Chapter 8 Flashcards
What is the difference between a void, voidable and unenforceable contract?
- A void contract is a contract where the whole transaction is considered as a nullity. It means that at no time has there been a contract between the parties. Therefore
the parties to the agreement must be returned, as far as possible, to their former positions. - A voidable contract is one that operates as a valid contract until one of the parties takes steps to avoid it. This allows the injured party to set the contract aside through the remedy of rescission. The purpose of rescission is to restore the parties to the position that existed before they entered into the contract. Damages are also
available to the same effect. - An unenforceable contract is otherwise valid but contains a material defect. Generally such a contract is formatively or operatively illegal, such as being contrary to public policy (the common law) or the will of Parliament (statute). The courts will not enforce such a contract if a party refuses to perform its obligations or they may declare the contract void.
What are Vitiating Elements in Contracts? (5)
Vitiating elements are factors that can invalidate or “vitiate” a contract, rendering it voidable or unenforceable. They apply in the following situations:
1) Misrepresentation: When one party enters into the contract based on a statement made by the other party that later turns out to be untrue or misleading. This false representation of facts can vitiate the contract.
2) Duress: If one party is coerced or forced into entering the contract under the threat of harm, violence, or undue pressure, the contract may be considered voidable due to duress.
3) Undue Influence: When one party exerts influence over the other in a way that compromises their ability to make independent decisions, the contract can be invalidated on the grounds of undue influence.
4) Mistake: Certain forms of mistake, such as a mistake of law or fact, can vitiates the contract. If both parties were mistaken about a fundamental aspect of the contract, it may not be enforceable.
5) Illegality: If the contract’s purpose is unlawful or against public policy, it is considered void and unenforceable due to illegality.
In all of these cases, the vitiating elements can undermine the voluntary and genuine consent of the parties, making the contract vulnerable to being voided or declared unenforceable by the affected party or the court.
What is a misrepresentation?
Misrepresentation refers to an untrue factual statement made by one party to the other either before or at the time of forming the contract. This statement does not become a part of the contract, but it influences the other party’s decision to enter into the contract. When a misrepresentation is actionable, it renders the contract voidable, allowing the innocent party the right to rescind the contract or claim damages.
For a misrepresentation to be valid, what core elements must be present?
(i) False Statement: The party making the statement provides false information.
(ii) Material Fact: The statement relates to a material fact, which means it is essential and significant enough to influence the decision of the other party.
(iii) Inducement: The false statement must have induced the other party to enter into the contract, meaning it played a significant role in their decision-making process.
What kind of false statements exist?
1) Misrepresentation by silence
2) Half-truths
3) Change of Circumstances
4) Contracts of the Utmost Good Faith
How can misrepresentation by silence be a false statement? (case)
A person will be liable for misrepresentation where he makes a representation by conduct and fails to correct the impression given by his conduct, e.g. by the concealment of patches of dry rot before selling a flat which was intended to deceive purchasers (Gordon v Selico (1986) 18 HLR 219).
How can half-truths be a false statement? (case)
Half-truths, such as describing property as “fully let”, without disclosing to the buyer that the tenants had given notice to quit, has been held to be a misrepresentation (Dimmock v Hallett (1866) LR 2 Ch 21). In this case, the seller of the property stated that the property was “fully let”.
How can change of circumstances be a false statement? (2 cases)
A statement may be true when first made. However, if the circumstances change and it is no longer true, and a party acts or relies on the original statement, a duty to disclose the truth arises; e.g. where a business is now worth less than was originally stated (With v O’Flanagan [1936] Ch 575).
Similarly, where a representation by conduct induces a contract, it may amount to an actionable misrepresentation. Accordingly, where a pop group participated in promotional activities for the defendant before signing an advertising contract, the fact that the group chose not to disclose that one member was about to leave the group amounted to misrepresentation by conduct. The misrepresentation was that any member did not intend to leave the group during the term of the advertising contract (Spice Girls Ltd. v Aprilla World Service BV [2000] EWHC Ch 140).
What is the duty of utmost good faith in UK law? Give four examples.
The duty of utmost good faith (uberrimae fidei) in contracts involves a duty of disclosure of all material facts. A material fact is one that would influence a prudent and reasonable person’s decision to enter into a contract. Parties to such contracts are obligated to provide complete and accurate information to each other during the negotiation and formation of the contract. Failure to disclose a material fact can give rise to the right of rescission by the other party.
