Misrepresentation

Question 1

I - Requirements of Misrepresentation

For rescission:

Answer 1

• An unambiguous false statement of existing fact
• Made to C
• Which induces C to enter the contract

Question 2

I - Requirements of Misrepresentation

For damages, the same as rescission, plus:

Answer 2

• Requisite state of mind (not an honest misrepresentation on reasonable grounds)

Question 3

I - Requirements of Misrepresentation
A – Representation and Terms
1/ Remedial significance of the distinction

Answer 3

• If it is a term that is breached, the innocent party can claim damages aimed at putting him in the position if contract had been performed or specific performance or termination if breach is sufficiently serious.
• If it is an actionable representation then the innocent party can rescind and/or claim damages aimed at putting him in the position if not contracted.
  Sometimes C can show that it is both a misrepresentation and a term (s1(a) Misrepresentation Act) so can rely on either set of remedies – C may prefer misrepresentation if:
• C cannot meet the threshold for termination (serious breach) but can for rescission (any misrepresentation)
• C made a bad bargain so would prefer for damages to “go backwards”, though s2(2) allows the courts to deny rescission for equitable considerations

Question 4

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ a/ Based on the intention of the parties as objectively manifested by their words and conduct

Answer 4

Authorities: Heilbut, Oscar Chess.

But usually the parties son’t intend anything… so…

Question 5

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ b/ The more important the statement to the representee, the more likely it is a term.

Answer 5

In Bannerman v White the statement that goods didn’t have sulphur made after the buyer said that he wouldn’t even bother asking for the price if it did have sulpher was a term.

Question 6

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ c/ More likely a term if D has special knowledge or skill in the subject matter, or in a better position to ascertain the accuracy

Answer 6

• Dick Bentley v Harold Smith [1965] 1 WLR 623
• Facts: a car dealer made a false statement to a private buyer about the mileage of the car. It was a term because the dealer was “in a position to know, or at least find out the history of the car”, and thus stated a fact that should be within his own knowledge.
• Oscar Chess v Williams [1957] 1 WLR 370
• Facts: a private seller misstated the model of a car he was selling to a car dealer, relying on the car’s log book which had been altered by the previous owner. Held that it was a representation not a term because the car dealer was in at least as good a position to discover the car’s true age as the private seller.

Question 7

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ d/ Unlikely to be a term if the maker requests C to verify

Answer 7

In Ecay v Godfrey no term because the seller stated that the boat was sound but said the buyer should have it surveyed anyway.

Question 8

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ e/ Unlikely to be a term if the maker merely passes on false information initiated by another

Answer 8

Lord Denning (Routledge v McKay) – if a chain of sellers each sells the same car and passes on misstatements based on a log book altered by the first seller, each subsequent seller is only an innocent passer-on and so it would not be a term.

Question 9

I - Requirements of Misrepresentation
A – Representation and Terms
2/ Criteria for the distinction

ϖ f/ Parole evidence rule (if there is a document, then it is presumed to contain the complete terms)

Answer 9

Heilbut Symons v Buckleton [1913] AC 30
- A document is presumed to contain the complete terms and everything not contained therein is a representation.
However, courts may find a statement outside the document to be a collateral term or collateral contract.

Question 10

I - Requirements of Misrepresentation
B – The actionable statement
1/ Statements of fact or law

To be actionable, it has to be an unambiguous, false statement of existing fact or law, which may be:

Answer 10

• Express statement of fact and law
• Statements of intention/opinion/puffs are not prima facie included, but courts can find they contain implied statements of fact
• Silence may be actionable if there is a duty to disclose

Question 11

I - Requirements of Misrepresentation
B – The actionable statement
1/ Statements of fact or law

Statements can be by words or conduct:

Answer 11

• Walters v Morgan:
  o Simple reticence is not actionable but
  o A nod or a wink, or shake of the head, or smile intended to induce the other party to believe the existence of a non-existing fact is actionable

Question 12

I - Requirements of Misrepresentation
B – The actionable statement
2/ Statements of intention

Answer 12

Statements of intention are actionable if:

