CONTRACT - WEEK 6

Question 1

Bisset v Wilkinson [RQ FOR MISREP]

been ‘unambiguous’ statement of fact or law

Answer 1

FACTS: C owned 2 adjoining areas of law in NZ that he intended to sell. During negotiations w the D who wanted the land for sheep farming the C stated that if the plots were properly worked they had capacity for 2000 sheep. As was known by both parties, the C had not previously carried on sheep farming on the land. The D agreed to buy the land and paid the first instalment but then refused to pay the rest. When the C bought claim for 2nd instalment the D claimed rescinding contract for misrepresentation, arguing that the land could not support 2000 sheep.

RATIO: In allowing the C’s appeal the Privy C held that the statement was one of opinion not fact and there for was not actionable

• Can be distinguished from Smith V land as both of the parties were aware of the facts (being that D had no factual authority in claiming that 2000 sheep could be farmed on the land)

Question 2

Smith v Land [RQ FOR MISREP]

been ‘unambiguous’ statement of fact or law

Answer 2

FACTS: D company entered into a contract w the C to buy a hotel that has been advertised by the C as being let to a Mr Fleck who was a ‘most desirable tenant’. At the time of his representation however, Mr F was overdue on rent and had only paid the previous months 6 months overdue. After making the contract but before the transfer of title Mr F became bankrupt. The D refused to complete the purchase. When the C bought an action for SP the D counterclaimed for recission for misrepresentation.

RATIO: CoA held that there has been a misrepresentation that had been relied upon by the D

Bowen LJ
- “It is often fallaciously assumed that a statement of opinion cannot involve a statement of fact. In cases where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. … But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states material facts to justify his opinion”

Question 3

Edington v Fitzmaurice [IMPLIED TERMS]

Answer 3

FACTS: D, company directors, released a fraudulent prospectus for a bond issue, stating proceeds would be used for business expansion, when they would be used to pay off debt. When D went into liquidation, C sued under the tort of deceit for damages for fraudulent misrepresentation.

RATIO: A “misrepresentation as to the state of a man’s mind [a statement of intention] is, therefore, a misstatement of fact”. C also was “actually influenced” by the representation when he decided to hand over his money, even though he was “influenced by other motives” (his own mistaken belief he would get a charge on the property). Therefore, C was entitled to damages under the tort of deceit.

On statements of intention: “A mere suggestion of possible purposes to which a portion of the money might be applied would not have formed a basis for the action of deceit”.

Cotton LJ: * It is a statement of intention but it is nevertheless a statement of fact, and if it could not be fairly said that the objects of the issues f the debentures were those states in the prospectus .. they would be liable

Question 4

Redgrave v Hurd [RQ FOR MISREP]

statement as to fact/law

Answer 4

FACTS: D was induced to buy into C’s practice (by buying his house) as C said it brought in £300 p/a, when it brought in £200. During negotiations, C showed D financial summaries showing the actual value to be £200, but said the rest of the papers in his office made the difference up to £300 and that D could check (this was false). D did not check the papers. D had signed the contract but refused to go through. C sued for specific performance and D counterclaimed for rescission based on fraudulent misrepresentation

RATIO: D’s counterclaim for rescission was granted. Damages for fraudulent misrepresentation were not awarded as fraud was not proven, but this innocent misrepresentation can give rise to a right to rescission. It is not a defence to a rescission counterclaim that the representee could have undertaken means to discover the truth - “the effect of false representation is not got rid of on the ground that the person to whom it was made has been guilty of negligence”.

• Presumption of inducement: If there is a material misrepresentation, there is a presumption that the representee was induced to enter into the contract by it.
  o This presumption is rebutted by proving the representee i) had knowledge of the facts contrary to the representation or ii) that he stated or showed through conduct that he did not rely on the representation.

Question 5

Dimmock v Hallet

statement must have been false

Answer 5

A half-truth can constitute a misrepresentation

Question 6

With v O’Flangan [RQ FOR MISREP]

must be a statement

Answer 6

FACTS: The D vendor represented to the C (purchaser) that the medical practice being sold cost $2k p/yr. That was true at the time the representation was made however 5 months later when the contract was signed, the taking of the practice had dwindled to $5p/w due to illness. C sought rescission of the contract.

