Misrepresentation Flashcards
Misrepresentation
Definition- a pre-contractual false statement of material fact made by one party to another party which intended to and did operate as an inducement for the innocent party to enter the contract.
If misrep occurs, remedies such as rescission and damages are available under the Misrepresentation Act 1967
Misrepresentation can/cannot be…
Can also arise from conduct rather than from verbal or written statement, but not mere silence. A statement made after the formation is not actionable.
Misrepresentation cannot be:
- a mere opinion
- an expression of future intent
- a mere trade puff (bravado)
3 types of misrepresentation
Fraudulent, negligent, innocent
Fraudulent misrepresentation
Where the false statement was made knowingly or deliberately (intent to deceive - tort of deceit), or being reckless as to whether it was true or not
Lord Herschell’s test in Derry v Peek - statement is a fraudulent misrepresentation where it was made:
1) knowing to be false
2) without belief in its truth
3) reckless, or careless as to whether it was true or false
Negligent misrepresentation
Where financial loss is incurred.
Under Hedley Byrne and Co v Heller and Partners, a party is liable where:
1. they possess expert knowledge
2. ‘special relationship’/sufficient proximity between the parties where it is reasonable to rely on the statement
3. the innocent party does rely on it and the liable party is aware of this reliance
Under s2(1) of the 1967 Act, the burden of proof is reversed so that the person making the statement has to prove reasonable grounds to have honest belief in statement’s truth - the innocent party has action available without proving criteria
Innocent misrepresentation
Where the untrue statement is made, but the party making it had reasonable grounds for having honest belief in its truth
Remedies for misrepresentation
The equitable remedy of rescission - places both parties back into the pre-contractual position (void/rescind the contract as if it never happened)
Remedies (damages + rescission) were founded on common law but have been crucially modified by the 1967 Act in respect of non-fraudulent misrep.
Fraudulent:
- Rescission
- Damages:
- Will be awarded according to the tort of deceit, therefore there’s no requirement that the injuries were foreseeable
- Also available under s2(1) of 1967 Act
- A loss of profit can also be claimed
- The injured party affirm or disaffirm the contract - can rescind the contract
Negligent:
- Rescission
- Damages:
- Will be applied according to the standard tort measure of negligence under s2(1) of 1967 Act - same damages available for fraudulent misrep
- Contributory negligence can reduce the amount of damages
- Common law damages: based on foreseeable loss under tort law
Innocent:
- Rescission (main damage for innocent)
- Damages under s2(1) of 1967 Act
- Under s2(2) of the 1967 Act, damages in lieu of rescission at judge’s discretionary
Inntrepreneur Estates Ltd v Holland
False statement of material fact
A brewery misrepresented the amount of beer sold to its new tenants - ‘the pub is ticking over on 480 barrels’ but the reality was 372.
Bissett v Wilkinson
Misrep cannot be a mere opinion
The statement was a speculation made without expert knowledge and mistaken, so therefore couldn’t be relied upon
Edgington v Fitzmaurice
Misrep cannot be an expression of future intent
A statement of intention is a statement of act and can thus be the basis for actionable misrepresentation
Carlill v Carbolic Smoke Ball Co
Misrep cannot be a mere trade puff
There was a unilateral offer made, and contract formed
Spice Girls Ltd v Aprilia
Misrep can arise from conduct rather than verbal/written statement
The presence of the group member during filming and the signing of the contract constituted a representation that no member of the group was about to leave
Hamilton v Allied Domecq
Misrep can be from conduct rather than verbal/written statement, but not from mere silence
Lord Roger stated ‘a failure… to speak might be regarded as morally questionable. But that is different from saying [there is] a legal duty to speak’
Roscorla v Thomas
A statement made after the formation of contract is not actionable
Derry v Peek
Fraudulent
Lord Heschell defined the test for fraudulent misrep.
Statement was not a misrepresentation as the company honestly believed they would have permission.