This duty of utmost good faith applies in various types of contracts, including:
1) Contracts of Insurance: In insurance contracts, the insured party must disclose all material facts to the insurer. For example, if the insured fails to reveal previous refusals by another insurance company, it would be considered a material fact affecting the contract.
2) Contracts for the Sale of Land: In contracts for the sale of land, the vendor (seller) has a duty to show good title to the estate or interest being sold. All defects in title must be disclosed, but this duty does not extend to physical defects in the property itself.
3) Family Settlements: In agreements between family members for the protection or distribution of family property, any member withholding material information may render the agreement or arrangement voidable.
4) Fiduciary Relationships: In fiduciary relationships, such as between a trustee and beneficiary, solicitor and client, or principal and agent, the fiduciary has a duty to reveal any material fact to the beneficiary. The duty of disclosure may also extend beyond these typical relationships in specific cases, where one party has information material to the value of the contract and fails to disclose it.
In summary, the duty of utmost good faith requires parties to certain types of contracts to act honestly and disclose all material facts during the contractual process, ensuring transparency and fairness in their dealings with each other.
What is a fiduciary relationship in UK law?
Mention 4 key characteristics
Mention 4 examples
In UK law, a fiduciary relationship is a special legal relationship between two parties where one party, known as the fiduciary, owes certain duties and obligations to the other party, known as the beneficiary or principal. The fiduciary is in a position of trust and confidence and is required to act in the best interests of the beneficiary, putting the beneficiary’s interests above their own.
Some key characteristics of a fiduciary relationship include:
1) Duty of Loyalty: The fiduciary owes a duty of loyalty to the beneficiary and must act in good faith, avoiding any conflicts of interest that could compromise their duty.
2) Duty of Care: The fiduciary must exercise a high standard of care and skill in managing the beneficiary’s affairs or assets.
3) No Unauthorized Benefit: The fiduciary cannot use the position of trust for their own advantage or gain without the express consent of the beneficiary.
4) Confidentiality: The fiduciary must maintain confidentiality and not disclose any confidential information relating to the beneficiary, unless required by law or with the beneficiary’s consent.
Examples of fiduciary relationships in UK law include:
1) Trustee and Beneficiary: A trustee holds legal title to property or assets for the benefit of the beneficiary. The trustee must manage the assets in the best interests of the beneficiary and follow the terms of the trust.
2) Solicitor and Client: Solicitors owe a fiduciary duty to their clients and must act in the client’s best interests while providing legal advice and representation.
3) Company Directors and Shareholders: Directors have a fiduciary duty to act in the best interests of the company and its shareholders, making decisions that benefit the company as a whole.
4) Agent and Principal: Agents have a fiduciary duty to act on behalf of their principal, making decisions that advance the principal’s interests and not their own.
A breach of fiduciary duty can have serious legal consequences, including potential legal claims for damages and, in some cases, criminal liability. The duty of loyalty and trust placed on the fiduciary in these relationships is essential for maintaining the integrity of the legal system and ensuring fair and just dealings between parties in positions of vulnerability and reliance.
What three statements are NOT statements of material fact?
1) Statements of Opinion
2) Statements as to Future Intent
3) Statements of Law
Is an honest expression of opinion or a statement of belief considered grounds for actionable misrepresentation?
In UK law, an honest expression of opinion or a statement of belief is generally not considered grounds for actionable misrepresentation. The key distinction is whether the statement is presented as a statement of fact or merely as an opinion. If the statement is clearly an expression of opinion, it usually does not give rise to a claim for rescission of the contract due to misrepresentation.
What is a claim of recission?
Rescission is a legal remedy that allows a party to a contract to cancel or undo the contract, essentially returning both parties to their pre-contractual positions. When a contract is rescinded, it is treated as if it never existed, and the parties are released from their obligations under the contract.
It is essential to differentiate between statements of fact and statements of opinion, as the legal consequences can differ significantly. Statements of fact can form the basis for actionable misrepresentation, while honest expressions of opinion generally do not give rise to such claims, except in certain circumstances where the opinion is based on undisclosed material facts within the speaker’s knowledge.