RATIO: Held by CoA that the C should allowed to rescind either because
a) The D had a duty to point out the change of circumstance
b) or because the representation continued from the time he made it to the point where the contract was signed and thus the contract was entered into on the basis of a misrepresentation

–> There is a misrepresentation where one fails to correct one’s earlier representation which has been falsified by a subsequent change of circumstances during the negotiations.

Lord Wright MR: if one negotiationing party has made a statement which is false in fact, but which he believes to be true and which is material to the contract, and during the course of the negotiations he discover the falsity of that statement, he is under an obligation to correct his erroneous statement

Question 7

Spice Grils Ltd v Apirilia Wold Service BV [RQ FOR MISREP]

there must be a statement

Answer 7

FACTS: H informed other member of the SG that she intended to withdraw from the group. The group signed an agreement with AWS and concluded a contract w/ them for merchandise with the whole band on. Question  could AWS rescind on the ground that their conduct counted as a misrepresentation that H intended to remain part of the group.

RATIO: There was an actionable misrep under s(2) of the Misrepresentation Act 1967 so damages were awarded. A false continuing representation of fact was created by the Spice Girls approving promotional materials containing every member and such a representation induced AWS into entering the contract and AWS was induced by this.

1) requirements for claim under s2(1)
* a misrep between 1 person to another
* a subsequent contract between them
* consequential loss
* an absence at the time the contract was made of a belief of reasonable grounds of in the truth of the facts represented

2) misrepresentation “it is sufficient that the misrepresentation is a material inducement, it does not have to be the only one
* the representation bears the meaning in which it would reasonably be understood by the representee: in the context of a commercial relationship, a reasonable person would have been induced to act as AWS did because it can only be reads as meaning that ever member would stay

Question 8

Zurich Insurance co plc v Hayward [RQ FOR MISREP]

The statement must have induced the party entering into the contract

Answer 8

FACTS: An insurer (C) entered into a settlement with the D who claimed he had injured has back at work. Prior to entering the settlement agreement, C had argued that D was exaggerating his injury but entered the settlement anyway due to insufficient evidence however it later came to light that the D was not injured.

C sought to rescind the contract and claimed for damages for deceit.

RATIO: The CoA denied the claims on the ground that C was not induced by the misrepresentation as he had not believed it to be true.

C was granted recession because it is not needed to show that C believed the misrepresentation, even if they had suspicions or were ‘strongly of the view” that it was not true: they only had to prove the misrepresention was a cause of them reaching a settlement, which they did.

Inducement: inducement is a question of fact, once a false statement has been made that is material and C has entered into the contract there is an inference of fact that C was induced by the statement to enter into the contract

• materiality is evidence of inducement because what is material tends to induce
• no duty for C to research: there is “no duty to be careful, suspicious or diligent” in research. C researched as much as they could, but their investigations were never going to understand the truth – they only found out the truth through people coming forward. “insurers may often have grounds for suspicion about a claim but lack the hard evidence necessary to prove fraud. To pursue an allegation of fraud without strong evidence is risky”

Question 9

BV Nederlandse Industrie van Eiprodukten v Rembrant Enterprises Inc [RQ FOR MISREP]

The statement must have induced the party entering into the contract

Answer 9

FACTS: C contracted to supply eggs to D at a set price. A second shipment was concluded after C raised the price due to unanticipated regulatory costs. After shipment began, C informed D some of the eggs was supplied by its sister company.

D suspended performance of the contract, alledging that C failed to comply with regulatory requirements. C sued for breach of contract but D said C had misrep that the increased in price was for regulatory costs rather than profits

RATIO: D was allowed to rescind the contract for fraudulent misrepresentation. Even though D argued there is no evidence that C would not have agreed to the contract w/o the misstatement, C does not need to show this, just satisfy the below test

Test for inducement in innocent or negligent misrepresentation:

• C has the burden of showing inducement – he must show he would not have entered into the contract had the representation not been made (more stringent test that fraud)

Test for inducement in rescission for fraudulent misrepresentation:

• If D fraudulently intends his words to be taken in a certain sense and C does so take them and entered into a contract, there is a “presumption of inducement” and it is “likely to be inferred” that C was induced to enter into the contract by the misrepresentation
• this is a presumption of fact and is very difficult to rebut with fraud
• the burden of proving inducement lies of C: C must show his decision to make the contract was ‘influenced’ or ‘affected’ by the representation as a matter of fact, not hypothesis

Question 10

Whittington v Seale-Hayne [RECISION]

Answer 10

FACTS: C entered into a lease of a farm which they wished to use for breeding prize poultry. They were induced to take the lease by the D’s non fraudulent mis-representation that the premises were in a thoroughly sanitary condition and good state of repair. However this was not true and the water supply was poisoned, killing or completely devaluing the poultry and making the manager seriously ill.

