Vitiating elements Flashcards
dysi
Barton v Armstrong [1976] A.C. 104
duress to the person
This case concerns physical duress/duress to the person and does not apply to economic duress, under which the threat must be a ‘but for’ cause and a significant cause:
To establish duress of the person, a threat need not be the primary or ‘but for’ cause of the threatened party entering into contract, it only needs to be a cause
in favour of the appelant
Barton (C) had agreed in a deed to buy out Armstrong (D)’s interest in a company. C sought a declaration that the deed was void for duress, alleging that D threatened to murder him.
First instance : The judge denied the claim as he found that the primary reason for C to contract was commercial necessity
Appeal: Lord Cross : Though C might have entered into the agreement even if D had made not threats, the threats have in fact contributed to his decision
Skeate v Beale (1840) 11 Ad & E 983
duress to goods
Held: Duress to goods will not suffice to render a contract voidable
In favour of the claimant
A landlord was owed money by a tenant. He seized goods owned by the tenant and threatened to sell them immediately unless the tenant entered an agreement for repayment of the sums owned. The tenant agreed to the repayment terms but then sought to have the agreement set aside for duress.
The Siboen and The Sibotre [1976] 1 Lloyds Rep 293
duress to goods
The contract couuld be set aside and following the judgement of Kerr J, the court seemed to have begun a sort of doctrine of economic duress
The plaintiffs (i.e. claimants) hired a couple of ships from the defendants, who then made a threat saying they would go bankrupt if the defendants did not renegotiate. The plaintiffs knew the shipping industry wasn’t doing so well so exploited this and the defendants reluctantly agreed. The defendants then changed there mind because of the improper pressure, but the plaintiffs sued for breach of contract
Pao On v Lau Yiu Long [1980] A.C. 614
economic duress
Commercial pressure, such as a threat to abandon a transaction, does not equate economic duress.
this case defined the category of economic duress.
“Duress, whatever form it takes, is a coercion of the will so as to vitiate consent”. (Lord Scarman, 635) In a contractual situation, mere commercial pressure will not be sufficient.
The pressures “must be such that the victim must have entered the contract against his will, must have had no alternative course open to him and must have been confronted with coercive acts by the party exerting the pressure.” [at 636] . . . “It must be shown that the payment made or the contract entered into was not a voluntary act on his part.” [636]
Atlas Express v Kafco (Importers and Distributors) Ltd [1989] 1 All ER 641.
economic duress
the contract was voidable for ED
Kafco Ltd. had a contract to supply Woolworths with baskets. They had a ‘trading agreement’ with Atlas Express for at least six months to undertake the deliveries. Atlas Express realised it had underestimated the size of cartons to be carried, so it was costing more to deliver. Kafco would not vary the price. On 18 November 1986,[1] Atlas sent an empty truck to Kafco, with a letter saying if a higher charge was not agreed to, the truck would leave empty. Kafco would go broke without the contract, so they “felt compelled to sign”.[1] Later, Kafco refused to pay, and argued there was economic duress, and also no new consideration.[2]
Kafco also successfully argued that Atlas had given no consideration for its promise to pay more money on the basis that Atlas was merely performing an existing contractual duty
DSND Subsea v Petroleum Geo-Services (2000) [2000] B.L.R. 530
ecocomic duress
Dyson, J.:
‘The ingredients of actionable duress are that there must be pressure,
(a) whose practical effect is that there is compulsion on, or a lack of practical choice for, the victim,
(b) which is illegitimate, and
(c) which is a significant cause inducing the claimant to enter into the contract . . .’ (need not be the only cause)
=> the contract becomes voidable for duress
set out the test for duress
DSND (C) was carrying out construction work as a subcontractor for PGS (D) on oil rigs
Due to a change in the work to be done, C suspended its work pending the signing of a contractual variation to ensure that insurance included the new type of work based on a genuine concern with the risk involved
Under financial pressure, D entered into the contractual variation
D sought to escape from the contractual variation on the ground that it had been induced to enter by duress
CTN Cash & Carry v Gallaher [1994] 4 All E.R. 714
economic duress (lawful act duress)
The Court of Appeal held that the transaction was valid. The court would not set it aside for economic duress. Relevant factors included:
The defendant believed in good faith that the claimant owed them the money.
The fact that the defendant was under no legal obligation to offer access to credit services;
The mere fact that the defendant was in a dominant position was insufficient on its own to turn legitimate pressure into illegitimate pressure.
This Case is Authority For…
The mere fact that the defendant used lawful means to exert pressure does not necessarily preclude the defence of economic duress.
Whether the defendant is acting in good faith in exercising the pressure is a critical factor in determining whether it is legitimate or not.
The claimant operated a ‘cash and carry’ business. The defendant was their supplier. The defendant had absolute discretion in granting the claimant access to credit facilities. They threatened to cut off the claimant’s line of credit unless they were paid a sum of money. The defendant honestly, but incorrectly, believed that they were owed the money.
If the claimant refused to pay, this would seriously jeopardise their business since the defendant effectively had a monopoly on the market. The claimant paid the sum, but later sought to have the transaction set aside for economic duress.
Times Travel (UK) Ltd v Pakistan International Airlines Corpn [2021] UKSC 40
economic duress (lawful act duress)
Held : Appeal dismissed : economic duress requires a threat (or pressure exerted) by the defendant that is illegitimate + that illegitimate threat (or pressure) caused the claimant to enter into the contract + no alternative
as there is no duty of good faith in english law ⇒ rare to establish a lawful act duress in a commercial setting == An illegitimate pressure in a commercial transaction required behaviour with ‘reprehensible characteristics’ in order to set aside the transaction on the basis of economic duress.
