Misrepresentation

Question 1

Give 4 vitiating factors

Answer 1

Misrepresentation
Duress
Undue influence
Mistake

Question 2

Why does the law of contract intervene when the consent of a contracting party is vitiated? (Spoiled, made defective)

Answer 2

Because contract law at a fundamental level is about freedom of contract, and freedom to contract.

Question 3

The vitiating factor of misrepresentation is a question of what?

Answer 3

Of responsibility during the pre-contractual stage.

Question 4

What does English contract law say about responsibility during the pre-contractual stage?

Answer 4

• English contract law does not recognise a positive obligation to negotiate in good faith.
• Instead imposes a negative obligation: to resist from lying, misleading, pressuring or threatening another party
• A negotiating party is allowed to waste another party’s time and money
• And the law will only intervene if a contract is made between parties.

Question 5

How does English contract law’s stance on pre-contractual responsibility differ to that of European contract law?

Answer 5

European contract law imposes a POSITIVE obligation of good faith. If a party breaches the duty, they’ll be held liable for any loss caused as a result.

Question 6

What is the general explanation behind a lack of positive obligation in English contract law?

• Why might this explanation be flawed?

Answer 6

It is generally considered that it is a party’s fault and no one should be responsible if they don’t request information

• In reality our lives are different and often there is inequality in bargaining power, which is why vitiating factors are acted upon.

Question 7

What does the law of misrepresentation seek to do?

Answer 7

Police procedural fairness of a contract, and deal with pre-contractual unfairness.

Question 8

What is Misrepresentation?

Answer 8

1. A statement of MATERIAL FACT that is made
2. In WRITING, ORALLY, or by CONDUCT
3. PRIOR TO THE CONTRACT by one party to another which is
4. FALSE OR MISLEADING and which
5. INDUCED the innocent party to enter the contract.

Question 9

What constitutes “a statement of material fact”? (the first requirement of misrepresentation).

Answer 9

A statement based on facts, Which must not be confused with: Opinions, Statements of Law, Statements of future intention/conduct, or Contractual Terms.

Question 10

What constitutes an ‘opinion’? What case law supports this, and what case law created an exception?

Answer 10

Statements made that are not based on facts.
Bissett v Wilkinson [1927] - No remedy for false opinion. (2000 sheep, NZ)
Exception: Esso Petroleum v Mardon [1976] - Expert opinion

Question 11

What are statements of future intention or conduct?

Answer 11

Not facts, but speculations & predictions. BUT, in Edgington v Fitzmaurice [1885] - an untrue statement about future intention WAS a misrepresentation of fact

Question 12

What is a statement of law? Defined by what case law?

Answer 12

Pankhania v London Borough of Hackney [2002] - there was liability for a misrep of law where the agents of a seller of land incorrectly represented to purchaser that people running a car park on part of the property were mere contractual licensees, whereas they were actually protected business tenants.

Question 13

Why is the distinction between a statement of material fact and a contractual term an important one?

Answer 13

Responsibility for breach of contractual term is contractual unlike misrepresentation, for which it is tortious.

Question 14

What case law is most important when considering the second requirement for something to be a misrepresentation - “must be made in writing, orally, or by conduct”

Answer 14

Spice Girls Ltd v Aprilia World Services BV [2000]

Question 15

What is the general rule regarding silences and non disclosures, (for 2nd requirement to be a misrepresentation)? Give case law to support this rule.

What exceptions to this rule exist?

Answer 15

General rule: A party has no obligation to disclose facts that might affect another party’s decision to contract or not - Keates v Cadogan [1851]

1. Half truths - Dimmock v Hallett [1866], & Notts patent brick Co v Butler [1866]
2. Changes in circumstances: With v O’Flanagan [1936]
3. Fiduciary/confidential relationships
4. Contracts uberrimae fidei

Question 16

For the 3rd req to be a misrepresentation, why must the statement be made before or at the time of the contract?

What case law supports this answer?

Answer 16

If statement is made after contract is formed, that statement cannot be said to have influenced the decision of a party to contract with another.

Roscorla v Thomas [1842] - Seller told buyer horse was “sound and free of vice”. It was neither. Court held there was no case, as statement was made after formation of contract.

Question 17

What types of misrepresentations are damages available for?

