Misrepresentation Flashcards
What is a viciating factor?
• A vitiating factor is something that makes a contract void or voidable.
What is misrepresentation?
• Representations are statements made during the formation of a contract that may influence a decision, therefore a misrepresentation is a false representation.
• A contract remains valid unless the person who has suffered the misrepresentation takes action to rescind it.
• False statements – a statement has to be made that is either untrue or not accurate. Silence is not misrepresentation however – Fletcher v Krell (1873).
• However if a statement is made that was true at the time, but then changes before the contract is made, it becomes misrepresentation if not shared with the other party – With v O’Flanagan (1936).
• A part-truth, where one party remains silent about a key piece of information is also misrepresentation – Dimm
• When there is a relationship based on trust, there may also be misrepresentation – Tate v Williamson (1866).
• Also, in insurance contracts, silence about key aspects can be misrepresentation – Lambert v Co-operative Insurance Society (1975).
• Insurance guidelines have since by tightened up in the Consumer Insurance (Disclosure and Representations) Act 2012.
• In Spice Girls Ltd v Aprilia World Service BV (2000), the fact that one member of the pop group, Geri Halliwell, had not stated that she intended to leave the group was also misrepresentation.
Zanzibar v British Aerospace (2000)
The complainants argued that representations of the plane said that it was without any defects, as well as being reliable and ready to use. They brought a claim against the defendants to rescind their contract under section 2(1) of the Misrepresentation Act 1967 or receive damages under
section 2(2) of the Misrepresentation Act 1967. The issue in this case was whether the contract could be rescinded or if damages could be awarded.
Held
It was held that due to clause 23 in the sale agreement between the parties, the contract could not actually be rescinded. This had stated the buyer could not rely on representations made by the seller. In addition, the plane had already been sold. This also meant that damages could not be awarded, as this was a substitute for rescission, which was barred in this case.
Remedies for negligent misrepresentation
• Rescission and/or damages.
• Law of tort. Damages, under Hedley Byrne principle again, says that a
claim for a misrepresentation based on negligence is allowed.
• Contributory negligence also applies.
• When fraud cannot be proved, a claim under the Misrepresentation Act 1967, damages can be awarded in the same way – Royston Trust Ltd v Rogerson (1991).
Remedies for fraudulent misrepresentation
• Rescission and damages.
• Tort of deceit.
• Smith New Court v Scrimgeour Vickers (1996) – court awarded the victim damages based on the difference between the amount paid for shares and the final share price.
• Usual award of damages in a fraudulent misrepresentation is to put the victim back in the position they were in before the tort occurred, although the court can take the view that contractual damages are also appropriate – East v Maurer (1991).
Remedies for innocent misrepresentation
• Rescission – equitable remedy returning the parties to the position they were in before the contract was made. Made at the discretion of the court.
• Rescission is not available in the following circumstances:
- Restitution to the original pre-contract position is impossible – Clarke v
Dickson (1858).
- Contract is affirmed. When the innocent party chooses to carry on the contract despite knowing about the misrepresentation – Long v Lloyd (1958).
- Delay. If no complaints arise within a short time after the contract is made, then the assumption is that there are no major problems – Leaf v International Galleries (1950).
- A third party has gained rights over the property. This would be unfair to the third party – Lewis v Averay (1972).
Economic Duress
• When one party to a contract is forced into the contract, it is not valid.
- Economic duress. The threat to damage a business or person financially.
Undue influence
When one party appears to have entered the contract as a result of pressure. This usually exists when the relationship is one of trust and where one party will benefit at the expense of another – Allcard v Skinner (1882).
- Might include blackmail or even violence to persuade – in Barton v Armstrong (1976), there were death threats.
Context of economic duress
• Every case where economic duress is argued is considered on its particular circumstances.
• Serious threats to property can be considered economic duress – Atlas Express v Kafco (1989).
• The key element of economic duress is that there must be pressure that must:
- Involve a lack of choice for the victim.
- Pressure is illegitimate.
- Illegitimate pressure is a significant cause of making the contract – Universe Tankships v International Transport Workers Federation (1983).
• What makes the pressure illegitimate? Factors to consider in Pao on v Lau yiu Long (1979).
• When the action threatened is lawful, then duress is not available – CTN Cash & Carry v Gallagher (1994).
• Even when action is lawful, the way in which it is applied can mean that it amounts to duress – Progress Bulk Carriers Ltd v Tube City (2012).
The remedies and effect of finding duress
• The effect of finding a duress means that the innocent party can now void the contract. Until they do so, the contract remains valid.
• Remedies for economic duress – no damages, but the court can make an order of restitution. In other words any property or money obtained under duress must be returned. This is an equitable remedy and at the discretion of the court.
