Misrepresentation + Remedies Flashcards
What is misrep?
A false statement of fact or law, made by 1 contracting party to another, which induces the other party to enter into the contract
What is the law surrounding misrep predominantly based on?
CL
BUT = now statutory intervention in the form of the Misrepresentation Act 1967
(mainly regards remedies)
What are the 3 basic requirements of misrepresentation?
- False statement must have been made by 1 contracting party to the other
- Must be a statement of fact or law, not intention or opinion (Bisset v Wilkinson)
- Statement must have induced the other party to enter into the contract (JEB Fasteners Ltd v Bloom)
What happens is a person enters into a contract based on the misrepresentation of a 3rd party?
It will usually have no effect on the contract
BUT note the case Barclays Bank v O’Brien (1994)
Barclays Bank v O’Brien (1994)
Ds = married couple
Took out 2nd mortgage on their home as security for loan from Barclays to the husband’s company
Wife had no interest in the business
Wife signed the documents relying solely on her husband’s (false) representation that the deed was limited to £60,000 + lasted 3 weeks
Company reached £154,000 overdraft
Barclays sought couple’s home
Wife appealed
HL: wife went into the contract based on the husband’s misrepresentation
Ruled in favour of the wife
3rd party’s misrepresentation can still have effect in some cases
Bisset v Wilkinson (1927)
Perspective buyer of some land wanted it for sheep farming
Asked the seller how many sheep the land would hold
Seller estimated 2,000
Claimant brought the land, relied on this statement
Seller hadn’t actually used the land for farming sheep - didn’t actually know how many it would hold
Buyer discovered it couldn’t hold this many sheep
Sought to rescind the contract
Privy Council: = statement of opinion
Therefore not actionable by misrep
Claimant = unsuccessful
What are the 3 exceptions as to when a statement of opinion can be a misrep?
Cases?
- Opinion is contradicted by other facts know to the person giving that opinion - (Smith v Land and House Prop. Corp)
- Opinion comes from an ‘expert’ - (Esso Petroleum v Mardon)
- Opinion (or intention) = not genuinely held - (Edgington v Fitzmaurice)
Smith v Land and House Prop. Corp (1884)
Claimant purchased a hotel
Seller described 1 of the tenants as being ‘most desirable’
Seller knew the tenant = on verge of bankruptcy
Held: statement = fact not opinion
Seller = in position to know the facts
‘Opinion’ = capable of becoming a misrep
Esso Petroleum v Mardon (1976)
D entered into tenancy agreement with EP in respect of a new petrol station
EP experts estimated that the petrol station = sell 200,00 gallons
Estimate = based on figures = prepared prior to planning application
Planning permission changed prominence of station - effect sales rates
EP made no amendments to estimate
Rent = also based on the estimate
Claimant couldn’t run a profitable petrol station
CA: = no action for misrep
Statement = estimate of future sales rather than a statement of fact
BUT EP did owe a duty of care - entitled to some damages at CL
Edgington v Fitzmaurice (1885)
Claimant brought shares in a company
Company wanted to raise capital
Provided a prospectus
Stated shares = being offered IOT raise £ to expand the company
Claimant relied on this
Discovered company = experiencing financial difficulties - using £ to pay debts
Held: statement = actionable by misrep
Despite the fact that the statement = of future intent
D had no intention of using the £ to expand the company
D = liable
What cases show that the misrep can be a statement of law?
Kleinwort Benson Ltd v Lincoln City Council (1999)
- Mistake in law could lead to an action for restitution of £ paid
Pankhania v Hackney LBC (2002)
- If a party makes false statement of law, + that party goes into a contract based on this, can lead to a misrep
Can the misrep occur through action/ conduct?
Case?