C sought rescission of the lease plus indemnity for the losses suffered.

RATIO: Was held that while the indemnity for the rates paid and the cost of the repairs, they were NOT entitled to the other losses claimed as they fell outside the ambit of indemnity.

• They could only be compensated if damages could be awarded which they couldn’t as the representation was not fraudulent.

Commentary: This case illustrates that an aspect of restitution bought about by recission is that an indemnity can be given for expense that have necessarily been incurred which the other party would itself have had to incur.
* BUT the other losses claimed were not of benefit to the D so they fell outside the scope of resitutionary indemnity and could only be compensated by damages

Question 11

Leaf v International Galleries [RECCISSION]

Answer 11

FACTS: The D sold the claimant a painting called ‘Sailsbury Cathedral’ on the representation that it was a constable. 5 years later the C tried to auction the painting however the auction house informed the C that the painting was not in fact a Constable. The C sought to rescind the contract with the D on the ground of innocent misrep.

RATIO: The CoC disallowing the claim held that recission was banned due to the length of time passed.

Denning LJ
The contract should be decided by the principles applicable to the sale of goods. There was a mistake made: this mistake was not about the subject matter of the goods but about the quality of the goods.

In this case this was however a contracted condition that the painting be a constable which would allow rejection before acceptance. –> however lapse of time

Noted however
* I agree that on a contract for the sale of goods an innocent misrepresentation may be in a proper case ground for recession even after the contract has been executed: however … it is to be remembers that an innocent misrepresentation is much less potent that a breach of condition.

Question 12

Salt v Stratstone Specialist Ltd [RECESSION]

Answer 12

FACTS: C was a sports car enthusiast. Over the phone in sept 2007, the C bought from the D a Cadillac for $21,000. The D described this car as being brand new however this was untrue as the car was manufactured in 2005, had been in a collision and undergone repairs in both 2005/6. After delivery and use, defects emerged and after a year the C had enough and asked for $ back in return for the car. They refused and he sought recession for misrepresentation.

OUTCOME: Appeal held by the CoA.

Longmore LJ
* The points of depreciation and intermittent enjoyment should not be reasons for saying recission is impossible.

• D should be allowed to rescind contract: rescission is premia facie available if ‘practical justice’ can be done. If this requires a representor to be compensated for depreciation, the burden of proof is upon him to assert and prove this.  the absence of evidence about depreciation/value of the car should not operate to the disadvantage of the one who never should have been put in the position of having a troublesome car in the first place.

Roth LJ
* Leaf would bar this case by lapse of time  however these are less qualified

• In this case it is not suggests the D should have reasonable discovered the true age of the car before the documents were given to him and thus there was no undue delay found on his part

Question 13

Car and Universal Finance Co Ltd v Caldwell [RECCEISION]

how to rescind

Answer 13

FACTS: The D was the owner of a Jaguar. The X convinced the D to sell for $965 and w/ $10 deposit. When @ the bank the cheque given was dishonoured and the D informed the police and Automobile Association of the fraudulent transaction. X sold the car to a dealer and it was sold multiple times afterward until purchased by the C with good faith/no knowledge

Issue = determine if the C or D owned the car  had there been a valid recession of the contract on the (13th) the day before the car had been acquired by the BFP for value w/o notice.

RATIO: The CoA dismissed the appeal from the 1st instance decision of Lord Denning holding that the contract had been validly rescinded by the D informing the police and AA.

Q is whether the a contract which is voidable by one party in any circumstances be terminated by the party w/o his recission being communicated to the other party

• General rule is that =/ until communicated
• However in (there) exceptional circumstances it does not seems to be appropriate to hold that a party so acting can claim any right to have a decision to rescind communicated to him before the contract is terminated  as it would be defrauding party could deprive a party of a right to rescind
• That an innocent party may suffer does not justify imposing on a defrauded seller an impossible task (communication?).

Question 14

Derry v Peek [DAMAGES]

fradulent

Answer 14

FACTS: Legislation provided that that a tram companies tramways were to be horse powered unless it was given the consent of the Bord of Trade to use steam power. The company issues a prospectus stating that the benefit of its tramways was that it had the right to use steam power.