• They are terms
• They are dishonest (because statements of intention always have an implied statement of fact, the fact being that the statement reflects the maker’s state of mind. If honest, no misrepresentation because D is allowed to change his mind, but if dishonest, then there is a misstatement of fact):

Question 13

I - Requirements of Misrepresentation
B – The actionable statement
2/ Statements of intention

Edgington v Fitzmaurice (1885) 29 Ch D 459

Answer 13

• Facts: a company director issued a prospectus inviting subscriptions, which said that it was raising oney to develop the business though in fact the money was used to repay existing company debts.
• Held (Denman J): liable for deceit because “the state of a man’s mind is as much a fact as the state of his digestion”. Misrepresentation as to the state of a man’s mind is a misstatement of fact.

Question 14

I - Requirements of Misrepresentation
B – The actionable statement
3/ Statements of opinion

Answer 14

Not actionable per se but actionable if:

• They are a contractual term (if D has superior knowledge and experience, then it might be a contractual term to the effect that care and skill had been exercised in giving the opinion), but breach of such a term confers no remedial advantage above misrepresentation (in that damages are to compensate C for lack of skill and care in making the statement)
• Dishonest (misstatement of fact regarding the state of D’s opinion)
• Lack of reasonable ground (if the representor is in a better position to know the truth, the court may imply a statement of the fact that the representor has reasonable ground for their opinion), but only if D has superior knowledge:

Question 15

I - Requirements of Misrepresentation
B – The actionable statement

Bisset v Wilkinson [1927] AC 177

Answer 15

• Facts: the vendor of a farm told the prospective buyer that he thought the land could carry 2000 sheep. Both parties knew the land was untried as a sheep farm, so were in the same position to form an opinion.
• Held: the vendor’s statement was an honest opinion that did not imply that he knew facts justifying it.

Question 16

I - Requirements of Misrepresentation
B – The actionable statement

4/ Mere puffs

Answer 16

Are neither terms nor representations because it would be unreasonable to rely on them. However:

• The closer they are to statements of opinion, the more likely to be an implied statement of fact
• Context or specificity of the statement may make it a term (ex. Carlill)

Question 17

I - Requirements of Misrepresentation
B – The actionable statement

5/ Silence

Answer 17

Non-actionable because no general duty to disclose, so only actionable when there is a positive representation (Banque Keyser v Skandia), but English law protects Cs by:

ϖ a/ Extending the catchment of actionable misrepresentation

ϖ b/ Exceptions based on special relationships imposing a duty to disclose

ϖ c/ Indirect techniques for giving relief

Question 18

I - Requirements of Misrepresentation
B – The actionable statement

5/ Silence

ϖ a/ Extending the catchment of actionable misrepresentation

Courts can imply other statements from what D says:

(1) ??

Authority

and what 2 problems are there?

Answer 18

1) A statement of fact is deemed to be continuing so that a change of circumstnaces prior to conclusion of contract can convert a true statement into an actionable misrepresentation unless the representor corrects it:

With v O’Flanagan [1936] Ch 575

• Facts: the vendor correctly represented the value of goods at the start of negotiations, but the goods became almost worthless by the time the sale was concluded five months later because of the vendor’s ill health. The sale was rescinded for misrepresentation.
  Problem #1 = whether D must know of the change in circusmstances:
• Romer LJ suggests that D must know
• Lord Wright MR doesn’t specifically require knowledge (which would make sense because even non-fraudulent misrepresentations are usually actionable, and to require knowledge is to require fraud)
• Clauson J agreed with both…
  Problem #2 = whether the rule applies to statements of intention:
• Trail v Baring says yes but Wales v Wadham says no.
• Arguable that statements of intention only imply a statement of present intention, but on the other hand these statements frequently induce reliance…

Question 19

I - Requirements of Misrepresentation
B – The actionable statement

5/ Silence

ϖ a/ Extending the catchment of actionable misrepresentation

Courts can imply other statements from what D says:

(2) ??

Answer 19

If D says something that is literally true but omits important qualifications (tells a half truth, paints a misleading picture…)

Thus Regulation 5 (2013 Regs) makes it an offence for a business party to give misleading information about the subject matter of the contract.

