Misrepresentation

Question 1

What is the definition of an actionable misrepresentation?

Answer 1

An unambiguous false statement of fact (or law) made to the claimant and which induces the claimant to enter into the contract with the statement maker.

Question 2

What is the effect of a misrepresentation upon the contract?

Answer 2

The contract is voidable, meaning the claimant must take further action to rescind the contract.

Question 3

We know a misrepresentation must be unambiguous. Which case tells us that the representor will not be liable where the representee has constructed an unreasonable meaning of the representation?

Answer 3

McInerney v Lloyd’s Bank Ltd

Question 4

A misrepresentation must be false. In which case does Rix J apply the test to see whether the statement was ‘substantially correct’ and enough to induce a reasonable person?

Answer 4

Avon Insurance plc v Swire Fraser Ltd

Question 5

What three things should we distinguish from statements of fact?

Answer 5

1. Opinions
2. Future intentions
3. Silence

Question 6

Which case confirms that a false statement of law can form part of the action for misrepresentation? What was the misrepresentation in this case?

Answer 6

Pankhania v Hackney LBC - the defendants had misrepresented the legal status of their tenant when they sold the car park to Pankhania.

Question 7

Give an authority for conduct forming the basis of a statement of fact.

Answer 7

Gordon v Selico
Spice Girls Ltd v Aprilia World Service BV
Horsfall v Thomas
Crystal Palace FC (2000) Ltd v Dowie

Question 8

Which case tells us that a statement of opinion may be raised to a statement of fact if the representor did not believe in what they were saying or no reasonable man, with the knowledge of the representator, could have believed?

Answer 8

Smith v Land and House Property Corporation

Question 9

In Esso v Marden, how did Esso defend against the accusation of negligent misrepresentation? Was the defence successful?

Answer 9

Esso had given Marden, a petrol station owner, an estimate as to how much petrol could be sold in his location. Their estimate was wrong and Marden lost money. Esso argued the estimate was an opinion. The court held the estimate to be a statement of fact owing to Esso’s expertise.

Question 10

Which case can we distinguish from Esso v Marden? Why?

Answer 10

Bisset v Wilkinson - in this case the vendor of a farm honestly held the belief that it could support 2,000 sheep AND the purchaser knew the vendor had never farmed sheep on the farm and was expressing an opinion.

Question 11

What does the case of Wales v Wadham confirm?

Answer 11

A statement of future intention is not a representation and there is no duty to disclose a change of intention

Question 12

What case may we distinguish from Wales v Wadham? Why?

Answer 12

In Edgington v Fitzmaurice a representation was made giving a future intention but the representor actually had another existing intention.

Question 13

What were the facts in Wales v Wadham?

Answer 13

Mrs. Wadham, previously married to Mr. Wales, had shown an intention not to remarry and had received a more generous divorce settlement as a consequence. Shortly before the conclusion of the settlement the defendant agreed to marry another man and didn’t convey her change in intention to the claimant.

Question 14

What were the facts in Edgington v Maurice?

Answer 14

A company issued a prospectus inviting the public to purchase debentures in the company, which were said would be used to expand the business, but the directors intended to pay off debts.

Question 15

What is the principle from Keates v The Earl of Cadogan

Answer 15

Silence is not a misrepresentation. There is no duty to disclose facts, which, if known, might affect the other party’s decision to enter the contract.

Question 16

What three exceptions are there to the general rule in Keates v Earl of Cadogan? Give an authority for each.

Answer 16

1. Half-truths (Dimmock v Hallett)
2. Continuing representations (With v O’Flanagan)
3. Contracts uberrimae fidei (Hood v West End Motor Car Packing Co)

Question 17

Give four types of contracts uberrimae fidei.

Answer 17

1. Insurance contracts
2. Sale of land
3. Family arrangements
4. Confidential relationships eg doctor-patient

Question 18

Which case shows that the misrepresentation has to be addressed to the claimant but may be made through a third party?

Answer 18

Commercial Banking Co of Sydney v RH Brown & Co

Question 19

Which case shows that the claimant only need prove that the misrepresentation was one factor that induced him to enter into the contract?

Answer 19

Edgington v Fitzmaurice

Question 20

Which case clarifies that the misrepresentation which induces the claimant to enter the contract should still be ‘real and substantial’?

Answer 20

JEB Fasteners v Mark Bloom

Question 21

When considering the issue of inducement what is the first question, known as the test for materiality, for the court? Which authority does this come from?

Answer 21

Did the statement relate to an issue that would have induced the reasonable man (per Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co Ltd)?

Question 22

What are the two possible outcomes of the test for materiality?

Answer 22

1. If the statement is found to be material then there is a presumption (rebuttable if D is able to prove C was not subjectively induced) that inducement is a matter of fact (Smith v Chadwick)
2. If the statement is not found to be material there is no presumption of fact and C must prove that he was subjectively induced (Museprime Properties Ltd v Adhill Properties Ltd)

Question 23

In what three situations would there be no inducement?

