Misrepresentation

Question 1

What is a representation?

(a) 
A statement asserting the truth of a given state of facts

(b) 
A statement that causes the recipient of the statement loss

(c) 
An undertaking to do or not to do something

(d) 
A statement that has been incorporated into a contract

Answer 1

(a) 
A statement asserting the truth of a given state of facts


Question 2

Which of the following is a statement of fact?

(a) 
A statement of opinion

(b) 
Conduct
(c) 
Silence

(d) 
A statement of future intention

Answer 2

(b) 
Conduct

Statements can also be made by conduct. In the case of Gordon v Selico, the intentional concealment of dry rot was found to be a misrepresentation


Question 3

Which of the following is not an ingredient for a successful action for misrepresentation?

(a) 
A representation that is addressed to the claimant by the representor

(b) 
A representation that causes the claimant to enter into the contract with the statement maker

(c) 
A representation that is known to be untrue by the representee
(d) 
A representation that unambiguously has the meaning put forward by the representee

Answer 3

(c) 
A representation that is known to be untrue by the representee

There will be no actionable misrepresentation as the representation is unlikely to have induced the representee to enter into the contract


Question 4

What is a material representation?

(a) 
A representation that is made to the claimant

(b) 
A representation that relates to the subject matter of a contract

(c) 
A statement that relates to an issue that would have influenced a reasonable person

(d) 
A statement that is incorporated into a contract

Answer 4

(c) 
A statement that relates to an issue that would have influenced a reasonable person


Question 5

Which of the following is not an exception to the general rule that silence is not a statement of fact?

(a) 
Contracts of service

(b) 
Continuing representations

(c) 
Contracts uberrimae fidei

(d) 
Half-truths

Answer 5

(a) 
Contracts of service


Question 6

Why was the company’s statement of future intention in Edgington v Fitzmaurice found to be a misrepresentation?

(a) 
The representors made a continuing representation which became false and they did not disclose the change of circumstances to the representees

(b) 
At the time the representors made the statement of future intention, they knew that they did not intend to do what they said they would do

(c) 
The representors were under a duty to disclose material facts to the representees and they failed to do so

(d) 
The representors made statements that were technically true but misleading

Answer 6

(b) 
At the time the representors made the statement of future intention, they knew that they did not intend to do what they said they would do


Question 7

What is a half-truth?

(a) 
An opinion that is held by the representor only

(b) 
A statement that is technically true but misleading
(c) An incomplete statement

(d) 
A statement that is marginally correct


Answer 7

(b) 
A statement that is technically true but misleading

This was illustrated in the case of Dimmock v Hallett where a property was described as fully let. The property was indeed fully let at that time, but the vendor did not disclose to the buyer that the tenants had given notice to quit.


Question 8

In what situation will a statement of opinion be elevated to a statement of fact?

(a) 
Where it is proved that the opinion expressed was not one which the representor believed
(b) 
Where the representee has expert knowledge of the subject matter compared to the representor

(c) Where the facts expressed by the representor are equally well known by the representee

(d) 
Where the representor makes a promise regarding a future intention

Answer 8

(a) 
Where it is proved that the opinion expressed was not one which the representor believed

This also applies if the opinion expressed is not one which a reasonable man with the knowledge of the representor could have reasonably held


Question 9

What is the definition of a fraudulent misrepresentation?

(a) 
A false representation that was made with an intention to cheat or injure

(b) 
A false representation that was made for a criminal purpose

(c) 
A representation that was false

(d) 
A false representation that was made knowingly or without belief in its truth or recklessly

Answer 9

(d) 
A false representation that was made knowingly or without belief in its truth or recklessly

Question 10

Why is negligent misrepresentation under the Misrepresentation Act 1967 an easier claim for a claimant to establish than a fraudulent misrepresentation claim?

(a) 
The normal burden of proof is reversed and the defendant bears the burden of proving that they had reasonable grounds for believing their statement and that they did believe it
(b) 
Negligent misrepresentation is an easier claim because it is based on statute

(c) 
The claimant bears the burden of proof in a claim for negligent misrepresentation

(d) 
Fraudulent misrepresentation applies the criminal standard of beyond reasonable doubt

Answer 10

(a) 
The normal burden of proof is reversed and the defendant bears the burden of proving that they had reasonable grounds for believing their statement and that they did believe it

The claimant bears the burden of proof in a claim for fraudulent misrepresentation and it is a difficult burden to discharge. However, the 1967 Act reverses the standard of proof for negligent misrepresentation and places the burden on the defendant to prove that he had reasonable grounds to believe his statement and that he did believe it


Question 11

For which category or categories of misrepresentation is contributory negligence available as a defence?

(a) 
Fraudulent misrepresentation

(b) 
Negligent misrepresentation

(c) 
Fraudulent and negligent misrepresentations

(d) Negligent and Innocent misrepresentations

Answer 11

(b) 
Negligent misrepresentation


Question 12

Is it possible for a representor to exclude or restrict their liability for misrepresentation?