Hedley Byrne and Co v Heller and Partners Ltd
Negligent
Laid out the 3 stage criteria for negligent misrep
Howard Marine v Ogden
Negligent
Under s2(1) of 1967 Act, the burden of proof is on the defendant to prove he had reasonable grounds for belief in the accuracy of the statement.
Leaf v International Galleries
Innocent
The claim was successful, however since it was innocent misrepresentation, the claimant lost the right to rescind through reasonable lapse of time.
Doyle v Olay (Ironmongers)
Fraudulent remedies
The injured party is entitled to reparation for ‘all the damage flowing from the fraudulent misrepresentation’
Smith New Court Securities Ltd v Scrimgeour Vickers Ltd
Fraudulent remedies
Lord Browne-Wilkinson gave guidance for assessing damages for fraudulent misrep:
1) Damages are not subject to the remoteness rule, therefore the D is responsible for all losses flowing from the transaction, including any consequential loss, providing a casual link between the misrep and claimant’s loss
2) Tort of deceit - such damage need not have been foreseeable, but directly caused by the transaction
Misrepresentation Act 1967
Was introduced to ensure both parties have an action to pursue if misrepresentation causes loss to one of the parties. It provides the remedy of rescission, which makes a contract effectively voidable if founded. These rules apply to fraudulent, negligent and innocent misrepresentation.
S2(1) - where a fraudulent misrepresentation creates loss for the claimant, then the injured party can claim for damages, unless the party making the misrep had reasonable grounds to believe this statement was true at the time of formation
S2(2) - the injured party can rescind the contract if the misrep that had been made was anything other than fraudulent (rescission)
- the judge has the discretion which remedy to apply, therefore damages may be rewarded in lieu of rescission if the judge decides that is a more appropriate remedy
Misrepresentation plan
Issue - Has a party been misled into a contract?
Define misrepresentation… - Inntrepreneur Estates Ltd v Holland
Define Misrepresentation Act 1967….
Misrep can also arise from conduct rather than verbal/written statement, but cannot be mere silence - Spice Girls Ltd v Aprilla, Hamilton v Allied Domecq, Roscorla v Thomas
Misrep cannot be:
- a mere opinion - Bissett v Wilkinson
- a expression of future intent - Edgington v Fitzmaurice
- a mere trade puff - Carlill v Carbolic Smoke Ball Co
Apply…
3 types of misrep:
- Fraudulent
- Statement made knowingly/deliberately (tort of deceit), or reckless to its truth
- Lord Herschell’s test in Derry v Peek - Negligent
- Where financial loss is incurred
- Criteria under Hedley Byrne and Co v Heller and Partners Ltd (expert knowledge, special relationship, reliance)
- S2(1) of 1967 Act - burden of proof is reversed (D must prove belief in its truth) - Howard Marine v Ogden - Innocent
- The untrue statement is made, but party had honest belief in its truth - Leaf v International Galleries
Apply…..
Remedies (rescission and damages):
Founded on common law but crucially modified by 1967 Act
Misrepresentation Act 1967
S2(1) - can claim damages under fraudulent, unless had reasonable grounds to believe truth
S2(2) - rescission for non-fraudulent; damages in lieu of rescission at judge’s discretionary
Fraudulent:
- Rescission
- Damages
- Lord Browne-Wilkinson’s guidance in Smith New Court Securities Ltd v Scrimgeour Vickers Ltd (liability for all losses flowing from transaction, tort of deceit - no requirement for foreseeability) - Doyle v Olay (Ironmongers)
- Loss of profit
- s2(1) of 1967 Act
Negligent:
- Rescission
- Damages
- Applied according to standard tort measure of negligence under s2(1) of 1967 Act - same damages available as fraudulent
- Contributory negligence can reduce amount of damages
- Common law damages: based on foreseeable loss under tort law
Innocent:
- Rescission (main remedy for innocent)
- Damages
- s2(1) of 1967 Act
- s2(2) of 1967 Act
Apply….
Conclusion - If misrepresentation is proven, the contract is voidable.