Yes
Spice Girls Ltd v Aprilia World Service BV (2000)
Spice Girls Ltd v Aprilia World Service BV (2000)
D = manufacturer of scooters
D = to endorse a range of scooters displaying the claimant’s logo, in return for D sponsoring the claimant
SG supplied logos + images that D = to use
5 days after the head agreement, 1 of the spice girls (H) told group she = leaving in 6 months
3 weeks later D received a fax stating: SG = totally committed to their involvement
3 weeks after, H again stated she intended to leave the group (‘Wembley meeting’)
Commercial photo shoot took place a week later, 2 days after the agreement = signed
3 weeks later H left the SG
D withheld fees that = due to the claimant
Claimant issued claim (inter alia) for the fees
D counter claimed for damages – express + implied misrepresentation (breach of contract due to H leaving)
Held: supply of logos, images + photoshoot = continuing representation that none of the SGs had any intention to leave prior to the agreement being made
Any agreement made after the Wembley meeting of content to be used = false representation
Such misrepresentation had induced the D to enter into the agreement
Can a misrep occur through silence?
There is generally no duty to disclose information
Turner v Green (1895)
BUT there are exceptions
Turner v Green (1895)
= problem between the claimant + the D
Case = likely to go to Ct
Claimant heard the result of another case that meant that he might not win if the case went to Ct
Made a settlement with the D
Claimant knew that the other party didn’t know the outcome of the case
What are the 3 exceptions as to when silence can lead to a misrep?
- Only 1/2 told the truth
(Dimmock v Hallett) - Situation has changed
(With v O’Flanagan) - Contracts uberrimae fidei/ good faith
(Lambert v Co-operative Insurance Society Ltd)
Dimmock v Hallett (1866)
Vender of the land told a perspective buyer that the farms = fully let
At the time the statement = made, 2 of the farmers = planning to quit in the near future
Held: liable for misrep
should have said that all the farms = full BUT 2 = planning to leave
only 1/2 told the truth
With v O’Flanagan (1936)
Claimant purchased a medical practice from D
Claimant = induced to buy the practice
D’s statement: practice took £2,000 per annum
Statement = true at the time
BUT D became ill
Many patients went elsewhere
By time the sale = completed the practice was virtually worthless
Held: where a statement = rendered false by a change in circumstances, = duty to disclose the change
Failure to so so = result in an action misrep
Lambert v Co-operative Insurance Society Ltd (1975)
Woman = renewing an insurance policy
Covering her + husband’s jewellery
Didn’t disclose that her husband had recently been convicted of conspiracy to to steal + theft - sentences 15 month in prison
Held: insurance company = entitled to terminate the policy - she had failed to disclose this material fact
Claimant not realising this = a material fact = irrelevant
What does s2 Consumer Insurance (Disclosure and Representations) Act 2012 state?
(relation to insurance contracts)
Consumers do not have to volunteer material facts, but must take reasonable care not to make a misrepresentation to the insurer
What does the Insurance Act 2015 state?
relation to insurance contracts
Non-consumer insurance contracts
Businesses have a duty to make a fair representation of risk
Does the misrep have to be the only factor influencing the claimant?
Cases?
No
Edgington v Fitzmaurice
JEB Fasteners Ltd v Bloom (1983)
Ds prepared an audited set of accounts for manufacturing company
Value of company’s stock had been incorrectly stated
Ds = aware when the prepared the accounts that the company had liquids problems + = seeking financial support
Claimants took over the company for a nominal amount
Primary reason = obtain services of 2 company directors - v experienced
Company = not as successful as hoped
Claimed for negligent misrep in the audited accounts
CA: dismissed JEB’s claim
= duty of caste owed by D to JEB
BUT purchasers would have gone ahead with the transaction anyway - 2 company directors
= no misrep
Atwood v Small (1838)
Purchasers of a mine = told exaggerated statements as to its earning capacity by the vendors
Purchasers had these statements checked by their own expert agents
Reported them as being correct
6 months after the sale, claimants discovered that the Ds statement had been false
Sought to rescind the contract with the vendors - misrep
Held: = no misrep
purchasers didn’t rely on the representations made by the vendor
Purchaser = relied on the verification of their agents
Will failing to make inquires/ check-over documents prevent a misrep claim?
Case?
No it will not prevent a claim
Redgrave v Hurd (1881)
Redgrave v Hurd (1881)
Solicitor purchased into the partnership in the solicitors’ firm
Told partnership had an income of £300 per year
= given opportunity to look at accounts
Declined the offer + took them at their word
Income = actually £200 per year
Held: claimant = entitled to rescind the contract
He had relied on the statement
The fact that he had declined the offer to check the books reinforced rather than negated that reliance
Does the reliance of the misrep have to based on proof that the rep was believed?