‘bad faith’ does not suffice
Times Travel UK (‘Times Travel’) are a travel agent. At the time of this case, their business depended almost entirely on selling flight tickets on commission for the respondent airline. The respondents were the only airline to offer direct flights to Pakistan. When some of the airline’s other agents were bringing a claim for back commission, the airline pressured Times Travel not to take part in this action. They reduced Times Travel’s allocation of tickets from 300 to 60 per fortnight and gave notice that they were terminating their contract. Whilst Pakistan Airlines were within their legal rights to do these things, such actions would effectively end the agent’s business. Therefore, Times Travel were in much the weaker bargaining position. The airline offered them a new contract, on a ‘take it or leave it’ basis: per Lord Hodge, at para.58. This new contract included an onerous waiver, which released the airline from any obligation to pay Times Travel back commission, the largest of which was a claim of £1.215m: Richards LJ [2020] Ch 98, para.26. Times Travel’s representatives wanted to take away the contract in order to consider it, but the airline refused. After entering into the new contract, Times Travel sought to set it aside for economic duress and claim the back commission.
Halpern v Halpern [2007] EWCA Civ 291
duress (recision)
Held — The common law remedy of rescission on the ground of duress required an ability to give counter-restitution. Thus, a party could not avoid a contract procured by duress in circumstances where he could not offer the other party substantial restitutio in integrum. Rescission at common law on the ground of fraudulent misrepresentation required an ability to give counter-restitution. The logic of rescission was that parties were put back into the position they would have been had there been no contract. That logic required an ability to give counter-restitution. There was no reason why the nature of the remedy of rescission or the circumstances in which it was available should differ depending upon whether the ground of rescission was fraud or duress
An inheritance dispute involving the claimants and the defendants was compromised by an agreement. One of the clauses of the compromise agreement required that all documents relating to the agreement be destroyed. The claimants subsequently brought proceedings against the defendants claiming damages for breach of the compromise agreement. They applied for summary judgment, and were successful in striking out certain parts of the defences. One of the remaining pleaded defences was that the compromise agreement had been procured by duress. The judge noted that the destruction of the documents relating to the agreement had benefited the defendants and prejudiced the claimants. He noted that the destruction could not be undone and that pecuniary relief could not put the claimants in as good a position as they would have been in if the agreement could have been rescinded and matters restored to the position before the agreement had been made. He therefore ordered the hearing of a preliminary issue as to whether a party could avoid a contract procured by duress in circumstances where he could not offer the other party restitutio in integrum.
Heilbut, Symons & Co v Buckleton [1913] AC 30
m/r (representation or warranty)
Whether a representation becomes a term of the contract (or forms a collateral contract) depends on whether the parties objectively intended it to be so. It cannot be presumed that a person intends to be contractually bound by every representation of fact.
. Factors which were important in this case to the finding that the statement was a mere representation included:
- The fact that the classification of the company did not objectively appear important to the claimant;
- That the defendant’s response to the claimant’s question about the prospects of the company was merely expressing an opinion (‘a firm of their standing would not be bringing it out if they did not believe it to be all right’);
- The natural meaning of the words used did not express or imply any contractual warranty; and
- The fact that the claimant was the first to mis-label the company as a rubber company: the defendant merely failed to correct him and never adopted that label as their own.
Held in favour of the defendant
The claimant asked the defendant (a firm of rubber merchants) whether they were bringing out a rubber company. The defendant replied that they were. The claimant asked about the prospects of the company. The defendant responded that they were bringing it out. The claimant thought that this was good enough for him. On the basis of this, the claimant bought 5000 shares in the new company from the defendant.
The shares later fell in value. The claimant sued the defendant for breach of warranty or fraudulent misrepresentation. He argued that the new company was not a rubber company, whereas the defendant had represented that it was. The jury held that there was no fraudulent misrepresentation. However, they went on to hold that the defendant had given a warranty which they had breached. The defendant appealed.
Oscar Chess Ltd v Williams [1957] 1 WLR 370
misrepresentation or warranty
C’s claim was rejected
The statement that the car was a 1948 model was not intended to be a term
Lord Denning: “It is sometimes supposed that the tribunal must look into the minds of the parties to see what they themselves intended. That is a mistake. . . . “The question of whether a warranty was intended depends on the conduct of the parties, on their words and behaviour, rather than their thoughts. If an intelligent bystander would reasonably infer that a warranty was intended that will suffice.”
The seller (D) represented a car sold to a motor dealer (C) as a 1948 model as it was stated so in the car’s registration book
The car was actually a 1939 model, thus the price was inflated
When C found out that the car was a 1939 model, C brought a claim for breach of contract, claiming that it was a term of the sale agreement that the car was of the 1948 model
Dimmock v Hallet (1866) LR 2 Ch App 21
Misrepresentation (false statement)
= the misrepresentation must be false
= The Court of Appeal held that although the statement about the land being “fertile and improvable” was merely a “flourishing description” and did not entitle the buyer to rescind, telling only a half truth about the tenants constituted good grounds for m/r
An 934-acre (3.78 km2) estate was about to be auctioned off to discharge a debt to a mortgage. The estate included three parcels of land called “Bull Hassocks Farm”, “Creyke’s Hundreds” and “Misson Springs”. The advertisement for the auction described the Bull Hassocks Farm as having “fertile and improvable land”, and described in the particulars that each parcel was let out to paying tenants (the first two to Mr R Hickson and Misson Springs to a Mr F Wigglesworth). However, it was not mentioned that the tenants had, by the time of the auction, already given notice to quit the property. The eventual buyer, Mr Dimmock, sought rescission of the contract for misrepresentation
Conlon v Simms [2006] EWCA Civ 1749
misrepresentation (non-disclosure)
In some case non-disclosure can ammount to m/r : in the context of negotiations for a partnership, a party to those negotiations was under a duty to make a disclosure of matters affecting (or likely to affect) his status as a partner, and that failure to make such disclosure gave rise in law to a claim for damages.
