Misrepresentation

Question 1

What requirements must a false preliminary statement meet to be actionable?

Answer 1

Sales puff – not meant to be believed and isn’t actionable

To be actionable, a false preliminary statement must amount either to:

• A breach of a term of the contract (express or implied); or
• Misrepresentation

Question 2

What factors are considered in the test to determine whether something is a term or representation?

Answer 2

Objective test to decide if something was a term or representation

Looking at parties’ intention, did they intend the statement to be a term and or a representation

Factors considered:

• Relative skill and knowledge (important) - If an expert makes a statement to a non-expert, it is more likely to be a term
• Timing - How close to timing of contract was the statement made – the longer the gap, the more likely it is to be a representation
• Check - Did the party making the statement tell the other party to check – more likely to be a representation if they did
• Stressed importance - Did innocent party stress the importance of the statement – if so, more likely to be a term
• Writing - Was the full statement included in written contract? - if not, presumption that statement was intended to be a representation

Question 3

What are the next steps if a term or representation is breached/broken?

Answer 3

If it is a term and this is broken, there will be a breach of contract and appropriate remedies can be pursued

A representation can be actionable if it amounts to a ‘misrepresentation’

Question 4

When will a representation be a ‘misrepresentation?’ What is the test?

Answer 4

To be a misrepresentation, there must be:

1) An untrue statement (oral, written or by conduct)

1a) Silence – usually not actionable, unless:

• Fiduciary relationship
• Contract of utmost good faith (insurance contract)
• Half-truth – can be actionable
• Change in truth – if something was true, but becomes untrue before the time of the contract, there is an obligation to disclose the change

2) Statement of fact

• Not usually one of opinion or future intention
• But if party lying about their opinion or intention, that will be actionable as they are misstating their state of mind

3) Statement made by one contracting party to the other

4) Statement must induce party to enter the contract

• Doesn’t have to be the only inducement

Question 5

What are the 3 types of misrepresentation?

Answer 5

1) Fraudulent

Need to prove party making the statement either:

• Knew it was false; or
• Didn’t believe it was true; or
• Was reckless as to whether it was true or false

2) Negligent

• Belief in truth was honestly held, but it was not held on reasonable grounds
• Misrepresentor must prove the statement was made on reasonable grounds

3) Innocent

• Had reasonable grounds and honestly believed it was true
• No entitlement to damages, but can still rescind

Question 6

What remedies are available for misrepresentation?

Answer 6

All forms of misrepresentation have the potential remedy of rescission – not available as of right

Misrepresentee can affirm or rescind – they choose (contract is voidable)

Aim is to restore both parties as far as possible to their pre-contract positions – goods returned to D and C gets money back for example

Question 7

What are the bars to a potential remedy of rescission?

Answer 7

1) Affirmation – treating the contract as ongoing means you lose the right to rescind

2) Undue delay – don’t wait too long to rescind

• For innocent and negligent misrepresentations - Court looks at when misrepresentation should have been discovered, not when it actually was
• For fraudulent misrepresentation, time runs from when misrepresentation is actually discovered

3) A bona fide purchaser acts as a bar to rescission

• Car sold to innocent third party before C can rescind to get it back

4) Impossibility – if restoring parties to pre-contractual position is impossible, so is rescission

• Making significant alterations to something would make rescission impossible

Question 8

Are damages available as a remedy for misrepresentation?

Answer 8

1) Always available for fraudulent misrepresentation

• They are assessed on a tortious basis and can extend to consequential losses
• How much is the innocent party out of pocket?

2) S2(1) Misrepresentation Act

• Negligent damages are assessed in the same way as for fraudulent misrepresentation (on a tortious basis) and can extend to consequential losses
• No question of remoteness
• Reverses the burden of proof
• If innocent party can show misrepresentation which has caused loss, they will get damages, unless maker of statement can disprove negligence

3) No entitlement to damages for innocent misrepresentation

Question 9

Give a summary of misrepresentation

Answer 9

To be actionable:

• A false preliminary statement must either amount to a term of the contract and/or a misrepresentation

Main remedy is rescission for misrepresentation

Remedies for breach are quite different

• Termination is only available if contract is ongoing and only if there has been a breach of condition or very serious breach of an innominate term - Bar is affirmation
• Damages are always available for breach of contract; Loss must not be too remote and the measure is loss of bargain

Check which claim gives the client the better remedy and follow that route