Question 20

I - Requirements of Misrepresentation
B – The actionable statement

5/ Silence

ϖ b/ Exceptions based on special relationships imposing a duty to disclose

Answer 20

1º Contracts of utmost good faith (where the material facts lie within the exclusive knowledge of one party and failure to dislose makes the contract voidable)
2º Fiduciary relationships (there is a duty to disclose but the content of the duty and remedies for breach will vary based on the relationship)

Question 21

I - Requirements of Misrepresentation
B – The actionable statement

5/ Silence

ϖ c/ Indirect techniques for giving relief

Answer 21

1º Knowledge of C’s mistake as to term voidness
2º Unconscionable bargain where D exploited C’s disability to extract a grossly unfair exchange set aside
3º Incorporation of onerous or unusual terms requiring reasonable notice otherwise unenforceable
4º Tortious duty of care to disclose in special relationships tort liability
5º Implied terms make C’s expectations contractually enforceable if D doesn’t disclose deviations (rather than directly making A

Question 22

I - Requirements of Misrepresentation

C – Made to the claimant

Answer 22

The misrepresentation must have been made to C directly or through a third party with the intention that it be passed on to C (Smith v Bush) – otherwise, it is regarded as “spent”. This protects D where there is a chain of contracts where D’s misrepresentation is passed down the line.

Question 23

I - Requirements of Misrepresentation
D – Inducement

No bar if -

Answer 23

C must prove that the misrepresentation induced (caused C to enter into) the contract; it need only be one of the reasons (≠sole or predominant reason) (Edgington v Fitzmaurice).

Thus it is normally no bar

• If C would have entered into the contract anyway without the misrepresentation or had other reasons for doing so.
• If C could have, but did not, verify the accuracy of the representation:

Question 24

I - Requirements of Misrepresentation
D – Inducement

*Redgrave v Hurd (1881) 20 Ch D 1

Answer 24

• Facts: prospective buyer queried the seller’s statement about the turnover of the practice for sale, but declined an invitation to examine further documents.
• Held: the seller should not blame the buyer for trusting him – the representation, once made, relieves the party from investigation. The mere fact that he does not avail himself of the opportunity to test the accuracy of the misrepresentation will not ordinarily allow the other party to succeed.

Question 25

I - Requirements of Misrepresentation
D – Inducement

exception to rule that there is normally no bar

Answer 25

• If it would be reasonable for C to take the opportunity, then C’s claim in negligent (and a fortiori innocent) misrepresentation will fail (Smith v Bush)
• Damages may be reduced for contributory negligence

Question 26

I - Requirements of Misrepresentation
D – Inducement

D will not have induced C if:

Answer 26

• C was unaware of it
• C regards it as unimportant
• C is unaffected by it because he relied on other information
• C knew it was untrue, although:

Question 27

I - Requirements of Misrepresentation
D – Inducement

*Hayward v Zurich Insurance [2016] UKSC 48 esp. at [18] - [19], [58] - [72]

Answer 27

• Facts: C (insurance company) entered into a settlement agreement with D (employee injured at work) to pay D a certain amount in full and final settlement of debt, because C suspected though could not prove that D had wildly exaggerated the extent of his injury. Later, C obtained proof that D recovered a year earlier than he claimed, so sought an order setting aside the settlement agreement for misrepresentation based on deceit.
• Held (Trial judge and CoA): trial judge found for the insurers, but CoA reversed the decision because, though D misrepresented the extent of his injuries, C had not relied on the misrepresentation when entering into the agreement.
• Held (UKSC):
  o Although the claimant’s state of mind might be relevant to the issue of inducement, it was not necessary for the claimant to prove that he had believed the misrepresentation to be true, and his reasonable belief as to whether the misrepresentation was true was not a necessary ingredient of the test of whether inducement had been proved;
  o Since a representee might settle a claim on the basis that he thought that the judge would believe the misrepresentation, the fact that the insurers had not wholly believed the defendant did not preclude them from having been induced to reach the settlement by the defendant’s misrepresentations;
  o It was sufficient for the defrauded representee to establish that the fact of the misrepresentation had been a material cause of his entering intothe settlement;
  o Accordingly, since the questions whether the insurers had in fact been induced by the misrepresentation to enter into the settlement agreement and whether doing so had caused them loss were questions of fact which the judge had been entitled to decide in the insurers’ favour, his order would be restored.