Case?
No, reliance does not have to be based on proof that the representation was believed to be true
Hayward v Zurich Insurance Co Plc (2016)
Hayward v Zurich Insurance Co Plc (2016)
Insurance company had had suspicions about the extent of Mr H’s clams to have been injured at work
BUT couldn’t make any clear allegations against him
Lord Clarke: = sufficient that the insurance company had done as much as it reasonably could do to investigate the position before settling with Mr H
Rescission = possible
What are the 4 types of misrep?
- Fraudulent misrep
- Negligent misrep
- Innocent misrep
- Negligent Misstatement
What is fraudulent misrep similar to?
Similar to the Tort of deceit
Is negligence sufficient for a claim of fraudulent misrep?
No - has to be an element of dishonesty
All elements have to be in place to prove fraud
What case set out the requirements for fraudulent misrep?
What are the 3 requirements?
Derry v Peek (1889)
Lord Herschell - Fraud = proven when it is shown that a false representation has been made:
- knowingly or
- without belief in its truth or
- recklessly careless whether it be true/ false
‘to prevent a false statement being fraudulent, there must, I think, always be an honest belief in its truth’
What statute provides the basis for a negligent misrep claim?
Misrepresentation Act 1967
Who has the burden of proof under Misrepresentation Act 1967?
What do they have to show?
(negligent misrep)
Burden of proof shifts to the D
Have to show = reasonable grounds for making the statement + believing that statement to be true
If D = unable to show grounds, negligence = assumed
What happens if the D is unable to show grounds for making the statement?
(negligent misrep)
Negligence will be assumed
Burden of proof lies on the D - have to show that they weren’t being negligent
What is innocent misrep?
Party has made a statement with an honest belief in its truth + has reasonable grounds for that belief
Hedley Byrne + Co v Heller + Partners Ltd (1964)
Claimant = advertising agency
Asked D bank for a reference in respect of 1 of its clients (customer of the bank)
Bank replied: agency could assume that its client would be able to meet its financial obligations
Agency’s client was intact unable to do so
HL: negligent statements could attract liability
Liability would extend beyond pure economic loss
Liability arises is:
1. D carelessly makes a false statement to the claimant, and
2. the circumstances are such that it = reasonable to assume that the statement will be relied upon, and
3. = ‘special Rship’ between the parties
HL in Hedley Byrne + Co v Heller + Partners Ltd:
‘Liability arises if….’
- D carelessly makes a false statement to the claimant, and
- the circumstances are such that it’s reasonable to assume that the statement will be relied upon, and
- = ‘special Rship’ between the parties
Reaffirmed in Caparo Industries Plc v Dickman (1990)
What case reaffirmed the ruling in Hedley Byrne + Co v Heller + Partners Ltd?
Give the 4 requirements held in this case
Caparo Industries Plc v Dickman (1990)
- A duty of care must exist
- Must be reasonable reliance
- Sufficient proximity between the parties
- It must be just + reasonable to impose the duty of care in relation to the statement
How is negligent misrep defined under statue?
s.2(1) Misrepresentation Act 1967
= statement made without reasonable grounds for belief in its truth
What is negligent misstatement?
A false statement of fact made honestly but carelessly
= only actionable in tort if there has been breach of a duty to take care in making the statement that has caused damage to the claimant
What are the 3 types of damages available at CL?
- Recission
- Damages
- Indemnity
What statute provides remedies for misrep?
What remedy is this?
Misrepresentation Act 1967
Damages
Will rescission automatically occur?
NO!
Contract = ‘voidable’ NOT ‘void’
What is the difference between a ‘voidable contract’ and a ‘void contract’?
Void - of no legal consequence
Voidable - can make the decision as to whether they want to go ahead with the contract
choice rests with the aggrieved party
Who has the choice to rescind the contract?
What happens until then?
How does a party rescind?
Case?
