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Public 1 and Contract > CL6 - Misrepresentation > Flashcards

CL6 - Misrepresentation Flashcards

1
Q

Representation

A

A representation is a statement asserting the truth of a given state of facts

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2
Q

Representation:

A

A statement asserting the truth of a given state of facts.

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3
Q

Representor:

A

The party who allegedly made the representation.

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4
Q

Representee:

A

The party who allegedly received the representation.

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5
Q

Actionable Misrepresentation

A

An unambiguous false statement of fact made to the claimant and which induces the claimant to enter into the contract with the statement maker.

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6
Q

The effect of misrepresentation

A

To make the contract voidable but not void
In order to avoid the contract, the wronged party must take action to rescind the contract.

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7
Q

Misrepresentation:

A

An unambiguous false statement of fact made to the claimant and which
induces the claimant to enter into the contract with the statement maker.

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8
Q

Elements of actionable misrepresentation

A
  • Unambiguous
  • False
  • Statement of fact
  • Addressed to the claimant
  • Induces claimant to enter the contract
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9
Q

Unambiguous

A

Must be clear, unambiguously has the meaning put forward by the representee

McInerny v Lloyd’s Bank Ltd [1974] 1 Lloyd’s Rep 246.

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10
Q

McInerny v Lloyd’s Bank Ltd [1974] 1 Lloyd’s Rep 246.

A

Representor will not be liable if the representee has placed its own unreasonable construction
on the representation

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11
Q

False

A

Statement must be false.
Statement will not count as false if it is substantially correct.
Rix J, Avon Insurance Plc v Swire Fraser Ltd [2000]

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12
Q

Rix J, Avon Insurance Plc v Swire Fraser Ltd [2000]

A

[A] representation may be true without being entirely correct, provided it is substantially correct

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13
Q

Statement of fact

A

a representation is not an undertaking to do, or not to do something. It is a statement asserting a given state of affairs’

Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 WLR 379

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14
Q

Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 WLR 379

A
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15
Q

Mere puff

A

Not representation
Dimmock v Hallett (1866): description of land as ‘fertile and improvable’

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16
Q

Conduct

A

Statements of fact can also be made via conduct

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17
Q

Gordon v Selico (1986)

A

Intentional concealment of dry rot was deemed to be a misrepresentation.

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18
Q

Statement of law

A

Can amount to actionable misrepresentation - historically couldnt.

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19
Q

Statements that do not amount to statements of fact

A

Statements of:
* Opinion
* Future Intention
* Instances of silence

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20
Q

Addressed to the claimant

A

misrepresentation must be addressed by the representor to the claimant

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21
Q

Induces the claimant to enter into the contract with statement maker

A

Must cause the reprentee to enter the contract.

Was the representation material?

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22
Q

JEB Fasteners v
Mark Bloom [1983]

A

Court of Appeal held that the defendants’
representation did not play a ‘real and substantial’ part in inducing the claimants to act

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23
Q

Test for materiality is an objective one

A

Did the statement relate to an issue that would have influenced a reasonable person?

(Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co
Ltd [1995] 1 AC 501)?

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24
Q

Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co
Ltd [1995]

A
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25
Q

Test for Materiality: Statement is found to be material

A
  • Smith v Chadwick (1884)
  • Burden shifts to the defendant to rebut the inference the claimant was induced. * Defendant does this by proving claimant was not subjectively induced.
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26
Q

Test for Materiality: Statement is found not to be material

A
  • Inducement of the claimant cannot be inferred as a matter of fact.
  • Claimant must prove that they were subjectively induced.
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27
Q

Inducement is established if…

A
  • Representee shows that Statement would have influenced a reasonable person

AND

  • Representor cannot show the statement did not influence Representee

OR

Representee shows that it personally was induced by statement (subjective test)

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28
Q

Museprime Properties Ltd v Adhill Properties Ltd
(1990)

A
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29
Q
A

Smith v Chadwick (1884)

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30
Q

No actionable misrepresentation where

A
  • Statement was not actually communicated to the representee
  • Statement did not affect representee’s decision to enter contract
  • Statement was known to be untrue by the representee
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31
Q

Misrepresentation need not be the only reason the claimant entered the contract

A

Edgington v Fitzmaurice (1885)

Plaintiff was induced to lend money to the
company by a misrepresentation contained in the company prospectus

was also
induced by his own mistaken belief that he would have a charge on the assets of the company in relation to the loan.

