Lecture 14-Misrep Remedies

Question 1

Misrep Remedies

Answer 1

1.Rescission
2.Damages
Both can be claimed

Question 2

Types of Misrepresentation

Answer 2

Innocent: a representation that is neither fraudulent nor negligent

Negligent: where a statement is made carelessly or without reasonable grounds for believing its truth

Fraudulent: where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth.

Question 3

Remedies for the types

Answer 3

Rescission is available for all misrepresentation.

Damages and recission may be awarded for fraudulent and negligent misrepresentation.

Damages may be awarded instead of rescission for innocent.

Question 4

What is rescission? (+ Act)

Answer 4

EQUITABLE REMEDY
Rescission unwinds a contract to the beginning.

It can be used without going to court – so someone can rescind the sale of goods by returning the goods and cancelling their payment.

Misrepresentation Act 1967 – s1

Question 5

Rescission Limitations

Answer 5

• Restitution impossible
• Third Party rights
• Affirmation
• Lapse of time

Question 6

Restitution Impossible

Answer 6

If the parties cannot be restored to their original positions, restitutio ad integrum is said to be impossible, and rescission will ordinarily be barred.

A typical example is where the subject matter of the contract has been used up, altered, or destroyed.

Traditionally this was thought to be in ‘entirety’.

Question 7

Entirety Case

Answer 7

Erlanger v New Sombrero Phosphate [1838]
Rescission was granted even though the valuableness of the contract was not entirely used.

Question 8

‘Practical Justice’ Case

Answer 8

Salt v Stratstone Specialist Ltd [2015]
Rescission may be granted in the interests of practical justice through also awarding compensation

Question 9

Affirmation

Answer 9

Once a representee has become aware of the misrepresentation then they should take action to rescind the contract.

If they do not a court may consider them to have affirmed it.

Acknowledgement of the misrepresentation, but the C’s actions do not challenge the misrepresentation.

Question 10

Affirmation Case

Answer 10

Long v Lloyd [1958]
Rescission cannot be granted once the goods have been accepted

Question 11

Lapse of time

Answer 11

In contrast, lapse of time can run from date of contract even though misrep has not been discovered where the misrepresentation is innocent

Question 12

Lapse Case

Answer 12

Leaf v International Galleries [1950]
5-year delay in discovering the misrepresentation

Question 13

Lapse of Time Contrast Case

Answer 13

Salt v Stratstone Specialist Ltd
Unlike Leaf v International Galleries, the misrepresentation here was negligent, and where the misrepresentation is negligent or fraudulent, the time should be counted from the date of discovery of the misrepresentation, rather than the date of the misrepresentation

Question 14

Third Party Rights

Answer 14

Rights acquired by legitimate third party from the representor cannot be defeated by rescission.

Timing is of the essence.

Question 15

Third Party Rights- 2 Requirements

Answer 15

1.The third party must have acquired their interest in good faith and for value (not having any knowledge or understanding of the misrep)

2.The third party must have acquired their interest without any notice of the defect

Question 16

Manager Case

Answer 16

Crystal Palace FC v Dowie [2008]
It would not be just to that club to make an order the effect of which was to place D under an employee’s obligations to P. A manager could not perform two employment contracts at the same time- the club had acquired third party rights.

‘Practical justice’ required the order of damages

Question 17

Communication Case

Answer 17

Car and Universal Finance Co Ltd v Caldwell [1965]
If a party to a contract, by deliberately absconding, put it out of the power of the other party to communicate his intention to rescind, then he could not insist on his right to be made aware of the election to determine the contract and the innocent party must be allowed to exercise his right of rescission

Question 18

Prior to Misrepresentation Act 1967

Answer 18

Representee could sue in tort law via tort of deceit for fraudulent statements or negligent misstatement for negligent misrepresentations following Hedley Byrne

There was no remedy for innocent misstatement and the two potential tort claims were difficult to establish

Question 19

Law Reform

Answer 19

Criticism – the difficulty in proving fraud even when there had been gross misrepresentation.

Law Reform Committee (now the Law Commission) reported….

Tenth Report ‘Innocent Misrepresentation’ (Cmnd 1782, 1961-2)

Question 20

The Misrepresentation Act 1967

Answer 20

THE MISREPRESENTATION ACT 1967 GOVERNS CONTRACT LAW IN IN SITUATIONSWHERE MISREPRESENTATION IS INVOLVED PRIOR TO PARTIES ENTERING INTO A CONTRACTUAL AGREEMENT.

THE ACT NOW ENSURES THAT PARTIES HAVE AN ACTION TO PURSUE IN CONTRACT LAW AS WELL AS THE LAW OF TORT.

Question 21

S 2(1) 1967 ACT – DAMAGES

Answer 21

Removed lack of a remedy in contract for negligent misstatements.

Eliminates distinction between negligent and fraudulent misrepresentations.

Claimant has to prove they entered a contract as a result of relying upon a misrepresentation.

Question 22

HOW DOES IT APPLY?

Answer 22

Once she shows that a misrepresentation has been made, it is for the representor to show that he had reasonable grounds to believe the representation was true.

Question 23

Reasonable Grounds Case

Answer 23

Howard Marine & Dredging Co [1978]
The D based a misrepresentation on information within the Lloyd’s Register, which was false. The ships’ documents had the correct figures, but the seller did not check them. The court held that the seller was liable in damages. Because it had documents in its possession giving the correct figures, it had failed to show that it had reasonable grounds for its belief in the wrong figures.

Question 24

S 2(2) 1967 ACT

Answer 24

Rescission an ‘all or nothing’ remedy.

S 2(2) provides court with the discretion to award damages (instead of) ‘in lieu of rescission’.

The contract in question will stand as valid but the representee induced to enter it will receive damages as the remedy for the misrepresentation.

Question 25

S2(2) Applies to?

Answer 25

Innocent + Negligent

Question 26

S 2(2) APPLICATION

Answer 26

Salt v Stratsone [2015] EWCA Civ 745
For damages to be available in lieu – rescission has to be potential remedy at trial or available when it was claimed

Question 27

S 2(2) & FRAUDULENT MISREP

Answer 27

s 2(2) only applies to misrepresentations made other than fraudulently.

If fraudulent then a court has no power to order damages be paid in lieu of rescission.

Claimant can insist in rescission providing no bars to the remedy apply.

Question 28

DAMAGES AND MISREPRESENTATION

Answer 28

Fraudulent misrepresentation

Awarded under tort of deceit and are tortious not contractual – all losses flowing from the fraud are recoverable.

There is no remoteness requirement with regard to reasonable foreseeability

Question 29

NEGLIGENT MISREPRESENTATION

Answer 29

Can be claimed/awarded under tort of negligent misstatement but requires duty of care and special relationship.

In contract can be awarded via s 2(1) 1967 Act – advantage is that burden of proof falls on representor to show reasonable grounds for belief rather than C having to establish duty of care in tort.