Misrepresentation

Question 1

what is a misrep?

Answer 1

a false statement of fact induced in contract btw statement maker and person who statement was made

Question 2

what must we distinguish?

Answer 2

misrep & a term which turns out to be false because false term or broken promise will lie in breach of contract whereas if rep false = misrep remedies in law of misrep

Question 3

If a mere representation proves to be false then the contractual remedies are in the law of misrepresentation - ?

Answer 3

Rescission and/or damages for misrepresentation.

Question 4

whats the 1st thing u need to do?

Answer 4

show it is a misrep- remedies in misrep

Question 5

In order to give rise to remedies in the law of misrepresentation the representation must be ?

Answer 5

 ACTIONABLE MISREPRESENTATION

AN ACTIONABLE MISREPRESENTATION RENDERS THE CONTRACT VOIDABLE, i.e. valid until set aside

Question 6

what is an actionable misrep?

Answer 6

An actionable misrepresentation is
A FALSE STATEMENT OF FACT made by one party to the other which
INDUCES THE OTHER PARTY TO ENTER THE CONTRACT.

Question 7

what is a false statement of fact?

Answer 7

False Statement
here must be a statement or conduct (encouraging a false belief).
Gordon v Sellico - false to belief & relied
Horsfall v Thomas- didnt rely
Spice Girls Ltd v Aprilia World Services BV -
Crystal Palace Football Club (2000) Ltd v Dowie - misrep

Question 8

what does not amount to misrep?

Answer 8

Silence or non-disclosure does not amount to misrepresentation. In other words, there is no general duty in pre-contract negotiations to disclose material facts not known to the other party.
Keates v Cadogan

Question 9

what makes it misrep in exception of disclosure etc?

Answer 9

-Statement made is half truth and misleading – Dimmock v Hallett
Farms on the land - Tenants - but did not reveal that they had given notice to quit

-true when made but due to Change of circumstances renders statement false at time acted upon - With v O’Flanagan (failure correct poisiton has changed = misrep) therefore contract can be recinded/spice girls
.

Question 10

what are statements • Of Fact?

Answer 10

It must be a false statement of FACT and this must be distinguished from
o statements of belief or opinion; and
o statements as to future conduct or intention.
o statements of abstract law

Question 11

Why must the statement be one of fact?

Answer 11

any statement made fraudulently (defined later) is likely, as a general principle, to be treated as a statement of fact.

Question 12

what are statements of law?

Answer 12

not statements of fact- non actionable as opinion and intention - canneure v hackney london council- can have actionable as long as not abstract statement of law

Question 13

what is an abstract statement of law?

Answer 13

if we make a statement of the laws application toa particular set of facts= factual - but if we just make abstract law= not factual unles made by expert in a better position to state law- lawyer needs to be careful etc everyone else ok

Question 14

what are o Statements of belief or opinion?

Answer 14

are not statements of fact- Bisset v Wilkinson

Question 15

However of statement of belief?

Answer 15

- If the maker of the statement is in a stronger position to know the truth, then the statement, which appears to be an opinion, may be held to be an implied misrepresentation of fact (i.e. that the statement maker knows of facts justifying his opinion).
Smith v Land & House Property Corporation (1884) 28 ChD 7 [Poole, 602-603] – but compare Springwell Navigation Corporation v JP Morgan Chase

•  Similarly, if the maker of the statement possesses special knowledge or skill in relation to the subject matter his statements will be held to amount to an implied misrepresentation of fact.
• Esso Petroleum Co. Ltd v Mardon

Question 16

what is Statement of future conduct or intention

Answer 16

Statement of future conduct or intention is not a statement of fact and so not a misrep if turns out to be false. unless at time making he does not in fact have intention=lying
BC..
A present intention is a fact that can be falsely described.
Edgington v Fitmaurice:
Directors stated money raised was to be used to improve Co buildings and to expand business but knew from time of making this statement that they intended to use the money to pay off the Co’s debts. Held: fraudulent misrep of fact.

Question 17

what is  INDUCES THE OTHER PARTY TO ENTER THE CONTRACT?

Answer 17

The false statement must induce the contract, i.e. it must actually be relied upon.

• must influence reasonable man
  -must be addressed to party-Peek v Gurney hw if it can be shown that the maker of the statement knew or ought to have known that the statement would be passed on to the P, then the maker of the statement will be liable in misrepresentation (Pilmore v Hood
  -claimant must rely on misrep- attwood v small
  -hw if had opp to test accuracy of misrep , but does not take it, the misrepresentation will still be considered as an inducement.
  Redgrave v Hurd
  - The misrepresentation need not be the sole reason why the Claimant entered the contract; it merely has to be one of the reasons
  Edgington v Fitzmaurice

Question 18

types of misrep?