On this claim the C bought shares in the compact. The BOT refused the company’s application to use steam power. The company wound up and the C bought an action for damages of the tort of deceit against the D.

RATIO: HOL allowed the appeal of the D holding as the D were not liable in deceit (as they had not made the statements in the prospectus fraudulently – they thought that the consent of the BOT was a formality, and fraud does not encompass statements made w/o reasonable care)

Lord Herschell
The difference between this case and action to obtain recession on ground of misrepresentation of material fact

a) Where recession claimed – only have to prove misrepresentation = however honestly obtained the info was the contract can still be rescinded

b) Where action of deceit, misrep + something done to cast liability on the D

Proposition for the test for est. action of deceit
1) There must be proof (nothing short)
2) Once fraud est. must be proved that the false rep was made a) knowingly OR b) w/o belief in its truth OR c) recklessly, careless whether it be true or false

 to prevent a false statement there must always be an honest belief in its truth
* If fraud is proved it is immaterial that a person had no honest belief or guilty motive

When a false statement has been made there are questions as to whether there were reasonable grounds for believing it, and what were the means of knowledge in the person making it = matters for consideration
 the ground upon which an alleged belief was formed is the most important test for its reality.

Question 15

Doyle v Olby (Ironmongers)[DAMAGES]

fradulent

Answer 15

FACTS: The C bought a business from the D company. He was induced to do so by the fraudulent representations made on behalf of the D. In particular he was told that the business was “all over the counter” when in fact half od it was obtained by a traveling salesman. The C made a heavy loss from the business and brought an action for damages in the tort of deceit.

RATIO: Contrary to the trail judges damages for $1500, the CoA awarded $5500.

Lord Denning
Damages and for fraud and conspiracy are assessed differently from breach of contract
–> the distinction is that: In contract the D has made a promise and broken it. The object of damages is to put the P in as good as a position, as far as possible back in og position.

The object of damages is to compensate the P for all he has suffered so far as possible. In contract the damages are what must reasonably must have been supposed in the contemplation of the parties while they are not limited by the in fraud.

Commentary: Case clarifies 2 points
1) The measure of damages is the tort ‘reliance’ measure which seeks to put the C into as good a position as if no representation had been made; it is not the contractual expectation measure which seeks to put the C into as good a position as if the representation had been true
2) The remoteness test for the tort of deceit is not reasonable foreseeable but rather the test of directness

Question 16

Smith New Court Ltd v Scrimgeour Vickers (Asset Management) Ltd [DAMAGES]

fradulent

Answer 16

FACTS: The C was interested in buying shares pledged to the D (a bank from the company FIS Inc). The banks representative made fraudulent mis rep that there were close rival bids. In reliance on this the C bought the shares at 82.25p totalling to over $23.1m.

Unrelated to the fraud, it was later revealed that FIS Inc was the V of a fraud and their share price dropped accordingly. The C sold there shares for 30/49p w a loss of $11.353,220.

In the C’s action for the tort of deceit the, the CoA limited to damages to $1.196m (as the diff between the price paid and the market value at the date of purchase. Appealed for the full quantum damages

RATIO: The HoL held that the C were entitled to their full loss of $11.353,220 rather than simply the og difference.

Lord Browne Wilkinson
* Deceit is not subject to the remoteness rile: D is liable for all consequential loss ‘directly flowing’ from the transaction. The loss need not have been foreseeable, but must have been directly caused by the transaction
* C is entitled to recover the full purchase price but must give credit for any benefits received as a result of the transaction. As a general rule the benefits reived include he market value of the property received on the date of transaction however there rules will not apply when  a) the misrepresentation continued to operate after the date of acquisition as as to indue C to retain the asset b) the circumstances are such that by reason of fraud C is locked into the property; locked in refer where the transaction is entered into as a result of the fraud for a purpose that precludes the representee from disposing of the asset

• C must take all reasonable steps to mitigate his loss once he has discovered the fraud

Question 17

East v Maurer [DAMAGES]

fradulent

Answer 17

FACTS: D falsely claimed that he would stop working at his other salon when selling his salon to C. As a result, D suffered trading losses and had to sell the salon at a loss. C claimed for deceit.

RATIO: C was entitled to damages not only for the difference in the purchase and selling price of the salon and the trading losses, but also for the loss of potential profits out purchase another similar hair salon.