Give two leading cases for each outcome
The case of Bissett v Wilkinson [1927] AC 177 provides an example where a statement of opinion did not justify a claim for rescission. In this case, a farmer made a statement about the carrying capacity of his land for sheep farming, but both parties were aware that the farmer had not engaged in sheep farming on the land. The court held that the statement was nothing more than an expression of the farmer’s opinion and not a statement of fact, which meant that it did not give rise to misrepresentation.
However, there are situations where a statement of opinion can be treated as a statement of fact if the person making the statement knows the true facts and the other party does not. In such cases, by implication, the person making the statement is asserting that they have knowledge of facts that justify their opinion. Consequently, a statement of opinion based on such knowledge may be treated as a statement of fact and could potentially give rise to a claim for misrepresentation.
For instance, in the case of Smith v Land and House Property Corp. (1884) 28 Ch D 7, the claimant put his hotel on the market and stated that it was let to a “most desirable tenant.” However, the claimant knew that the tenant was actually bankrupt. In this case, the court held that the claimant’s statement was not mere opinion but a statement of fact based on the claimant’s knowledge, and misrepresentation was established.
Are statements as to Future Intent considered grounds for actionable misrepresentation?
Give the leading case
In UK law, statements as to future conduct or intention are generally not considered actionable if they turn out to be false, and they do not typically bind the person making the statement. This is because predicting future events or intentions is inherently uncertain and speculative.
However, there is an exception. A false statement of future intention made by a person with no genuine intention of fulfilling it may be treated as a misrepresentation of fact. In such cases, the statement is seen as a representation about the existing state of the person’s mind at the time the statement was made.
The case of Edgington v Fitzmaurice (1885) 29 Ch D 459 illustrates this principle. In this case, the claimant was induced to invest in a company based on prospective investment guarantees regarding future trade. However, in reality, the company’s directors intended to use the claimant’s investment to pay off existing debts and liabilities. The court held that the statement of intention made by the directors amounted to a misrepresentation of fact because they did not genuinely intend to fulfill the stated future plan. The statement about future conduct was treated as a statement of existing fact about the directors’ intentions at the time the statement was made.
What is the main difference between statement of opinion and statement of fact?
Statement of fact can form the basis for actionable misrepresentation. Material fact is one of the three requirements for misrepresentation. Statements of opinion, statements as to future intent, and statements of law are not not material facts, and, thus, do not lead to actionable misrepresentation.
In what case can a statement of opinion be a statement of fact?
When the person who makes the statement of opinion knows the true fact but the other party does not. This is because, by implication, the person making the statements states that he knows facts which justify his opinion (Smith v Land and House Property Corp. (1884) 28 Ch D 7).
For statements as to future intent, where is the line drawn? What is the difference between a “general rule” and a “special rule”? (note this is not the wording taken from the book)
A statement as to future conduct or intention is generally not actionable if false ant does not bind the person making the statement (general rule).
However, a false statement of future intention made by a person with no intention of acting may be interpreted as a statement of fact. In Edgington v Fitzmaurice (1885), the claimant was inducted to invest in a company based on prospective investment guarantees regarding future trade. In actual fact, the directors merely intended to use the claimant’s investment to discharge existing liabilities. It was held that the statement of intention contained a statement of fact as to the existing state of directors’ mind.
Is a statement of law a statement of fact?
No, until a matter has been decided by the courts, a person’s statements about the law is essentially just an opinion. In Eaglesfield v Marquis of Londonderry (1876), the judge said that a statement of fact containing a conclusion of the law “is s still a statement of fact and not a statement of law.” In other words, a statement of fact does not turn into a statement of law by containing a conclusion and subsequently does not turn into a non-material fact.
Contracting parties are presumed to know the law and are expected to seek legal advice rather than relying on the statement.
What more recent case softened the century-old stance that statements of law are not actionable?
In Pankhania v. London Borough of Hounslow (2002), the Court of Appeal found that misrepresentations of law can be actionable under certain circumstances. Specifically, such misrepresentations are actionable if they involve significant misapplication or misunderstanding of legal standards that affects the claimant’s rights or interests and causes them harm or detriment. This acknowledges that while misrepresentations of law are generally less actionable, they can be challenged when they have a substantial impact on the claimant.
