Misrepresentation

Question 1

What is an actionable misrepresentation?

Representation = a statement asserting the truth of a given state of facts

Answer 1

An a) unambiguous b) false c) statement of fact d) made to the claimant e) inducing them to enter into the contract with the statement maker

Each letter indicates an element; all must be present

Question 2

What are the consequences of a misrepresentation?

Subject to limitations

Answer 2

Makes the contract voidable - wronged party must take action to rescind the contract

Question 3

What do unambiguous and false mean in terms of the definition of misrepresentation?

Answer 3

Unambiguous = clear and has meaning put forward by representee

False = will not be false if substantially correct (i.e. can be true without being entirely correct)

Question 4

If the representee places own unreasonable construction on representation, can representor still be liable?

Answer 4

No

Question 5

What amounts to a ‘statement of fact’ in the context of misrepresentation?

Answer 5

Must be a statement asserting a given state of affairs, includes…

• Conduct (e.g. intentional concealment of dry rot)
• Statement of law

Question 6

What does not amount to a ‘statement of fact’ in the context of misrepresentation?

Answer 6

• ‘Mere puffs’ do not count (e.g. salesmen/estate agents have lots of leeway when advertising)
• Statements of opinion, future intention and instances of silence (not actionable on the face of it)

Note there are exceptions!

Question 7

What are the 2 tests for inducement in misrepresentation

Answer 7

Either…

1. Representee shows statement would have influenced reasonable person + representor cannot show the statement did not influence particular representee (i.e. it was material)

or

2. Representee shows that it was personally induced by the statement (subjective)

Question 8

In what 3 circumstances can a representee not be induced?

I.e. the statement was…

Answer 8

Where…

• Statement was not communicated to them
• Statement did not affect decision to enter contract
• Statement known to be untrue by representee

Question 9

Does the misrepresentation need to be the only reason the claimant entered the contract?

Answer 9

No! Another reason can contribute even if it that reason was a mistaken belief (and even if that mistaken belief was the decisive factor)

Edgington - plaintiff induced to lend money to company by false representation in company prospectus (misrepresentation) and more decisively the beliief that he would have a charge on assets of company if he made loan (mistaken belief) - was able to sue for fraudulent misrepresentation

Question 10

What if a representee chooses to test the validity (investigate) of the representor’s statement?

Even following wildly exaggerated misrepresentations

Answer 10

A party cannot bring a claim in misrepresentation if they rely on their own investigations rather than the misrepresentation

Separate enquiries = vendor’s statement not relied upon

Attwood - vendor of mine made wildly exaggerated statements about earning capacity which purchaser did not believe - sent own agent to make report and they produced a similar report to the vendor - mine turned out to be virtually worthless - misrepresentation claim was dismissed as purchaser did not rely on statement of vendor but was induced to purchase mine on strength of own agent’s report

Question 11

Will separate enquiries alone always invalidate a claim for misrepresentation?

Answer 11

No - only if they can show that purchaser did not rely on vendor’s statements

Question 12

Is there a duty to check misrepresentor’s statements?

Answer 12

No

Question 13

Can contributory negligence be a defence for the misrepresentor in a case of misrepresentation?

Answer 13

Yes - if a representee does not check where the court considers it reasonable for them to have done so/carries out negligent investigation

Bar where misrepresentation is fraudulent

Question 14

What is the general rule on statements of opinion, statements of future intention and silence?

Answer 14

They cannot amount to statements of fact on which misrepresentation claim can be based

Question 15

What are the 2 exceptions to statements of opinion?

Where statements of opinion can result in a claim for misrepresentation

Answer 15

• If the representor has greater knowledge than the representee (esp if no reasonable grounds to hold opinion) - if parties have equal knowledge, less likely to be misrepresentation
• If the opinion expressed is not one which the representor held (believed)

In both cases will be a statement of fact

Esso - Madron took lease of petrol station after being assured by Esso representative that annual throughput would be 200,000 gallos of petrol per year (inaccurate estimate!) - estimated gallonage never reached and petrol station was uneconomic - Mardon brought misrepresentation claim, court held Esso had carefully estimated potential sales based on substantial skill and expertise

Question 16

What are the exceptions to a statement of future intention?