Answer 23

1. No statement was made to induce the party into a contract
2. The statement made had no affect on the other party’s decision
3. The statement made was known to not be true by the party agreeing to the contract

Question 24

Why was there no inducement in Horsfall v Thomas?

Answer 24

The claimant had not inspected the goods (a gun) he had bought. It did not matter that the defendant had concealed a defect because it had no material effect on the claimant’s purchase.

Question 25

How did the defendant avoid the inducement rule in Attwood v Small?

Answer 25

The defendant had made a misrepresentation about the value of a mine, but the claimant chose to rely on his own agent who produced a glowing report of the mine, which turned out to be a mistake.

Question 26

What principle can we take from the case of Redgrave v Hurt?

Answer 26

The representee is under no obligation to check the validity of a statement made by the representor.

Question 27

What does the case of Smith v Eric S. Bush say about checking statements made by representors?

Answer 27

The more commercial the representee, the more likely it will be considered reasonable to check the validity of statements made by the representor.

Question 28

What three types of misrepresentation are there?

Answer 28

1. Fraudulent
2. Negligent
3. Innocent

Question 29

From which case do we get the test for fraudulent misrepresentation?

Answer 29

Derry v Peek

Question 30

What is the test for fraudulent misrepresentation?

Answer 30

1. Proof of fraud
2. Fraud is shown when a false representation has been made a) knowingly, b) without belief in its truth, or c) recklessly without care for its truth
3. Motive is irrelevant

Question 31

How does the case of Thomas Witter Ltd v TBP Industries Ltd clarify the meaning of recklessness as regards fraudulent misrepresentation?

Answer 31

Reckless means ‘flagrant disregard for the truth’

Question 32

Where do we find the definition for negligent misrepresentation?

Answer 32

Section 2(1) Misrepresentation Act 1967

Question 33

When is their liability for negligent misrepresentation?

Answer 33

When the defendant cannot prove he had reasonable grounds for believing or in fact did believe in his representation(s) up until the point of contract.

Question 34

Who has the burden of proof in an action of negligent misrepresentation?

Answer 34

The defendant has to prove he has reasonable grounds to believe and does believe in the representations he has made (s2(1) MA 1967)

Question 35

Which case illustrates to be innocent of negligent misrepresentation the representor must have an objectively reasonable ground to believe in his representation?

Answer 35

Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd

Question 36

Where is innocent misrepresentation derived from?

Answer 36

Section 2(1) Misrepresentation Act 1967

Question 37

What three remedies are there for misrepresentation?

Answer 37

1. Rescission
2. Indemnity
3. Damages

Question 38

What must the representee do to rescind a contract?

Answer 38

Express the intention to rescind to the other party or obtain a court order.

Question 39

When is the court likely to grant an order to rescind?

Answer 39

Where the parties can be restored to their original position, returning property where relevant.

Question 40

In which two situations is communication to rescind not required?

Answer 40

1. Where the misrepresentor cannot be found

2. Where the representee seizes or otherwise repossesses goods out of the hands of the representor.

Question 41

Where it is impossible to locate the misrepresentor and communicate intention to rescind or bring a court action against them, what may be allowed to effect rescission? Give the authority.

Answer 41

If all possible steps are taken to regain the original position/ an overt act deemed reasonable in the circumstance (such as alerting the police in Car & Universal Finance Co v Caldwell)

Question 42

What dilemma were the court faced with in Car & Universal Finance Co v Caldwell?

Answer 42

Two innocent parties and a vanished rogue who had acted as the middleman to sell a car between the two parties. The question for the court was who owned the car? The court settled on Caldwell as the owner and rescinded the contract.

Question 43

What does s1 MA 1967 say about innocent misrepresentation and rescission?

Answer 43

A contract may still be rescinded where an innocent misrepresentation has become a term of the contract and the contract may still be rescinded where there has been full performance.

Question 44

What are the five bars to rescission? Give an authority for each.

Answer 44

1. Representee affirms (Long v Lloyd)
2. Lapse of time (Leaf v International Galleries)
3. Restitution impossible (Clarke v Dickson)
4. Third party rights accrue (Phillips v Brooks and s23 Sale of Goods Act 1979)
5. Court exercises discretion and awards damages in lieu (s2(2) MA 1976)

Question 45

How does the bar to rescission, lapse of time, differ for fraudulent and other types of misrepresentation?

Answer 45

For fraudulent misrepresentation time will run from when the fraud is discovered. For other types of misrepresentation the time will run from the date of the contract.

Question 46

When will restitution be impossible?

Answer 46

When the nature of the subject matter has changed or declined in value.

Question 47

Why was rescission declared impossible in the case of Clarke v Dickson?

Answer 47

The representee had been induced to take shares in a partnership which later converted into a limited liability company. The shares were wholly different in nature from those originally received.

Question 48

Which case illustrates that the courts may allow for minor changes in nature/value and order an account of profits to ensure rescission and ‘what is practically just’?