(a) 
Yes, but only in respect of fraudulent misrepresentations

(b) 
Yes, as long as the clause satisfies the requirement of reasonableness as stated in s. 11(1) of the Unfair Contract Terms Act 1977

(c) 
No, it is not possible to exclude or restrict one’s liability for misrepresentation

(d) 
Yes, so long as they are not using written standard terms of business

Answer 12

(b) 
Yes, as long as the clause satisfies the requirement of reasonableness as stated in s. 11(1) of the Unfair Contract Terms Act 1977


Question 13

What remedies are potentially available for an innocent misrepresentation?

(a) 
Rescission, damages in lieu of rescission and damages

(b) 
Rescission, damages, indemnity

(c) 
Damages in lieu of rescission, damages, indemnity

(d) 
Rescission, damages in lieu of rescission and indemnity

Answer 13

(d) 
Rescission, damages in lieu of rescission and indemnity

Question 14

A representation which is false is incorporated into a contract as a term gives rise to which potential claim/s?

(a) 
Misrepresentation and negligent misstatement

(b) 
Breach of contract

(c) 
Misrepresentation

(d) 
Misrepresentation and breach of contract

(e) 
Negligent misstatement

Answer 14

(d) 
Misrepresentation and breach of contract


Question 15

An accountancy firm provides negligent advice to a client. The advice induces the client to enter into a contract to purchase a business. The client suffers a significant loss as a consequence of entering into this contract. What claim/s may be brought against the accountancy firm by the client?

(a) 
Negligent misstatement
(b) Negligent misrepresentation

(c) 
Negligent misstatement and negligent misrepresentation.


Answer 15

(a) 
Negligent misstatement

The correct claim is negligent misstatement. There is no claim in negligent misrepresentation as the accountancy firm’s negligent advice did not induce the client to enter a loss making contract with them but with a third party. See s 2(1) MA 1967.


Question 16

What is included and what is not included in statements of fact?

Answer 16

Includes:
Statements of fact
Some conduct
Statements of law

Does not include:
Statements of opinion
Statements of intention
Silence
(these are subject to exceptions)

Question 17

When does a statement of opinion amount to a misrepresentation?

Answer 17

1. Statement of opinion which lacks reasonable grounds from people with superior knowledge/experience
2. Opinions not actually held

Question 18

When will a statement of future intention amount to misrepresentation?

Answer 18

Where representor states that they intend to do something and in that point in time they know they cannot do what they state or do not intend to do it, they misrepresent their existing intention

Question 19

When will silence amount to misrepresentation?

Answer 19

1. Half truth: misrepresentation to make statements which are technically true but misleading
2. Continuing representations: if at beginning of of negotiations, statement is made which is true but prior to entering into contract becomes false, representor is under obligation to correct rep - if they fail to do so and allow other party to enter int
3. Contracts of utmost good faith: duty to disclose material facts in some type of contracts eg contracts of insurance where disclosure of all material facts must be made to insurer or fiduciary relationship eg between co and directors

Question 20

What are the three categories of misrepresentation?

Answer 20

1. Fraudulent
2. Negligent
3. Innocent

Question 21

When does fraudulent misrepresentation take place?

Answer 21

Must be proof of fraud - shown where false rep has been made:
(a) knowingly, or
(b) without belief in its truth, or (c) recklessly, careless whether it be true or false. Although I treated the second and third as distinct cases, I think the third is but an instance of the second, for one who makes a statement under such circumstances can have no real belief in the truth of what he states…

If fraud proved, motive of person guilty is immaterial

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

Court would need to be satisfied that failure to disclose was, in fact, deliberate or dishonest, and not just due to inadvertence or failure to realise requirement of disclosure

To prove fraudulent misrep, burden of proof on C is difficult to discharge - allegation of fraud is treated with extreme seriousness by court and is therefore more difficult to persuade court that D has done smth fraudulent than eg negligent

Question 22

When does negligent misrepresentation arise?

Answer 22

Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.

Representor fails to show reasonable grounds to believe true and/or not believing true up until contract was made (D will be liable unless they can prove they had reasonable grounds to believe and did believe up to time contract was made that statement was true)

Where representor is found liable for negligent misrep, they will be treated to all intents and purposes as if they had made fraudulent misrep - important ramifications as to damages

statutory right to damages for negligent misrepresentation reverses normal burden of proof by requiring representor to prove they had reasonable grounds to believe statement and did believe statement - this make it easier claim for representee to establish

Question 23

When does innocent misrepresentation arise?

Answer 23

Ie one that is not made fraudulently or negligently

Statement made where representor:
1. Proves they had reasonable grounds belief in truth of statement and
2. Proves they believed up to time of contract what they were saying was true

Question 24

What remedies are available for misrepresentation?