***
the principle of caveat emptor did not apply to the making of a partnership agreemen
Context of partership agreements between sollicitors
With v O’Flanagan [1936] Ch 575; [1936] 1 All ER 727.
misrepresentation (silence, change of circumstances)
keeping silent about a statement which is true when made but subsequently becomes false can be a misrepresentation => continuing duty until formation of contract.
Now formalised in the m/r Act 1967 s 2(1)
The claimant bought a medical practice from the defendant. During negotiations, the defendant told the claimant that the profits for the business were £2000 per year. This was true at the time. However, by the time of contracting circumstances had changed. The profits were substantially lower. The defendant failed to tell the claimant this. When the claimant found out, they sued for rescission of the contract.
Bisset v Wilkinson [1927] AC 177
misrepresentation : statement of fact
The m/r must be one of fact not of opinion
Wilkinson agreed to purchase land from Bisset for the purpose of sheep farming. Wilkinson took possession of the land but soon after experienced difficulties and did not make the interest payments when they fell due. When Bisset brought an action to recover the overdue interest payments Wilkinson sought to have the agreement rescinded, alleging that Bisset had misrepresented that the land ‘had a carrying capacity of 2000 sheep if only one team were employed in the agricultural work of the land’. The Court set the agreement aside. Bisset appealed arguing that it was a statement of fact not opinion.
As both parties were aware, the appellant had not and, so far as appears, no other person had at any time carried on sheep-farming upon the unit of land in question. That land as a distinct holding had never constituted a sheep-farm + Never ascertained the capacity since the defendants are inexperienced ⇒ statement ofopinion
Esso Petroleum Ltd v Mardon [1976] QB 801
misrepresention : statement of fact (exception )
When A is in the business of making forecast = actionable m/r
=> The Court of Appeal held that there was no action for misrepresentation as the statement was an estimate of future sales rather than a statement of fact. However, the claimant was entitled to damages based on either negligent misstatement at common law or breach of warranty of a collateral contract.
trying to sell a franchise to operate an esso petrol filling station: spot never been used before for petrol filling. They give an estimate (overestimation) of how much they’ll sell
Smith v Land and House Property Corp (1884) 28 Ch D 7
misrepresention : statement of fact (exception : unique knowledge )
Statements of opinion can be statements of fact if they fall within the knowledge of the representor but not the representee => when clear imbalance of knowledge
***
Bowen LJ: “if the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion.”
The claimant put up their hotel for sale. The particulars of sale described the property as being let to a ‘most desirable tenant’ for a rent of £400 over a 7.5 year term.
Pankhania v Hackney London Borough Council [2002] EWHC 2441
misreprepresentation (statement of law)
False Statements of law are false statements of fact that are actionable for misrepresentation.
=> The statement that the occupier was a licensee was an actionable misrepresentation
Damages under s. 2(1) Misrepresentation Act 1967 were awarded to C
applying the House of Lords’ decision in Kleinwort Benson Ltd v Lincoln City Council (1999) to contract law : HLBC owned land to park cars. It’s a statement of fact on whether you can park a car on land but whether you’re allowed to park the car is a question of law.
When the purchaser asks the council what are the rights of the persons who park on this land. The council answered: they have a license but in fact they had a lease.
When it transpired that the purchaser was bound by the lease, he complained but the council claimed that statement of law wasn’t actionable
Wales v Wadham [1977] 1 WLR 199
misreprepresentation (fact not intention)
= only statement of intention = not actionable as m/r
divorce case. Mr. Wales has to make a settlement (=contract). Mrs. Wales has religious beliefs so she will not marry again (=statement of intention) then he must make provisions for her for the rest of her life. Mr Wales finally married Mr Wadham and Mr. Wales argues with m/r in contractual terms to get his money back.
Edgington v Fitzmaurice [1885] 29 Ch D 459
m/r (statement of intention - exception)
C was entitled to damages for the tort of deceit
The prospectus constituted a fraudulent misrepresentation
Bowen LJ: “There must be a mis-statement of an existing fact; but the state of a man’s mind is as much a fact as the state of his digestion. It is true that it is very difficult to prove what the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a mis-statement of fact.”
misstatement of intention
Directors of a company (Ds) released a fraudulent prospectus for a bond issue, which stated that the proceeds would be used to building alterations and business expansion when the true purpose was to pay off company debt
C purchased the bonds partly under the the mistaken impression that he would be granted security and it was admitted that he would have purchased had he thought otherwise
When the company went into liquidation, C sued under the tort of deceit for damages
Limit No2 Ltd v Axa Versicherung AG [2008] EWCA Civ 1231
m/r must be one of fact, not intention
= if a statement of intention is a representation of existing facts => exception to the fact rule
Commercial Banking Co of Sydney v RH Brown and Co [1972] 2 Lloyd’s Rep 360
misrepresentation (addressed at the party misled)
Principle : the misrepresentation must be addressed at the party misled
=> Decision: The court held the bank liable in the circumstances.