The case centered on whether the local authority’s decision, based on its interpretation of the law and policy, was flawed. This was considered a form of misrepresentation because the authority’s decision was alleged to have been based on an incorrect understanding or application of the law.
The third requirement of a misrepresentation is inducement. What does it mean?
For a false statement to be actionable, there must have been material reliance on the false statement by the induced party.
Inducement in misrepresentation is special regarding burden of proof and a test connected with it. Explain.
Objective standard: If the false statement would have induced a reasonable person enter into the contract, a presumption arises that it did so.
Burden of proof: The burden of proof is then shifted to the representor to show that the representee did not, in fact, rely on the false statement.
Claimants bought property at an auction after the auctioneer repeated a false statement from the particulars of sale. The defendants assert that no reasonable bidder would have been influenced by such a misrepresentation. What did the court decide?
The court rejected the defendant’s assertion. The objective standard was claimed. If the false statement would have induced a reasonable person enter into the contract, a presumption arises that it did so.
Burden of proof: The burden of proof is then shifted to the representor to show that the representee did not, in fact, rely on the false statement. The defendant, in this case, failed to do so.
In misrepresentation cases, the claimant must have relied on the misrepresentation when entering into the contract. Does the representee need to believe the representation was true for reliance to have been established? Which case?
No. Hayward v Zurich Insurance Company (2016).
In this case, the insurance company entered into a settlement agreement because it thought it would have to pay higher damages if the claimant won before court. However, it remained sceptical if the claimant was truthful about the extent of his injury. Post-settlement, the insurance company found out that the claimant had lied and requested recission.
The court held that it was not necessary for the insurance company to believe that the statements of the claimant were true. It was sufficient to establish that misrepresentation had been a material cause of entering into the settlement.
A misrepresentation is made to a solicitor in an offer. He had the chance to review the documents, but chose not do. Can he still rely on rescission?
Yes. The case is Redgrave v Hurd (1881).
A misrepresentation is considered to be an inducement even if the representee chose to not discover the truth when given the opportunity.
What are two situations when there will be no inducement?
1) The claimant was unaware of the representation
If the statement was not actually communicated to the other party.
2) The claimant did not allow the misrepresentation to affect his judgement.
If the defendant can show that there was no reliance, no grounds of action will arise for misrepresentation. In Attwood v. Small (1838), the claimant negotiated with the defendant for the sale of certain mines. The defendant made exaggerated claims about their earning capacity. The claimant instead hired an independent engineer who verified these statements. The Claimant could not rescind the contract because he not relied on the defendant’s statement but the statement of the engineer.
What is the requirement for fraudulent misrepresentation on the side of the maker of the statement?
The maker of the statement does not believe in the truth of the statement himself.
To prove a fraudulent misrepresentation, a claimant must show what? (3 factors, which case?)
What role does motive play?
A claimant must prove a fraudulent misrepresentation has been made
(1) knowingly, or
(2) without belief in its truth, or
(3) recklessly, careless whether it be true or false
Motive does not play a role. It is immaterial.
(Derry v Peek, 1889)
What categories of misrepresentation are there?
What are the sources in law?
Fraudulent Misrepresentation: Tort law
Negligent Misrepresentation: Common law and Misrepresentation Act 1967
Wholly Innocent Misrepresentation: Not covered by any (esp. Misrepresentation Act), no liability
Negligent misrepresentation is governed in two different sources. Where?
Common law and statutes (Misrepresentation Act 1967).
In general, what is the requirement for negligent misrepresentation in common low?
A negligent misrepresentation is made when a representor, who owes a duty of care to a representee, acts carelessly in making the statement.
The duty can arise in commercial relationships in which the person making the statement has some special skill or knowledge and the person knows or can reasonable assume that the person to whom the statement is made will rely on that statement.
In Byrne & Co Ltd v. Heller & Partners Ltd [1964] AC 465, the House of Lords addressed whether a bank, Heller & Partners, owed a duty of care to an advertising agency, Hedley Byrne, concerning a credit reference provided about a company called Easipower Ltd.
Hedley Byrne sought a credit reference from Heller & Partners before engaging in business with Easipower Ltd. The bank provided a positive reference but included a disclaimer stating the information was given “without responsibility.” Relying on this reference, Hedley Byrne proceeded with the transaction, only to suffer financial losses when Easipower Ltd failed. What did the court decide?