Where statements of future intention can result in a claim for misrepresentation

Answer 16

If when someone makes the statement re future intention, knowing they cannot do what they state or they do not intend to do it, they misrepresent their existing intention (are stating an intention to do something which is untrue; a promise that they never intended to keep)

• Excluding promises regarding future intention that are prevented from following course of conduct or circumstances change to change their mind about intention

Wales - divorce settlement negotiated on generous basis that woman would remain single - prior to conclusion of settlement the wife agreed to marry another and did not communicate this change of intention - husband sought to rescind on non-disclosure but court held wife had not misrepresented when she told her current husband she would not remarry

Question 17

What are the 3 exceptions to silence?

Where silence can result in a claim for misrepresentation

Answer 17

• Half-truths: making a statement but not disclosing the full picture (e.g. describing a property as ‘fully let’ where tenants have given notice to quit is a misrepresentation)
• Continuing representations: If a party fails to correct a previously-correct but now-incorrect statement and allows party to enter into contract on basis that it is true (medical professional selling practice made statement at beginning of negotiations that income of practice was at a certain level, but this had fallen to almost nothing by time of sale and this was not communicated)
• Contracts uberrimae fidei (utmost good faith): a duty to disclose material facts in some type of contracts where one party in particularly strong position to know material facts (e.g. disclosure of all material facts must be made to insurer)/where there is a FD (e.g. company/directors, Ts/Bs)

Question 18

What are the three types of misrepresentation?

The type determines the available remedies

Answer 18

• Fraudulent (tort of deceit)
• Negligent (statutory claim under MA)
• Innocent (statutory claim under MA)

Question 19

What is fraudulent misrepresentation? On whom is the burden of proof?

Answer 19

• A misrepresentation that has been made a) knowingly or b) without belief in its truth or c) recklessly re whether true or false
• Burden of proof on C

This is hard to prove!

Recklessness = a flagrant disregard for the truth

Nothing short of fraud will sufficent; must be deliberate or dihonest and not due to inadvertence/failure to realise requirement of disclosure

Question 20

What is negligent misrepresentation? On whom is the burden of proof?

Answer 20

• D will be liable for negligent misrepresentation where they cannot prove they had reasonable grounds to believe and did believe up to the time the contract was made that the statement was true
• Burden of proof on representor - show they had reasonable grounds

Howard - Ogden hired 2 barges from Howards, who had told Ogden that barges capacity was 1600 tonnes when it was actually 1055 tonnes - true figures in ships’ documents and Howard failed to show any ‘objectively reasonable ground’ for disregarding figure in documents - negligent misrepresentation

Question 21

If a representor is found liable for negligent misrepresentation, what will they be treated as having made?

Answer 21

Will be treated for all intents and purposes as if they have made a fraudulent misrepresentation - important re damages

Question 22

What is innocent misrepresentation?

Answer 22

One made not fraudulently or negliently - representor:
a) Proves they had reasonable grounds for belief in truth
b) Proves they believed up to time of contract that what they were saying was true

Question 23

What is the test in terms of knowledge of the representor for each type of misrepresentation?

Answer 23

• Fraudulent - representee to prove representor made statement knowing untrue/without belief in truth/reckless as to truth
• Negligent - representor fails to show reasonable grounds to believe true and/or not believing true up until contract made
• Innocent - representor has shown reasonable grounds to believe and actual belief up until contract made

Question 24

What remedies are available for misrepresentation?

Answer 24

• Rescission - contract becomes voidable not void (representee must communicate intention to rescind or initiate proceedings for rescission)
• Indemnity - cover expenses for obligations assumed as a direct result of the contract
• Damages

Can be a combination

Question 25

What is the effect of rescission being an equitable remedy? What is the only time rescission will be awarded?

Answer 25

• It is given or withheld entirely at discretion of the court; a party can establish misrepresentation and court still not award rescission
• Rescission can only be awarded where parties can be restored to original position

Question 26

For which type of misrepresentation is rescission available for?

Answer 26

All 3

Question 27

What are the 4 bars to rescission?