Answer 17

Fraudulent AND Negligent,

but NOT innocent.

Question 18

What is the only remedy available for innocent misrepresentations?

Answer 18

Rescission as an equitable remedy.

Question 19

What conditions apply to the 5th requirement for misrepresentation? (That the statement must induce the innocent party to enter the contract)

Answer 19

1. Statement must have been MATERIAL to the decision of the innocent party.
2. Statement must for some PART of the reason why they entered. (JEB Fasteners Ltd [1983] ).
3. Not necessary for a false/misleading statement to be the ONLY reason why they enter. (Edgington v Fitzmaurice [1885], “as long as statement actively present to his mind”

Question 20

What exceptions exist concerning the ‘statement must induce party to enter’ requirement for misrepresentation. (5th req).

Answer 20

1. A statement can still amount to a misrepresentation even if an innocent party was GIVEN A CHANCE TO DISCOVER TRUTH. (Redgrave v Hurd [1881]).
2. Redgrave rule won’t be applied to cases where false/misleading statement is put in a contract and signed by the parties. (Peekay v Aus&NZ Banking Group [2006]).
3. If an innocent party doesn’t rely on a statement, no misrepresentation will be found.
4. If party was unaware of a statement that was misrepped to them, they can’t claim they relied on it
5. If party is aware that statement is misleading or false, then the party can’t rely on misrepresentation to vitiate a contract.

Question 21

What is the ‘Redgrave’ rule?

Answer 21

A statement can still amount to a misrepresentation even if an innocent party was GIVEN A CHANCE TO DISCOVER TRUTH.

Question 22

Misrepresentations can be split into what two classifications?

Answer 22

Innocent, and Fault-related.

Question 23

What is an innocent misrepresentation?

Answer 23

• False statements made without dishonesty, deceit, or a reckless disregard as to their validity.
• It’s made with reasonable grounds to believe they are true

Question 24

Fault-related misrepresentations are subdivided into what two groups?

Answer 24

Fraud-related misrepresentations, & Negligent misstatements

Question 25

Fraud-related misstatements are further divided into what two groups?

Answer 25

Actual fraud & “Fiction of fraud”

Question 26

What are fault related misrepresentations? What can innocent parties do when these types of misrepresentations have been made?

Answer 26

Misreps that are the result of fraud, dishonesty, deceit, negligence/or careless regard for the truth

• Innocent parties can walk away from the contract and ask for compensation

Question 27

What are Fraudulent Misrepresentations?

Answer 27

• Common law based misrepresentations

- Based on a tort of deceit: Derry v Peek [1889]

Question 28

What are “Fiction of Fraud” misrepresentations?

Answer 28

• Statutory law-based misrepresentations

- Based on Section 2(1) of the Misrepresentation Act 1967

Question 29

What case law established Fraudulent Misrepresentation?

How is FM established?

Answer 29

Derry v Peek [1889]
FM was established where:
1. There was proof of fraud
2. A false statement was made : - Knowingly - Without belief in its truth OR - Recklessly/carelessly as to whether it’s true/false

Question 30

What two conditions apply to the establishing of Fraudulent Misrepresentation?

Answer 30

• The reason behind why you lied does not matter (Akerhielm v De Mare [1959])
• Contracts based on fraud can be RESCINDED and an innocent party CAN CLAIM DAMAGES.

Question 31

What kind of loss can damages cover when a successful claim is made for Fraudulent Misrepresentation?

Answer 31

DIRECT losses, and importantly, INDIRECT loss.

Question 32

What piece of legislation establishes “Fiction of Fraud” misrepresentation?

Answer 32

Section 2(1 ) of the Misrepresentations Act

Question 33

What must an innocent party prove in order to claim “Fiction of Fraud”?

These requirements were established by what case law?

Answer 33

1. They entered into contract with defendant
2. They did so in reliance and after a representation of fact had been made by defendent
3. the representation was false
4. As a result of entering contract with defendant, they suffered a loss

Established in Yam Seng Pte [2013]

Question 34

If “Fiction of Fraud” is established, it allows innocent parties to what?

What case law established this?

How does this differ from Fraudulent Misrepresentation?