• Under the tort of deceit, damages can be awarded for loss of opportunity to enter into a difference transaction.

Question 18

Clef Aquitaine v Laporte [DAMAGES]

fradulent

Answer 18

FACTS: C entered int agreements with D to distribute D’s products. D said they sold products by reference to a certain price list, whereas they gave discounts greater than mentioned. The trial judge concluded, but for the misrepresentation, C could have entered into the agreement at a discount and that their loss was the difference between the lower price they would have paid and the price actually paid.

RATIO: C was entitled to recover the difference bweten the lower price they would have paid and the price they actually paid. It does not matter that they were not making a loss due to misrepresentation (distinction from East v Maurer) “there is no absolute rule requiring the person deceived to prove that the actual transaction into which he was induced to enter was itself loss-making”
Key Quotes/Commentary

• In reliance on the misrepresentation. C became “locked into” long-term agreements, so the judge below only “compensated them for having thereby worsened their position”

Question 19

Hedley Byrne & Co Ltd v Hellen & partners [DAMAGES]

negligent

Answer 19

FACTS: The C were advertising agents. A customer Easipower Ltd, placed a large order and before carrying out the order the C wished to check Easipowers financial standing. They instructed their bank to request a bankers report from Easipowers bank, the D.

The D stated on letter that ‘without responsibility on the part of this bank’, Easipower is [considered] ‘good for business engagements’, however Easipower later went into liquidation and the D lost 17k.

The C bought an action in the tort of negligence (as there had been no contract). The D argued that there was no duty of care owed as regards statements or, alternatively, that they had excluded any liability by virtue of the heading in the letter.

RATIO: In dismissing the appeal the HOL held that where, as here, there was a special relationship between the parties, there was a duty of care owed in the making of the statement (so that tort of neg applied) but that liability had been excluded by the heading

Lord Morris of Borth-y-Gest
* It is settled that if someone of special skill applies that skill for the assistance of another person who relies upon that skill = a duty of care will arise. This is immaterial of the instrument used to deliver this

• If this is given in a sphere where a person is so placed that others could reasonable rely on this judgement/skill to make a careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed onto, another person who, as he knows or should know, will place reliance upon it, then a DOC will arise

Question 20

Esso Petroleum Co Ltd v Mardon

Answer 20

FACTS: D was induced to lease a petrol station by Esso (C) based on the misrepresentation that the estimated annual throughput was 200,000 gallons. C did not revise their estimate given the planning authority did not allow access to the station from the main street. When D could not pay rent, C sought possession of the station. D counterclaimed for breach of contractual warranty and negligent misrepresentation under Hedley Byrne.

RATIO: CoA held there was a contractual warranted and that, in any event, the damages were not as limited as the judge had thought. C was entitled to damages under 1) breach of collateral warranty and 2) negligent misstatement under Hedley Byrne.

Negligent misstatement under Hedley Byrne

If a man “who has or professes to have special knowledge or skill” makes a representation (advice, information or opinion) to another with the intention of inducing C to enter into a contract, “he is under a duty to use reasonable care to see that the representation is correct”. If D negligently gives unsound or misleading advice, inducing C to enter into a contract, he is liable in damages.

Esso here clearly had special knowledge and negligently made the representation.

this case is also importance for 1) breach of collateral warranty and quantum damages

Question 21

South Australia Asset management (SAAMCO) [DAMAGES]

negligent

Answer 21

FACTS: C negligently overvalued a property on which a lender was liable for all losses on the mortgage.

Appeal allowed

To recover damages for negligent advice, the plaintiff must prove:
- He suffered loss, AND
- That the loss fell within the scope of the duty

Under the SAAMCO principle
- A person providing advice on whether or not a course of action should be taken is responsible for all the foreseeable loss which is a consequence of that course of action having been taken
- A person whose duty is only to supply information upon which another will rely is responsible only for the consequences of the information being wrong

Question 22

Howard Marine and Dredging Co Ltd [DAMAGES]

misrep act - section 2(1)

Answer 22

FACTS: C misrepresented their ship’s deadweight capacity, relying on an erroneous statement in the Lloyd’s Register rather than the ship’s documents. D refused to pay the hire fee after discovering the misstatement. C terminated the contracts and brought an action for outstanding payments. D counterclaimed for damages under s2(1) Misrepresentation Act 1967. There was an exclusion clause that says D’s acceptance of handing over the vessel shall be their acceptance that the vessel is satisfactory.

