a statement about the effect of the law in a particular situation, it can be actionable as misrepresentation – 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 the other party’s decision to enter into the 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 a party makes a 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 a statement, which was true at the time it was first made, becomes (due to change of circumstances) no longer true (prior to the contract being made), then party who made statement has a duty to inform the other party about the change: see With v. O’Flanagan (1936); cf. uncertainty regarding change of intention – compare Wales v. Wadham (1977) with Inclusive Technology v. Williamson (2009); (iii) contracts ―uberrimae fidei‖ (of the utmost good faith) – e.g., insurance contracts, which require that persons applying for insurance must disclose all facts that would influence the insurer in deciding whether to accept the 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 a party to the contract, though it can be made via a party’s agent. There is no remedy in contract law for a misrepresentation made by a non-party; there may be, however, a remedy in tort (see below).
C. Inducement To be actionable, the misrepresentation must influence a party in deciding whether or not to enter into the contract. The misrepresentation need not be sole inducement, just one of the inducements. See Edgington v. Fitzmaurice (1885) (above); if misrepresentation is fraudulent, rebuttable presumption that it induced contract: Dadourian Group International Inc. v. Simms (Damages) (2009). 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)
not bar to rescission, but lapse of time after discovery is evidence of affirmation
B. Damages
For fraudulent misrepresentation: Damages available in tort of deceit. Innocent party can recover all loss (including consequential loss) directly flowing from breach to put them in position they would have been in had representation not been made: Doyle v. Olby (Ironmongers) Ltd. (1969); affirmed in Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. (1997). Innocent party also entitled to full compensation for loss suffered after date of contract. Representee under duty to mitigate loss once they discover fraud: Downs v. Chappell (1997)
For negligent misrepresentation: Damages available under s. 2(1) of Misrepresentation Act 1967 (MA): ―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 .‖ Burden of proof (or, more accurately, dis proof) is quite onerous – see, e.g., Howard Marine & Dredging Co. Ltd. v. A. Ogden & Sons Ltd. (1978). Damages assessed as for tort of deceit (―fiction of fraud‖) – see, e.g., Royscot Trust Ltd. v. Rogerson (1991); cf. Smith New Court Securities Ltd. v. Scrimgeour Vickers (Asset Management) Ltd. (1997). Where misrep. made by agent, innocent party can only bring action under MA s. 2(1) against contracting party, not party’s agent: Resolute Marine v. Nippon Kaiji Kyokai (1983). Damages may be reduced if evidence of contributory negligence on part of innocent party – see Gran Gelato v. Richcliff (Group) Ltd. (1992). Damages may be awarded in lieu of rescission in cases of (non-fraudulent) negligent and non-negligent misrepresentation: see MA s. 2(2). ―(2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently , and he would be entitled, by reason of the 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 – see, e.g., Government of Zanzibar v. British Aerospace (Lancaster House) Ltd. (2000); cf. Thomas Witter v. TBP Industries (1996) per Jacobs J.
For innocent misrep.: MA s. 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 MA s. 1: 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 MA s. 3: ―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 MA s. 3 – see, e.g., Watford Electronics Ltd. v. Sanderson CFL Ltd. (2001).
