6 - Misrepresentation Flashcards
In which four stages is the law on misrepresentation considered?
The law on misrepresentation can be considered in the following four stages:
(a) Categories of pre- contract statements - Whether the statement made formed part of the contract (a term), or whether it was simply an inducement to enter into the contract (i.e., a representation).
(b) Definition of misrepresentation - Identify what counts as misrepresentation, define it, and apply it to the false preliminary statement that has been made.
(c) Types of misrepresentation - Determine the type of misrepresentation.
(d) Remedies - Determine the remedies available to the misrepresentee (the party who has been misled).
What is the key terminology used in misrepresentation cases.
Representor: the party who allegedly made the representation
Representee: the party who allegedly received the representation
What are the three categories that preliminary statements typically fall into in pre-contract discussions?
Preliminary statements generally fall into one of three categories:
Sales puff: Extravagant sales talk not meant to be believed and not actionable if untrue.
Contract term: A statement forming part of the contract, giving rise to a breach of contract action if untrue.
Representation: A statement that may be actionable as a misrepresentation if untrue.
When is a false preliminary statement considered actionable?
For a false preliminary statement to be actionable, it must either amount to a term of the contract or be classified as a misrepresentation.
What is the primary test to determine whether a preliminary statement is a term or representation?
The primary test is the common intention of the parties when entering into the contract.
What are the guidelines that courts consider when the intention of the parties is unclear in determining whether a preliminary statement is a term or a representation?
Courts use the following guidelines:
Greater skill or knowledge:
- If the statement maker had greater expertise, the statement is more likely a term.
- Example: if an expert misleads a non-expert, the statement is more likely a term. Conversely, if a non-expert misleads an expert, it is likely to be a representation.
Repetition in a written contract:
- If a verbal statement is repeated in writing, it is definitely a term; if not, it could be just a representation.
Vital importance to the recipient:
- If the recipient highlights the statement as crucial, it is almost certainly a term.
- Example: Natasha informed the seller that the organic status of vegetables was vital, to which the seller assured her of the organic vegetables. This statement would be a term because of its importance to the buyer.
Invitation to verify:
- If the statement maker invites the other party to verify it, the statement is likely to be a representation.
- Example: The seller advising Anoushka to verify the boat’s condition through a survey implies it is a representation.
Lapse of time:
- The longer the gap between making the statement and forming the contract, the more likely the statement is a representation.
- Example: Priti’s statement about her motorbike’s manufacturing date, made before entering a written contract that did not mention the date, is more likely a representation due to the time lapse.
What is the effect of a preliminary statement being classified as a contract term?
If a preliminary statement is deemed a term and is untrue, it results in a breach of contract. The innocent party can then seek remedies for the breach.
Can a false preliminary statement still be actionable if it is not a contract term?
Yes, even if a false preliminary statement is not classified as a term, it may still be actionable as a misrepresentation.
What is the definition of misrepresentation in contract law?
Misrepresentation is:
An untrue statement of fact made by one party to a contract, by words or conduct, to the other contracting party, which induced the other to enter the contract.
What constitutes an untrue statement in misrepresentation?
The first requirement to show misrepresentation is that there be an untrue statement, which may be:
- Oral, in writing, or by conduct.
Example: In Spice Girls v Aprilia World Service BV [2000], the Spice Girls’ participation in filming a TV commercial represented that none of the members intended to leave. However, this was untrue because one member had already given notice of her intention to leave. This participation amounted to a misrepresentation by conduct, and the sponsor was entitled to damages.
Can silence amount to misrepresentation?
As a general rule, silence does not amount to misrepresentation, but there are exceptions:
- Fiduciary relationship between the parties (e.g., solicitor and client, or trustee and beneficiary).
- Contracts of utmost good faith (e.g., insurance contracts).
- Where there is a half-truth (i.e., partial disclosure distorts what was actually said).
Example - If a car is advertised as having “one lady owner” but there were other previous owners, this would create a misleading impression.
- Where there is a change of circumstances that makes a previously true statement untrue, and the change is not disclosed.
What type of statements can constitute misrepresentation?
The statement must be one of fact, as opposed to a statement of future intention or reasonably held opinion.
If a party lies about their intention, this would be a misrepresentation of their state of mind (which is a fact).
If an opinion is stated for which there are no facts to reasonably support it, this would be a misrepresentation.
What is the distinction between fact and opinion in misrepresentation?
A statement is considered a statement of fact if the person making the statement knows something contrary to the truth.
For example, if a seller describes a tenant as a “most desirable tenant” but knows the tenant has been in arrears with rent, this would be a statement of fact and not opinion.
Who must the statement be made by in a claim for misrepresentation?
The statement must be made by one contracting party to the other.
If the statement maker is not the other contracting party, there is no claim for misrepresentation, although a claim may still arise in tort for negligent misstatement or deceit.
How does inducement relate to misrepresentation?
The statement must have induced the representee to enter into the contract. This is often described as the representee relying on the statement. If the statement is material, inducement will generally be inferred as a matter of fact.
