9. Misrepresentation

Question 1

What is a required for an actionable misrepresentation?

Answer 1

False statement of fact or law made by one party to another to induce them to enter into the contract

Question 2

What is required of the statement for the purposes of misrepresentation?

Answer 2

Clear and unambiguous pre-contractual statement, made to the innocent party by the party to the contract or a third party

Question 3

For the purposes of misrepresentation, what is the definition of false?

Answer 3

Not substantially correct

Question 4

For the purposes of misrepresentation, is a statement of fact limited to just present conditions?

Answer 4

No, it can also concern past conditions, but not future events

Question 5

For the purposes of misrepresentation, what is required for a statement of opinion to not be a statement of fact?

Answer 5

The opinion must be honestly, genuinely and reasonable held

Question 6

When will a statement of intention be false?

Answer 6

When the person making the statement knew it was false when they made it

Question 7

Can silence amount to a misrepresentation?

Answer 7

Generally no

Question 8

What are two instances in which silence could be a misrepresentation?

Answer 8

1. Duty to act, e.g. fiduciary or where earlier representation turns out to be false
2. Uberrimae fidei contracts (of utmost good faith required full disclosure)

Question 9

Can a partial non-disclosure (half truth) amount to an actionable misrepresentation?

Answer 9

Yes

Question 10

Does the misrepresentation have to be the only reason the innocent party entered into the contract?

Answer 10

No, but it needs to be a substantial reason

Question 11

In what three instances will there be no actionable misrepresentation?

Answer 11

1. Innocent party did not believe the statement
2. The statement was not actually communicated
3. Statement did not affect party’s decision to enter into contract

Question 12

What are the three categories of misrepresentation?

Answer 12

1. Fraudulent
2. Negligent
3. Innocent

Question 13

What are the three ways in which fraudulent misrepresentation can arise?

Answer 13

Statement must be made:

1. Knowingly
2. Recklessly (careless as to truth), or
3. Without belief in its truth

Question 14

What negligent misrepresentation is actionable under the Misrepresentations Act 1967?

Answer 14

Any misrepresentation is actionable unless the person making the statement can prove they had reasonable grounds for believing and did believe, until the contract was entered into, that the statement was true

Question 15

To clarify, who has the burden of disproving a claim of negligent misrepresentation?

Answer 15

The party who made the statement

Question 16

What are the two remedies available to the innocent party in the context of misrepresentation?

Answer 16

1. Rescission
2. Affirm, but claim damages

Question 17

What types of misrepresentation is rescission available for?

Answer 17

All three

Question 18

As a general aside, how is rescission different to termination?

Answer 18

Termination brings the contract to an end and only affects the parties’ future rights. Rescission makes it as if the contract never existed at all, therefore prior rights cannot be enforced

Question 19

Is rescission always available?

Answer 19

No, it is an equitable remedy and is therefore at the discretion of the court, except for fraudulent when it is always available

Question 20

What is required if a party wishes to rescind for misrepresentation?

Answer 20

They must notify the other party of their intention to rescind, or obtain a court order to that effect

Question 21

If the innocent party rescinds the contract, what indemnity might the court seek from the party who has made the representation, and what is it limited to?

Answer 21

An indemnity to assist in restoring the parties to the pre-contractual position, and is limited to any expenses or obligations necessarily incurred as a result of entering into the contract

Question 22

What are four bars to rescission?

Answer 22

1. Affirmation
2. Lapse of time
3. Impossibility of restitution
4. Third party has rights under contract

Question 23

What is affirmation?

Answer 23

When, upon discovering the misrepresentation and having full knowledge of it, the innocent party carries on with the contract

Question 24

How can a contract be affirmed?

Answer 24

1. Statement affirming it
2. Continued performance

Question 25

Why does a lapse of time bar rescission?

Answer 25

Because rescission is an equitable remedy and delay defeats equity

Question 26

With regard to lapse, when does the clock start running for fraudulent misrepresentation?

Answer 26

When the fraud is **discovered**

Question 27

With regard to lapse, when does the clock start running for negligent and innocent misrepresentation?

Answer 27

When the innocent party *discovers* or *should have discovered* the misrepresentation

Question 28

What happens to the innocent party if it is impossible to return the parties to their pre-contractual position?

Answer 28

The innocent party will lose the option to ask the court to rescind, and will only be able to bring a claim in damages

Question 29

When will third party rights bar rescission?

Answer 29

When a *bona fide* third party has acquired *any rights* under the contract

Question 30

If a bona fide purchaser acquires rights under a contract which was formed due to a misrepresentation, will be they be required to return the goods?

Answer 30

Only if they are **aware** of the misrepresentation

Question 31

What are the **damages** for *fraudulent misrepresentation* based on?

Answer 31

The tort of deceit. Therefore, claims are made in **tort**.

Question 32

In a damages claim for *fraudulent misrepresentation*, does the innocent party have to show their loss was reasonably foreseeable?

Answer 32

No

Question 33

What are the **damages** for *negligent misrepresentation* based on?

Answer 33

The same as fraudulent,. i.e. the tort of deceit, but also the tort of negligent misstatement. Therefore, claims are made in **tort**.

Question 34

Are damages generally available for negligent misrepresentation?

Answer 34

No, except where court refuses rescission

Question 35

What is one instance in which damages could be awarded for negligent misrepresentation?

Answer 35

Where damages are awarded in lieu of rescission

Question 36

What types of misrepresentation do the courts have discretion to award damages for in lieu of rescission?

Answer 36

Negligent and innocent only. **Not fraudulent**

Question 37

When will damages in lieu of rescission for negligent and innocent misrepresentation not be available?

Answer 37

If the option to ask the court to rescind has been lost by one of the bars, e.g. affirmation, lapse, etc.

Question 38

What is the most likely scenario in which damages in lieu of rescission would arise?

Answer 38

Where the misrepresentation is so minor that it would be inequitable *to the person who made the statement* to deprive them of the full benefit of the contract

Question 39

What is the measure of damages for misrepresenation?

Answer 39

**All losses** incurred as a result of entering in the contract and also any **incidental expenditure**

Question 40

Can an innocent party recover damages even if the contract is rescinded?

Answer 40

Yes

Question 41

What is the obligation on the innocent party once the misrepresentation comes to light?

Answer 41

Take all reasonable steps to mitigate their loss

Question 42

To what extent will damages for misrepresentation be reduced?

Answer 42

To the extent of the value the innocent party may have already received

Question 43

What is the status of any clause which attempts to exclude liability or limit remedies available for misrepresentation?

Answer 43

Void, unless reasonable