Misrepresentation

Question 1

What is the definition of misrepresentation?

Answer 1

An actionable misrepresentation is a false statement of fact that induces the other party to enter a contract.

It is concerned with pre contractual statements which can be oral, written or through conduct.

Question 2

What types of misrepresentation are there?

Answer 2

There are three types of misrepresentation:

1) innocent misrepresentation,
2) negligent misrepresentation,
3) fraudulent misrepresentation

A negligent misstatement is a claim which is brought at common law in tort.

Question 3

What is innocent misrepresentation?

Answer 3

An innocent misrepresentation is made without fault.

The maker of the statement must reasonably believe that what was stated to be true. Then, the statement will be regarded as ‘wholly innocent’.

Question 4

What is Fraudulent misrepresentation?

Answer 4

Derry v Peek

When a false statement is made:
knowingly, or
without belief in its truth, or
recklessly, careless as to whether it be true or false

Question 5

What is a negligent misrepresentation?

Answer 5

Negligent misrepresentation is a false statement made without reasonable ground for belief in its truth.

Question 6

What effect does misrepresentation have?

Answer 6

If a misrepresentation is shown to have occurred, the contract becomes voidable.

Question 7

What factors do the courts use to determine whether misrepresentation has occured

Answer 7

The onus of proof is on the person claiming loss to prove that the offending party did not honestly believe the statement.

They would need to prove that, on the balance of probabilities

a false statement of fact or law was made
it induced them to enter into the contract
they suffered loss because of the misrepresentation.

Question 8

what constitutes a statement of fact?

Answer 8

There are different types of statement that can potentially give rise to actionable misrepresentation.

1) Generally a statement of opinion will not amount to actionable misrep. However the presumption can be rebutted.

2) Generally, a statement as to future intent will not amount to actionable misrep. However the presumption can be rebutted.

3)Traditionally there was also a belief that statements as to the law could not form actionable misrepresentations. However a false statement of law will now amount to an actionable misrepresentation.

4) Silence will not generally amount to a misrepresentation. However the presumption can be rebutted in certain circumstances like half truths.

Question 9

When will a statement of opinion give rise to actionable misrepresentation?

Answer 9

One type of statement distinguished by the courts is a statement of opinion.

The standard rule is that such statements are not actionable, as an opinion is different to stating a matter of fact. This can be seen in cases such as Bisset v Wilkinson.

A statement of opinion can lead to liability where the maker of the statement has expertise in the matter (Oscar Chess v Williams).

A statement of opinion may amount to an actionable misrepresentation where the representor was able to know the facts. In Smith v Land and House Property Corporation. It was held that the statement was not one of opinion. The claimant had sufficient knowledge of the tenant and its business practices to be able to state, as a matter of fact, whether it was a desirable tenant.

Question 10

When will a statement of intent give rise to actionable misrepresentation?

Answer 10

A statement as to future intent cannot amount to a misrepresentation unless the representor had no intention of carrying out the stated intent. Edgington v Fitzmaurice.

However, this does not stop a party from later changing their mind. In Wales v Wadham, the woman’s intentions later changed but at the time she made the statement, she was representing her honest intentions at that point.

Question 11

When will a statement of law give rise to actionable misrepresentation?

Answer 11

Traditionally there was also a belief that statements as to the law could not form actionable misrepresentations. However a false statement of law will now amount to an actionable misrepresentation. Pankhania v Hackney.

The rule barring recovery for mistake of law was abolished by the House of Lords in Kleinwort Benson v Lincoln County council. The High court held that actions based on misrepresentation of law could now be actionable based upon that change of law.

Question 12

When will silence give rise to actionable misrepresentation?

Answer 12

Silence will not generally amount to a misrepresentation: (Turner v Green)

There are however some exceptions to the silence rule.

A misleading half-truth will amount to a misrepresentation. A misleading half-truth is a true statement which is misleading due to other information not being revealed and conveys a misleading impression.

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. It is where a true statement subsequently becomes false before the contract is concluded. There is a duty to disclose changes to circumstances. With v O’Flanagan.

Contracts of the utmost good faith impose an obligation on a party to reveal all relevant facts to the other party. Certain types of contracts will impose a higher duty of disclosure than under normal circumstances. This is due to the nature of the relationships between the parties.

The most common example of such a relationship is that between an insurer and the insured, Solicitor and Client and Trustee and Trustee. Gordan v Gordan (Trustee v Trustee)

Question 13

How will the courts establish whether the claimant was induced by the misrepresentation?

Answer 13

A misrepresentation is a false statement of fact made that induces the other party to enter a contract.

The party must have relied on the statement, and it induced the representee to enter the contract. Upon relying on the statement, they have suffered detriment.

The test is whether the claimant was induced to enter the contract by the statement and not whether a reasonable person would have been induced by it.

The representee will have to show that ‘but for’ the misrepresentation they would not have entered the contract.

(BV Nederlandse Industrie v Rembrandt Enterprises)

Question 14

What factors will the courts consider as to whether the claimant was induced by the misrepresentation?

Answer 14

1) The representation made must be material. The representation must be material so that it would positively influence a reasonable person to enter the contract. (Smith v Chadwick)

2) However, the statement need not be the sole factor in inducing the claimant to contract (Edgington v Fitzmaurice).

3)The representation must be known to the representee. A representation will not be actionable and will not have induced the representee unless the representee was aware of the representation. (Horsfall v Thomas)

4)The representation must be acted upon it and upon reliance upon the statement they have suffered detriment. (Attwood v Small.)