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32
Q

Edgington v Fitzmaurice (1885)

A
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33
Q

Attwood v Small (1838)

A

Representee not induced where the representee chooses to test the validity of the representor’s statement by making its own investigations.

Mine vendor

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34
Q

Redgrave v Hurd (1881)

A
  • Not that separate
    enquiries were made
  • Crucial point is separate enquiries showed vendor’s statements were not relied upon.
  • No general duty to check the misrepresentor’s statement.
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35
Q

Checking Representations

A

Defence of contributory negligence

  • If reasonable to have checked
  • Carries out a negligent investigation.

Cannot be pleaded if fraudulent.

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36
Q

The more commercial the representee

A
  • More resources at their disposal to carry out an investigation
  • More likely it is that the court will consider it reasonable to have investigated

Smith v Eric Bush [1990]

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37
Q

Statement of opinion

A
  • Usually cannot form the basis of misrepresentation.
  • Bisset v Wilkinson, 1927
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38
Q

Bisset v Wilkinson 1927

A

‘idea was that [the land] would carry two thousand sheep’ = opinion

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39
Q

Smith v Land and House Property Corporation
(1885)

A

if representor is considered to have greater knowledge than representee, then implied statement that are facts which justify the
opinion can significantly mislead the representee

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40
Q

Esso v Mardon [1976]

A
  • Esso rep est 200,000 gallons pa
  • Not accurate
    Mardon alleged misrepresentation; Esso argued opinion.
  • Distinguished from Bisset v Wilkinson
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41
Q

A representation will be a misrepresentation if…

A

A representation will be a misrepresentation if in fact the opinion expressed is not one which the representor held.

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42
Q

Statement of future intention: Beattie v Ebury (1872)

A

A representation that something will be done in the future
cannot be true or false at the moment it is made; and although you may call it a
representation, if anything it is a contract or promise.

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43
Q

Beattie v Ebury (1872)

A
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44
Q

Wales v Wadham [1977]

A

The wife had not misrepresented her then current intention when she told her husband that she would not remarry, and she was under no duty to disclose her change of intention

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45
Q

if the representor states that they intend to do something

A
  • a limited statement fact: stating that they do have that intention.
  • If, at that point in
    time, they know that they cannot do what they state.
  • Or they do not intend to do it
  • They misrepresent their intention
46
Q

Edgington v Fitzmaurice (1885

A
  • They know they cannot do what they state
  • They do not intend to do it
    = Misrepresentation
47
Q

Edgington v Fitzmaurice (1885)

A
48
Q

General Rule: Silence

A
  • It is not a statement, whether of fact or
    otherwise.
  • There is no duty to disclose facts which, if known, might affect the other party’s decision to enter the contract.
49
Q

Keates v The Earl of Cadogan (1851)

A
  • Defendant let a house to the plaintiff knowing that the plaintiff wanted it for immediate occupation but did not tell the plaintiff the house was uninhabitable.
  • Held that in the absence of fraud, the defendant was under no implied duty to disclose the state of the house.
  • General duty of disclosure would be too vague.
50
Q

Exceptions to the rules in Keates

A

(a) Half-truths;
(b) Continuing representations; and
(c) Contracts uberrimae fidei.

51
Q

Exceptions to silence: Half-truth

A
  • Misrepresentation to make statements which are technically true but
    misleading.

