MISREPRESENTATION - AN INVALIDATING FACTOR

Question 1

WHAT ARE THE TWO ALTERNATIVE WAYS IN WHIC AN INVALIDATING FACTOR CAN AFFECT THE CONTRACT?

Answer 1

1. A void contract
2. A voidable contract

Question 2

WHAT IS A VOID CONTRACT?

Answer 2

One which has never existed.
No rights or duties can be passed under a void contract

Question 3

WHAT IS A VOIDABLE CONTRACT?

Answer 3

One which does exist and will continue to exist unless one of the parties decides to bring it to an end (the contract has been rescinded)

Question 4

WHAT IS THE DEFINITION OF MISREPRESENTATION?

Answer 4

A misrepresentation is a false statement of fact or law, made by one contracting party to another, which is intended to induce, and which does induce the other party to enter a contract by their reliance on that statement

Question 5

WHAT IS THE NAME OF THE PERSON MAKING THE REPRESENTATION?

Answer 5

The representor

Question 6

WHAT IS THE NAME OF THE PERSON IN RECEIPT OF THE REPRESENTATION?

Answer 6

The representee

Question 7

WHAT THREE MATTERS ARE NOT NORMALLY MISREPRESENTATIONS?

Answer 7

1. Statements of opinion
2. Statements of intention
3. Extravagant advertisements and sales talk
4. Non-disclosure

Question 8

WHAT IS THE MAXIM OF CAVEAT EMPTOR?

Answer 8

Let the buyer beware

It is the responsibility of the buyer to find out about the goods before committing to the contract

Question 9

WHAT ARE THE SIX EXCEPTIONAL CIRCUMSTANCES WHERE A CONTRACTING PARTY IS OBLIGED TO DISCLOSE FACTS THAT ARE KNOWN TO THEM, EVEN IF THEY ARE NOT ASKED?

Answer 9

1. When one party has told a ‘half-truth’ which will give a false impression to the other party
2. If a statement made during pre-contractual negotiations is accurate when it is made, but circumstances change before the contract is agreed, this must be disclosed
3. Contracts of the utmost good faith (uberrimae fidei) impose an obligation on a party to reveal all relevant facts to the other
4. Where the parties have a fiduciary relationship, there is usually considered to be a duty of full disclosure between the individuals i.e lawyer and client.
5. It was confirmed in Hamilton v Allied Domecq [2007] that, to find a business liable for non-disclosure, it must be shown that there was a voluntary assumption of responsibility by the party that remains silent, on which the other party relies.
6. Reg 6 Consumer Protection from Unfair Trading Regulations 2008 provides that a business must not engage in any commercial practice which omits or hides material information from the consumer in a way which is likely to cause the consumer to make a transactional decision they would not take otherwise.

Question 10

WHAT IS INDUCEMENT?

Answer 10

The representor must intend that the false statement will induce the other party to enter the contract, and the false statement must induce the representee to enter the contract

Question 11

WHAT MUST THE REPRESENTEE SHOW IN CASES OF NEGLIGENT OR INNOCENT MISREPRESENTATION?

Answer 11

That ‘but for’ the misrepresentation they would not have entered the contract (BV Nederlands Industrie Ltd v Rembrandt Enterprises [2019])

Question 12

IN WHAT THREE CIRCUMSTANCES WILL A REPRESENTEE NOT BE INDUCED?

Answer 12

1. If they were unaware of the existence of the false statements at the time of entering into the contract
2. If they know the statement is false but contracts anyway
3. If there is evidence to show that the representee did not believe the representation and conducted their own investigations into it

Question 13

WHEN CAN’T A REPRESENTEE SUE FOR MISREPRESENTATION?

Answer 13

If the representee makes no effort to check the truth of the statement, they can generally sue for misrepresentation if the statement is untrue.

This will be because such behaviour shows reliance on the statement and is clear evidence of inducement (Redgrave c Hurd [1881])

Question 14

WHAT DID ATTWOOD V SMALL [1838] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?

Answer 14

The representee to a fraudulent statement does not need to meet a ‘but for’ test.

