Remedies for Misrepresentation

Question 1

What is the relationship between the type of misrepresentation and the relevant remedy given?

Answer 1

If there is an actionable misrepresentation then the type need be established so as to determine the appropriate remedy to prescribe.

Question 2

What are the four key types of remedies a party may seek after an actionable misrepresentation?

Answer 2

(1) Rescission
(2) Indemnity
(3) Damages
(4) Claim for breach of contract

Question 3

What is rescission as a remedy for misrepresentation?

Answer 3

Rescission is the ‘basic’ or ‘standard’ type of remedy, it is an equitable remedy available for all types of misrepresentation that gives the innocent party the opportunity to set-aside the contract and return the parties to their pre-contractual positions.

Question 4

What choice does the remedy of rescission give to the innocent party? (1)

Answer 4

It gives the innocent party the choice of whether they affirm the contract - leading to it being treated as a ‘good contract’ - or reject the contract - leading to it being set aside.
Authority - Lord Atkinson in Abram Steamship Co

Question 5

What must be given following an actionable misrepresentation?

Answer 5

Where an actionable misrepresentation has occurred notice of this must be given to the other (generally offending) party.

Question 6

What are the three exceptions to the requirement to give notice? (1)

Answer 6

There is no requirement to give notice;
(1) Where it is impossible to trace the other party and provide notice
Authority - Carr & Universal Finance Co Ltd v Caldwell
(2) Commencement of legal proceedings is sufficient to imply notice
(3) Repossession of property is sufficient to constitute notice

Question 7

What are the five potential bars to rescission?

Answer 7

(1) Affirmation
(2) Lapse of time
(3) Impossibility of rescission
(4) Third Party Rights
(5) Discretion of the courts under the MA 1967

Question 8

How is affirmation a bar to rescission? (1)

Answer 8

If the claimant has affirmed the contract after becoming aware of the misrepresentation he will lose the right to rescind it.
Authority - Long v Lloyd

Question 9

What actions may a potential claimant take to avoid loss of the right to rescind following affirmation?

Answer 9

The right to rescind is not lost if corrective action is taken following discovery of the misrepresentation.

Question 10

Is a successful sale necessary for affirmation to have occurred? (1)

Answer 10

No a successful sale is not necessary.

Authority - Re Hop and Malt Exchange and Warehouse Co Ex Party Briggs

Question 11

How is a lapse of time a bar to rescission? (1)

Answer 11

Where a significant period of time has lapsed the courts may refuse to grant rescission.
Authority - Leaf v International Galleries

Question 12

Why is the distinction between fraudulent and non-fraudulent misrepresentations important in relation to lapse of time as a bar to rescission?

Answer 12

For non-fraudulent misrepresentations the time period begins from the date of the contract whereas for fraudulent misrepresentations it begins from the date the fraud could reasonably have been discovered.

Question 13

Is there a specific time limit/requirement to prevent loss of rescission through lapse of time?

Answer 13

No, the courts determine what constitutes a reasonable period of time on a case-case basis.

Question 14

How is impossibility of rescission a bar to rescission?

Answer 14

Rescission generally requires that the parties are put back into their pre-contractual positions, in some cases, however, this is not possible and thus rescission is impossible/inappropriate/unavailable.

Question 15

In what instances may impossibility of rescission arise? (2)

Answer 15

(1) Where the exchanged goods have perished or been destroyed.
Authority - Clarke v Dickson
(2) Where the value or condition of the exchanged goods has changed.
Authority - Vigers v Pike and Erlanger v New Sombrero Phospate Co

Question 16

What discretion do the courts have when dealing with impossibility of rescission?

Answer 16

The courts have the discretion, in some cases, to order rescission while allowing for financial adjustments to take account of the inability to make full restitution.

Question 17

How are third party rights a bar to rescission?

Answer 17

A misrepresenee may be prevented from claiming the return of property via rescission where that property has subsequently been acquired by a third party.

Question 18

What are the two requirements the third party must meet in order to avoid loss of property through rescission? (1)

Answer 18

(1) The third party must be bona fide - meaning they provided some form of consideration.
(2) They must have been unaware of the earlier misrepresentation.
Authority - Crystal Palace Football Club Ltd v Dowie

Question 19

Why do third party rights overrule the right to rescission?

Answer 19

Rescission is a personal right against the representor and so cannot be used to defeat the rights of a third party.

Question 20

How is the discretion of the courts under the 1967 MA a potential bar to rescission?

Answer 20

Under s 2(2) of the 1967 MA the courts have the ability to exercise discretion to award damages in lieu of rescission, hereby forfeiting the party’s right to rescission.

Question 21

How may rescission be used in conjunction with other remedies? (1)

Answer 21

(1) Where there is additional loss suffered beyond that solvable by returning the parties to their pre-contractual positions the remedy of damages for wasted expenditure may be available under s 2(1) of MA 1967
(2) In accordance with the objective of rescission to restore the parties to their original position rescission may be claimed alongside indemnity so as to end any existing obligations incurred through the contract.
Authority - Newbigging v Adam

Question 22

What is indemnity and a remedy for misrepresentation?