The court determined that Heller & Partners did owe a duty of care to Hedley Byrne. This duty arose because the bank had specialized knowledge about Easipower Ltd’s financial situation and Hedley Byrne relied on this information in their business decisions. It was foreseeable that the agency would depend on the bank’s assessment.
However, despite recognizing the existence of a duty of care, the court held that the disclaimer effectively excluded this duty in this specific case. Therefore, Heller & Partners were not held liable for the losses incurred by Hedley Byrne.
However, in obiter dicta the court stated that in the absence of any appropriately worded disclaimer, the bank may have been liable in negligence,
When a claim is made against a person who made a statement that the statement was negligent. Who bears the burden of proof?
The burden of proof rests on the person to whom the statement was made.
In what sense do skills and expertise play a role in negligent misrepresentation in common law?
A negligent misrepresentation is made when a representor, who owes a duty of care to a representee, acts carelessly in making the statement. If the representor has substantial skill and expertise, it increases the duty of care it owes to the representee.
Is there liability for woollily innocent misrepresentation? When does it occur?
No.
An innocent misrepresentation occurs where the person making the statement honestly believes it to be true, and it is a statement that is not made fraudulently or negligently.
The person making the statement must prove that he or she reasonably believed the statement to be true both at the time the statement was made and when the parties entered into a contract.
What does Section 2(1) of the Misrepresentation Act 1967 say?
Section 2(1) of the Misrepresentation Act 1967: This section extends the liability for misrepresentations beyond those made fraudulently. Under this section:
If a misrepresentation (whether fraudulent, negligent, or innocent) leads to a loss, the person who made the misrepresentation is liable for damages as if the misrepresentation had been made fraudulently.
However, the person making the misrepresentation can avoid this liability if they can prove they had reasonable grounds to believe the information was true and did believe it to be true at the time of the contract. Essentially, they must show they acted in good faith and took reasonable steps to verify the accuracy of the representation.
What are the two advantages for claimants who issues statutory proceedings for negligent misrepresentation based on the Misrepresentation Act?
1) There no special requirement for a “special relationship”
2) The burden of proof is reversed; the maker of the statement must disprove the misrepresentation. The maker of the statement must prove that he reasonable believed the statement to be true to disprove negligence.
What are the two remedies available for misrepresentation? Are they mutually exclusive?
Recession and damages.
While not mutually exclusive, where recission by itself provides for a satisfactory remedy, the courts tend to refuse the award damages in order to avoid “double recovery.”
Which forms of misrepresentation give an innocent party the right to set aside the contract and be restored to pre-contractual position?
All: Fraudulent, negligent, and wholly innocent.
In what form can a representee inform the representor that they are rescinding the contract due to misrepresentation?
1) Inform the representor.
2) Notifying the authorities (for example the police)
3) Publicising the decision in some other appropriate way when the party has disappeared.
Two previous bars to rescission were removed by section 1 of the Misrepresentation Act 1967. Which?
1) The claimant can rescind, even if the misrepresentation has become a term of the contract.
2) The claimant can rescind, even if the contract has already been executed. Generally, this is relevant to contracts for the sale of land and to tenancies.
What are the five bars to recission?
1) Affirmation of the contract
2) Lapse of time
3) Restitution is impossible
4) Third parties have acquired rights in the subject matter of the contract
5) Award of damages in lieu of rescission
What is the difference between affirmation and acceptance?
Affirmation: Affirmation refers to a party’s confirmation or endorsement of the terms of a contract after a potential right to rescind or reject the contract. It implies a conscious decision to continue with the contract despite having the option to void or cancel it.
Acceptance: Acceptance refers to the agreement to the terms of an offer made by another party. It is one of the essential elements required to form a legally binding contract. Acceptance signifies that the party agrees to the terms of the offer and intends to be bound by them.
A claimant continued to drive a vehicle after realising that its condition had been misrepresented to him claims for recission. Would that be granted?
No. A representee who affirms the contract, with full knowledge of the facts, cannot subsequently avoid the contract. (Long v Lloyd [1958] 1 WLR 753).
As a claimant, if you want to make sure that rescission remains available as an option despite affirmation, what would one have to claim?