Reason: The statement was made by CBCS with the intention that it should be acted on by the plaintiff’s bank or by that bank’s customers who were concerned with obtaining the information. not a requirement that the representation was made directly to P, where D does intend reliance by P. It can be made by a third party as long as it was intended to get to P.
Facts: RH Brown, a woolgrower, wanted to find out if a purchaser of wool was in good financial standing. RH Brown asked their bankers to find out. Their bankers contacted the purchaser’s bank, the Commercial Banking Co of Sydney (CBCS), and made the relevant inquiry. In reply, CBCS represented that the purchasers were “safe for their trading engagements generally”. This was not in fact true, and the manager of the CBCS did not honestly believe it to be true. Having relied on the incorrect information that had been given, and having suffered loss as a result, RH Brown sued CBCS in deceit.
Issue: Was the CBCS liable to RH Brown for a representation made indirectly to RH Brown?
Peek v Gurney [1873] L.R. 6 HL 377
m/r ( intended to induce party into contract + directed at the party)
the misrepresentation must intend to induce the contract / intended to be acted upon
in that case : House of Lords said this was not intended to be read by third parties
Gurney put out a prospectus about certain shares that were being sold, but
the prospectus was only available to certain people
Peek came across this and decided he wanted to buy some of the shares.
Peek was not specific people it was intended for – Peek was a random third
party
=> As a third party could he enforce an action?
JEB Fasteners v Marks, Bloom and Co [1983] 1 All ER 583
misrepresentation (induces the contract)
if the statement does not induce the contract, then it is not an actionable m/r. in this case: however statement does not induce the contract so not an actionable m/r.
accountant negligently prepared the account of the company to prospective purchasers. The latter did not consider them in their decision because it seemed incoherent =
Redgrave v Hurd (1881) 20 Ch D 1
m/r (party induced into contract)
The Court of Appeal held in favour of the defendant. The claimant had made a material misrepresentation, so it was to be assumed that the defendant relied on it. The mere fact that the defendant had the means to discover the truth and failed to do so did not rebut this presumption. The defendant was therefore entitled to have the contract rescinded.
To rebut this assumption, the party must show that the defendant actually knew of facts which made the statement untrue, or that his words or conduct made clear that he did not rely on the statement.
A solicitor purchased into the partnership in the solicitors’ firm. He was told the partnership had an income of £300 per year and was given the opportunity to look at the accounts. He declined the offer to check the accounts and took them at their word. In fact the income was only £200 per year.
Horsfall v Thomas (1862) 1 H & C 90
m/r (material : induce party into contract)
party unaware of the mis-statement -_m/r
=> D was not deemed to be induced to enter into the contract by C’s fraudulent misrepresentation
The claimant (C) delivered a defective gun to the defendant (D) which D would have rejected it had he examined the gun and discovered the defect
C having sued D for the cost cost of the gun, D argued in defence that he was induced to accept the bill by the fraud of C
Atwood v Small (1838) 6 Cl & F 232
m/r (material : induce party into contract)
the party relied on their own judgement so recision denied
=> A misrepresentation is not actionable where its accuracy is independently verified by the representee, even if the verification did not discover the misrepresentation.
D sold mines and steelworks to C.
Prior to the sale, D made representations about the capabilities of the property and C agreed to purchase subject to verifying those statements.
C’s agents verified that they were true, but they were later revealed to be false.
C sought rescission of the contract.
Smith v Eric S Bush [1990] 1 AC 831
misreprensentation must be material
Valuers owe potential mortgagors a duty of care to take reasonable steps to avoid causing economic loss, if they know or ought to have known that the mortgagor will rely on their report without seeking independent verification. T
no misrepresentee’s duty to check info but if checking is reasonable yes
In the first case, the claimant applied to a building society for a mortgage to purchase a house. The building society instructed the defendant surveyors to carry out an inspection and valuation of the property. The defendant’s employee noticed that the chimney breasts were removed. However, he failed to check whether this left the chimney with adequate support. Their report stated that the property did not need any essential repairs. The chimney later collapsed.
The mortgage application form contained a clause disclaiming both the building society and the defendant’s liability for the accuracy of the valuation report. The building society advised the claimant that the report was not a structural survey and that she should seek independent advice.
In the second case, the claimant applied for a mortgage from the first defendant, a local council. The first defendant provided a report on the state of the property, undertaken by the second defendant. It failed to note several structural problems which made the property unsaleable. The application form stated that the valuation was confidential and that the first defendant accepted no responsibility for the value or condition of the house based on the inspection report. They advised the claimant to get their own survey.
Both claimants relied on the reports without seeking further inspections or advice. Both paid a fee to have the reports made. The claimants sued the defendants in negligence. The defendants relied on the disclaimer in the valuation report as excluding their liability. The claimants responded that the disclaimer did not exclude their liability. In the alternative, they argued that the disclaimer was void for unreasonableness under s.2 of the Unfair Contract Terms Act 1977.
SK Shipping Europe Ltd v Capital VLCC 3 Corp (C Challenger) [2022] EWCA Civ 231
misrepresentation must be material
M/R must actually induce the contract: ‘real and substantial’ ROLE for ENTERING INTO THE CONTRACT
Males LJ sets out the legal test :
“The relevant enquiry is whether the claimant would have entered into the contract if the representation had not been made at all, not whether it would have done so if it had been told the true position” [61]
The Court of Appeal upheld the Commercial Court’s decision and dismissed the appeal.
