Chapter 5 - Misrepresentation

Question 1

What is a void contract?

Answer 1

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

Question 2

What is a voidable contract?

Answer 2

One which will continue to exist unless one of the parties choses to bring it to an end (rescinds it).

Question 3

Will a contract induced by misrepresentation be void or voidable? Give the case law in which Lord Reed confirms this.

Answer 3

Voidable, as per Cramaso LLP v Ogilvie-Grant [2014]. It will be for the victim of the misrepresentation to attempt to rescind the contract.

Question 4

What is misrepresentation?

Answer 4

A false statement of fact or law made by one party with the intention of inducing the other party to enter into a contract.

Question 5

In which case did Lord Campbell state that a misrepresentation does not have to be in words?

Answer 5

Walters v Morgan [1861] “a nod or a wink or a shake of the head will suffice”.

Question 6

Which three matters will not normally be considered misrepresentation and give supporting case law.

Answer 6

Statements of opinion (Bissett v Wilkinson [1927]) / Statements of intention (unless stating intention of doing something you do not intend to do, as in Edgington v Fitzmaurice [1885]) / Extravagant advertisements and sales talk (unless claiming to be based on facts such as Carlill).

Question 7

What is the exception to the general principle that statements of opinion will not normally be considered misrepresentations and give the case law this was provided in.

Answer 7

In Smith v Land and House Property Corp [1884], Bowen LJ said “if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of material fact”. This was applied in modern case of Cherrilow Ltd v Butler-Creagh [2011] (property developer stated incorrect value estimate or property).

Question 8

What is the maxim of caveat emptor and how does it affect contracts and the rules regarding silence and misrepresentation? Give a case law example.

Answer 8

It means “let the buyer beware”, it is a buyer’s responsibility to find out about goods before committing to a contract and therefore silence does not normally amount to misrepresentation as there is no obligation to disclose relevant facts unless a party has specifically asked (as per Keates v The Earl of Cadogan [1851]).

Question 9

What is a case law example of the application of the maxim caveat emptor?

Answer 9

Sykes v Taylor-Rose [2004]

Question 10

What are the six exceptional circumstances in which a contracting party is obliged to disclose information to the other party, even if they are not asked?

Answer 10

When one party has told a ‘half-truth’ which may give a false impression to the other party (Nottingham Patent Brick and Tile Co v Butler [1886]) / When circumstances change before the contract is agreed (With v O’Flanagan [1936]) / Contracts of the utmost good faith impose an obligation to reveal all relevant facts / Parties have a fiduciary relationship such as lawyer and client when they expect full disclosure / if there was a voluntary assumption of responsibility on the silent party which the other party relies on / if a business staying silent in commercial practice would lead a consumer to take a transactional decision they would not otherwise take (provided for by reg 6 Consumer Protection for Unfair Trading Regulations 2008)

Question 11

Insurance contracts are contracts of the utmost good faith, in which all facts should be disclosed. What is the Act which provides for this and describe the provisions of the two key sections?

Answer 11

Consumer Insurance (Disclosure and Representations) Act 2012. Under s2(2) the consumer must take reasonable care not to make a misrepresentation to the insurer and under s2(3) failure to comply with an insurer’s request to confirm or amend particulars previously given is capable of being a misrepresentation.

Question 12

What is inducement?

Answer 12

When a representor intends a false statement to induce the other party to enter the contract, and succeeds in doing so.

Question 13

How would a representee prove they have been induced into a contract by negligent or innocent misrepresentation? Give a case law example.

Answer 13

They would have to show that ‘but for’ the misrepresentation, they wouldn’t have entered into the contract (BV Nederlandse Industrie v Rembrandt Enterprises [2019]).

Question 14

Will a representee be induced if they were unaware of the existence of false statements at the time of entering the contract? Back up with case law.

Answer 14

No, Re Northumberland and Durham Banking Co [1858]

Question 15

What happens if a representee knows a statement is false but decides to contract anyway?

Answer 15

They cannot meet the ‘but for’ requirement and so cannot claim negligent or innocent misrepresentation.

Question 16

Will a false statement induce if there is evidence to show the representee did not believe the representation and conducted their own investigation? Back up with case law.

Answer 16

No, as per Attwood v Small [1838]

Question 17

If a representee does not make effort to check the truth of a statement, can they still sue for negligent or innocent misrepresentation and why? Back up with case law.

Answer 17

Yes they can because not researching it shows reliance on the statement (Redgrave v Hurd [1881]). Further, it must also have been reasonable for the representee to rely upon the statement and not undertake further research (Smith v Eric S Bush [1990])

Question 18

What are the four key differences in respect of inducement in fraudulent misrepresentation cases?