Nottingham Patent Brick & Tile Co v Butler (1866)

52
Q

Dimmock v Hallett (1866)

A

Describe property which is the subject of negotiations for sale as ‘fully let’ without disclosing that, although the property is indeed fully let at that time, the tenants have given notice to quit = misrepresentation

53
Q

Exceptions to silence: Continuing representations

A

At the beginning of negotiations, a statement is made which is true but which prior to entering into the contract becomes false, the representor is under an obligation to correct the representation.

54
Q

With v O’Flanagan [1936]

A
  • Medical practice income fell during sale.
  • Continuing representation = holding out his original statement
  • Duty to disclose change in circumstances
55
Q

Contrast With v O’Flanagan and Wales v Wadham

A
56
Q

Exception to silence: Contracts uberrimae fidei

A
  • Utmost good faith
  • Duty to disclose material facts in some types of contracts - one party is in a
    particularly strong position to know the material facts which form the basis of the contract
  • eg insurance
57
Q

Fiduciary relationship

A
  • Obligation to disclose information between parties
  • A particularly close relationship characterised by trust and obligations of good faith.
58
Q

Categories of Misrepresentation

A
  • Fradulent - Tort of deceit
  • Negligent - S2(1) of the MA 1967
  • Innocent - S2(1) of the MA 1967
59
Q

Misrepresentation Act 1967

A
60
Q

Fradulent Misrepresentation

A

false representation has been made
(a) knowingly, or
(b) without belief in its truth, or
(c) recklessly, careless whether it
be true or false.

Derry v Peek (1889)

61
Q

Derry v Peek (1889)

A
62
Q

Recklessness

A

‘flagrant disregard for the truth’.
Thomas Witter Ltd v TBP Industries Ltd [1996]

63
Q

Thomas Witter Ltd v TBP Industries Ltd [1996]

A
64
Q

Fraud must be

A

the failure to disclose must be, in fact, deliberate or dishonest, and not just due to inadvertence or a failure to realise the requirement of disclosure.

65
Q

Negligent Misrepresentation defences

A
  • reasonable grounds to believe,
  • did believe up to the time the contract was made, that the statement was true.
66
Q

Negligent Misrepresentation

A
67
Q

Royscot Trust Ltd v Rogerson [1991]

A
  • When a representor is found liable for negligent misrepresentation
  • Treated as fradulent misrepresentation
  • Ramifications with regards to damages
68
Q

Howard Marine and Dredging Co. Ltd. v A. Ogden & Sons (Excavations) Ltd. [1978]

A

Barges
Court of Appeal = negligent misrepresentation under MA 67 s 2(1).

  • True figures were in the ships’ documents and Howards had failed to show any ‘objectively reasonable ground’ for disregarding the figure in the documents and relying instead on the
    Register.
69
Q

Statutory right to damages for negligent misrepresentation

A
  • reverses normal burden of proof by requiring the representor to prove that they had reasonable grounds to believe their statement and did believe their statement.
70
Q

Innocent misrepresentation (Misrepresentation Act 1967)

A
  • Definition from s 2(1) of the MA 1967.
  • Statement made:
  • Reasonable grounds for belief
  • Believed up to the time of contract that what they were saying was true
71
Q

Category: Fradulent

A

Legal basis: Tort of deceit

Test: Representee to prove that representor
made statement
knowing untrue/without belief
in truth/reckless as to
truth

72
Q

Category: Negligent

A

Legal basis: s 2(1) MA 1967

Test: Representor fails to show reasonable
grounds to believe
true and/or not
believing true up until
the contract was
made

73
Q

Category: Innocent

A

Legal Basis: s 2(1) MA 1967

Test: Representor has
shown reasonable
grounds to believe
and actual belief up
until the contract was
made

74
Q

Remedies for misrepresentation

A
  • Recission
  • Damages
  • Indemnity

Depends on the nature of misrepresentation.

75
Q

Representee may refuse further
performance of the contract,

A

Plead representor’s misrepresentation as a defence in event of being sued for breach of contract by the representator.