The Court of Appeal emphasized that in general, mere offer of contractual terms will not amount to any representation in the absence of words of representation. In the present case, the offer of guarantee in the charterparty should not of itself be held to involve an implied representation as to current or recent performance of the Vessel.
Doyle v Olby (Ironmongers) ltd [1969] 2 Q.B. 158
Fraudulent m/r and damages
C is entitled to damages for not only the difference between the purchase and sale price, but also the liabilities he has incurred in running the business (all actual damage directly flowing from entering into the transaction induced by fraud, whether foreseeable or not)
C had been D’s fraud to buy an ironmonger’s business for £9500
C later discovered the fraud and sued D for deceit but remained in business in the meantime
After three years, he sold the business for £3,700 but incurred debts in running the business
Hedley Byrne v Heller [1964] AC 465
negligent m/r + duty of care principle
” When a party seeking information or advice from another – possessing a special skill – and trusts him to exercise due care, and that party knew or ought to have known that the first party was relying on his skill and judgment, then a duty of care will be implied.”
D is not liable to C in negligence
Although a duty of care can be owed for negligent misstatement, the disclaimer excluded any duty of care
Duty of care for negligent misstatement arises where there is an assumption of responsibility, and loss is recoverable despite being pure economic loss
C, an advertising agency, sought information on the creditworthiness of a potential client (E) from the client’s bank D
D confirming the credit worthiness of E headed with the disclaimer “for your private use and without responsibility on the part of this bank or its officials”
C entered into contracts with and lost $17,000 when E went into liquidation
C sued D for negligence
Whittington v Seal Hayne (1900) 82 LT 49
innocent m/r - indemnity
prior to 1967 no dammages for innocent m/r
Only rent and cost of repairs were to be restituted to C as indemnity for the misrepresentation.
The loss of poultry, loss of profits and medical expenses were consequential losses that were not recoverable.
=> Indemnity for rescission only covers expenses that were obligated by the contract and benefited the other party.
C entered into a lease of a farm by D’s innocent misrepresentation that the premises were sanitary and in good repair.
However, the water was poisoned due to the state of the premises and led to the death of C’s poultry.
C sought rescission of the contract.
Issue arose as to which of the following expenses or losses incurred by C were recoverable under restitution from D:
rent paid,
cost of repairs carried out in compliance with a local authority order, and/or
loss of poultry, loss of profits and medical expenses.
Playboy Club London Ltd v Banca Nazionale del Lavoro SpA [2018] UKSC 43
negligent m/r + duty of care principle
However, the bank was not held liable because when the playboy club called, they did not say who they were.
= a gambler wants credit at the Playboy club. The club called the person’s bank ( under a fake identity) who said that it was ok. The bank had not taken care in ascertaining his finances.
Henderson v Merrett Syndicates Ltd [1995] 2 A.C. 145
negligent m/r + assumption of responsibilty principle
The HoL : in Hedley byrne v Heller but rather the basis is assumption of responsibility rather than duty of care. In practice, the two may work out to the same
“if a person assumes responsibility to another in respect of certain services, there is no reason why he should not be liable in damages for that other in respect of economic loss which flows from the negligent performance of those services.” [[1994] 3 W.L.R. 761 at 776]
=> D’s were liable in negligence to Cs as they owed them a duty of care
Cs, investors (known as “names”) in Lloyds Insurance Syndicates brought actions against Ds, the managing agents (underwriters) of the syndicates, for substantial losses
Howard Marine and Dredging Co v Ogden & Sons Ltd [1978] 2 WLR 514; [1978] QB 574; [1978] 2 All ER 355
statutory m/r ( reasonableness)
The court says no reasonable grounds = you should have relied on the documents of the vessel => high standard.
Deadweight capacity of the ship. The seller relies on memory of Lloyds list, however the list is false (though it’s a reputable source of information).
Al-Hasawi v Nottingham Forest FC Ltd [2019] EWCA Civ 2242.
statutory m/r
=>high treshold to prove that reasonable reason to believe the representatio to be true
in that case they successfully proved it
Spice Girls Ltd v Aprilia World Service BV [2002] EWCA Civ 15, [2002] E.M.L.R. 27
misrepresentation by conduct
Court of Appeal held = m/r made by conduct (the defendant thought that they were signing a contract with the whole group when one one of their member was about to leave and the claimant knew it)
On 9 March 1998, Halliwell informed the other members of the Spice Girls of her intention to withdraw from the group, yet the group signed an agreement with AWS on 24 March and again on 30 April, and participated in a commercial photo shoot on 4 May in Milan, eventually concluding a contract with AWS on 6 May 1998.
Royscot Trust v Rogerson [1991] 2QB 297
negligent misrepresentation (under statutory m/r) - damages s 2(1)
⇒ The Court of Appeal awarded damages of £3,625.24 for the difference between the amount paid by Royscot to Maidenhead (£6,400) and the amount paid by Rogerson to Royscot (£2,774.76).
= damages under s2(1) Misrepresentation Act 1967 are the same as the tort of deceit and are not subject to foreseeability
The defendant was a car-dealer. They agreed to sell a car on hire-purchase terms to a customer. They contracted with the claimant, a finance company, to finance the deal. However, they overstated the value of the car and the deposit payable by the customer. If they had told the claimant the real figures, the claimant would not have agreed to finance the deal. The customer dishonestly sold the car to a third-party and stopped paying the hire-purchase fees.