Answer 34

Allows them to (1) walk away from contracts and sue for (2) damages AS IF (3) ACTUAL FRAUD HAD BEEN COMMITTED (Royscot v Rogerson [1997]).

Section 2(1) does not require to prove Fraud like in Derry v Peek

Question 35

Negligent Misrepresentation is based on what?

It was established by what case law?

Answer 35

Based on proving negligence, not fraud (and based on the tort of negligence)

Established in Hedley Byrne v Heller [1964]

Question 36

What must a claimant prove to successfully claim for Negligent Misrepresentation/Misstatement?

Answer 36

Claimant must establish that:

1. Defendant owed them a duty of care
2. There was sufficient PROXIMITY between them and defendant (i.e. there was a ‘special relationship’ between them)
3. Defendant breached their DoC and didn’t exercise reasonable care and skill

Question 37

REMEDIES - What remedies are available for innocent misrepresentations?

Answer 37

• No common law remedies

- Rescission as an equitable remedy is available

Question 38

A claim for rescission is successful if:

Answer 38

1. An actionable misrepresentation is established

AND

2. An innocent party gives notice to another party about the intention to rescind the contract

Question 39

A claim for rescission is successful if:

Answer 39

1. An actionable misrepresentation is established

AND

2. An innocent party gives notice to another party about the intention to rescind the contract

Question 40

What are the limits to Rescission for innocent misrepresentations?

But what CAN be done instead?

Answer 40

A) Affirmation: Long v Lloyd [1958]
B) Lapse of Time: Leaf v International Galleries [1950]
C) Third party rights: Crystal Palace v Dowie [2007]
D) Restitutio in Integrum: Clarke v Dickson [1858]
- There’s no statutory remedies for innocent misrepresentations.

BUT Section 2(2) of MA gives court a discretion to award damages instead of rescission.

Question 41

Section 2(2) of MA gives the court a discretion to award damages instead of Rescission for cases of Innocent Misrepresentation.

What are the downsides, and what things will be considered when using this power?

Answer 41

• Courts don’t use this discretion lightly
• Can only be used if a party has a right to rescind the contract
• Unlikely that the award for compensation will be big
• In exercising this, court will consider the seriousness of the misrepresentation
• Court will consider the effects of exercising this, on the representee and the representor

Question 42

What is the nature of damages for an Actual Fraudulent Misrepresentation?

What tortious measure of damages is used by courts?

Answer 42

• It is a tortious claim for deceit

- Out-of-pocket loss

Question 43

What must Damages for an actual fraudulent misrepresentation achieve?

Answer 43

An innocent party must be put in a position in which the party would have been had the misrepresentation not been made: Derry v Peek (1889)

Question 44

1. What loss can be recovered in damages in a case of actual fraudulent misrepresentation?
2. How is this loss calculated?
3. What duty applies for damages?

Answer 44

1. ALL LOSS INCURRED as a result of the transaction can be recovered regardless of foreseeability: Doyle v Olby Ironmongers (1969)
2. Loss assessed at the date of the transaction: Smith v Scrimgeour (1997)
3. A duty to mitigate loss (In actual & FoF)

Question 45

1. What is the nature of the damages given for “fiction of fraud” under section 2(1)?
2. How does the measure of damages compare to that under a tort of deceit?
3. What is the basic measure of damages under Section 2 (1)?
   - What case established it?
   - What case recently reaffirmed it?

Answer 45

1. Its is a statutory right to damages
2. They are the same
3. The basic measure is tortious,
   - (Royscot [1991])
   - Yam Seng Pte [2013]

Question 46

1. What’s the nature of the damages available for Negligent Misstatement? Established why was case law?
2. Damages in tort for negligent misstatement are only if what?
3. What must the claimant prove for damages for negligent misstatement?

Answer 46

1. Damages are Tortious; Hedley Byrne [1964]
2. Only if they are REASONABLY FORESEEABLE
3. Must prove a duty of care between the statement maker and the representee

Question 47

Why do we need the offence of Negligent Misstatement?

Answer 47

• The Misrepresentation Act 1969 only applies when parties are in a CONTRACTUAL RELATIONSHIP
• Negligent misstatement (+ fraudulent misrepresentation in common law) is relevant when the Representor is a third party (i.e. not in a contractual relationship)