Question 28

I - Requirements of Misrepresentation

E – Materiality

Answer 28

If fraudulent misrepresentation or D knew or ought to know that the statement will influence C, then immateriality will not defeat claim.
Otherwise, there is disagreement whether:
- Materiality merely is evidence of inducement or
- It is a separate requirement

Question 29

I - Requirements of Misrepresentation

F – Consumers

Answer 29

*Consumer Rights Act 2015 ss 11 & 12 (goods contracts); s.50 (services contracts) referring to the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013 (SI 2013/3134) (on which see esp. regs 5, 9, 10 and 13; Scheds 1 and 2).

Question 30

I - Requirements of Misrepresentation

II – Remedies for misrepresentation

Answer 30

• Rescission = every misrepresentation (innocent/negligent/fraudulent), subject to bars
• Damages = C succeeds (s2(1)) unless D shows that he acted honestly and had reasonable grounds to believe in the accuracy of the statement.

Question 31

I - Requirements of Misrepresentation
II – Remedies for misrepresentation

Which remedies can C claim?

Answer 31

C can claim any combination of remedies though cannot go forwards and backwards at the same time – C can either:
- Go backwards and claim:
o Restitution +
o Indemnity +
o Reliance (excluding devaluation of the property), aggravated and exemplatry damages (indeed s2(3) allows claims under both s2(1) and 2(2) though in calculating the former account must be taken of the latter)
- Go forwards and claim:
o Remedies for breach of contract (ex. expectation damages)

Question 32

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

A – Effects of rescission

Answer 32

Rescission entails restitution (returning what the representee paid under the contardct) and indemnity (compensation for additional costs and liabilities directly imposed by the contract), but NOT reliance damages (including consequential losses, personal injury, damaged goods, wasted expenditure…): Whittington

Rescission operates to set aside the contract (conditional on mutual restoration of benefits received). It is available for all types of misrepresentation (subject to bars).
NB distinction between rescission of voidable contracts and termination of valid but breached contracts:
- Rescission nullifies the contract prospectively and retrospectively (though property can pass to a third party before rescission) – future obligations are cancelled and past obligations are treated as if never due so must be returned.
- Termination recognizes a valid contract and only dispenses parties from future obligations (it is only prospective)

Question 33

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

A – Effects of rescission

Whittington v Seale-Hayne (1900) 82 LT 49

Answer 33

• Facts: C was induced to lease premises to raise poultry by D’s innocent misrepresentation that the premises were in good sanitary condition, so that the pultry died and C’s manager became ill.
• Held:
  o The lease was rescinded
  o Indemnity-based recovery of what was spent on rent, rates and replacement of drains required by the local authority (since the expenses were incurred in meeting obligations created by the contract)
  o No recovery for the lost stock and profits, or the manager’s medical expenses

Question 34

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

B – Timing of rescission

Answer 34

It is effective when communicated to the other party (by counterclaiming rescission to a claim in specific performance, notifying the reprensentor, claiming in rescission…), though can also take all possible steps to recover the goods:

• Car and Universal Finance v Caldwell [1965] 1 QB 525
• Facts: C was fraudulently induced to sell his car in return for a bad cheque, and immediately sought assistance from the police when the fraudster disappeared. Subsequently, the fraudster sold the car to a third party.
• Held: the contract had been rescinded (thereby revesting title in himself and preventing the third party from acquiring title) because it would be unfair to expect the buyer to actually notify the fraudster.