The claimant sued the defendant for damages under theMisrepresentation Act 1967, alleging negligentmisrepresentation. A dispute arose as to how damages should be assessed.
Long v Lloyd [1958] 1 WLR 753
bars to recission (misrepresentation)
= court held that C was barred from rescinding the contract
=> If a contractual party is aware of the facts that created the right to rescind and yet still chooses to continue the contract, this constitutes affirmation and bars the party from rescission.
The claimant (C) bought a lorry which the defendant seller (D) represented was in ‘exceptional condition’, of a certain speed and fuel consumption. However, the lorry had multiple defects but after being aware of it the plaintiff kept on enforcing the contract, ultimately , the lorry broke down ⇒ C sued D for rescission of the contract on the grounds of innocent misrepresentation
Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111 (QB)
principle of good faith
the duty of good faith was implied and vreached by ITC
=⇒ the english courts recognise an implied duty of contract (assessed objectively) when it comes to certain contract terms;
- Claimant Yam Seng PTE Ltd (“Yam Seng”) is a company based in Singapore that entered into a distribution agreement with Defendant International Trade Corporation Ltd (“ITC”), a company based in England.
- The distribution agreement was for ITC to distribute Yam Seng’s products in specified territories in the Middle East, Asia, Africa, and Australasia. The agreement included clauses relating to mutual trust and good faith, as well as provisions for the termination of the agreement.
- Yam Seng sued ITC for breach of contract, including late deliveries, refusal to make agreed products available, and generally failing to perform the contract in good faith.
- Yam Seng claimed that ITC had breached the implied duty of good faith and that the parties had intended this duty to be part of their contract.
4 Eng Ltd v Harper and Simpson [2008] EWHC 915 (Ch)
m/r remedies
Damages for loss of the chance to purchase an alternative company (make profit somewhere else), if caused by a defendant’s fraudulent misrepresentation and a claimant’s reliance on it, were recoverable in an action for deceit, and the foreseeability of such a head of loss was irrelevant.
The defendants sold the entire issued share capital of E Ltd, a company which they owned and managed, to the claimant company. The claimant brought proceedings against the defendants for deceit arising out of their alleged knowledge of the falsity of a number of express representations contained in the sale agreement on which it had allegedly relied. The claimant sought, inter alia, damages for loss of the chance to earn income and capital profits from T Ltd which, the claimant submitted, it would have purchased had it not been induced by the defendants’ fraudulent misrepresentations to buy E Ltd.
William Sindall plc v Cambridgeshire County Council [1994] 3 All ER 932
m/r (damages in lieu)
D’s statements did not amount to misrepresentation and thus C is not entitled to rescind
Even if misrepresentation had been found, it would not have been equitable for the contract to be rescinded, damages in lieu would be granted
=> Damages in lieu under 2(2) Misrepresentation Act 1967 (‘MA 1967’) should be calculated on a contractual basis
The discretion to award damages in lieu under s2(2) MA 1967 should have regard to the relative importance of the misrepresentation to the transaction
C agreed to purchase land for development from the Country Council (D) at £5m
D represented that they were not aware of any easements over the land
After the sale had been completed, a private sewer was found under the site
The value of the property also fell drastically to around £2m due to market conditions unrelated to the private sewer
C sought rescission for misrepresentation
Salt v Stratstone Specialist Ltd (t/a Stratstone Cadillac Newcastle) [2015] EWCA Civ 745
damages in lieu; under s 2(2) - fraudulent m/r
recission of contract awarded
=> The delay was not sufficient to bar rescission either. The claimant did not become aware that there was a problem for a significant amount of time, and so could not have sued earlier. Additionally, part of the delay was due to the defendant refusing to engage with the claimant and the normal litigation process. Therefore, the contract was rescinded.
This Case is Authority For…
Rescission is available for misrepresentation so long as ‘practical justice’ can be done. Restitutio in integrum only becomes impossible if the contract’s subject matter ‘been consumed or changed in some important way’ or there has been an interposition of third-party rights.
Delay is not, on its own, a bar to rescission. Roth LJ explained that delay only bars rescission if there is a ‘lapse of a reasonable time such that it would be inequitable in all the circumstances to grant rescission’. He described this as ‘in essence the principle of laches’. This generally requires the claimant’s conduct to amount to a waiver of their right to rescind.
Other
The power under s.2(2) of the Misrepresentation Act 1967 to grant damages in lieu of rescission only arises if rescission is possible. This means that if the power to rescind has been lost (for example, due to delay), the court has no power to award damages in lieu.
The defendant was a car dealer who sold the claimant a car. He wrongly told the claimant that the car was ‘brand new’ when it was not. After a year, the car exhibited defects and the claimant tried to get a refund. The defendant refused.
The claimant sued to have the contract rescinded for misrepresentation. The defendant responded that any claim for rescission was barred due to the claimant’s delay. They also argued that it was not possible to put the parties back in their original position (restitutio in integrum). This was because the car had been sold unregistered, and the claimant had since registered it. As such, the claimant could not return an unregistered car to the defendant.
Car & Universal Finance v Caldwell [1965] 1 QB 525
The nature of recission
Rescission is barred where the subject matter of the contract is sold to third-party bona fide purchaser without notice of the misrepresentation, before any intention to rescind is communicated to representor
However, it is possible to rescind without communication to the representor where such communication is impossible
=> There was valid rescission before sale to a bona fide purchaser without notice
It was held that the police report was enough to rescind the contract so D got no title to the car
C owner of a Jaguar was induced by fraud to sell it to a rogue who absconded and could not be traced
Once the cheque was rejected C immediately notified the police and asked them for help in recovering the car
The fraudulent buyer then sold to a buyer, and it was exchanged through sale until reaching the hands of D (C & U)
Archer v Brown [1984] 2 All ER 267
fraudulent m/r- damages
=> you can recover damages for m/r and rescind the contract but not to the extent that you receive double indemnity.
