Misrepresentation

Question 0

Definition of an ‘actionable misrepresentation’.

Answer 0

An Actionable Misrepresentation is a statement or material fact made prior to the contract by one party to the other which is false or misleading and which induced the other party to enter into the contract.

Question 1

Another word for (misrepresentation, mistake and illegality) and their effects in brief.

Answer 1

Vitiating factors - the sort of things that had they been known by both parties at the time of the contract being formed, the parties might have never reached an agreement and thus the contract might never have been formed in the first place.

The effect is that they will invalidate otherwise valid contracts.

Question 2

3 examples of statements that might not constitute a statement of material fact.

Answer 2

Opinion. Mere sales talk. Statements of future intentions.

Remember:

A false statement of opinion is not a misrepresentation of facts.

Question 3

Bisett v Wilkinson, 1927. Brief facts and principle.

Answer 3

In Bisett v Wilkinson, the statement made by the defendant in stating they he believe his farm was suitable for 2,000 sheep which induced the plaintiff into buying the land, was held to be a mere statement of opinion since it was not justified to be relied on when both parties knew that the defendant had in fact not carried out any sheep farming on the land before.

Question 4

The exception to an opinion which may constitute an implied representation of fact.

Answer 4

When the party making the statement had some special knowledge or skill which gives weight to their opinion, then their opinion may be treated as being an implied representation of fact and therefore capable of being a misrepresentation. (Smith v Land and House Property Corporation)

Question 5

‘Sales talk’ does not constitute a statement of fact. Authority.

Answer 5

Dimmock v Hallett.

The courts held that the statement ‘fertile and improvable’ which were made during a negotiation for the sale of a land were insufficient in substance to be classes as a representation.

Question 6

A statement of future intent is not capable of amounting to a misrepresentation. Rationale.

Answer 6

Because since a misrepresentation is a false representation of material fact, it follows that since a statement which expresses a future intention is speculation rather than fact, it cannot amount to a misrepresentation.

Question 7

Exception when a statement of future intent will be considered as a misrepresentation.

Answer 7

In the same way that an opinion can be treated as a fact when the party making it has special knowledge, if the statement of future intention falsely represents the actual intention, in other words, a willful lie), then it may also be treated as a misrepresentation of fact. (As in the case of Edgington v Fitzmaurice)

Question 8

Edgington v Fitzmaurice. Facts and principle.

Answer 8

In Edgington, the claimant was a shareholder who received a circular issued by the directors of a company requesting loans in order to grow the company. The money, however, was in fact intended to be used to pay off the company’s debt rather than to grow the business. The claimant, who had taken debentures, sought to reclaim his payment on grounds that it had been obtained from him by misrepresentation.

The court held that the untrue statement as to future intention was in fact a misrepresentation of facts and ordered damages to be awarded to the claimant.

Question 9

False statement of the law. General rule and case demonstrating the change.

Answer 9

Traditionally, a false statement of the law cannot amount to a misrepresentation because there is a presumption that everyone knows the law and therefore it cannot be falsely stated.

However it may be that statements of law are now actionable following the HOL case of Kleinwort Benson v Lincoln City Council (a restitution case not so directly on point, but the implications are clear), which was later followed and adopted in Pankhania v Hackney LBC.

Question 10

Law on misrep by silence. General Rule and his 4 exceptions.

Answer 10

Generally silence cannot amount to a misrepresentation. There is no duty of disclosure on one party to another.(Fletcher v Krell)

However there are exceptions:

• contracts of outmost good faith e.g insurance
• change in circumstances (With v O’Flanagan)
• half truths (Dimmock v Hallett)
• fiduciary relationship (I.e. doctor-patient, solicitor-client)

Question 11

Misrep by conduct. Leading case and facts.

Answer 11

Spice Girls v Aprilia World Service.

Aprilia contacted Spice Girls to sponsor them on a court tour. The contract was based on the representation that all 5 members would continue working together. ‘Ginger Spice’ left shortly after the contract and the courts held that there had in fact, been misrepresentation by conduct which had induced Aprilia into entering the contract.

Question 12

3 requirements for misrepresentation.

Answer 12

1) Must be made prior to the contract. Statement made after formation of ctt is not actionable. (Roscola v Thomas)
2) It must be a statement of fact. (As opposed to the 4 categories)
3) There must be a material inducement (if not it will be like Horsefall v Thomas, misrep but no inducement)

Question 13

3 rules of inducement and 3 exceptions.

Answer 13

3 rules:

• Representation need not be the sole inducement
• Immaterial if the reliance on the statement is unreasonable so long as it induced the misrepresentee. (Museprime Properties v Adhill)
• Fact that representee did not check is immaterial. Not a bar to an action of misrep. (Redgrave v Hurd. Held: The claimant (who is also a solicitor) is entitled to rescission although he did not examine the documents that were available to him and which would have indicated to him the true state of affairs)

3 exceptions:

• Representee ignorant of the misrep at the time the contract was made
• The misrepresentee or his agent actually knew the truth
• Did not allow MR to affect his judgement (Attwood v Small)

Question 14

Definition of rescission.

Answer 14

To restore the parties as far as possible to the position they were in before they entered into the contract. An equitable remedy.

Question 15

The 5 bars of rescission. Go.