Question 35

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
1/ Incorporation as term no longer a bar to rescission

Answer 35

S1(a) Misrepresentation Act preserves the right to rescission even if the representation becomes incorporated as a term.
This means that where contractual damages (expectation loss) exceed reliance damages (i.e. where C has made a good bargain) the court must decide whether C’s refusal to continue with the contract amounted to a rescission or termination…

Question 36

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
2/ Affirmation

Answer 36

Since misrepresentation only makes the contract voidable C can affirm it, requiring:

• knowledge of the facts giving rise to the right to rescind (though even if C doesn’t have this knowledge, he can be estopped from denying affirmation if the representor detrimentally relied on C’s unequivocal conduct indicating his intention to affirm – Peyman v Lanjani).
• express or implied from conduct (if C, after discovering the misrepresentation, (i) continues to use the goods, accept dividends, pay rent on leased premises… or (ii) fails to rescind within a reasonable time after discovering misrepresentation)

Question 37

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
3/ Lapse of time

Answer 37

• Not a bar if fraudulent and the representee remains ignorant of the misrepresentation
• Substantial passage of time for non-fraudulent misrepresentation:
  Leaf v International Galleries [1950] 2 KB 86
• Facts: C induced to buy goods by D’s innocent misrepresentation that it was painted by X. C only discovered it was false when he tried to sell it five years later. Held that C could not rescind because of lapse of time (but in this case it was held to be a term so C could have claimed expectation damages though he did not do so)

Question 38

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
4/ Third party rights

Answer 38

If third party has before rescission acquired an interest in the subject matter for consideration, rescission will be barred (ex. if a company goes into liquidation, rescission of acquisition of shares will be barred because liquidators acquired an interest).

Question 39

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
5/ Impossibility of mutual restitution

Answer 39

Rescission is barred if impossible to give back the benefits transferred under the contract. Traditionally, rescission was treated as proprietary which meant you had to give back the exact thing received, but now, courts have allowed monetary substitutions, especially in the case of fraud, though restitution of the “substantial identity of the subject-matter” is still required.
Thus, shares that have been sold on could be returned if C could buy and return other, identical shares (Smith New Court, Lord Browne-Wilkinson), which suggests that simply returning the money’s worth of the shares is not enough.

Question 40

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
6/ Inequity (s2(2) MA)

Answer 40

If the misrepresentation is non-fraudulent, the Court can deny rescission and award damages in lieu where it would be “equitable to do so, having regard the nature of the misrepresentation and loss that would be caused if contract were upheld, and the loss that rescission would cause to the other party”.

Question 41

I - Requirements of Misrepresentation
II.A - Rescission for Misrepresentation

C – Bars to rescission
6/ Inequity (s2(2) MA)

*Sindall plc v Cambridgeshire CC [1994] 3 All ER 932

Answer 41

• Facts: C bought land from D for £5M. Two years later, C discovered that a sewer under the land would prevent its proposed development. The claim failed, but Hoffmann LJ, obiter, said that even if it had succeeded, the court would have barred rescission under s2(2) because:
  o Relatively minor impact on the buyer if rescission denied (it would only cost £18,000 to rectify the problem by rerouting the sewer)
  o Relative unimportance of the representation in the context of a £5M sale
  o Colossal loss to the seller if rescission allowed (seller would have recovered land now worth £2M (because of fall in market) while having to repay buyer £8M (purchaser price + interest))

Question 42

I - Requirements of Misrepresentation

II.B - Damages for Misrepresentation

Answer 42

• Start with damages under the Act because it
  o (i) lowers the qualifying threshold (liable unless proof of honest and reasonable belief) and
  o (ii) yields more generous damages (liable as if misrepresentation is fraudulently made even if not)
• Only if no contract results between C and D do the common law actions become relevant:
  o If D’s misrepresentation induces a contract between C and X (Hedley Byrne)
  o If D’s misrepresentation induces a contract between C and D but is void (ex. For mistake or illegality)

Question 43

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

A – Common Law Fraudulent misrepresentation (deceit)
1/ Requirements

Answer 43

• False statements
• Made knowingly and without belief in truth (including knowledge that D is ignorant of its truth) or
• Made recklessly, careless whether it be true or false

Requires gross carelessness, not merely acting unreasonably:

• Derry v Peek (1889) 14 App Cas 337
• Facts: representee bought shares in a company, relying on false claims in its prospectus that the company was entitled to use steam power to run its trams. The company honestly believed the claim to be true, though it still had to obtain permission which was later denied.
• Held (HL): no liability for common law deceit merely bcause they had acted unreasonably in failing to check the truth of the statement.