Answer 18

 Fraudulent Misrepresentation

• negligent misrep
• wholy innocent misrep

Question 19

fraudulent statement made if?

Answer 19

Derry v Peek-A false statement is fraudulent if it is made
• knowingly; or
• without belief in its truth; or
• recklessly, not caring whether it is true of false.
if person hoenstly beleives statement is true cannot be made fraud- means fraud hard to establish & b.o.p is on c
“recklessly, not caring whether it is true or false” and how can this be distinguished from a statement that is made negligently ?
*Thomas Witter Ltd v T.B.P. Industries Ltd

Question 20

what is negligent misrep?

Answer 20

a failure to take reasonable care to ensure that the representation is accurate.

Question 21

what are the 2 types of damages claims for negligent misrep?

Answer 21

(1) Negligent misstatement at common law

(2) Negligent misrepresentation under the Misrepresentation Act 1967, s.2(1)

Question 22

there 2 claimmmss?

Answer 22

1. -Negligent misstatement at common law
   - damages may be recoverable in tort for neg misstatement causing financial loss
   - C needs to establish the D’s negligence

Hedley Byrne v Heller: HB acted on advice given by Heller in buying advertising time for Easipower with another party so no contract between statement maker and person to whom statement was made. but was liability as held duty of care has arisen in tort. tort does not require contract- special relationship

hw can be used where is a contract- sm petroleum v hardon

2.Negligent misrep under Misrep Act 1967 - s.2(1):
Contractual relationship required: only applies where the representee has been induced to enter a contract with the representor as a result of the misrepresentation.

Fiction of fraud: Liability is said to exist where it would exist had the misrepresentation been fraudulent, despite the fact that it is clearly not fraudulent.

Burden of proof: puts the burden on the maker of the statement to disprove negligence - the D has to prove that he had reasonable grounds to believe and did believe up to the time that the contract was made that the facts represented were true.

Question 23

what is the 3rd type of misrep?

Answer 23

Wholly innocent
Honestly believes statement is true and reasonable grounds for that belief
Under s.2(1) the misrepresentor can succeed in disproving negligence (since he can prove that he did have reasonable grounds to believe, and did believe, that his statement was true)

Question 24

 REMEDIES FOR MISREPRESENTATION?

Answer 24

misrep renders contract voidable- set aside by misrepsentee- does this by excercsiing remedy of recission

Purpose is to restore parties to their original position – take backwards
 Rescission alone (setting aside the contract) may restore misrepresentee to original position. No damages.

Rescission and damages (Fraudulent or negligent)
If rescission alone does not achieve this, may, in addition, recover damages (wasted expenditure). - use if dont put party in original position only for fraud and neg misrep

Damages alone
Rescission not available (e.g. bar to rescission applies) then damages only.= original position

Question 25

what is recission?

Answer 25

meaning to intervene/set aside contract

Question 26

what is principle of recission?

Answer 26

avail for all types of misrep- if excercised it renders contract of no effect from veyr begigning and each party returns anything passed to other under contract- recision does not require any formalites simply inform other party setting aside contract for misrep or acting in way by making this clear e.g giving back goods- legal proceedings not necc for recission but may if other party refuses to return any under contract

Question 27

BARS TO RESCISSION

Answer 27

Affirmation (indicates intention to continue)

1.Misrepresentee with full knowledge of the misrepresentation: states that he intends to continue with the contract or does some act from which that intention can be implied.
Long v Lloyd: lorry with serious faults – affirmed misreps- no remedy at all by 2nd journey - recission barred e.g using goods continued after misrep

2.Lapse of time (leaves it too late)
Fraudulent misrep: time will run from the time when the fraud was, or with reasonable diligence could have been, discovered.
Non-fraudulent misrep: time will run from the date of the contract - Leaf v International Galleries: 5 years from date of contract before discovered the misrep- recission lost bc of lapse of time

Question 28

what is the other to bars of recission?

Answer 28

3.Restitution impossible
Parties cannot be restored to their original positions
E.g., rescission of a contract to purchase goods cannot be rescinded once the goods have been consumed
clarke v dickson - cant return shares

4.Third party rights – rescission is a personal remedy
Rescission is a personal right against the representor and the misrepresentee cannot claim the return of property so as to defeat rights acquired by the bona fide third party purchaser.
A obtains goods from B as result of misrep (A as misrepresentor). B can rescind against A but loses right to rescind once C purchases the goods from A

Question 29

what is the other bar to recission?

