4. Misrepresentation Flashcards
MISREPRESENTATION
REPRESENTATION
Def: a statement made by one party to another, at the time of contracting, that certain facts are true and which induces the formation of the contract
Effect: potentially legally binding
MERE PUFF
Def: an exaggerated and/or promotional statement which a R person could not read literally or consider to have legal effect
Effect: no legal effect
TERM
Def: a statement of fact of a promissory nature, intended to be legally binding, which forms part of a contract
Effect: legally binding
MisRep: ACTIONABILITY
An actionable MisRep is an “unambiguous false statement of fact addressed to the misrepresentee which materially induces them to form a contract”
Must meet ALL of the following criteria:
- UNAMBIGUOUS
- FALSE
- STATEMENT OF FACT OR LAW
- ADDRESSED TO THE MISREPRESENTEE
- MATERIALITY AND INDUCEMENT OF THE CONTRACT
MisRep: Actionability - UNAMBIGUOUS
the representation must be able to CLEARLY bear the meaning which the representor ascribes to it (McInerney v Lloyd’s Bank)
MisRep: Actionability - FALSE
A statement will be false if it is less than “SUBSTANTIALLY CORRECT” (Avon Insurance v Swire Fraser per Rix J)
MisRep: Actionability - STATEMENT OF FACT
Statement of Law
- A statement of law can be a statement of fact (Pankhania v Hackney LBC)
Conduct
- may be treated as fact (Gordon v Selico; Spice Girls v Aprilia)
Statement of Opinion
GR: a statement of opinion will NOT constitute a statement of fact (Bissett v Wilkinson)
- EX 1: where representor does not believe their opinion
- EX 2: where it is unR for someone in representor’s position with their level of knowledge to hold such a position (Smith v Land and House Property Corp; Esso v Mardon)
Statement of Future Intention
GR: a statement of future intention is NOT a statement of fact (Beattie v Ebury; Wales v Wadham)
- Ex 1: where the representor makes a statement he either intends not to keep or knows he cannot keep (Edgington v Fitzmaurice)
Silence
GR: remaining silent will NOT constitute a statement of fact as there is no general duty to disclose info (Keates v The Earl of Cadogan)
- Ex 1: Half-Truths (Dimmock v Hallet)
— a statement whilst technically correct yet omitting key info will be a MisRep, especially where done in order to deceive.
- Ex 2: Continuing MisRep (With v O’Flanagan)
— statements that were true at a time but become false by the point of contracting will be MisReps if fail to inform representee
- Ex 3: Contract Uberrimae Fidei
— certain contracts (insurance, fiduciary) require the disclosure of the whole truth.
MisRep: Actionability - ADDRESSED TO THE MISREPRESENTEE
The misrepresentor must address the MisRep to the Misrepresentee either:
- directly, OR
- through a 3rd party (Commercial Bank of Sydney v RH Brown
MisRep: Actionability - MATERIALITY AND INDUCEMENT
MATERIALITY TEST
- The statement must have been AN inducement to C entering the contract (JEB Fasteners v Marks Bloom) though it need not have been the sole inducement (Edgington v Fitzmaurice)
TEST: would the statement have induced a R man in C’s position to enter the contract?
— OBJ test (Pan Atlantic v Pine Top)
- if YES, inducement inferred (Smith v Chadwick), UNLESS D can prove otherwise.
- if NO, inducement not inferred UNLESS C can prove they were SUBJ induced (Museprime Properties v Adhill Properties)
INDUCEMENT
C will NOT be induced by a MisRep where he:
- was ignorant of the statement when the contract was made (Horsfall v Thomas), OR
- knows that the statement is false (Redgrave v Hurd), AND/OR
- relies on their own investigation (Attwood v Small), not on the representor’s statement (Smith v Chadwick).
— there is no strict duty to check the validity of a statement (Redgrave v Hurd), HOWEVER
— the court may deem it R for checks to occur, especially in commercial scenarios (Smith v Eric S Bush)
— if fail to check, representor MAY have defence of Contrib Neg, UNLESS Fraud MisRep, in which case no Contrib Neg.