Question 44

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

A – Common Law Fraudulent misrepresentation (deceit)
2/ Measure of damages

Answer 44

1) Damages are calculated on the assumption of but-for causation all losses from entering the contract are claimable
2) No remoteness limit all losses flowing from the fraud (even unforeseeable losses) are claimable:

Doyle v Olby [1969] 2 QB 158

• The proper measure of damages for deceit (≠breach of contract) was all the damage directly flowing from the tortious act of fraudulent inducement which was not rendered too remote by the plaintiff’s own conduct, whether or not the defendants could have foreseen such consequential loss.
• The plaintiff’s position before the fraudulent inducement should be compared with his position at the end of the transaction. As in the instant case the plaintiff had been tricked into buying a business which he would otherwise not have bought at all, the court should award him his overall loss up to his final disposal of the business, less any benefits he had received.

3) Starting point is reliance measure (i.e. the tort measure, designed to put C in position had C not contracted) claim for existing flaws (i.e. difference between value and price paid at time of formation)
4) C can also claim losses in value of the goods after contract formation if (i) the misrepresentation continued to operate after the date of acquisition of the asset so as to induce C to retain the asset, or (ii) the circumstnaces of the case were such that C is, by reason of fraud, locked into the property (Smith New Court v Scrimgeour Vickers):
* Smith New Court v Scrimgeour Vickers [1997] AC 254
- Facts: D’s fraudulent misrepresentation about the presence of rival bidders induced C to buy shares for £23M where the market price at the time was £21.8M.

• Held (HL): C was allowed to claim for:
  o Existing flaws (because of an unrelated and unknown fraud, the shares were at the time really only worth £12.25M, which was only subsequently discovered)
  o Loss due to being “locked into” the property (since it was commercially infeasible for C to resell the shares immediately on discovering the fraud, it suffered further losses from a general fall in the share market, so shares were eventually sold for £11.75M)
• Thus, though the fraud only devalued the price paid by (23M-21.8M), C was allowed to claim for the further devaluation due to existing flaw (21.8M-12.25M) and the further devaluation from being locked into property (12.25M-11.75M) total damages claimed was (price paid – price sold = 11.25M)
  5) Sometimes C can also claim loss of opportunity to enter into another similar profit-making contract either with D or with another person:

East v Maurer [1991] 1 WLR 461

• Facts: C was induced to buy a hairdressing business for £20,000 by D’s misrepresentation that D had no intention of working in another hairdressing salon in the same town, but in fact D did so and many clients followed him, resulting in losses to C, who eventually sold the business for £5,000.
• Held: C was allowed to claim:
  o Difference between what C paid and what he received
  o C’s wasted expenditure (ex. in trying to improve the business)
  o £10,000 for loss of profits which C would have made from buying another similar hairdressing business (quantified by reference to the profit that the salon actually purchased would have made if the representation had been true)

6) Arguable that exemplary damages are now available in tort for fraudulent misrepresentation.

Question 45

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

B – Common law Negligent misrepresentation (under tort of negligence)

Answer 45

Common law requires there to be a “special relationship” between the parties to give rise to a claim for negligent misrepresentation

Question 46

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

B – Common law Negligent misrepresentation (under tort of negligence)

*Hedley Byrne v Heller [1964] AC 465

Answer 46

• Facts: C sought assurances from D (bank) about the financial health of a third party with whom C proposed to contract. D gave a negligent assurance and C proceeded with the contract, suffering loss due to the third party’s breach.
• Held: C’s claim for negligent misrepresentation would have succeeded but for D’s stipulation that the assurance was given without responsibility.

Question 47

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

B – Common law Negligent misrepresentation (under tort of negligence)

Esso Petroleum v Mardon [1976] QB 801

Answer 47

• Facts: C was induced to lease a petrol station then under construction by D’s statement that the future annual turnover would be X, which D reaffirmed when planning permission was refused so a different layout had to be chosen. This change in fact reduced the annual turnover by almost half, so that C suffered losses, and successfully claimed for damages for negligent misrepresentation (in negligence) and breach of contract (because the representation was a collateral warranty).
  However, negligence is less generous in damages than fraud:
• Remoteness of dmage (The Wagon Mound)
• Contributory Negligence (CN Act s1)
  But under the Act claims seem to be immune from these reductions because of the “fiction of fraud”.