Held, (1) that the plaintiff, having obtained judgment both in contract for misrepresentation and in deceit, could recover damages in deceit, which would include repayment of the purchase price of the shares; that the measure of such damages was all expenditure reasonably and properly incurred in consequence of and flowing directly from the deceit, whether before or after the date of the rescission of the agreements
The defendant induced the plaintiff, by means of fraudulent representations, to conclude two agreements by which the defendant purported to sell all the shares in a company to the plaintiff, who took out two loans in order to pay for them. The plaintiff also concluded a service agreement with the company under which he was to be its managing director. The defendant had in fact owned no shares in the company, and as a result of his frauds the plaintiff became unemployed and heavily in debt, and was deeply upset. The defendant was convicted of two offences in respect of the frauds and imprisoned. The plaintiff brought an action claiming, inter alia, rescission of the agreements with the defendant, repayment of the purchase price, damages for deceit or, alternatively, breach of contract, exemplary damages for deceit, and aggravated damages in respect of his injured feelings. The defendant’s defence was struck out and the plaintiff entered judgment against him.
defendant conceded that the plaintiff was entitled to rescission and repayment of the purchase price but contended that he was not entitled to any damages.
On the questions whether the plaintiff could recover damages in deceit, what the true measure of such damages was, and whether exemplary damages or aggravated damages for injured feelings could be awarded on a claim in deceit:-
Leaf v International Galleries [1950] 2 KB 86
bars to recission - mistake as to quality
the case of Nicholson & Venn v Smith-Marriott(1947) 177 L.T. 189 is a slight contradiction
The claim based on misrepresentation was successful however, since it was an innocent misrepresentation, the claimant had lost the right to rescind the contract through lapse of time. With innocent misrep the time starts to run from the date of the contract not the date of discovery.
The claim based on mistake was unsuccessful as the mistake related to the quality and did not render the subject matter something essentially different from that which it was believed to be. He believed he was buying a painting and he got a painting.
The claimant purchased a painting from the defendant. Both parties believed that the painting was by the artist Constable. In fact 5 years later the claimant discovered the painting was not a Constable. The claimant brought an action based both on misrepresentation and mistake.
Peyman v Lanjani [1985] 2 WLR 154;
m/r - recission
cannot affirm contract if unaware of right to rescind
The defendant entered an agreement for the assignment of the lease of a restaurant to him. In order to obtain the landlord’s consent, the defendant’s agent agreed to impersonate the defendant at an interview with the landlord. Subsequently, the defendant entered into an agreement with the plaintiff for the assignment of the lease. The plaintiff paid the defendant under the contract and occupied the restaurant as manager. A month later, the plaintiff was informed of his right to rescind the contract because the defendant’s actions made his title defective
Bell v Lever Brothers, Ltd (1931), [1931] A.C. 161
mistake as to quality of the SM
At the HoL held (3:2) that the contracts are good. => Not void under mistake as to the quality of the SM as it was not sufficiently fundamental to not render the severance agreements void.
‘If mistake operates at all it operates so as to negative or in some cases to nullify consent. The parties may be mistaken in the identity of the contracting parties, or in the existence of the subject-matter of the contract at the date of the contract, or in the quality of the subject-matter of the contract. These mistakes may be by one party, or by both, and the legal effect may depend upon the class of mistake above mentioned.’ [per Lord Atkin]
Lever bros is a “soap empire” : He is approach by a company in West Africa (Niger Company) that sells palm oil. He buys the company but the NC was bankrupt.
Bell & Snelling have a contract of employement with Lever brothers. The owner dies, Lever now managed by Francis Darcy Cooper. B& S are secretly bidding against the company in the cocoa trade => breach of their contract of employment in the way that they could be fired(terminable at LB’s option) but LB does not know about the secret trade . B and S get termination contracts, (subject matter = employment contract + quality of the subject matter =these contracts can be terminated at LB’s option)
It’s pled that there was a mistake of payment . The jury finds that the contracts are void as to the quality of the subject matter(upheld at the court of appeal). **
Ingram v Little[1961] 1 QB 31
unilateral mistake (identity)
Where parties contract face-to-face, and one party assumes the identity of the other person, the court must consider to whom the offer is addressed. This is determined by reference to who the promisee ought to have interpreted the offer.
In this case, the offer was made at the businessman.
NB: This case seems to conflict with Philips v Brooks (1919) and Lewis and Averay (1972)
BUT At the beginning of negotiations, identity of buyer was of no importance, C were content with selling to any purchaser
But they accepted cheque on the basis that he was an affluent individual
in favor of the claimant => void for mistake
The claimants owned a car, which they sold to a rogue. When the rogue attempted to pay by cheque, they informed him that they would only accept payment by cash. To reassure them, the rogue pretended to be a reputable businessman living at a particular address. The claimants checked, and a businessman by the same name did live at that address. The claimants agreed to accept payment by cheque. As expected the cheque was invalid and the rogue sold the car to a third party. The claimants were treated as having made the offer to the real businessman, not to the rogue. Since the rogue was incapable of accepting the offer on the businessman’s behalf, there was no contract due to the mistake.
