CL9 - Misrepresentation Flashcards
1
Q
Representation
A
A representation is a statement asserting the truth of a given state of facts
2
Q
Representation:
A
A statement asserting the truth of a given state of facts.
3
Q
Representor:
A
The party who allegedly made the representation.
4
Q
Representee:
A
The party who allegedly received the representation.
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.
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.
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.
8
Q
Elements of actionable misrepresentation
A
- Unambiguous
- False
- Statement of fact
- Addressed to the claimant
- Induces claimant to enter the contract
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.
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
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]
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
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
14
Q
Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 WLR 379
A
Cofort letter by the Malaysian Company to the bank.
Company claimed not intended to create legal relations.
Not a mis rep as asserting state of given affairs
15
Q
Mere puff
A
Not representation
Dimmock v Hallett (1866): description of land as ‘fertile and improvable’
16
Q
Conduct
A
Statements of fact can also be made via conduct
17
Q
Gordon v Selico (1986)
A
Intentional concealment of dry rot was deemed to be a misrepresentation.
18
Q
Statement of law
A
Can amount to actionable misrepresentation - historically couldnt.
19
Q
Statements that do not amount to statements of fact
A
Statements of:
* Opinion
* Future Intention
* Instances of silence
20
Q
Addressed to the claimant
A
misrepresentation must be addressed by the representor to the claimant
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?
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
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)?
24
Q
Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co
Ltd [1995]
A
25
Burden of Test for Materiality: Statement is found to be material
* 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.**
26
Test for Materiality: Statement is found not to be material
* Inducement of the claimant cannot be inferred as a matter of fact.
* Claimant must prove that they were subjectively induced.
27
Inducement is established if...
* 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)
28
Museprime Properties Ltd v Adhill Properties Ltd
(1990)
29
Smith v Chadwick (1884)
30
No actionable misrepresentation where
* 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
31
Misrepresentation need not be the only reason the claimant entered the contract
**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.
32
Edgington v Fitzmaurice (1885)
33
Attwood v Small (1838)
Representee not induced where the representee chooses to test the validity of the representor’s statement by making its own investigations.
**Mine vendor**
34
Redgrave v Hurd (1881)
* 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.
35
Contributory Negligence
Defence of contributory negligence
* If reasonable to have checked
* Carries out a negligent investigation.
Cannot be pleaded if fraudulent.
36
The more commercial the representee
* 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]
37
Statement of opinion
* Usually cannot form the basis of misrepresentation.
* Bisset v Wilkinson, 1927
38
Bisset v Wilkinson 1927
‘idea was that [the land] would carry two thousand sheep’ = opinion
39
Smith v Land and House Property Corporation
(1885)
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
40
Esso v Mardon [1976]
* Esso rep est 200,000 gallons pa
* Not accurate
Mardon alleged misrepresentation; Esso argued opinion.
* Distinguished from **Bisset v Wilkinson**
41
An opinion will be a misrepresentation if...
A opinion will be a misrepresentation if in fact the opinion expressed is not one which the representor held.
42
Statement of future intention: Beattie v Ebury (1872)
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**.
43
Beattie v Ebury (1872)
44
Wales v Wadham [1977]
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
45
if the representor states that they intend to do something
* 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
Edgington v Fitzmaurice (1885
* They know they cannot do what they state
* They do not intend to do it
= Misrepresentation
47
Edgington v Fitzmaurice (1885)
48
General Rule: Silence
* 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
Keates v The Earl of Cadogan (1851)
* 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
Exceptions to the rules in **Keates**
(a) Half-truths;
(b) Continuing representations; and
(c) Contracts uberrimae fidei.
51
Exceptions to silence: Half-truth
* Misrepresentation to make statements which are technically **true but misleading**
Nottingham Patent Brick & Tile Co v Butler (1866)
52
Dimmock v Hallett (1866)
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
Exceptions to silence: Continuing representations
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
With v O’Flanagan [1936]
* Medical practice income fell during sale.
* Continuing representation = holding out his original statement
* Duty to disclose change in circumstances
55
Contrast With v O’Flanagan and Wales v Wadham
56
Exception to silence: Contracts uberrimae fidei
* 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
Fiduciary relationship
* Obligation to disclose information between parties
* A particularly close relationship characterised by trust and obligations of good faith.