Answer 48

Erlanger v New Sombrero Phosphate Co

Question 49

The remedy of rescission is available for which types of misrepresentation?

Answer 49

All types

Question 50

What is the difference between damages and an indemnity?

Answer 50

Indemnity provides compensation for costs occurring as a result of obligations created by the contract. Damages is compensation for costs incurred for failings of the purpose of the contract.

Question 51

Which case gives us the following definition of an indemnity: compensation for expenditure occurring as a result of obligations which have been created by the contract?

Answer 51

Newbigging v Adam

Question 52

The case of Whittington v Seale-Hayne provides an illustration of where an indemnity is available but not damages. What costs were the claimant able to recover?

Answer 52

Rent, rates and renewing drains because these were obligations created by the lease. The claimant was not able to recover for expenses and losses from operating a poultry farm on the premises.

Question 53

For which type of misrepresentation is an indemnity likely to be awarded? Why?

Answer 53

Innocent misrepresentation because there is no general right to damages for an innocent misrepresentation.

Question 54

Damages are available for what types of misrepresentation?

Answer 54

Fraudulent and negligent. Damages in lieu of rescission are available for innocent.

Question 55

What is the aim of awarding damages for breach of contract?

Answer 55

To put the claimant in the position they would have been had the contract been properly performed.

Question 56

What was the measure for damages for a claim against fraudulent misrepresentation given in Doyle v Olby (Ironmongers) Ltd and confirmed in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd?

Answer 56

‘all the damage directly flowing from the … act … not rendered too remote by the plaintiff’s conduct, whether or not the defendant could have foreseen the loss’

Question 57

In the case of Smith New Court v Scrimgeour Vickers what two additional principles did Lord Browne-Wilkinson add to the measure for damages developed in Doyle v Olby?

Answer 57

1. The plaintiff should mitigate their loss as soon as fraud is discovered
2. The award in damages will be reduced by any benefit the claimants have acquired as a result of the contract.

Question 58

Which case establishes that loss of profits may be claimed for by a business under fraudulent misrepresentation?

Answer 58

East v Maurer

Question 59

To claim a loss of profits the misrepresentee must have lost in practice (Downs v Chappell). What does this mean?

Answer 59

If you make a profit there can be no claim for loss of profit. In Downs v Chappell the claimant made a small profit but not as large as expected.

Question 60

Can a claim be made if there has been no loss? Which case gives us the answer?

Answer 60

In Clef Aquitaine Sarl v Laporte Materials (Barrow) Ltd it was held where the claimant was able to prove that a more favourable transaction would have taken place but for the fraudulent misrepresentation, the claimant could recover loss of profits.

Question 61

Which case has recently applied Clef Aquitaine?

Answer 61

Parabola Investments Ltd v Browallia Cal Ltd

Question 62

Which case holds that contributory negligence is not available as a defence in fraudulent misrepresentation?

Answer 62

Standard Chartered Bank v Pakistan National Shipping Corporation

Question 63

Which case settled the debate on the measure of damages for negligent misrepresentation? What did it decide?

Answer 63

Damages for negligent misrepresentation should be based on the measure in fraudulent misrepresentation/tort of deceit (Royscot Trust v Rogerson)

Question 64

Is the defence of contributory negligence available against negligent misrepresentation?

Answer 64

It is unclear. On one hand Royscot Trust v Rogerson says negligent misrepresentation should be treated the same as fraudulent misrepresentation and therefore there is no defence. On the other hand, the defence is available for negligent misstatement (Gran Gelato Ltd v Richcliff (Group) Ltd).

Question 65

For which types of misrepresentation is damages in lieu of rescission available for?

Answer 65

All types

Question 66

In awarding damages in lieu of rescission what should the court take into account?

Answer 66

1. Nature and seriousness of the misrepresentation
2. The loss caused if the contract were upheld
3. The loss that rescission would cause to the other party (UCB Corporate Services v Thomason)

Question 67

According to the case of William Sindall plc v Cambridgeshire CC when will the court be unlikely to award damages in lieu of rescission?

Answer 67

When the misrepresentation is trivial and where rescission would itself have serious consequences for the representor.

Question 68

Which case tells us that the right to damages in lieu does not depend on an existing title to rescission but whether the claimant had the right to rescind at some previous stage? Which case then overruled and stated that damages in lieu are not available where the right to rescind was lost at the date of the hearing?

Answer 68

1. Thomas Witter v TBP Industries plc

2. Government of Zanzibar v British Aerospace (Lancaster House) Ltd

Question 69

What is the measure for damage for damages in lieu?

Answer 69

It is not known but inferred from s2(3) as less than that awarded in s2(1) MA 1967 claim ie all losses flowing from misrepresentation not too remote.

Question 70

Which statutory provision says that if there is an exemption clause removing liability for misrepresentation then the clause must meet the test of reasonableness as set out in s11(1) UCTA?

Answer 70

s3 MA 1976