Answer 18

The representee does not need to meet a ‘but for’ test, as per Atwood v Small they just need to prove they were induced ‘in any way’ (material inducement) / A claimant will succeed if they can show they were influenced by the misrepresentation, even if they did not believe it (Hayward v Zurich Insurance Co plc [2016] / the representee has the burden of proof of inducement but has the benefit of a rebuttable presumption that the fraud was a material inducement (BV Nederlandse Industrie v Rembrandt Enterprises [2019] / The presumption is very difficult to rebut (BV Ned)

Question 19

What are the three different types of misrepresentation?

Answer 19

Fraudulent, innocent and negligent.

Question 20

What are the three main tests to determine if a misrepresentation is fraudulent, defined in Derry v Peek [1889]?

Answer 20

if a knowingly false statement was 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 21

What remedy/remedies are available for fraudulent misrepresentation?

Answer 21

Damages and rescission

Question 22

How are damages awarded in fraudulent misrepresentation cases and what case confirmed this?

Answer 22

They are awarded on a tortious basis which aims to put the claimant in the position they would have been in but for the misrepresentation. This was confirmed by Smith + New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996]

Question 23

In Doyle v Olby (Ironmongers) Ltd [1969] Lord Denning stated that claimants could potentially recover all damages from fraudulent misrepresentation, provided they prove what?

Answer 23

That the misrepresentation caused the loss claimed for.

Question 24

What is the aim of rescission and how can this be achieved?

Answer 24

To put the parties back into the position they were in before the contract was made. This can be done by returning any goods or money exchanged and possible reimbursement of any expenses incurred as part of the contract.

Question 25

In fraudulent misrepresentation cases, explain how the remedy of rescission can be lost due to affirmation, including a case law example.

Answer 25

If the party discovers the fraud but by words or conduct has made it clear they wish to continue the contract. Edwards v Ashik [2014].

Question 26

In fraudulent misrepresentation cases, explain how the remedy of rescission can be lost due to lapse of time, including a case law example.

Answer 26

If it has been a long time since the discovery of the fraud and the attempted rescission, the Court of Appeal stated in Salt v Stratstone Specialist Ltd [2015] that this will bar a claim if “it would be inequitable in all the circumstances to grant rescission”.

Question 27

In fraudulent misrepresentation cases, explain how the remedy of rescission can be lost due to an innocent third party acquiring rights in the subject matter, including a case law example.

Answer 27

If an innocent third party acquires rights in the subject matter, as long as they have given something for the goods and acted in good faith unaware of the misrepresentation then rescission will be lost. In Crystal Palace (2000) FC v Dowie [2007], the rescission would have returned the ex-manager back to Crystal Palace but he had already been employed by Coventry City, and the manager could not be both.

Question 28

What is another way the remedy of rescission can be lost, other than affirmation, lapse of time and an innocent third party’s interest?

Answer 28

If the parties cannot be restored to their original positions (for example if the goods have been consumed)

Question 29

Under what section of what statute are claims for negligent misrepresentation made?

Answer 29

s2(1) MA 1967

Question 30

Who has the burden of proof in claims for negligent misrepresentation?

Answer 30

The representor, who must prove that they had reasonable grounds to believe (and did believe) the statement they made was true up until the time the contract was made.

Question 31

What remedy/remedies are available for negligent misrepresentation?

Answer 31

Rescission and damages.

Question 32

What case law confirmed the measure to be used when awarding damages for negligent misrepresentation, and what is the measure?

Answer 32

Royscot Trust Ltd v Rogerson [1991] confirmed the tortious measure should be used.

Question 33

What is different about the lapse of time bar in negligent misrepresentation vs fraudulent misrepresentation?

Answer 33

In negligent misrepresentation, the time is usually considered to run from the date of the contract rather than date of the discovery of the misrepresentation as in fraudulent misrepresentation.

Question 34

What is a case law example of when a lapse of time meant that a contract could not be rescinded and what was the key reason for this?

Answer 34

Leaf v International Galleries [1950] - after five years the claimant discovered the misrep (the painting was not by the artist he was told it was) but because he ‘should’ have discovered this beforehand and had ample opportunity to check within the five years, the right to rescind was lost.

Question 35

What is innocent misrepresentation?

Answer 35

One which is non-fraudulent and also does not meet the requirements of s2(1) MA 1967

Question 36

What remedy/remedies are available for innocent misrepresentation?

Answer 36

Traditionally only rescission, but as per s2(2) MA 1967, the courts may award damages in lieu at their discretion after considering that it would be ‘equitable to do so’.

Question 37

If the power to rescind is lost, can damages still be awarded? Give case law.

Answer 37

No, as confirmed by Salt v Stratstone Specialist Ltd [2015]

Question 38

What does s2(4) MA 1967 provide in relation to damages and the Consumer Protection from Unfair Trading Regulations 2008?

Answer 38

That someone is not entitled to damages if they are entitled to compensation under Part 4A of the Regulations in respect of the conduct constituting the misrepresentation