RATIO: The rep was / a contractual warranty, there was liability under s2(1) [this made it difficult to decide if there was liability as per Hedley however this isn’t discussed here]

• Under s2(1) misrepresentation act, the burden of proof is on the representor to prove that he had reasonable ground for belief in the accuracy of the statement
  There need not be a DOC for liability to arise under the section

Question 23

Royscot v Rogerson [DAMAGES]

misrep act - s2(1)

Answer 23

FACTS: D car dealer agreed to sell a car on hire purchase to Rogerson for $7600 of which $1200 was to be paid as a deposit. To finance the deal the D non fraudulently misrepresented that the price was $8000 and the deposit was $1600. The C would only finance hire-purchases if the deposit was at least 20% of the true figures but as this had been represented as the case, the C went through on the deal.

X paid the instalments but defaulted and sold car to 3rd party. C sued under S2(1) for damages amount to the difference in price paid for the car and the instalments received. D argued that the loss from the wrongful sale of the car was too remote to be foreseeable.

RATIO: CoA held that, as the wrongful sale of the car was not too remote the C was entitled to damages for its full loss.

Balcombe LJ:
* In my opinion the wording of the subsection is clear: the person making the innocent misrepresentation shall “be so liable: (i.e liable to damages as if the representation had not been made fraudulently)

• It seems to me that Shepheard v Broome the literal interpretation of s2(1) must be taken: even though that has the effect of treating, so far as the measure of damages are concerned, an innocent person as if he were fraudulent

Commentary: Controversial as lays down that all directly caused loss even that which is not reasonably foreseeable is recoverable.

Question 24

Stindall plc v Cambridgeshire [DAMAGES]

misrep Act - s2(2)

Answer 24

FACTS: The C agreed to purchase land for development of the D. In reply to an inquiry by the C regarding easements over the land, the D stated that they were not aware of any.

A private sewer built 20 years before the transaction was found under the development site after the sale had been completed. The C bought an action for a declaration that the C was validly rescinded on the grounds of misrep and common mistake.

RATIO:
1) As regards the recession, it was held that the contract had allocated the risk of the unknown sewer to the buyer so that there was no possibility of recession for common mistake.

2) The CoA held that there was no mis rep HOWEVER obiter the judges considered how they would have exercised s2(2) if there has been a misrep

Hoffman LJ
S2(2) is broad but there are three main matters which the court must have particular regard

a) Nature of the misrepresentation
the importance of the representation in relation to the subject matter of the transaction. The Law Reform Committee considered it to be an anomaly that a minor misrep gave rise to a right of recession whereas a warrant in the same terms would only lead to damages
* In the current case the misrep cost was 18k to put right vs 5m for the sale of the land

b) Loss caused to the representee by the mistreatment if the contract were upheld

c) Loss caused to the represent

Question 25

Walker v Boyle [EXCLUSION OF L]

Answer 25

FACTS: During negotiations for the sale of property between the buyer (C) and the seller (D’s). When asked if there was any easements of border disputes the D’s said no when in actual fact there was a longstanding dispute with a neighbour.

The sale was concluded on standard form of contract, the National conditions of Sale: c17(1) stated ‘no error, misstatement or omission in any prelimairy answer concerning the property shall annul the sale’. When C discovered the border dispute, he sought to rescind the contract on the ground of misrepresentation.

RATIO: C17(1) is void under the misrep act 1967 as it does not satisfy the requirement of reasonableness under s11(1) Unfair Contract Terms Act.

Dillon LJ
There is a strong argument that s17(1) is fair/reasonable as there were solicitors working and could have specially directed there minds to the clause. However as they had not done so and even though it is there duty to so, the solicitors are not required to go into the small print of the contract.

Common form clauses developed by negotiation between trade associations to protect their members can be regarded as representing the consensus in the trade on what is reasonable. However, the national conditions of sale are not the product of negotiation between such bodies.

Question 26

JP Morgan v Springwell [EXCLUSION OF L]

Answer 26

FACTS: C bought bonds that were issued by D. The documents contained “no representation” clauses, where C agreed no actionable representations were made by D. C sued D for misrepresenting the riskiness of those bonds

RATIO: D’s statements did not amount to representation. Even if D was guilty of misrepresentation, C is estopped from suing for misrepresentation due to the no representation clauses.