The test for materiality is objective: did the statement relate to an issue that would have influenced a reasonable person?
However, the statement does not need to be the only inducement; it is enough that it was a reason for entering into the contract.
Example: If the representee appoints an expert to verify the statement and relies solely on the expert’s report, the initial statement may not be regarded as inducing the contract.
What are the different types of misrepresentation and why are they classified?
Misrepresentations are classified to determine the available remedies. In particular, the remedies (especially damages) differ based on the degree of culpability with which the misrepresentation was made:
- Fraudulent misrepresentation: Deliberate lies.
- Negligent misrepresentation: Statements made carelessly, but not known to be false.
- Innocent misrepresentation: Statements made honestly and carefully, but which happen to be untrue.
The classification affects the nature of damages available, with each type entailing different legal consequences.
What remedies are available for misrepresentation?
The remedies potentially available in relation to misrepresentation are those of rescission, damages in lieu of recission, and indemnity. The exact combination of remedies available depends upon the nature of the misrepresentation.
It should be noted that, in addition, the representee may refuse further performance of the contract, pleading the representor’s misrepresentation as a defence in the event of his being sued for breach of contract by the representor.
What is fraudulent misrepresentation, and what remedies are available?
Fraudulent misrepresentation occurs when a statement is made:
- With knowledge that it is false; or
- Without belief in its truth; or
- Recklessly, not caring whether it is true or false.
Proof of fraud is required, which can be difficult to establish. Damages for fraudulent misrepresentation are available in the tort of deceit, and these damages cover all consequential losses.
The measure of damages is how much the misrepresentee is out-of-pocket as a result of the misrepresentation, and remoteness of loss does not limit the damages.
Example: In East v Maurer [1991] the aim of these damages is to put the innocent party in the position they would have been in if the misrepresentation had not been made.
What is negligent misrepresentation, and how are damages assessed?
Negligent misrepresentation arises from carelessly made statements. s 2(1) of the Misrepresentation Act 1967 requiresw the misrepresentor to prove they made the statement on reasonable grounds.
The burden of proof is reversed, meaning the claimant must only show misrepresentation and loss, while the defendant must prove the statement was made on honest and reasonable grounds.
Damages for negligent misrepresentation are assessed as for fraudulent misrepresentation, covering all consequential losses.
Example: In Howard Marine & Dredging v Ogden [1978], the defendant failed to prove reasonable grounds for the incorrect statement about barge capacity because they relied on Lloyd’s Register rather than consulting the ship’s documents.
What is innocent misrepresentation, and what remedies are available?
- Innocent misrepresentation occurs when a statement is made with reasonable grounds to believe it is true.
- Although still a misrepresentation, it is not negligent, and as such, no damages are available as of right.
- However, the misrepresentee may still be able to rescind the contract if rescission is not barred.
- Rescission is the primary remedy for innocent misrepresentation, offering a way to undo the contract.
What is rescission in misrepresentation?
Rescission is the remedy that allows the misrepresentee to set aside the contract, effectively making it voidable.
This remedy is available for all types of misrepresentation (fraudulent, negligent, and innocent).
Rescission restores both parties to their pre-contractual positions by returning any benefits received.
What are the four bars to recission in misrepresentation claims?
There are four bars to rescission:
- Affirmation: If the innocent party affirms the contract after discovering the misrepresentation, they lose the right to rescind.
- Undue delay: Taking too long to rescind the contract can bar rescission, as illustrated in Leaf v International Galleries [1950], where a five-year delay after buying a misrepresented painting prevented rescission.
- Innocent third-party acquisition: If an innocent third party acquires an interest in the subject matter of the contract before rescission, as in Car & Universal Finance v Caldwell [1964].
- Impossibility of restoration: If it is impossible to restore the parties to their pre-contractual positions, rescission may be barred, as seen in Crystal Palace FC v Iain Dowie [2007], where practical considerations prevented rescission. Further, Car & Universal Finance v Caldwell [1964], the seller of a car rescinded the contract by notifying the police and AA before the rogue buyer resold the car, preventing the bar to rescission.
What is an indemnity in the context of remedies for misrepresentation?
An indemnity may be awarded as part of the equitable process of rescission to cover expenses for obligations directly assumed due to the contract.
Example: If induced by misrepresentation to buy a leasehold property, obligations such as council tax and service charge would be covered by an indemnity.
Indemnity is awarded for obligations created by the contract.
Damages (as of right) for fraudulent or negligent misrepresentation generally preclude indemnity.
No automatic right to damages for innocent misrepresentation, making indemnity more likely in such cases.
Distinction between indemnity and damages is critical (Whittington v Seale-Hayne (1900) 82 LT 49).
What are the different types of damages available for misrepresentation?
- Damages are potentially greatest for fraudulent misrepresentation.
- Damages under s 2(1) MA 1967 for negligent misrepresentation often match those available for fraudulent misrepresentation.
- Damages in lieu of rescission may be available under s 2(2) for negligent or innocent misrepresentation, but not for fraudulent misrepresentation.