76
Q

Remedies: Recission

A
  • Render the contract voidable but not void
  • valid and subsisting until the representee decides to set it aside
  • Must communicate intention to set aside; or by court order.
  • Available in principle for any misrepresentation.
77
Q

Recission is a … remedy

A

Recission is an equitable remedy.

This means that it is an equitable remedy

78
Q

Recission will only be awarded where …

A

Recission will only be awarded where parties can be restored to their original position by returning transferred property

79
Q

Bars to recission

A

1) Affirmation
2) Lapse of time
3) Resolution is impossible
4) Third party rights accrue

80
Q

Bars to Recission: Affirmation

A
  • Affirmed if the representee declares their intention to proceed with the contract, or;
  • Does some act from which such an intention may reasonably be inferred.
81
Q

Bars to Recission: Lapse of time

A
  • An action or recission must be brought promptly for delay defeats the equities.
  • Lapse of time without any attempt to effect recission does not in itself contribute to affirmation but may be treated as evidence of intention.
82
Q

Bars to recission: Resolution is impossible

A
  • Right to rescind is lost when no longer possible to restore value to previous position before the
  • Nature has changed or declined in value.
83
Q

Bar to recission: Third party rights to accrue

A

At any time prior to rescission, a person acquiring goods under such a contract is able to pass good title to those goods to an innocent third party who purchases the goods without notice of the misrepresentation. This would prevent restitution

84
Q

Indemnity

A
  • Indemnity may be awarded to cover expenses for obligations assumed as a direct result of the contract.
  • The obligations must have been created by the contract
    Generally if damages are awarded, then indemnity will not be awarded

Indemnity is more likely to be awarded for innocent misrepresentation.

85
Q

Whittington v Seale Hayne (1900)

A

Distinction between indemnity and common law right to damages.

86
Q

Damages for misrepresentation are potentially the greatest where the misrepresentation ….

A

Damages for misrepresentation are potentially the greatest where the misrepresentation is fradulent.

Damages are calculated on a “tortious” basis.

Damages for an action of negligent misrepresentation will often match those that would be available for fraudulent misrepresentation

87
Q

Damages in lieu of recission

A

may be available under s2(2) for an action brought under s 2(1).

88
Q

Innocent misrepresentation damages

A
  • Does not afford any damages per se, although damages in lieu of rescission may be available under s 2(2) (see below
    for further discussion on this issue).
89
Q

Damages for fradulent misrepresentation

A
  • May sue for damages
  • Calculated on a tortious basis.
  • Measure of damages = necessary to place innocent party in position they would have been

Doyle v Olby (Ironmongers) Ltd [1969]

90
Q

Doyle v Olby (Ironmongers) Ltd [1969]

A

[…] all the damage directly flowing from the tortious act of fraudulent inducement which was
not rendered too remote by the plaintiff’s own conduct, whether or not the defendant could have foreseen the loss.

  • Claimant must mitigate ASAP
  • Damages awarded will be reduced by the value of any benefit
91
Q

Contributory negligence in a fraudulent matter

A

Not available as a defence to a claim for fraudulent misrepresentation.

(Standard Chartered Bank v Pakistan National Shipping Corporation (No.2) [2003] 1 AC 959).

92
Q

(Standard Chartered Bank v Pakistan National Shipping Corporation (No.2) [2003] 1 AC 959).

A
93
Q

Damages for negligent misrepresentation under s 2(1) MA 1967

A

the correct measure of damages for negligent misrepresentation must be based on the tort of deceit.

Affirmed in Royscot Trust v Rogerson (1991)

94
Q

Royscot Trust v Rogerson (1991)

A
95
Q

Contributory negligence in a negligent matter

A

In relation to negligent misrepresentation, damages may be reduced for contributory negligence where the loss was in part the fault of the representee.