Question 48

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

C – Damages under the Misrepresentation Act 1967

*Misrepresentation Act 1967, s.2(1) as amended by The Consumer Protection (Amendment) Regulations 2014 SI 2014/870 reg. 5 (on these Regulations generally, see below)

Answer 48

• Dispenses with proof of special relationship
• Dispenses with need to prove the representor’s negligence (only needs to prove false statement and inducement, then burden of proving lack of negligence is on the representor)
• Confers remedial advantages via the fiction of fraud (so follow the above rules for calculating damages)
  o Confirmed that not only the conditions but also the measure of damages is the same as for fraud (Royscot v Rogerson [1991] 3 All ER 294)
  o EXCEPT Contributory negligence applies if C has a concurrent claim in tort of negligence (thus it is in the representor’s interest to argue that he owed a duty of care to C and breached it…) (Gran Gelato v Richcliff)

Question 49

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

C – Damages under the Misrepresentation Act 1967

Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745

Answer 49

• Facts: C sought rescission after nearly three years because of a misrepresentation that the car C bought was new though it was not. Trial judge said that rescission was not allowed because impossible to restore parties to original position so restitutio in integrum was impossible (the car had been registered and could not be returned as an unregistered car, there had been considerable lapse of time so depreciation of the vehicle…), so that C was confined to damages.
• Held (on appeal): allowing the appeal, that it was possible to restore the parties to their original position (registration was not a bar to rescission, difference in value was at the risk of the misrepresentor, delay was not so long as to bar rescission). Ordered rescission. D appealed arguing that (i) the trial judge had exercised discretion under s2(2) and the appeal judge shouldn’t have interfered with it, (ii) restitutio in integrum was impossible, (iii) damages were adequate and (iv) three years was too long and barred rescission.
• Held (CoA): dismissing the appeal:
  o S2(2) implies that rescission was available so that damages in lieu are not available if rescission was barred (affirmed, third party rights intervened, excessive time, restitution become impossible…). Thus, possible to say that the trial judge awarded damages under s2(1) not s2(2), but if he did award under s2(2) this was wrong.
  o Trial judge was wrong to find restitution impossible – the normal remedy for misrepresentation is rescission, which should be awarded if possible. It is prima facie available if ‘practical justice’ could be done. If practical justice required D as representor to be compensated for depreciation or for use of the car, it was for D so to assert and prove. The absence of evidence about depreciation or the value of the use of the car should not operate to the disadvantage of the representee. The purchaser was entitled to rescind the contract and recover the purchase price.
  o In all the circumstances, lapse of time on its own was not a bar to rescission. The ground on which rescission was available only became known to the claimant on disclosure of documents. Most of the subsequent delay had been due to the litigation process and the defendant’s wrongful refusal to take the car back and return the price.

Question 50

I - Requirements of Misrepresentation
II.B - Damages for Misrepresentation

D – No liability for (purely) innocent misrepresentations

Answer 50

However, this category has dwindled because:

• Under common law before Hedley Byrne, it included any representation where C could not prove fraud.
• Under common law after Hedley Byrne, any representation without fraud and without special relationship, or with special relationship and without negligence
• Under the Act, it only includes representations where D proves honest and reasonable belief
• Even so, the court may still call it an implied term of the contract.

Question 51

I - Requirements of Misrepresentation
II.C – Damages in lieu of rescission (s2(2))

A/ Measure of damages

Answer 51

• Can’t simply replicate s2(1) reliance damages because it would deprive s2(2) of any effect and render s2(3) allowing concurrent claims useless
• Though “in lieu of rescission” suggests that damages should be the money’s worth of rescission, this cannot be right because it would undermine the reason for denying rescission in the first place
  Thus, the measures is calculated on the basis that the misrepresentation is a term of the contract that has been breached (ex. in Sindall it was held that the correct measure was the difference in value between what C believed they were getting and what they in fact got).