Answer 29

[S.2(2) Misrepresentation Act 1967
The court has a discretion to award damages instead of rescission for innocent or negligent misrepresentation.
If the court exercises this discretion, then the right to rescission is lost and damages are awarded instead.

Question 30

what is the other remedy?

Answer 30

damages 4 misrep- bearing in mind u can have no recission cause barred and damages would be only remedy - or cant do recission alone so need damages (additional claim)

Question 31

what is the aim of damages in general?

Answer 31

it is tortious- to put parties in position in had contract never been made- restoring status quo- damages based on amount out of pocket

Question 32

what are damages for fraud misrep ak.ka?

Answer 32

tort of deciet

Question 33

what is tort of deciet?

Answer 33

-fraud mis-Knowingly, without belief in its truth, recklessly - not caring if true or false (Derry v Peek)
Measure = Tortious need to know
Remoteness rule - all direct loss of fraud of misrep regardless of whether it was foreseeable. (Doyle v Olby, Smith New Court Securities)

• Can loss of profits be recovered?- usually expectation loss compensating for loss expected to make = quite strange as misrep would prevent from recovering- sits uneasily with any concept of tort which restores to original position based on wrongdoing that has occured. so if we accept that loss of profits can be recovered in tort of deciet (fraud misrep) look at
• How are such loss of profits calculated given general tortious concept(East v Maurer)

Question 34

case law for remoteness & loss of profits

Answer 34

Smith New Court Securities v Scrimgeour Vickers (HL)- deals with the basic measure of recovery of fraud and the way in which measure determined based on remoteness rule of allowing recovery of all direct loss

-fraud misrep had induced p’s to purchase large no of shares in company- but ps would have paid less - company v of fraud by 3rd party- if known at time shares would have been given- allowed recovery

HL held: although normal measure was difference between price paid and actual value at date of contract, since the misrep ‘locked’ Ps into the purchase, the fall in value to 44p was direct loss flowing from having entered into the transaction as a result of the misrep
Therefore 82.25 – 44p per share was recoverable.

Question 35

Measure for Fraudulent Misrep: Smith New Court?

Answer 35

Difference between purchase price and price recovered when eventually able to sell if locked into the transaction by the fraud. [Not limited to position at date of contract].
e.g direct loss

hw in downs v chappel- refusing a reasonable offer to purchase the business will break normal chain of causation- mitigation applies to fraud misrep.- need to look in exam q if refuse offer as mitigation principle wil operate in measure of loss & damages

Question 36

can loss of profits be recovered if fraud misrep induced purchase of a business?

Answer 36

said was possible to recover following fraud misrep- on basis that mis representtee recover all direct loss East v Maurer

Question 37

how will loss of profits be calculated?

Answer 37

loss of prof of fraud of misrep- calculated not on expectation loss basis but on tortious basis- profit might have been made had misrep not have been made and this contract not been induced in 1st place

Question 38

what happened in east v maurer?

Answer 38

Ps purchased one of D’s hair salons in Bournemouth for £20,000 as a result of D’s fraudulent misrep that D had no intention of working in his other salon nearby.
D continued to work in the other salon (and this was held to have been his intention all along). D’s actions had adverse effect on Ps’ business and it was eventually sold for £7,500.
CA held Ps could recover difference price paid and price on selling = £12,500
Ps also claimed damages for their loss of profits.
CA held could recover for this on tortious basis – i.e. profit they might have made had the rep not been made at all and had they purchased another hair salon for £20,000.
Calculated as £10,000 loss of profits.

Question 39

what are damages for negligence?

Answer 39

Damages for Negligent Misstatement - Hedley Byrne v Heller
Tortious damages
Claimant must prove that:
D was negligent [includes establishing special relationship/ assumption of responsibility]
Breach of duty of care
Loss resulting from that breach of duty that is not too remote (reasonable foreseability)
But - not necessary for there to be contract between statement maker and person to whom the statement was made.

Question 40

Damages for Negligent Misrepresentation - S.2(1) MA 1967?

Answer 40

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,-contractual link btw statement maker and statement made- s.2 has more advantageous then hedley if have sit

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, - relates to attiring liability to damages to the circumstances where liability would arise in claimant of fraud- if u could have recovered damages in fruad had this been fraud misrep u could recover damages if were fraud even though negligent- same measure of damges smith court and eat v maurer even though not fruad it is neg

unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true.- d b.o.p

Question 41

Damages for Negligent Misrepresentation - S.2(1) MA 1967? pt 2?