Answer 27

• Affirmation (representee declares intention to proceed with contract)
• Lapse of time (not automatic; but can be treated as evidence of intention to proceed)
• Restitution is impossible
• Third party rights accrue (e.g. third party acquires good title to goods)

Question 28

Where can an indemnity for misrepresentation be used and what for? When will it not be available?

Answer 28

• Obligations which were created by contract
• Cases of innocent misrepresentation (where damages are unavailable)

Will not be available where an action for misrepresentation gives a right to damages

E.g. representee induced into buying leasehold by misrepresentation - obligations arising from this like council tax, service charge etc. would be covered by an indemnityu

Question 29

How are damages calculated for fraudulent misrepresentation? What will it be reduced by and what will it not be reduced by?

Answer 29

That which is necessary to place innocent party in position they would have been if misrepresentation had not been made

• Reduced by benefits gained by C
• Contributory negligence not available as a reduction

Generous remoteness rules

Question 30

How are damages awarded for negligent misrepresentation? Will damages in lieu of rescission always be available?

Answer 30

• Same as fraud but reduction in contributory negligence available (where loss was part in fault of representee)
• Damages in lieu of rescission available only at discretion of court

Question 31

Are damages in lieu of rescission available for all types of misrepresentation? What will the court have regard to in exercising discretion?

Answer 31

• Only available for negligent and innocent
• Court has regard to nature and seriousness of misrepresentation, loss if contract upheld, and loss rescission would cause to other party

Question 32

How are damages awarded for innocent misrepresentation?

Answer 32

Representee only entitled to remedy of rescission and indemnity to cover obligations if applicable

No automatic right to damages

Question 33

How are damages awarded for each type of negligence?

Answer 33

• Fraudulent - generous remoteness rules, no reduction for contributory negligence
• Negligent - same as fraud but potential reduction for contributory negligence - can also be given in lieu of rescission
• Innocent - can be given damages in lieu of rescission (and maybe indemnity for legal obligations)

Question 34

How are damages measured for fraudulent/negligent misrepresentation? What should be done to damages and what happens to value of benefit C acquires?

Answer 34

On a tortious basis - that which is necessary to place the innocent injured party in the position they would have been in had the misrepresentation not been made

• Damages must be mitigated as soon as fraud discovered
• Any damages awarded will be reduced by value of benefit C acquires as a result of the contract

Question 35

What is the difference between damages for fraudulent and negligent misrepresentation?

Answer 35

For negligent misrepresentation…

• Damages can be reduced for contributory negligence where the loss was in part fault of the representee
• Damages in lieu of rescission available only at discretion of court

Both unavailable for fraudulent misrepresentation

Question 36

What is the difference between damages and damages in lieu of rescission?

Answer 36

Damages ILOR are intended to compensate the C for loss directly flowing from misrepresentation and to compensate the representee where court decides not to award rescission

Damages awarded will be reduced to reflect those awarded in lieu

When deciding court will consider the seriousness of misrepresentation, loss that would be caused if contract were upheld, and the loss that rescission would cause to the other party

Question 37

Summary of remedies for misrepresentation

Answer 37

Question 38

Can misrepresentation be the subject of an exemption clause?

Answer 38

No - the clause will be of no effect (except insofar it satisfies the requirement of reasonableness) if it contains an exemption a) purporting to protect a party from liability for misrepresentation or b) to restrict the remedy available to the other party

Question 39

What is a non-reliance clause?

Answer 39

A clause stating that the parties have agreed neither has made any representations to the other re the contract/its subject matter, nor relied on any representation in entering into contract

Uncertain whether they would be effective

Question 40

What if a representation is incorporated into the contract (by the court) as a term?

Answer 40

If the court decides a false representation is a term of the contract = gives rise to an action for both breach of contract and misrepresentation

Question 41

What is the law of negligent misstatement?

Common law alternative to misrepresnetation; part of negligence law

Answer 41

Where there is a relationship of sufficient proximity between two parties, the court may find that one owes a DOC to the other to take reasonable care that statements are accurate

Rare to pursue is misrepresentation available; this is hard to establish