Answer 15

1) Affirmation (Long v Lylod)
2) Lapse of time (Leaf v International Galleries)
3) Rights of 3rd parties. (Lewis v Averay)
4) impossible to restore parties to original position.
5) Damages in lieu of rescission is better than rescission.

Question 16

Definie ‘statement of fact’.

Answer 16

A statement which is capable of being objectively proven to be true/untrue at the time it was made.

Question 17

Fraudulent Misrepresentation.

Case and burden of proof under tort of deceit.

Answer 17

Derry v Peek.

Lord Herschell said that it is for the misled party to prove that the misrepresentation was made fraudulently, that is, knowingly, without belief in its truth, or recklessly as to whether it be true or false.

The burden of proof is a heavy one.

Question 18

Negligent Misrepresentation.

2 authority. And requirements.

Answer 18

Hedley Byrne v Heller & Partners.

Confirmed by Esso Petroleum v Marden

The HOL said that the misrepresentee must prove:

1) that the misrepresenter owed him a duty of care to take reasonable care in making the representation, that is, there must be a ‘special relationship’ and
2) that the statement had been made negligently

Question 19

State the difference between claiming under common law and statute.

Answer 19

Common Statute
Burden of proof in claimant Defendant
No contract required Ctt required
Special relationship required Not required

Question 20

The reason why people are more inclined to claim damages under statute than common law when there is a contract.

Answer 20

Because it is a more beneficial remedy for the misrepresentee as he only need to prove that the statement is untrue.

It is for the misrepresentor to prove that he had good grounds for making the statement, and the burden of proof is a heavy one, as seen in Howard Marine Dredging v Ogden & Sons.

Question 21

State the nature in which damages are assessed under tort of deceit and tort of negligence.

Answer 21

Both are assessed on the tortious basis of reliance, that is, the claimant is entitled to be put in the position he was committed. That is, damages would be awarded to cover all losses which flow directly from the untrue statement, or in other words, ‘out of pocket’ financial loss as well as a possible element for ‘opportunity cost’ (East v Maurer), whether or not those losses were foreseeable (Doyle v Olby).

Question 22

The 3 methods to rescind a contract.

Answer 22

1) By informing the other party
2) where a fraudulent party cannot be traced, by informing the police (Car and Universal Finance v Caldwell)
3) bringing legal proceedings.

Question 23

When rescission is concerned, the courts will consider one factor.

State the factor and the case it was held.

Answer 23

In Cheese v Thomas, it was held that the courts must look at all the circumstances to do what is ‘fair and just’.

Question 24

2 examples of a generous interpretation of 2(1).

Answer 24

Naughton v O’Callaghan.

Reliance damages had been awarded to cover not only the difference between the value of the calf and the value it would have had if the statements made about it were correct, but also the cost of its maintenance since the sale.

Royscot Trust v Rogerson
COA held that the remoteness rule applicable to the tort of deceit would be applied and the loss did not need to be foreseeable.

Question 25

State the available options under innocent misrepresentation.

Answer 25

Damages cannot be claimed for a misrepresentation which is not fraudulent or negligent, but:

• An indemnity may be awarded
• damages in lieu of rescission may be awarded under s2(2) of Misrep Act 1967

Question 26

The factors that the courts will consider when awarding under s2(2), and the case it was decided in.

Answer 26

William Sindall v Cambridgeshire CC.

1) When considering whether to award damages in lieu of rescission:
- the nature of the misrep
- the loss which would be cause to the representee if the contract were upheld
- the hardship cause to the misrepresentor if the contract were rescinded

2) If claimed for damages in lieu rescission, the damages awarded under s2(2) should be ‘the difference in value between what the claimant was misled into believing he was acquiring and the value if what he in fact received.

Question 27

Damages can be awarded in lieu even if one of the bars to rescission applies.

State the authority or an against.

Answer 27

Can:

Thomas Witter v TBP Industries.

Cannot:

Government of Zanzibar v British Aerospace

Question 28

The alternative option for a claimant if the misrepresentation has become a term of the contract.

Answer 28

Sue for damages for B.O.C.

Question 29

The implication of the generosity in Howard Marine, Naughton, and Royscott.

Answer 29

These 3 cases swell the amount of damages which can be awarded under the Misrep Act to an extent greater than what Parliament had intended, and the damages available for misrep can now exceed those available for B.O.C.

Question 30

Explain the controversy surrounding the damages awarded as a result of the ‘Fiction Of Fraud’ and what remains good law.

Answer 30

In Royscott, the COA confirmed that 2(1) should also be awarded on the reliance basis, because of the ‘fiction of fraud’ wording of the Act.

Remoteness of damage
Because of of F.O.F, the rules which normally apply to the tort of deceit is now applied under s2(1), (in contract all in all torts other than deceit, the losses must be ‘reasonably foreseeable’)

Controversy
Tort of deceit traditionally is relatively difficult to prove and involves moral culpability of the part of the defendant. However it has now been extended to an action which is relatively easy to prove (as seen in Howard Marine) and may involve only carelessness.

Some doubts as to whether this is the correct approach was expressed orbiter by the HOL in Smith New Courts Securities v Scrimgeour Vickers, but for the time being Royscott v Rogerson remains good law.