• On “no representation” clauses: Parties are free to agree that a certain state of affairs is the case, even if that is not the case, by agreeing that A has made no pre-contractual representations to B.
  o Therefore, as the clause is valid, under the doctrine of contractual estoppel, C is estopped from asserting that there were any actionable misrepresentations made.
  o There is no requirement in contractual estoppel that it must be unconscionable to resile from what was agreed, as this doctrine is distinct from estoppel by convention.
• On s3 Misrepresentation Act: “No representation clauses” may be “nothing more than an attempt retrospectively to alter the character and effect of what has gone before and in substance be an attempt to exclude or restrict liability”, so s3 applies.
  s3 applied here: The exclusion of liability was reasonable because C was a sophisticated investor in emerging market investments and was conscious of the risks of this type of investment.

Question 27

First Tower Trustees v CDS Ltd [EXCLUSION OF L]

Answer 27

FACTS: C entered into a commercial lease with D. D’s solicitors represented that D had not been notified of any environmental issues. They later were informed of asbestos contamination but did not inform C before the lease was executed. A clause said C acknowledges “this lease has not been entered into in reliance […] on any statement or representation” made by D. C sued under s2 Misrepresentation Act. The High Court found the clause void under s3.

RATIO: D was liable under s2. Clause 5.8 is subject to s3 MA under which it is void for being unreasonable.

• Does s3 apply to duty defining clauses?: No: not to non-consumer contracts where the term “does no more than to describe one party’s primary obligation”.
  o For contractual estoppel, no proof of reliance needed other than entry into the contract itself is needed, letting parties bind themselves “to a fictional state of affairs in which no representations have been made or, if made, have not been relied upon”. Parties are welcome to do this so long as they are clear.
   Applied: It is not clear in this case, where C simply “acknowledges” that no representation has been relied upon: “such wording is more naturally understood as stating a fact which may or may not be true”.
• Does s3 apply to “no representation” clauses?: Yes. A clause which states “‘that this lease has not been entered into in reliance wholly or partly on any statement or representation’ is a contract term which would have the effect of excluding liability for misrepresentation; and consequently is subject to the test of reasonableness”.
  o Otherwise, parties could “avoid the application of s3 purely by the choice of words in which the clause is phrased.” “No rational legislator could have intended that the need for a contract term to satisfy a test of reasonableness could be avoided simply by felicity in drafting the contract term”.
  o s3 “must be interpreted so as to give effect to its evident policy”, which is to “prevent contracting parties from escaping from liability for misrepresentation unless it is reasonable for them to do so”.
• There might be a case with “exceptional facts” where a clause which precludes reliance on replies to enquiries might satisfy the reasonableness test even where the replies have been relied upon, but it is “very hard to imagine what those facts might be”.

Question 28

Taberna Esurope CDO II Plc v Salkabet AF1

Answer 28

FACTS: R issued notes which were acquired by D and sold to T. R went bankrupt and many of its assets (minus the notes) were transferred to X. Rather than prove for the notes in R’s bankruptcy, T claimed damages for misrepresentation by R against X under s2(1).

RATIO: T was not entitled to damages under s2(1), even though the exclusion clause was held to be valid.

• Duty-negating clauses (outside the scope of s3): Clauses which restrict the scope of any apparent representation (examples: “no representation is made and no reliance should be placed on any information” and “none of this presentation should be used as an inducement to enter a contract”).
• Liability-negating clauses (under the scope of s3): Clauses which “purport to exclude liability for any misstatement rather than qualify the scope or nature of the statements which the document contains”.
• Were the liability-negating clauses reasonable to rely on?: It was reasonable to rely on the disclaimer here as, in recent years, courts have been willing to “recognise that parties to commercial contracts are entitled to determine for themselves the terms on which they will do business.”
  o s3 does not mention non-contractual notices, like this one, but that does not mean such notices are ineffective to exclude liability, as they can be effective under UCTA.
  It is irrelevant that the notice was “tucked away at the back of the document in fairly small print”, as T’s experienced lawyers “must be taken to be well aware that it is necessary to read a document of this kind in its entirety”.

Obiter: Justification behind the 1967 Act: “The 1967 Act was passed principally to remedy two perceived defects in the existing law: the inability of a person who had been induced to enter into a contract by a misrepresentation that was not fraudulent to recover damages, and the inadequate nature of the remedy of rescission in the case of innocent misrepresentation”.