WS 7 - False Preliminary Statements

Question 1

Stages for answering a question on false preliminary statements

Answer 1

STEP 1: Is there a VALID CONTRACT?
STEP 2: Where there is a valid contract: explain whether the statement in question is a TERM, REPRESENTATION or mere SALES PUFF:
STEP 3: If statement is a TERM: consider remedies for BREACH OF CONTRACT
STEP 4: If a statement is a REPRESENTATION: Consider the definition of MISREPRESENTATION:
STEP 5: Using cases, apply each part of the definition to the facts to ascertain whether there has been a misrepresentation
STEP 6: REMEDIES for misrepresentation
STEP 7: Consider whether D may have a DEFENCE:

Question 2

What if there is not a valid contract?

Answer 2

a. Advantages:
i. Unlike misrepresentation, don’t need a contractual relationship to sue.
ii. A statement of OPINION may be a negligent misstatement, as well as one of fact.
b. Disadvantages:
i. Actions under s.2(1) Misrepresentation Act 1967 (i.e. misrepresentation claims) are better for claimants as they reverse the burden of proof.
ii. Remoteness rules apply damages better because no remoteness (due to Royscot)
c. Consider whether the harm is pure economic loss (if so, apply Hedley Byrne etc)

Question 3

• Term

Answer 3

a part of the contract which if untrue, provides a remedy for breach

Question 4

• Representation

Answer 4

a statement made by one party to the contract which may have induced the other party to enter into the contract, but does not form part of it

Question 5

• Mere sales puff:

Answer 5

an obviously extravagant claim providing no right of action (e.g. Red Bull doesn’t actually give you wings)

Question 6

What is the test to use when determining whether a term or a misrep?

Answer 6

a. Depends on parties’ intentions – what did they intend for it to be?
b. If not clear, consider: Objective test – would a reasonable man consider it a term or a representation?

Question 7

Dick Bentley Ltd. V Harold Smith

Answer 7

a. The party making the statement has greater skill/knowledge than recipient (Dick Bentley Ltd. V Harold Smith – car dealer lies to customer about the mileage) THEN A TERM

Question 8

Bannerman v White (1861)

Answer 8

b. The statement is of vital importance to the contract (Bannerman v White (1861) – buyer of hops asked seller if they had been treated with sulphur. Said if they had he wasn’t interested. Seller assured they had not been) THEN A TERM

Question 9

Birch v Paramount

Answer 9

a. Party makes a statement about something which is or should be under his own control, as in Birch v Paramount where the seller gave an oral promise that the C’s house would be as good as the show house. - THEN A TERM

Question 10

What if the oral statement is repeated in the written contract?

Answer 10

d. If an initial oral statement is repeated this would indicate a term – HOWEVER, in Birch v Paramount Estates: was not included and was still considered a term

Question 11

Oscar Chess v Williams

Answer 11

a. The recipient of the statement has greater skill or knowledge (Oscar Chess v Williams – innocent misrep as both in a good position to know the car’s true age) [THINK KASPAROV AND FISHER BOTH AS GOOD AT CHESS AS EACH OTHER] THEN REPRES

Question 12

What if there was a long time lapse between the statement and the contract?

Answer 12

Then a representation. There was a long time lapse between the statement and the contract – one week (Routledge v McKay – lied about age of bike)

Question 13

Ecay v Godfrey

Answer 13

c. The maker of the statement asks the recipient to verify it (Ecay v Godfrey – seller of boat)

Question 14

Schawel v Reade [1913])

Answer 14

a. If the seller tells the buyer not to bother with a survey, this points to a statement about quality of goods being a term

Question 15

Routledge v Mckay - what about statement that is oral and not repeated in the written contract?

Answer 15

d. The statement is ORAL, and not repeated in the WRITTEN contract

• BUT – not a definitive rule. Where oral statement not followed up in writing, contract could be deemed part written, part oral, so could be a term. (Birch v Paramount)

Question 16

If statement is a term, consider remedies for breach of contract

Answer 16

(1) Usual breach of contract rules apply:
a. Robinson v Harman: damages to be assessed on Expectation Loss basis (put C in position would have been in had contract been properly performed)
b. Hadley v Baxendale: scope of damages are those which are natural or contemplated, i.e.:
i. ‘Natural’ (those which fairly and reasonably should be considered as arising naturally from the breach of contract)
ii. ‘Contemplated’ (those which may reasonably be supposed to have been in the contemplation of both parties at time contract made)
(2) If statement is ‘misdescription of goods’, possible breach of the implied term that goods should match their description (s.13 SGA 1979; s.3 SGSA 1982)
a. Remedies = damages; possibility of rejecting goods; additional remedies available to consumers

Question 17

Define misrepresentation

Answer 17

A false statement of fact made by one contracting party to another before the contract was made, and which was one of the factors which induced the other party to enter into the contract.

Question 18

1) False statement of fact§

Answer 18

False’; ‘Statement of fact’:

a. The statement must be one of fact, not opinion (Bisset v Wilkinson). Unless – it is an ‘implied false statement of fact’, i.e.:
i. The opinion is not genuine, or
ii. There are no reasonable grounds for maker to believe it is true (Smith v Land and House Property Corporation)

Question 19

Spice Girls v Aprilia

Answer 19

b. A misrepresentation can be made by CONDUCT

Question 20

Edgington v Fitzmaurice (1885)

Answer 20

c. A statement of INTENTION will not amount to a misrepresentation unless it can be shown that the intention was never held. (Edgington v Fitzmaurice (1885) – said loan was to expand business when it was actually to pay off debt)

Question 21

General rule about silence and misrepresentation

Answer 21

d. SILENCE does not constitute a misrepresentation (Hamilton v Allied Domecq [2007]).