Answer 24

1. Rescission
2. Damages
3. Indemnity

Question 25

When will rescission be available and what are bars to rescission?

Answer 25

General rule: to rescind, representee must communicate intention to do so for representor - alternatively representee may initiate proceedings for rescission, object being to obtain from court order that contract rescinded

Rescission is equitable remedy and is given or withheld entirely at discretion of court - party can establish misrep but court still has discretion not to award rescission

Generally, rescission will be awarded only where parties can be restored to original position by returning all property transferred between parties under contract

Bars to rescission:
1. Affirmation: Contract affirmed if representee declares intention to proceed with contract or does some act from which such intention may reasonably be inferred
2. Lapse of time: Action for rescission must be brought promptly, for delay defeats equities - lapse of time without any attempt to effect rescission does not in itself constitute affirmation but may be treated as evidence of such intention
3. Restitution is impossible: Right to rescind is lost if it is no longer possible to restore parties to previous position before contract made - will be case where nature of subject matter has been changed or it has declined in value
4. TP rights accrue: Effect of misrep is to make contract voidable, not immediately void, and so contract remains valid up until time notice is given of intentions to rescind - if at any time prior to rescission, person acquiring goods under such contract is able to pass good title to those goods to innocent TP who purchase goods without notice of misrep, this would prevent restitution

Question 26

What is the effect of rescission?

Answer 26

Effect is to render contract voidable but not void - contract is still valid and subsisting until representee decides to set it aside

Question 27

When will indemnity be available?

Answer 27

Possible that as part of equitable process of rescission, indemnity may be awarded to cover expenses for obligations assumed as direct result of contract

Will not be needed for fraudulent and negligent - but can be awarded for innocent

Question 28

What damages be awarded under fraudulent misrepresentation?

Answer 28

Measure of damage is that which is necessary to place innocent injured party in position he would have been in had misrepresentation not been made - C can recover: “..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.”

Also added requirements that:
1, C must mitigate as soon as soon as fraud is discovered and
2. Any damages awarded to C will be reduced by value of any benefit C has acquired as result of contract

Question 29

What damages will be awarded for negligent misrepresentation?

Answer 29

correct measure of damages for negligent misrep must be based on tort of deceit - C is entitled to recover all losses even if those losses are unforeseeable

Remedy of damages in lieu of rescission available only at discretion of court and is only available for negligent and innocent misrep - in exercising discretion, court must have regard to
1. Nature and seriousness of misrep,
2. Loss that would be caused if contract were upheld and
3. Loss that rescission would cause other party

s. 2(2) damages are separate award than those under s. 2(1)
- s. 2(1) damages intended to compensate C for loss directly flowing from negligent misrep
- s. 2(2) damages intended to compensate representee were court has decided not to award rescission
- Where damages in lieu of rescission awarded, damages under s. 2(1) will be reduced to reflect those in s. 2(2)

Question 30

True or false - contributory negligence can be argued as a defence for damages both under fraudulent misrepresentation and negligent misrepresentation.

Answer 30

False - can only be used for negligent misrepresentation. In relation to negligent misrepresentation, damages may be reduced for contributory negligence where loss was in part fault of representee.

Question 31

What damages are available for innocent misrepresentation?

Answer 31

Where innocent misrep has been made, representee is only entitled to remedy of rescission and if applicable, indemnity to cover legal obligations arising from contract entered into

No automatic right to damages for innocent misrep but court has discretion under s. 2(2) to award damages in lieu of rescission as above

Question 32

Can liability under misrepresentation be excluded/limited through an exemption clause?

Answer 32

If contract contains exemption clause purporting to protect party from liability for misrep or purporting to exclude or restrict any remedy available to other party, clause will be of no effect except in so far as it satisfies requirement of reasonableness (s 3 Misrepresentation Act 1967 (MA 1967) as substituted by s 8 of the Unfair Contract Terms Act 1977)

Question 33

What are non-reliance clauses and can they be used to exclude liability for misrepresentation?

Answer 33

If party wants to exclude liability for misrep non-reliance clause might be desirable - parties agree and confirm that neither party has made any representations to other in relation to this contract or its subject matter and neither has relied on any representation from other in entering into contract

Court will not allow liability for fraudulent misrep to be avoided in this way

Question 34

What alternative clause can be brought instead of misrepresentation?

Answer 34

Law of negligent misstatement is part of negligence - broadly, where there is relationship of sufficient proximity between two parties, court might find that one party owes DOC to other to take reasonable care that statements are made accurate

This duty would extend to statements made during contractual negotiations, but would not be limited to such statements - could relate to any statements that caused recipient of statement loss

Where claim in misrep is available, it is rare that any party would need/want to pursue claim in negligent misstatement instead - type of claim is generally harder to establish and likely lead to less favourable calculation of damages