MISREPRESENTATION - AN INVALIDATING FACTOR Flashcards
WHAT ARE THE TWO ALTERNATIVE WAYS IN WHIC AN INVALIDATING FACTOR CAN AFFECT THE CONTRACT?
- A void contract
- A voidable contract
WHAT IS A VOID CONTRACT?
One which has never existed.
No rights or duties can be passed under a void contract
WHAT IS A VOIDABLE CONTRACT?
One which does exist and will continue to exist unless one of the parties decides to bring it to an end (the contract has been rescinded)
WHAT IS THE DEFINITION OF MISREPRESENTATION?
A misrepresentation is a false statement of fact or law, made by one contracting party to another, which is intended to induce, and which does induce the other party to enter a contract by their reliance on that statement
WHAT IS THE NAME OF THE PERSON MAKING THE REPRESENTATION?
The representor
WHAT IS THE NAME OF THE PERSON IN RECEIPT OF THE REPRESENTATION?
The representee
WHAT THREE MATTERS ARE NOT NORMALLY MISREPRESENTATIONS?
- Statements of opinion
- Statements of intention
- Extravagant advertisements and sales talk
- Non-disclosure
WHAT IS THE MAXIM OF CAVEAT EMPTOR?
Let the buyer beware
It is the responsibility of the buyer to find out about the goods before committing to the contract
WHAT ARE THE SIX EXCEPTIONAL CIRCUMSTANCES WHERE A CONTRACTING PARTY IS OBLIGED TO DISCLOSE FACTS THAT ARE KNOWN TO THEM, EVEN IF THEY ARE NOT ASKED?
- When one party has told a ‘half-truth’ which will give a false impression to the other party
- If a statement made during pre-contractual negotiations is accurate when it is made, but circumstances change before the contract is agreed, this must be disclosed
- Contracts of the utmost good faith (uberrimae fidei) impose an obligation on a party to reveal all relevant facts to the other
- Where the parties have a fiduciary relationship, there is usually considered to be a duty of full disclosure between the individuals i.e lawyer and client.
- It was confirmed in Hamilton v Allied Domecq [2007] that, to find a business liable for non-disclosure, it must be shown that there was a voluntary assumption of responsibility by the party that remains silent, on which the other party relies.
- Reg 6 Consumer Protection from Unfair Trading Regulations 2008 provides that a business must not engage in any commercial practice which omits or hides material information from the consumer in a way which is likely to cause the consumer to make a transactional decision they would not take otherwise.
WHAT IS INDUCEMENT?
The representor must intend that the false statement will induce the other party to enter the contract, and the false statement must induce the representee to enter the contract
WHAT MUST THE REPRESENTEE SHOW IN CASES OF NEGLIGENT OR INNOCENT MISREPRESENTATION?
That ‘but for’ the misrepresentation they would not have entered the contract (BV Nederlands Industrie Ltd v Rembrandt Enterprises [2019])
IN WHAT THREE CIRCUMSTANCES WILL A REPRESENTEE NOT BE INDUCED?
- If they were unaware of the existence of the false statements at the time of entering into the contract
- If they know the statement is false but contracts anyway
- If there is evidence to show that the representee did not believe the representation and conducted their own investigations into it
WHEN CAN’T A REPRESENTEE SUE FOR MISREPRESENTATION?
If the representee makes no effort to check the truth of the statement, they can generally sue for misrepresentation if the statement is untrue.
This will be because such behaviour shows reliance on the statement and is clear evidence of inducement (Redgrave c Hurd [1881])
WHAT DID ATTWOOD V SMALL [1838] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?
The representee to a fraudulent statement does not need to meet a ‘but for’ test.
The representee will satisfy the requirement for inducement so long as they can show that the representation was induced in ‘any way’ by the fraudulent statement.
This is generally described at material inducement
WHAT DID HAYWARD V ZURICH INSURANCE CO PLC [2016] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?
That the claimant will succeed if they can show that they were influenced by the misrepresentation
WHAT DID BV NEDERLANDS INDUSTRIE LTD V REMBRANDT ENTERPRISES [2019] HOLD IN RESPECT OF INDUCEMENT IN FRAUDULENT MISREPRESENTATION?
The representee has the burden of proof that they were materially induced by the fraud but in doing so, they will benefit from ‘a presumption of inducement’
WHAT ARE THE THREE TYPES OF MISREPRESENTATION?
- Fraudulent
- Negligent
- Innocent
AS DEFINED IN DERRY V PEEK [1889], WHEN DOES A FRAUDULENT MISREPRESENTATION ARISE?
Where:
- A knowingly false statement is made
- The statement is made without belief in its truth
- The statement is made with reckless carelessness as to whether it is true or false
WHAT CAN THE INJURED PARTY CLAIM FOR IN RESPECT OF FRAUDULENT MISREPRESENTATION?
The injured party can sue for damages and/or seek rescission of the contract
WHEN ARE DAMAGES AWARDED IN FRAUDULENT MISREPRESENTATION?
Damages in fraudulent misrepresentation are awarded in the tort of deceit, on a tortious basis.
This aims to put the claimant in the position they would have been in but for the misrepresentation and this was confirmed in Smith & New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996].
WHAT IS THE EFFECT OF RESCISSION?
To put the parties back in the position they were in before the contract was made.
WHEN CAN THE REMEDY OF RESCISSION BE LOST IN RESPECT OF FRAUDULENT MISREPRESENTATION?
- If the contract has been affirmed – the party entitled to rescind discovers the fraud and, by words or conduct, makes clear that they want to continue with the contract
- If there has been a sufficiently lengthy lapse of time between the fraud being discovered and the recission being sought
- If the parties cannot be restored to their original positions
- If an innocent third party as acquired rights in the subject matter of the contract, provided they gave something for the goods and acted in good faith, unaware of the misrepresentation
WHAT PIECE LEGISLATION ARE CLAIMS FOR NEGLIGENT MISREPRESENTATION OFTEN MADE UNDER?
S2(1) Misrepresentation Act 1967
The representor must show, on the balance of probabilities, that their statement was not negligent
WHAT CAN THE INJURED PARTY CLAIM FOR IN RESPECT OF FRAUDULENT MISREPRESENTATION?
The injured party can sue for damages and/or seek rescission of the contract
WHEN ARE DAMAGES AWARDED IN NEGLIGENT MISREPRESENTATION?
Damages in negligent misrepresentation are awarded in the tort of deceit, on a tortious basis.
This aims to put the claimant in the position they would have been in but for the misrepresentation
WHEN CAN THE REMEDY OF RESCISSION BE LOST IN RESPECT OF NEGLIGENT MISREPRESENTATION?
If there has been a sufficiently lengthy lapse of time considered to run from the date of the contract
WHAT IS INNOCENT MISREPRESENTATION?
Since the implementation of the Misrepresentation Act 1967, an innocent misrepresentation is one that is neither fraudulent nor meets the requirements of s2(1) Misrepresentation Act 1967
WHAT WAS THE TRADITIONAL REMEDY FOR INNOCENT REPRESENTATION?
Rescission of the contract
WHAT ADDITIONAL REMEDY IS AVAILABLE FOR INNOCENT MISREPRESENTATION UNDER S2(2) MISREPRESENTATION ACT 1967?
The courts may award damages in lieu of rescission.
This is entirely at the courts discretion although MA 1967 instructs them to consider:
‘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 the loss that rescission would cause to the other party’
