Misrepresentation

Question 1

What are the 3 types of preliminary statements that can be made & which will be actionable if they are not true?

Answer 1

Sales puff (not actionable if untrue)

A contract term (actionable for breach if untrue)

A representation (actionable as misrepresentation if untrue)

Question 2

What must a false preliminary statement amount to to be actionable?

Answer 2

A term of the contract or a misrepresentation

Question 3

How can you tell if a false preliminary statement was a term or a misrepresentation?

Answer 3

Key: common intention of the parties when they entered into the contract (ie. did they intend for it to be a term or representation?)

Factors the court will consider:

• Relative skill & knowledge (if an expert makes a preliminary statement to a non-expert, more likely to be a term)
• Timing (the longer the lapse in time, more likely to be a representation)
• If the party making the statement told the other party to make checks (more likely to be representation)
• If a statement made verbally was repeated in a written contract (if so, will be a term)
• If the person to whom the statement was made emphasised that it was of vital importance (term)

Question 4

What is a misrepresentation?

Answer 4

An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter into the contract

Question 5

Can silence be a misrepresentation?

Answer 5

General rule: silence is not actionable per se

Exception: silence may amount to misrepresentation where:

• Fiduciary relationship between the parties (eg. solicitor & client, trustee & ben)
• Contract is one of utmost good faith (eg. insurance contract)
• There has been a half-truth (need to tell whole truth or nothing at all)
• Statement of fact is true when made but a change of circumstances occurs before the contract is formed which makes the statement untrue & the change is not disclosed

Question 6

Can a statement of future intention or opinion be a misrepresentation?

Answer 6

No - must be a statement of fact

BUT nb. if a party lies about their intention or opinion, or has no reasonable grounds for having a particular opinion, that will be a misrepresentation
(misrepresentating state of mind = fact; misrepresenting being in possession of certain facts = fact)

Question 7

Does an untrue statement of fact need to be the only inducement for the other party entering into the contract to be a misrepresentation?

Answer 7

No - enough that it is at least a reason for entering into the contract

Question 8

What are the three different types of misrepresentation?

Answer 8

I. Fraudulent

II. Negligent

III. Innocent

Question 9

What is fraudulent misrepresentation?

Answer 9

A representation made:

• With knowledge that it is false; or
• Without belief in its truth; or
• Recklessly, not caring whether it is true or false

V difficult to prove!

Question 10

What is negligent misrepresentation?

Answer 10

A statement made carelessly - there were no reasonable grounds for making the statement

Burden of proof is on the misrepresentor to show that they made the statement on reasonable grounds

Question 11

What is an innocent representation?

Answer 11

There were no reasonable grounds for making the statement but the misrepresentor honestly believed it to be true (it just happened not to be)

Nb. Damages are not available as of right, but can rescind contract if rescission is not barred

Question 12

What is the effect of misrepresentation?

Answer 12

It makes the contract voidable - ie. the innocent party can choose either to affirm (continue) the contract or rescind the contract

Does not make the contract void per se!

Question 13

What is the aim of rescission?

Answer 13

To restore both parties as far as possible to their pre-contractual positions

[Think of it as hitting rewind button]

Question 14

Is rescission a common law or equitable remedy?

Answer 14

It is an equitable remedy, ie. it is awarded at the discretion of the court & the right to rescind can be lost in certain situations (the ‘bars to rescission’)

Question 15

What are the 4 bars to rescission?

Answer 15

A. Affirmation
*ie. once have affirmed contract, lose right to rescind

B. Undue delay
Nb. Court will look at when the misrepresentation should have been discovered (not when it was actually discovered) - except for fraudulent misrepresentation

C. Where an innocent purchaser has acquired an interest in the subject matter of the contract before the purported rescission of the contract

D. Where it is impossible substantially to restore goods or property
(ie. can’t restore parties to their pre-contract positions, rescission therefore impossible)

Question 16

How are damages for misrepresentation assessed?

Answer 16

On the tortious basis - ie. how much the innocent party is out of pocket as a result of the misrepresentation

Extends to all consequential losses

But nb. reversed burden of proof! The innocent party gets damages unless the misrepresentor can prove they were not negligent

Question 17

What are the main differences between breach of a term & misrepresentation?

Answer 17

Misrepresentation:

• Main remedy is rescission
• May be able to claim damages, which are assessed on a tortious basis (ie. how much out of pocket as a result of misrepresentation) with no question of remoteness

Breach of a term:

• Termination only available where contract is ongoing & term breached is a condition (or v. serious breach of innominate term)
• Damages available for every breach, which are assessed on ‘cost of cure’/’loss of bargain’ basis
• If loss is too remote, will not get damages