A claimant who is unaware of his right to choose between acceptance and affirmation may reserve his right to rescind (Peyman v Lanjani [1985] 1 Ch 457).
For fraudulent, innocent, and negligent misrepresentation, what is the lapse of time?
For non-fraudulent (innocent and negligent): The claimant has to act within a reasonable time frame. The time runs from teh date of the contract.
For fraudulent misrepresentation, the clock starts when the fraud is, or should have been, discovered (s. 32 Limitation Act 1980).
A painting was innocently misrepresented by the seller as an original John Constable. The agreement is five years old. Can this be rescinded?
No. In this case, the case has lapsed. Leaf v International Galleries (1950) 2 KB 86.
Why does rescission have a lapse of time?
Because recission is an equitable remedy. The maxim delay defeats equity applies.
In what cases might a restitution be impossible?
When the parties cannot be restored to their original position. In such cases, the right to rescind is lost.
Give an example where restitution might be impossible
Where the consumer goods have already been consumed, or where natural resources have been totally exhausted by the time the claimant elected to plead rescission (Vigers v Pike (1842) 2 ER 220).
Is deterioration in the value or condition of property a bar to rescission?
No. Precise restoration is not required and the remedy is still available if substantial restoration is possible.
What happens if a third party acquires rights in property? Is rescission still available?
No, if the party acquires right in property in good faith and for value, the misrepresentee will lose his right to rescind (Phillips v. Brookrs Ltd. (1919) 2 KB 243).
Can a person who relies on a misrepresentation when purchasing goods, and subsequently sells those goods to a good-faith third party purchaser, claim rescission?
No, this is because the third party is considered to have purchased the goods without notice of the representation (s. 2(2) Misrepresentation Act 1967).
Courts may grant award damages in lieu of rescission. What are the requirements? Source?
Section 2(2) of the 1967 Act.
1) The claimant would have the right to rescind
2) Misrepresentation was non-fraudulent
3) It would be equitable to award such damages with reference to the type of representation involved and the loss that the claimant would suffer if the contract were to be maintained
Damages are not available for what form of misrepresentation? What do courts award instead?
For wholly innocent representation. Indemnity along with an order for rescission.
Indemnity may be awarded for wholly innocent misrepresentation along with rescission. What purpose does it serve?
It mandates that the person making the statement must over the expenses of the person relying on the statement. Such expenses must have directly arisen from the obligations of the contract.
A group of farmers acquired a farm and relied on the statement of the seller that the farm is in a sanitary condition. Assuming that the court treats the case like a wholly innocent misrepresentation, what kind of costs can the claimants get under indemnity?
Expenses that arose directly from the obligations of the contract, for example the costs of repairs ordered by authorities (Whittington v Seale-Hayne 1900).
Before the introduction of the Misrepresentation Act 1967, what were the remedies available for claimants?
Under common law, damages were only available for fraudulent misrepresentation based on tortious action for deceit. For a negligent or innocent misrepresentation, the common law afforded only the remedy of rescission, with no right to damages at common law. For wholly innocent, negligent misrepresentation, courts may grant indemnity besides rescission.
What novelty did the Misrepresentation Act 1967 bring?
The award of damages in lieu of rescission.
Before the act, it was not possible to claim damages for innocent misrepresentation.
The remedy is equitable and, therefore, at the court’s discretion.
What kind of damages is available for fraudulent misrepresentation?
Restitution. The purpose of damages is to restore the victim to the position he occupied before the representation had been made.
What is the test in fraudulent misrepresentation damages?
the test of remoteness. The injured party may recover for all the direct loss incurred, as a result of the fraudulent misrepresentation, regardless of foreseeability (Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158).
Foreseeability: In general tort law, damages are typically awarded based on whether the losses were reasonably foreseeable as a result of the defendant’s wrongful act. However, in the context of fraudulent misrepresentation, the rules are somewhat different. How so? What is the case related?
Scope of Damages: The court in Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158 focused on the principle that damages for fraudulent misrepresentation should cover all losses that directly result from the fraud, without the need to show that those losses were foreseeable. This is because fraudulent misrepresentation is considered a deliberate wrongdoing, and the measure of damages is aimed at restoring the victim to the position they would have been in had the fraud not occurred.