Answer 22

…

Question 23

Where may be indemnity be available as a remedy?

Answer 23

In cases of innocent misrepresentation where the right to rescission has been lost and damages are unavailable there is the possibility of indemnity as a remedy.

Question 24

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Answer 24

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Question 25

What are damages as a remedy for misrepresentation?

Answer 25

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Question 26

When may damages be considered as a remedy for misrepresentation?

Answer 26

They, like indemnity (and all other remedies), should only be considered if rescission is found to be unavailable or inappropriate.

Question 27

What does the measure of damages available to a party depend on?

Answer 27

The type of misrepresentation.

Question 28

What damages are available following fraudulent misrepresentation?

Answer 28

As it is grounded in the tort of deceit claimants are entitled to ‘tortious damages’ i.e. out of pocket expenses - the aim of these damages is to restore the party’s to the position they would have been in had the misrepresentation not been made.

Question 29

What is the nature of the remoteness test applied to fraudulent misrepresentation in regards to damages? (2)

Answer 29

A remoteness test is applied to determine what damages can be awarded, it is, however, a fairly unrestrictive one - the misrepresentee can recover for all the direct loss incurred as a result of the misrepresentation regardless of foreseeability.
Authority - Doyle v Olby Ltd
Authority - Smith New Court Securities Case Ltd

Question 30

Which case saw it established that negligent misrepresentations at common law may also be recoverable as tortious damages? (1)

Answer 30

Hedley v Byrne - up to this point it was believed on fraudulent damages could be recovered.

Question 31

Does there need to be a contract for recovery of damages for a negligent misrepresentation?

Answer 31

No, there is no requirement of a contract - a statement leading to a financial loss is sufficient grounds.

Question 32

What type of damages are available following negligent misrepresentations at common law?

Answer 32

Damages are available on the same tortious basis as fraudulent misrepresentation, but the test of remoteness if of more relevance/significance.

Question 33

What are the two potential measures of damages available following negligent misrepresentation under statute?

Answer 33

1. Section 2(1) of the Misrepresentation Act 1967

2. Section 2(2) of the Misrepresentation Act 1967

Question 34

What is a prerequisite of any damages claims under s 2(1) of the 1967 MA?

Answer 34

There must be a contract between the statement maker and the person to whom the statement was made.

Question 35

What are the advantages of damages claims under statute rather than through common law?

Answer 35

(1) There is a reversal of the burden of proof

(2) The fiction of fraud

Question 36

What are the procedural assumptions in regards to damages claims under s 2(1) of the 1967 MA?

Answer 36

The claimant has to establish that an actionable misrepresentation has occurred but from this point on it is assumed that the defendant was negligent and the burden of proof to disprove this lies with him.

Question 37

What level of damages are available under s 2(1) of the 1967 MA? (1)

Answer 37

Damages are assessed on the same basis as if the misrepresentation was fraudulent - tortious measure of damages.
Authority - Royscot Trust Ltd v Rogerson

Question 38

What is the impact of the remoteness test of damages in regards to s 2(1) of the 1967 MA? (1)

Answer 38

Like with fraudulent misrepresentation the test is very wide - the only real question is one of causation, if the misrepresentation caused the loss it is most likely recoverable, only where there is an intervening act will this change.
Authority (for intervening act) - Naughton v O’Callaghan

Question 39

What is the fiction of fraud issue? (1)

Answer 39

Why are individuals who commit innocent, but negligent misrepresentations held to the same standard as those that do so fraudulently?
- Potentially unwise
- Wide-wording of the section should empower a purposive adoption by the court
Authority - Steyn in Smith New Court Securities

Question 40

What discretionary power is afforded to judges under s 2(2) of the 1967 MA?

Answer 40

This section gives the judge discretionary power to award damages in lieu of rescission - seemingly enabling individuals subject to innocent misrepresentations to receive damages (under a judges discretion).

Question 41

What is a prerequisite for the application of s 2(2) (discretionary power)?

Answer 41

The section empowers judges to exercise discretion to award damages instead of rescission - rescission, however, must be available on the the facts of the situation for this section to be applicable.

Question 42

What is a frequent reason for the exercising of this discretion by judges?

Answer 42

It is often exercised on the basis that the proposed rescission would be too drastic a measure.

Question 43

What will the court consider when determining whether rescission would be too drastic a measure to impose? (1)

Answer 43

1. The type of misrepresentation
2. The loss upholding the contract would cause the representee compared to the loss rescission would cause to the representor
   Authority - William Sindall Plc v Cambridgeshire County Council

Question 44

Are damages generally appropriate as a remedy for innocent misrepresentation?

Answer 44

No, generally (in theory at least) they are not considered an appropriate remedy but the courts circumnavigate this position quite easily via s 2(2) of the 1967 MA

Question 45

What is a claim for breach of contract?

Answer 45

…

Question 46

How is a claim for breach of contract a possible remedy for misrepresentation?

Answer 46

…

Question 47

Can a party exclude liability for it’s own fraudulent misrepresentation? (1)

Answer 47

No

Authority - S Pearson & Sons Ltd v Dublin Corporation