- if C checks and can show still relied on the statement IN PART, inducement will be inferred (Edgington v Fitzmaurice)
- Inducement will ALWAYS be inferred where MisRep is FRAUDULENT, regardless of whether any checks have been made (S Pearson v Dublin Corp, OBITER)
MisRep: CATEGORISATION
A MisRep will fall into one of the following four categories:
- FRAUDULENT MISREPRESENTATION
- NEGLIGENT MISREPRESENTATION
- NEGLIGENT MISSTATEMENT
- INNOCENT MISTATEMENT
MisRep: Categorisation - FRAUDULENT MISREPRESENTATION
Def: a MisRep made with KNOWLEDGE OF ITS FALSE NATURE
TEST: the representor must make the false statement (Derry v Peek)
- Knowingly, OR
- not believing it to be true, OR
- recklessly
— the level of recklessness must be a ‘flagrant disregard for the truth’ (Thomas Witter v TBP Industries per Jacob J)
Burden of Proof: on C
- STANDARD: actual FRAUD must be proven (greater than balance of probability)
- MOTIVE req? NO, if fraudulent MisRep is proven, motive is irrelevant (Derry v Peek), court will ignore any investigation carried out by C (S Pearson v Dublin Corp, OBITER)
Remedies
- RECISSION
- DAMAGES (Doyle v Olby; Smith New Court v Scrimgeour Vickers; East v Maurer)
- INDEMNITY (if relevant)
MisRep: Categorisation - NEGLIGENT MISREPRESENTATION
Def: a MisRep made with NO R BELIEF IN ITS TRUTH
- TEST: D will be liable UNLESS can prove that up to the point of contracting that they (s.2(1) Misrepresentation Act 1967; Howard Marine v Ogden):
- – had R grounds to believe statement was true, AND
- – believed it was indeed true.
Burden of Proof: on D
Remedies
- DAMAGES (s.2(1) MA 1967)
- RECISSION or damages in lieu (s.2(2) MA 1967)
- INDEMNITY (Royscott v Rogerson)
MisRep: Categorisation - NEGLIGENT MISSTATEMENT
est in (Hedley Byrne v Heller)
Def: a statement made CARELESSLY in the context of a D of Care relationship.
- TEST: a relationship must exist between parties. This requires:
- – a relationship of sufficient proximity between the parties
- – the representor must be able to R foresee reliance on statement
- – it must be F, J and R for a duty to be imposed in the situation.
Used: when misrepresentor is not party to the contract
Remedy
- DAMAGES
MisRep: Categorisation - INNOCENT MISREPRESENTATION
Def: a MisRep made with HONEST BELIEF IN ITS TRUTH
- TEST: representor must prove that up to the point of contracting he (s.2(1) MA 1967):
- had R grounds to believe the statement was true, AND
- did believe it was true
Burden of Proof: on D
Remedies
- RECISSION or damages in lieu (s.2(2))
- INDEMNITY (Whittington v Seale-Hayne)
- DAMAGES (potentially)
MisRep: REMEDIES
Effect of MisRep: the contract is VOIDABLE (not AUTO void) at the C’s election. Representee must RESCIND the contract in order to render it VOID.
Possible remedies:
- RECISSION
- DAMAGES IN LIEU OF RECISSION
- DAMAGES
- INDEMNITY
MisRep: Remedies - RECISSION
Available for ALL types of MisRep.
- Where innocent MisRep, a party may rescind regardless of whether contractual performance has taken place (s.1 MA 1967)
REQ
1. RESTORATION of parties to their original position must be possible by the return of all property transferred thus far under the contract
- GR: in order to rescind, a party MUST:
- – communicate their intention to do so, OR
- – initiate court proceedings to rescind the contract, this will constitute communication in itself.
- – EX 1: where communication/court proceedings is impossible, in which case taking R steps to rescind will suffice (Car and Universal Finance v Caldwell)
- – EX 2: where C repossesses the goods from D’s possession, the communication required is waived - NO BARS TO RECISSION can exist, these may be:
- 3rd party rights
- – no right to rescind a contract once an innocent party has obtained good title to the goods (Phillips v Brooks; s.23 SGA 1979)
- Affirmation
- – not available where C has AFFIRMED the contract. C may affirm by either (Long v Lloyd), expressly stating his intention to go ahead with contract OR performing an act from which it is R to infer an intention to affirm
- Impossibility
- – it is not possible to rescind where restoration to pre-contractual positions is impossible (Clarke v Dickson), i.e. where property subject of the contract has declined in value/deteriorated.
- – if this is the case, courts will attempt to achieve what is ‘practically just’ (Erlanger v New Sombrero)
- Lapse
- – GR: C must bring an action for rescission within a R time. Failing to do so may constitute evidence of affirmation. EG - a delay of 5 years resulted in loss of right to rescind (Leaf v International Galleries)
- Ex 1: FRAUDULENT MISREP, timer begins from the point at which the fraud is discovered.
Recission is unlikely to be granted where (William Sindall v Cambridgeshire CC):
- it would impose SERIOUS PROBLEMS on D, OR
- the MisRep is itself insignificant
MisRep: Remedies - DAMAGES IN LIEU OF RECISSION
set out in s.2(2) MA 1967
Where court has decided not to grant rescission, it may award damages to compensate.
Available for: negligent and innocent MisRep ONLY
REQ:
- D must still possess the right to rescind at the time of the hearing (Government of Zanzibar v British Aerospace; Floods of Queensferry v Shand Construction)
the court will have regard to the following when deciding whether to grant them (UCB Corporate Services v Thomason):
- the nature and seriousness of the MisRep
- the loss that upholding the contract would cause
- the loss that the other party would incur if rescission were granted