Direct Consequences: The damages awarded were meant to reflect the direct consequences of the fraud, including not only the actual losses but also the loss of the expected benefit from the transaction. The court did not impose a foreseeability requirement in the same way as might be required in tort cases involving negligence.
After Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158, it is not clear what measure of damages will be awarded by the courts for fraudulent misrepresentation. What were three cases that clarified what can be claimed?
East v Maurer (1991), the Court of Appeals, while agreeing with the Doyle proposition, held that the assessment of loss of profits was to be made on a tortious basis, that is, by putting the claimant in the same position he would have been in, had the wrong not been committed.
The Court of Appeals held in Downs v Chappell (1996) that the claimants’ damages were to be assessed by reference to what they lost as a result of entering into the transaction. The claimants were NOT entitled to recover damages AFTER the date he discovered the misrepresentation had had an opportunity to avoid further loss.
In Smith New Court Securities Ltd. v Scrimgeour Vickers (Asset Management) Ltd. (1996), as a result of fraudulent misrepresentation the claimants were induced to make a bid to buy shares in company F, at a price of 82.5 p per share, rather than 78p per share, which is what they would have bid, in the absence of misrepresentation. The House of Lords found that a fraudulent misrepresentation has occurred, the claimant was entitled for all damage (consequential losses included), from the point of entering into contract, regardless of whether such damage was foreseeable or not.
In this case, the claimants were entitled to receive the difference between what they paid for the shares (82.5p) and what they had received from their subsequent sale (44p), rather than the less generous difference between the contract price (82.5p) and the market price at the time of the sale (78p).
What are the remedies for negligent misrepresentation?
Rescission (subject to court’s discretion) and damages in the tort of negligence.
What is the speciality about damages for negligent misrepresentation?
There are two: Damages at common law and damage s under s. 2(1) Misrepresentation Act 1967.
How do the damages at common law between negligent and fraudulent misrepresentation?
Damages for negligent misrepresentation requires the test of remoteness in the tort of negligence. This means, that the injured party may recover for only reasonably foreseeable loss.
Damages for fraudulent misrepresentation do not follow the test of remoteness (Doyle v Olby (Ironmongers Ltd (1969) 2 QB 158).
Before the Hedley Bryne v Heller case, what was the only way a party could claim damages for negligent misrepresentation? What was the second step in history that gave more power to claimants in misrepresentation cases?
If the contract contained a clause for misrepresentation.
The enactment of the Misrepresentation Act 1967.
Damages will be assessed on the tort of negligence. What does that entail?
It entails that to claim tortious damages, damages most have been reasonably foreseeable.
What is the law and section claimants can rely on to claim damages for negligent misrepresentation?
S. 2(1) Misrepresentation Act 1967
What is special about claims for negligent misrepresentation under s. 2(1) Misrepresentation Act 1967?
It reverses the burden of proof.
A car dealer induced a finance company to enter into a hire purchase agreement, by innocently misrepresenting the amount of the deposit paid by the customer. The customer later defaulted and dishonestly sold the car to a third party. What statute can be used to file a claim?
S. 2(1) of Misrepresentation Act 1967
Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12 is an English contract law case on misrepresentation. It examines the Misrepresentation Act 1967 and addresses the extent of damages available under s 2(1) for negligent misrepresentation. Why was the case controversial?
The court controversially decided that under the Act, the appropriate measure of damages was the same as that for common law fraud, or damages for all losses flowing from a misrepresentation, even if unforeseeable. The reasoning of the decision has been much criticised by academic lawyers such as Treitel and Hooley, partly for its overly literal interpretation of the statute, and for its dubious finding of fact that a deliberately false document was made negligently, rather than fraudulently.
What are the remedies available for wholly innocent misrepresentation?
1) Recission with an indemnity
2) Damages in lieu of rescission, in the court’s discretion, under s. 2(2) Misrepresentation Act
Where do we find in the Misrepresentation Act the relevant sources for negligent and innocent misrepresentation?
Negligent: s. 2(1)
Innocent: s. 2(2)
Explain how s. 2(2) Misrepresentation Act works
In cases of non-fraudulent misrepresentation, there is no automatic right to damages. Instead, the court is given discretion, where the injured party would be entitled to rescind the contract, to award damages in lieu of rescission.
Damages under s. 2(2) cannot be claimed as such, they can only be awarded by the court.