Question 52

I - Requirements of Misrepresentation
II.C – Damages in lieu of rescission (s2(2))

B/ Availability of damages

Answer 52

1º Rescission must have been available (i.e. not barred) for damages in lieu to be available (Zanzibar v British Aerospace).
2º C cannot claim it directly (i.e. only available if C claims rescission and is denied rescission), but C would only have claimed rescission if it is more valuable than leaving the contract on foot (i.e. where C has made a bad bargain), but it is precisely in this situation that s2(2) is more likely to apply…

Question 53

I - Requirements of Misrepresentation

II.D – Other Monetary Remedies

Answer 53

• Contract measure of damages if the representation is incorporated as a term
• Restitution on rescission if contract is rescinded – representor must return any benefit received under the contract.
• Indemnity on rescission if contract is rescinded – representor indemnifies the representee of costs incurred in discharging legal obligations necessitated by the rescinded contract.

Question 54

IV - Exclusion of Liability for Misrepresentation

Answer 54

Cannot exclude or restrict liability for fraud, but for other kinds of misrepresentations, effectiveness depends on:

Question 55

IV - Exclusion of Liability for Misrepresentation

A – Construction

Answer 55

Must be interpreted to cover either:
- Terms exempting liability for misrepresentation or an otherwise available remedy (NB within s3)
- “No representation” or “no reliance” clauses (to prevent requirements of misrepresentation from being satisfied) (NB maybe within s3)
o Before, courts denied effect to these clauses by holding that parties could not contractually agree on a state of affairs (absence of representations) that they knew did not really exist), so that D in a misrepresentation claim must establish an “evidential estoppel” showing that they believed in the truth of the no-reliance clause.
o But this was reversed in Springwell v Morgan by holding that nothing prevents parties from contractually agreeing upon the existence of a fictitious state of affairs. Thus, there is a “contractual estoppel” preventing C from alleging facts inconsistent with the contractual agreement (i.e. C can’t allege that a representation was made). Affirmed in AXA Sun Life).
o NB “estoppel” is misleading because it really is just a term not an estoppel (D doesn’t need to show unconscionability etc.)
- “Entire agreement” clauses (to prevent collateral term) (NB not within s3)

Question 56

IV - Exclusion of Liability for Misrepresentation

B – Statutory Controls

Answer 56

• Misrepresentation Act 1967, s.3 (as amended by the Consumer Rights Act 2015 s.75 Sched. 4 para.1)
• Terms excluding liability or remedies for misrepresentation are ineffective except satisfying reasonableness requirement under s11 UCTA 1977.

Question 57

IV - Exclusion of Liability for Misrepresentation

B – Statutory Controls
1/ Scope of s3

Answer 57

Only covers terms excluding liability or otherwise available remedies (Walker v Boyle), NOT terms denying the existence of a misrepresentation, though the distinction is one of substance:

Question 58

IV - Exclusion of Liability for Misrepresentation

B – Statutory Controls
1/ Scope of s3

*JP Morgan v Springwell [2010] EWCA Civ 121, paras 127-187 (Aikens LJ)

Answer 58

• Agreement where C agreed that C had made its decision to contract independently, without relying on D, and that C was fully familiar with the risks contractual estoppel (any statement by D would only amount to an opinion) so was not within s3
• Agreement that D would not be liable for any loss unless it was caused by gross negligence or wilful misconduct within s3
• Agreement that no representation or warranty, express or implied, is or will be made “more difficult to classify”, but inclined to treat it as within s3

Question 59

IV - Exclusion of Liability for Misrepresentation

B – Statutory Controls
1/ Scope of s3

AXA Sun Life Services v Campbell Martin [2011] EWCA Civ 133

Answer 59

• With regards the third of Aikens LJ’s examples, Burnton LJ held that any contrary view would be too formalistic, and that the matter should be looked at “sensibly and practically”

Question 60

IV - Exclusion of Liability for Misrepresentation

B – Statutory Controls
2/ Reasonableness under s3

Answer 60

Courts seem relatively willing to uphold exceptions for misrepresentation (in contrast for misrepresentations for breach).