Answer 41

Contractual link required.
D is deemed negligent and must disprove it.
In addition, D must positively establish reasonable grounds for the belief. - caused problem for case law in

Howard Marine v Ogden & Sons, per Bridge LJ: hire or barges – misrep carrying capacity (relied on Lloyd’s register, but correct info was on file at owner’s head office)

Spice Girls v Aprilia: not able to demonstrate reasonable grounds for their representation by conduct that they were to remain as a group since they knew Geri was leaving

Question 42

s 2 1 part 3?

Answer 42

Damages = Tortious (put the claimant into the position he would have been in had the misrepresentation not been made)

Remoteness - all direct loss regardless of foreseeability (Royscot Trust v Rogerson and fiction of fraud).
Fiction of fraud - damages are assessed as if misrep = fraudulent (although it is not)
Cases on measure of damages for fraud should equally apply to s.2(1)
Smith New Court
East v Maurer (loss of profits)

Question 43

critique of royscot trust v rogerson & fiction of fraud?

Answer 43

CA has created an artificial distinction between damages for negligent misstatements in tort (Hedley Byrne v Heller) and damages under s.2(1) for negligent misrepresentation
Very literal statutory interpretation of the wording of s.2(1)
There is a failure to draw any distinction between fraud and negligence - one is dishonest and the other honest but careless
Courts not too willing to find there to be an actionable misrep due to the damages consequences (Avon Insurance plc v Swire Fraser Ltd)

Question 44

what does test of remoteness come out of? (causation as the test)

Answer 44

s.2 (1)- royscot- test for all directs is favourable to misrepresentee can in practice recover for any loss cause my misrep- so direct loss is really a causal link- issue will be 1 of causation. It is important therefore we look at what has caused the loss is it the misrep if it is misrep then loss is recoverable.

Question 45

(causation as the test) case Naughton v O’Callaghan

?

Answer 45

Ps purchased colt for 26,000 guineas. Pedigree wrongly described so that actual value was 23,500 guineas. Ps trained and raced the horse (did badly) and then discovered misrep as to pedigree. Value fell to £1,500.
Why formulate claim as misrep and not breach?
Judge awarded s.2(1) damages – and considered fall in value to £1500 was caused by the misrep rather then intervening actions of Ps.
Training and racing the horse was exactly the conduct to be expected having purchased a race horse
Ps recovered difference between purchase price and the value of the horse at date of judgment.

Question 46

where can u also see a causation test?

Answer 46

Butler-Creagh v Hersham: deceit claim - purchase of a property as a result of a fraudulent misrepresentation concerning its value, the cost of development and need for urgency in completing. So in the context of fraudulent misreps (re purchase of property), the stamp duty and the borrowing costs flowed directly from the decision to purchase, as did reasonable maintenance costs to ensure that the property did not deteriorate before it could be sold.

Question 47

what s2 (2)?

Answer 47

S.2(2) Where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently - negligent & wholly innocent misrep, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages instead

more likely to apply to wholly innocnet

Question 48

when will court excercise and replace remedy of recision with damages?

Answer 48

if of opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld,
as well as to the loss that rescission would cause to the other party.

Question 49

so what are the componenets of s2 2 overall?

Answer 49

Discretion to award damages instead of rescission
If court considers “just & equitable to do so”, having regard to
the importance of the representation in relation to the contract as a whole
The loss that would be caused to the misrepresentee if contract is upheld.
This will be the loss needing to be compensated in damages [Measure of Damages]
The loss that would be caused to the misrepresentor by rescission.
Likely to apply to innocent misreps.

Question 50

what is an important case for s2(2) in way which we apply discretion etc?

Answer 50

William Sindall v Cambridgeshire

Contract to purchase land on which the purchaser intended to build houses.
Delays in obtaining planning permission and, in the meantime, the market value of the land fell dramatically.
Purchaser then discovered a sewer running across the land which required a six-foot maintenance strip.
P therefore sought to rescind on the basis of misrepresentation and mistake.