The aggrieved party
Until the choice is made, contract remains valid + enforceable
To rescind, the aggrieved party = expected to give notice to the other party
Car and Universal Finance Co Ltd v Caldwell (1965)
Car and Universal Finance Co Ltd v Caldwell (1965)
D sold Jaguar car to a rogue, Norris
Had paid £10 cash deposit
Left another car as security, gave cheque for £965
D wet to cash the cheque the next day
Cheque = fraudulent, car given = stolen
D reported incident to police - IOT try and rescind the contract
Rouge had sold the car to a 3rd party
Held: D had successfully rescinded the contract
By informing the police, indicated that he had the intention to rescind the contract
Had taken all possible steps
If the claimant had not have done this, the rouge would have been able to pass the title of the car
What are the 5 ‘bars to rescission’?
- Affirmation - Long v Lloyd
- Lapse of time - Leaf v International Galleries
- Rights of 3rd parties - Car and Universal Finance Co Ltd v Caldwell
- Impossible to restore parties to original positions - Clarke v Dickson
- Damages in lieu of rescission is a better remedy
How does affirmation prevent rescission?
Case?
Won’t be available if the claimant has affirmed the contract
Either by expressly stating that they intend to continue with it/ intention to continue can be implied by conduct
Long v Lloyd (1958)
Long v Lloyd (1958)
Claimant purchased a lorry from D
Lorry = advertised in a newspaper - ‘exceptional condition’
Claimant phoned, arrange viewing - told = in 1st class condition
Brought the lorry
Claimant noted some faults with the lorry
D offered to pay 1/2 of the repairs
Claimant accepted
Lorry later broke down completely
Wished to rescind the contract - brought action for innocent misrep
Held: contract had been affirmed by accepting 1/2 the £ for the repairs
How can a lapse in time prevent rescission?
Case?
Fraudulent misrep - time runs from the point which the fraud = discovered
Non-fraudulent misrep - time runs from the date of the contract itself, not date of discovery
Leaf v International Galleries (1950)
Leaf v International Galleries (1950)
Claimant brought a painting for the D
D: = Constable
5 years later, claimant discovered that it was not
Sought rescission - misrep
CA: = too late to rescind the contract
How might the rights of 3rd parties prevent rescission?
Case?
If goods are obtained under misrep + sold in goo faith to a 3rd party, the contract cannot be rescinded allow the party to whom the misrep = made to recover the goods from the 3rd party
Car and Universal Finance Co Ltd v Caldwell(1965)
How will the impossibility of restitution prevent rescission?
Case?
Rescission will not be available if it is impossible to return the parties to their pre-contractual positions
Clarke v Dickson (1858)
What was held in Clarke v Dickson (1858)?
Contract could not be rescinded as the shares were essentially worthless
Would be impossible to return the parties to their pre-contractual state
What 2 types of misrep can claim for damages?
- Fraudulent misrep (tort of deceit)
- Derry v Peek (1889) - Negligent misrep (tort of negligence)
- using Derry v Peek (1889) principles
NOT available for innocent (non-negligent) misreps
What is indemnity?
Case?
Operates alongside rescission
Allows recovery of necessary expenses which are directly related to obligations arising from the contract
Has quite a limited scope
Whittington v Seale-Hayne (1900)
Whittington v Seale-Hayne (1900)
Claimant = induced to buy a farm based on a misrep of the farmer selling it
Claimant paid fro many repairs before trying to rescind the contract
Ct: awarded indemnity for such expenses - would have to be paid by whoever had possession of the farm
BUT scope = limited to expenses incurred which benefited the D
Claimant received no indemnity for the loss of stock/ profits
s2(1) Misrepresentation Act 1967…
Allows damages to be awarded to a party if damages would have been available to them, had the misrep been fraudulent
What is the measure of damages?
Same as for a tort of deceit
Royscot Trust v Rogerson (1991)
s2(2) Misrepresentation Act 1967…
Allows the Cts to award damages in lieu of rescission
What did the case of Salt v Stratstone Specialist Ltd (2015) not about ‘in lieu of rescission’?
The words ‘in lieu of rescission’ carries the implication that rescission is available