58
Categories of Misrepresentation
* Fradulent - Tort of deceit
* Negligent - S2(1) of the MA 1967
* Innocent - S2(1) of the MA 1967
59
Misrepresentation Act 1967
60
Fradulent Misrepresentation
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
Derry v Peek (1889)
62
Recklessness
'flagrant disregard for the truth’.
Thomas Witter Ltd v TBP Industries Ltd [1996]
63
Thomas Witter Ltd v TBP Industries Ltd [1996]
64
Fraud must be
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
Negligent Misrepresentation defences
* reasonable grounds to believe,
* did believe up to the time the contract was made, that the statement was true.
66
Negligent Misrepresentation
67
Royscot Trust Ltd v Rogerson [1991]
* When a representor is found liable for negligent misrepresentation
* Treated as fradulent misrepresentation
* Ramifications with regards to damages
68
Howard Marine and Dredging Co. Ltd. v A. Ogden & Sons (Excavations) Ltd. [1978]
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
Statutory right to damages for negligent misrepresentation
* **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
Innocent misrepresentation (Misrepresentation Act 1967)
* 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
Category: Fradulent
Legal basis: Tort of deceit
Test: Representee to prove that representor
made statement **knowing untrue/without belief**
in **reckless** as to
truth
72
Category: Negligent
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
Category: Innocent
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
Remedies for misrepresentation
* Recission
* Damages
* Indemnity
Depends on the nature of misrepresentation.
75
Representee may refuse further
performance of the contract,
Plead representor’s misrepresentation as a defence in event of being sued for breach of contract by the representator.
76
Remedies: Recission
* 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
Recission is a ... remedy
Recission is an **equitable** remedy.
This means that it is an **equitable remedy**
78
Recission will only be awarded where ...
Recission will only be awarded where parties can be restored to their original position by returning transferred property
79
Bars to recission
1) Affirmation
2) Lapse of time
3) Resolution is impossible
4) Third party rights accrue
80
Bars to Recission: Affirmation
* 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
Bars to Recission: Lapse of time
* 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
Bars to recission: Resolution is impossible
* 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
Bar to recission: Third party rights to accrue
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
Indemnity
* 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
Whittington v Seale Hayne (1900)
Distinction between indemnity and common law right to damages.
86
Damages for misrepresentation are potentially the greatest where the misrepresentation ....
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
Damages in lieu of recission
may be available under s2(2) for an action brought under s 2(1).
88
Innocent misrepresentation damages
* 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
Damages for fradulent misrepresentation
* 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
Doyle v Olby (Ironmongers) Ltd [1969]
[…] **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
Contributory negligence in a fraudulent matter
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
(Standard Chartered Bank v Pakistan National Shipping Corporation (No.2) [2003] 1 AC 959).
93
Damages for negligent misrepresentation under s 2(1) MA 1967
the correct measure of damages for negligent misrepresentation must be based on the tort of deceit.
Affirmed in Royscot Trust v Rogerson (1991)
94
Royscot Trust v Rogerson (1991)
95
Contributory negligence in a negligent matter
In relation to negligent misrepresentation, **damages may be reduced for contributory negligence** where the loss was in part the fault of the representee.
96
Damages in Lieu of recission
Available **only at the discretion of the court** and only available for **negligent and innocent** misrepresentation (ie not fraudulent misrepresentation).
97
Exercise of discretion
* Court must have regard for nature, seriousness of misrepresentation, loss caused to both parties
CB Corporate Services v Thomason [2005]
98
CB Corporate Services v Thomason [2005]
99
Damages Section 2(2) MA 1967
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, not to award rescission**
100
Damages Section 2(1) MA 1967
Damages are intended to **compensate the claimant for the loss directly** flowing from the negligent misrepresentation.
101
Damages in lieu of recission
* 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
Damages for innocent representation
* 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
Misrepresentation and exemption clause
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
s3 Misrepresentation Act 1967 (MA 1967) as substituted by s 8 of the Unfair Contract Terms Act 1977
* 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
* Burden is for those claiming that the
term satisfies that requirement to show that it does"
105
Non-reliance clauses
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
Example Non-Reliance
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
Summary fraudulent misrepresentation
**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
Summary of negligent misrepresentation
**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 s2(2).
109
Summary of innocent misrepresentation
**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
Summary of recission
* 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
Representations distinguished from terms of a contract
* 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
Negligent misstatement at common law
* Where there is a relationship of **sufficient proximity** between two parties, the court might find that one party **owes a 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