96
Q

Damages in Lieu of recission

A

Available only at the discretion of the court and is
only available for negligent and innocent misrepresentation (ie not fraudulent misrepresentation).

97
Q

Exercise of discretion

A
  • Court must have regard for nature, seriousness of misrepresentation, loss caused to both parties

CB Corporate Services v Thomason [2005]

98
Q

CB Corporate Services v Thomason [2005]

A
99
Q

Damages Section 2(2) MA 1967

A

Damages are a separate award of damages to those awarded under s 2(1).

These damages are intended to compensate the representee where the court has decided, at its discretion, not to award rescission

100
Q

Damages Section 2(1) MA 1967

A

Damages are intended to compensate the claimant for the loss
directly flowing from the negligent misrepresentation.

101
Q

Damages in lieu of recission

A
  • Damages in lieu of rescission are awarded
  • the damages awarded under s 2(1) will be reduced to reflect those awarded under s 2(2).
  • This is made clear by s 2(3)
102
Q

Damages for innocent representation

A
  • Only entitled to remedy of rescission
  • If applicable indemnity to cover the cost of the legal obligations
    arising from the contract entered into.
  • No automatic right to damages for innocent misrepresentation
  • As with negligent misrepresentation (above), court has the discretion under s 2(2) to award damages in lieu of rescission
103
Q

Misrepresentation and exemption clause

A

Clause has no effect except in so far as it satisfies the requirement of reasonableness

s3 Misrepresentation Act 1967 (MA 1967) as substituted by s 8 of the Unfair Contract Terms Act 1977

104
Q

s3 Misrepresentation Act 1967 (MA 1967) as substituted by s 8 of the Unfair Contract Terms Act 1977

A

“term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in s 11(1) of the Unfair Contract Terms Act 1977
it is for those claiming that the
term satisfies that requirement to show that it does”

105
Q

Non-reliance clauses

A

To exclude liability for misrepresentation a non-Reliance clause may be preferable/

Entire Agreement Clause unlikely to be sufficient.

Court will not allow liability for fradulent misrepresentation to be avoided in this way.

106
Q

Example Non-Reliance

A

The parties agree and confirm neither party has made representations to the other in relation to this contract or its subject matter, and neither has any party relied on any representation from the other in entering into this contract.

107
Q

Summary fraudulent misrepresentation

A

Legal Basis: Tort of Deceit
Test: Prove representor made statement knowing untrue/without belief in truth/reckless as to truth
Recission: Yes
Indemnity: Unlikely to be needed
Damages: Yes, generous remoteness rules, no reduction for
contributory negligence.

108
Q

Summary of negligent misrepresentation

A

Legal Basis: s 2(1) MA 1967
Test: representor fails to show reasonable grounds to believe
true and/or not believing true up until the contract was
made
Recission: Yes
Indemnity: Unlikely to be needed
Damages: As for fraud, but potential reduction for contributory
negligence. Can also be given in lieu of rescission.

109
Q

Summary of innocent misrepresentation

A

Legal Basis: s 2(1) MA 1967
Test: Representor has shown reasonable grounds to believe and actual belief up until the contract was made
Recission: Yes
Indemnity: Yes, as part of recission
Damages: Can be given in lieu of rescission.

110
Q

Summary of recission

A
  • An equitable remedy
  • Will not be awarded in cases where the contract has been
    affirmed, excessive time has elapsed, restitution is impossible or third-party rights accrue which make restitution impossible.
111
Q

Representations distinguished from terms of a contract

A
  • Representation may become a term of the contract if the court decides it is incorporated
  • If found to be a term and false
  • Give rise to an action for breach of contract and potentially misrepresentation
112
Q

Negligent misstatement at common law

A
  • Where there is a relationship of sufficient proximity between two parties, the court might find that one party owesa duty of care to the other to take reasonable care that statements made are accurate.
  • This extends to statements made during contractual negotiations, but it would not be limited to such statements

Public 1 and Contract (16 decks)

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