If the representee did not rely on the misrepresentation but their own judgement, then there is no misrepresentation.

Question 15

Is the representee required to verify a statement of fact?

Answer 15

There is no obligation on other party to check the accuracy of the statement.

The traditional view epitomised in Redgrave v Hurd is that there is no duty whatsoever on the claimant, however more recent cases such as Smith v Eric Bush have cast some doubt on this proposition.

Question 16

What are the remedies for misrepresentation?

Answer 16

The remedies for misrepresentation are damages and rescission.

Question 17

What is the effect of rescission?

Answer 17

Rescission is a remedy made available when the underlying basis for making a contract is fundamentally tainted. The contract can be rescinded, at the decision of the affected party.

The remedy of rescission means that an entire contract is set aside. The aim is to put the parties back in the position they were before the contract was made. The contract is terminated, and the parties are restored to their original position. The decision is final.

Rescission is available for any category of misrepresentation. There are a number of restrictions to the use of this remedy. These are known as ‘bars’ to rescission

Question 18

What remedy is available for fraudulent and negligent misrepresentation?

Answer 18

For fraudulent and negligent misrepresentation, the claimant may claim rescission and damages.

Question 19

What remedy is available for innocent misrepresentation?

Answer 19

For innocent misrepresentation, the court has a discretion to award damages in lieu of rescission; the court cannot award both (S2(2) of the Misrepresentation Act 1967).

Question 20

What are the bars to recission?

Answer 20

Rescission is available for any category of misrepresentation. There are a number of restrictions to the use of this remedy. These are known as ‘bars’ to rescission.

1) The election to treat the contract as rescinded must be communicated to the other party, (Car & Universal Finance Co Ltd v Caldwell.)

2) Affirmation of the contract. (Lloyd v Lloyd)

3) Lapse of time.

4) Restitutio in integrum, (Clarke v Dickson).

5) Where rescission would infringe on the rights of a third party, the remedy will be unavailable. Usually this will be where the goods have been sold to a third party who had no knowledge of the misrepresentation.

Question 21

What does it mean to elect to treat the contract as rescinded?

Answer 21

1) The election to treat the contract as rescinded must be communicated to the other party, Car & Universal Finance Co Ltd v Caldwell. The claimant must had taken all reasonable steps to communicate rescission to the other party.

Question 22

What does affirming the contract mean?

Answer 22

Affirmation of the contract, despite the misrepresentation, is where the representee had held themselves out to be happy with the contract as it is, therefore affirming the misrepresentation (Long v Lloyd).

Question 23

What effect does Lapse of Time have on the contract?

Answer 23

Lapse of time between the formation of the contract and the discovery of the misrepresentation.

In the case of fraudulent misrepresentation, the lapse of time will begin at the time the fraud was either discovered or could have been discovered.

As for misrepresentation which is negligent or innocent, the lapse of time will begin from the date of the contract. Leaf v International Galleries highlights this is sometimes a harsh approach.

Question 24

What is Restitutio in integrum

Answer 24

Restitutio in integrum, this bar to rescission refers to where a rescission of the contract is no longer possible. This is the case where the goods under the contract have been used, consumed, or have perished. (Clarke v Dickson).

Question 25

When can the representee claim damages?

Answer 25

Although rescission is effective in releasing the parties from their obligations under the contract, there are often circumstances in which the damage caused goes beyond the contract in question. In this case, damages are an effective remedy.

The measure of damages differs for each of the types of misrepresentation.

Question 26

What damages can the representee recover for

Answer 26

A fraudulent misrepresentation requires a high standard of proof, subsequently, the measure of damages reflect the difficulty of proving this. (Doyle v Olby)

Damages are awarded on a tortious basis, aiming to put the aggrieved party in the position they would have been if the misrepresentation was true.

Traditionally it was a test of ‘reasonable foreseeability’, where a loss will only be claimable if the statement maker could have reasonably foreseen that the fraudulent statement would have resulted in such a loss.

However, following Doyle v Olby, it was established that damages for a fraudulent misrepresentation are not subject to this test of foreseeability, the damages will extent to all loss, irrespective of foreseeability or remoteness of damage.

Question 27

Why is a claim for damages under the Misrepresentation Act 1967 more favourable for negligent misrepresentation than negligent misstatement?

Answer 27

The misrepresentation act is a favourable avenue as to a claim for negligent misrepresentation due to the burden of proof being reversed.

A claim made under the misrepresentation act is even more favourable in respect of the damages it may award.

Under Section 2(1) of the Misrepresentation Act, damages are awarded on the same basis as fraudulent misrepresentation.

Therefore, the statement maker will be liable in damages for all consequential losses as a result of the statement, irrespective of their forseeability.

Question 28

What damages can be recovered for innocent misrepresentation?

Answer 28

The only remedy for innocent misrepresentation is rescission, meaning damages will not be possible for an innocent misrepresentation.

Question 29

What affect did Section 2(1) of the Misrepresentation Act 1967 have?

Answer 29

Traditionally, damages could only be claimed for fraudulent misrepresentation. Not negligent misrepresentation. Only the remedy of rescission was available.

Section 2(1) of the Misrepresentation Act 1967 changed that. It introduced the availability of damages as a remedy for negligent misrepresentation. Also, a court has a discretion to refuse the remedy of rescission and award damages instead.

The Misrepresentation Act 1967 enables statutory damages for negligent misrepresentation.

The burden of proving that there was no negligence falls on the maker of the statement.