The representee will satisfy the requirement for inducement so long as they can show that the representation was induced in ‘any way’ by the fraudulent statement.

This is generally described at material inducement

Question 15

WHAT DID HAYWARD V ZURICH INSURANCE CO PLC [2016] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?

Answer 15

That the claimant will succeed if they can show that they were influenced by the misrepresentation

Question 16

WHAT DID BV NEDERLANDS INDUSTRIE LTD V REMBRANDT ENTERPRISES [2019] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?

Answer 16

The representee has the burden of proof that they were materially induced by the fraud but in doing so, they will benefit from ‘a presumption of inducement’

Question 17

WHAT ARE THE THREE TYPES OF MISREPRESENTATION?

Answer 17

1. Fraudulent
2. Negligent
3. Innocent

Question 18

AS DEFINED IN DERRY V PEEK [1889], WHEN DOES A FRAUDULENT MISREPRESENTATION ARISE?

Answer 18

Where:

• A knowingly false statement is made
• The statement is made without belief in its truth
• The statement is made with reckless carelessness as to whether it is true or false

Question 19

WHAT CAN THE INJURED PARTY CLAIM FOR IN RESPECT OF FRAUDULENT MISREPRESENTATION?

Answer 19

The injured party can sue for damages and/or seek rescission of the contract

Question 20

WHEN ARE DAMAGES AWARDED IN FRAUDULENT MISREPRESENTATION?

Answer 20

Damages in fraudulent misrepresentation are awarded in the tort of deceit, on a tortious basis.

This aims to put the claimant in the position they would have been in but for the misrepresentation and this was confirmed in Smith & New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996].

Question 21

WHAT IS THE EFFECT OF RESCISSION?

Answer 21

To put the parties back in the position they were in before the contract was made.

Question 22

WHEN CAN THE REMEDY OF RESCISSION BE LOST IN RESPECT OF FRAUDULENT MISREPRESENTATION?

Answer 22

• If the contract has been affirmed – the party entitled to rescind discovers the fraud and, by words or conduct, makes clear that they want to continue with the contract
• If there has been a sufficiently lengthy lapse of time between the fraud being discovered and the recission being sought
• If the parties cannot be restored to their original positions
• If an innocent third party as acquired rights in the subject matter of the contract, provided they gave something for the goods and acted in good faith, unaware of the misrepresentation

Question 23

WHAT PIECE LEGISLATION ARE CLAIMS FOR NEGLIGENT MISREPRESENTATION OFTEN MADE UNDER?

Answer 23

S2(1) Misrepresentation Act 1967

The representor must show, on the balance of probabilities, that their statement was not negligent

Question 24

WHAT CAN THE INJURED PARTY CLAIM FOR IN RESPECT OF FRAUDULENT MISREPRESENTATION?

Answer 24

The injured party can sue for damages and/or seek rescission of the contract

Question 25

WHEN ARE DAMAGES AWARDED IN NEGLIGENT MISREPRESENTATION?

Answer 25

Damages in negligent misrepresentation are awarded in the tort of deceit, on a tortious basis.

This aims to put the claimant in the position they would have been in but for the misrepresentation

Question 26

WHEN CAN THE REMEDY OF RESCISSION BE LOST IN RESPECT OF NEGLIGENT MISREPRESENTATION?

Answer 26

If there has been a sufficiently lengthy lapse of time considered to run from the date of the contract

Question 27

WHAT IS INNOCENT MISREPRESENTATION?

Answer 27

Since the implementation of the Misrepresentation Act 1967, an innocent misrepresentation is one that is neither fraudulent nor meets the requirements of s2(1) Misrepresentation Act 1967

Question 28

WHAT WAS THE TRADITIONAL REMEDY FOR INNOCENT REPRESENTATION?

Answer 28

Rescission of the contract

Question 29

WHAT ADDITIONAL REMEDY IS AVAILABLE FOR INNOCENT MISREPRESENTATION UNDER S2(2) MISREPRESENTATION ACT 1967?

Answer 29

The courts may award damages in lieu of rescission.

This is entirely at the courts discretion although MA 1967 instructs them to consider:

‘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 the loss that rescission would cause to the other party’