On the facts there was no misrepresentation by the D. Therefore, the contract could not be rescinded for misrepresentation.
OBITER the CA considered that even if there had been an actionable misrepresentation, it would have exercised its discretion under s.2(2) M.A. and awarded damages in lieu of rescission. Why?
The importance of the representation in relation to the contract as a whole
£5m sale of land but the ‘misrep’ would have related to matter costing only £18,000 to remedy by diverting the sewer, and which was unlikely to have interfered with development or resale (i.e. trivial misrepresentation so rescission too drastic on the facts).
The loss that would be caused to the misrepresentee if contract is upheld.
This would not be, as argued by the purchasers, the fall in market value of the land as a loss flowing from having made the contract. S.2(2) damages compensated instead on the basis of loss caused by the misrepresentation if the contract is upheld, i.e. the £18,000 to divert the sewer.
The loss that would be caused to the misrepresentor by rescission.
The return of the purchase price plus interest in exchange for land now worth much less. Rescission would place the loss due to decline in market value of the land on the misrepresentor and this was too drastic.

Question 51

what is the avail of s2 2?

Answer 51

no s 22 discretion to award damages instead of recision if no recission avail on facts cause it had already be lost affirmation or lapse of time- outcome would be no remedy at all bc recission not avail and assuming innocent misrep= cant under s1

It appears that there is no discretion to award damages in lieu of rescission where rescission has been lost (barred).
Result may be no remedy at all.
Government of Zanzibar v British Aerospace
Pankhania v Hackney LBC
Salt v Stratstone (CA)
Compare Witter v TBP Industries: s.2(2) does not depend upon an extant right to rescission (i.e. existing at time when court exercises its s.2(2) discretion) – only that the right to rescind had existed at some time in the past.

Question 52

what is the measure of damages under s 2 2

Answer 52

Loss caused by the misrep if the contract is upheld- remains in place

This may be the loss in the value of the property purchased under the contract (i.e. difference in value)
Not the same as s.2(1) - damages flowing from having entered the contract.
There is no consequential loss recovery under s.2(2).

Question 53

contrib neg?

Answer 53

Can claimant’s contributory negligence reduce their damages award for misrepresentation?
Fraudulent misrep: NO (Standard Chartered Bank)
Hedley Byrne v Heller (HB v H): YES
Claim based on both HB v H and s.2(1) damages: YES (Gran Gelato)
S.2(1) only – YES (Taberna Europe v Selskabet)
But what about the fiction of fraud?
no decision that fiction of fraud should apply in those cirumstances

Question 54

overall remedies for misrep recission?

Answer 54

RESCISSION
Available if 
•	Fraudulent
•	Negligent
•	Innocent 

UNLESS the right has 
been lost (bars to rescission)
	affirmation
	lapse of time
	restitution impossible
	third party rights
	damages are awarded instead of rescission under s.2(2) for negligent or innocent misrepresentation. 
     Sindall v Cambs. C.C.

recission mainly used in misrep remedy

Question 55

overall remedies for misrep damages?

Answer 55

DAMAGES

Fraudulent - tort of deceit.
Remoteness = all direct loss (regardless of foreseeability)

Negligent - either
 HB v H (Claimant must prove D negligent and special relationship) - reasonable foreseeability.
OR
 s.2(1)- D must establish he is not negligent and remoteness rule is all direct loss regardless of foreseeability.

Innocent - Only if damages awarded instead of rescission at the discretion of the court (s.2(2)).

Damages are tortious in misrepresentation and contractual in breach of contract.
Remoteness rules for misrepresentation and breach of contract are different.

Question 56

difference btw misrep and breach?-misrep

Answer 56

MISREPRESENTATION
 Remedy of rescission (set aside the contract so that it is treated as void - of no effect from the very beginning)

 Damages may also be available if there is any additional loss - but have to prove fault i.e. fraudulent or negligent misrepresentation. Note under s.2(1) - it is a defence to show that the statement was based on reasonable grounds.
Damages in lieu of rescission under
s.2(2) are at the court’s discretion.

 The measure of damages is tortious and the remoteness rule is wider than in contract.

Question 57

difference btw misrep and breach?- breach

Answer 57

BREACH OF CONTRACT
 Right to terminate for breach if the breach is repudiatory (and this means terminate future obligations of the parties only)

 Automatic right to damages on proof of breach (no fault issue)

 The measure of damages is contractual and remoteness test is strict - i.e. within both parties’ reasonable contemplations as the probable result of the breach.

Question 58

what cant an innocent party do?

Answer 58

An innocent party CANNOT BOTH rescind for misrepresentation and claim damages for breach because of the effect of rescission. i.e. it renders the contract of no effect from the very beginning and therefore you cannot have damages for breach of a contract that is treated as if it never existed. If, on the other hand, the innocent party is able to terminate for repudiatory breach of contract, the contract itself remains in force.