Question 22

What are the exceptions to the rule that silence does not constitute a misrepresentation?

Answer 22

i. Failing to disclose a change in circumstances that would render a previously true statement false With v O’Flanagan
ii. Telling of a half-truth Curtis v Chemical Cleaning and Dyeing C
iii. Where there is an obligation to disclose facts (i.e. under a fiduciary relationship, or under contracts of the utmost good faith e.g. insurance contracts)

Question 23

What if the false statement of fact is not made by one party of contract to another?

Answer 23

Then negligent misstatement or deceit

Question 24

Attwood v Small

Answer 24

a. For there to be a misrepresentation, there must have been RELIANCE on the representation/statement. Although not a misrepresentation where rely solely on expert report

Question 25

What if buyer relies partly on expert’s report and partly on false statement?

Answer 25

i. However, if buyer relies partly on expert’s report and partly on false statement of fact by the seller, then can claim seller has made misrepresentation. (as in the workshop activity)

Question 26

Redgrave v Hurd

Answer 26

b. A representee’s failure to verify the truth of a statement made to them will not prevent a misrepresentation claim

Question 27

Exceptions to rule in Redgrave v Hurd that representee’s failure to verify the truth of a statement will not prevent a misrep claim?

Answer 27

i. The true position was set out in the final contract (Peekay v Australia & NZ Banking Group [2006] – C was an experienced businessman and should have known better) AND,…
ii. …C is experienced in the area (Curtis v Chemical Cleaning and Drying)

Question 28

Effect of misrepresentation?

Answer 28

makes the contract voidable; innocent party may affirm or rescind the contract

Question 29

Effect of recission

Answer 29

EQUITABLE REMEDY. each party returns money/goods and both are released from any future obligations

Question 30

What is required for recission to be valid?

Answer 30

a. Innocent party must notify the other of the intention to rescind (a reasonable attempt may suffice – Car and Universal Finance Co. Ltd [1964] – where conned with fake cheques, report to police is notification, ownership refers back to you.)
• Can apply to court for formal order of rescission

Question 31

Bars to recission?

Answer 31

. Affirmation
. Innocent 3rd party acquires interest in property
. Undue delay (Leaf v International Galleries - 5 years before discovery that Constable painting he had bought was a fake. could have checked this in a few days)
. It is impossible to substantially restore the goods/property to the other (Crystal Palace v Dowie)
. However, if restoration does occur, need not be exact (Erlanger v New Sombrero Mines)

Question 32

Whittington v Seal-Hayne

Answer 32

d. On rescission, innocent party may also claim an indemnity for expenses incurred from contract (but – claims for indemnity are very restricted and only cover the precise terms of contract – Whittington v Seal-Hayne – not good sanitation; received money for rent, rates and repairs but not the dead chickens, as he did not have to use the premises to breed chickens)

Question 33

s.2(2) Misrepresentation Act 1967

Answer 33

(2) DAMAGES IN LIEU OF RESCISSION (s.2(2) Misrepresentation Act 1967)
(At the discretion of the court, and in any case only where misrep is non-fraudulent. Court WILL NOT AWARD WHERE REPRESENTATION IS BARRED)

Question 34

Damages for fraudulent misrep

Answer 34

a. Usual remoteness/foreseeability rules do not apply – Can recover damages for all direct consequences
b. Here, you are suing in the tort of deceit
c. To prove fraudulent misrep, must prove statement was made knowingly, or without belief in its truth or recklessly (Derry v Peek) (difficult to prove)
d. NB – East v Maurer – tortious damages in action for fraudulent misrepresentation are based on what you would have made had you invested in another business.

Question 35

Damages for non-fraudulent misrep

Answer 35

a. Claim under s.2(1) Misrepresentation Act 1967
b. Damages to be assessed in the same way as for fraudulent misrep! (i.e. put claimant in the position would have been in had misrep not been made; usual remoteness rules do not apply) (Royscot Trust v Rogerson [1991])
c. But do not have to prove statement was made knowingly, or without belief in its truth or recklessly

Question 36

How has the decision in Royscott v Rogerson been criticised

Answer 36

Decision in Royscott v Rogerson – Balcombe J’s judgement criticised by Lord Steyn in Smith New Court v Scrigeour Vickers – “trenchant criticism of Royscott case” as it treats someone who is morally innocent as if he was guilty of fraud.

Question 37

What defence may the defendant have to damages for misrep?

Answer 37

D must prove that he had reasonable grounds to believe and did honestly believe up to the time contract was made, that facts were true.

Question 38

S.3 Misrepresentation Act 1967

Answer 38

S.3 Misrepresentation Act 1967

Question 39

Howard Marine v Ogden [1978]

Answer 39

Rep of owner of barge (D) told charterer capacity was 1600 tonnes (based on his recollection of the relevant entry in the Lloyd’s Register). However, it was much less & rep would have realised if he had consulted the ship’s documents. Charterers sought damages under s.2(1) Misrep Act 1967.

• Not enough that he was honest. Must be a reasonable belief
• Still liable despite checking an authoritative source on which others would have relied.