+ Delvin LJ dissenting : the innocent parties should share the loss
Phillips v Brooks[1919] 2 KB 243
unilateral mistake (identity)
Where parties contract face to face, the courts will normally presume that they intend to contract with each other (so not void for unilateral mistake) – regardless of whether each party is telling the truth about their identity.
the contract voidable for fraud + not be rescinded (bona fide buyer)
- A rogue pretended to be Sir George Bullough, a rich and famous playboy.
- The rogue bought a ring from C’s store, C allowed him to take the ring before the cheque cleared.
- The rogue later sold the ring to D, a bona fide purchaser who had no notice of the fraud.
- Upon discovering the fraud when the cheque was declined, C sued D in tort for conversion.
Lewis v Averay [1972] 1 QB 198
mistakeas to identity - face to face
A contract can only be void for mistake if one party is mistaken as to a fundamental term of the contract. When parties contract face-to-face, they are presumed to intend to contract with that physical individual.
NB: Lord Denning and Megaw LJ disapproved of the decision in Ingram v Little [1961] 1 QB 31. The facts of Ingram, Lord Denning argued, are impossible to distinguish from the similar case of Phillips v Brooks Ltd [1919] 2 KB 243, where the court reached the opposite conclusion.
A third-party rogue pretended to be a famous actor to get Lewis (C) to accept payment by cheque for a car
Having obtained the car, the rogue pretended to be C and sold car to Averay (D)
When the cheque was declined, C discovered the fraud and sued D for the tort of conversion
Cundy v Lindsay(1878) 3 App Cas 459
unilateral mistake (identity)
Unilateral mistake as to identity renders the contract void when the contract is made in writing
in favour of the claimant => contract void
A third-party rogue (Alfred Blenkarn) pretended to write from a reputable firm. (Blenkiron Co.) and purchased handkerchiefs by mail from C.
The invoice from C was addressed to Blenkiron Co. not Alfred Blenkarn.
The rogue then sold some handkerchiefs to D.
C brought a claim against D for tort of conversion.
Shogun Finance Ltd vHudson[2004] AC 919
unilateral mistake (identity)
underscores that the mistake of identity must go to the root of the contract and be of such significance that it affects the identity of the contracting party with whom the innocent party intended to contract + affirms the difference between contracts in writing and oral
The contract was void for mistake
a fraudster who presented himself to be “Mr. Patel “ used stolen personal information to pose as a legitimate customer and applied for financing to purchase a car from Shogun Finance.
Shogun Finance, unaware of the fraudulent scheme and believing the fraudster, carried out the transaction and provided financing for the car purchase. Later, when the true identity of the parties was revealed, it became evident that “Mr. Patel” had committed a fraud by impersonation to obtain the financing.
Mr. Hudson, as an innocent third party who purchased the car from the fraudster, sought protection under the innocent third party rule, arguing that he acquired the rights to the car in good faith and without any knowledge of the fraudulent scheme.
= The HoL that “section 27 of the Hire Purchase Act 1964 did not avail Mr Hudson because the crook was not the hirer named in the written hire-purchase agreement and therefore he was not the debtor under the agreement.” [17]
The Law Debenture Trust Corpn plc v Ukraine [2023] UKSC 11
*North Ocean Shipping v Hyundai Construction [1979] 3 W.L.R. 129
economic duress (time)
Held : Because NOS didn’t protest then at the time of the contract and the potential ED is irrelevant => there is a binding contract
The claimant was a shipbuilding company. They contracted to build a ship for the defendant for a fixed price in USD payable in instalments. They opened a letter of credit as security to refund the payments should they default on the contract.
After the first payment, the USD devalued by 10%. The claimant insisted that the defendant pay an additional 10% on the remaining instalments. The defendant refused, but when they paid the second and third instalments without a 10% uplift, the claimant refunded the money. The defendant suggested that the parties enter arbitration to resolve the dispute, but the claimant refused.
The claimant continued to insist on the additional 10%, threatening to terminate the contract. By this time, the defendant was negotiating a lucrative contract for the charter of the ship. They told the claimant that though they did not consider themselves obliged to pay the extra 10%, they would do so ‘without prejudice’ if the claimant agreed to increase the amount available under the letter of credit. The claimant agreed.
Issue(s)
Eight months later, after the ship was built, delivered and the payments made, the parties entered arbitration. The claimant sought the return of the additional 10% they paid on two grounds.
That the defendant had not provided consideration for the agreement;
That the contract was voidable for economic duress.
Royal Bank of Scotland v Etridge (No 2) [2001] 3 WLR 1021
Undue influence (presumed)
To raise the presumption of undue influence, it must be proven that there is 1. a relationship of trust and confidence and 2. a transaction which calls for an explanation (new crieria added)
The bank is placed on inquiry where:
In any kind of non-commercial transaction, a creditor is put to an inquiry:
1) the transaction is on its face not to the financial advantage of the wife; and
(2) there is a substantial risk in transactions of that kind that, in having the wife agree to act as a surety, the husband has committed a legal or equitable wrong that entitles the wife to set aside the transaction.
+ the steps to rebut a presumption of UI
The UKSC had to determine eight appeal court cases where homeowners had mortgaged their houses to secure loans contracted by husbands for their respective businesses in which the wives had no direct benefit. The businesses failed and the bank wanted to repossess their houses.
The wives claimed undue influence;
This case departs from the decision in Barclays and O’Brien where Lord brown Wilkinson held that a relationship of trust and confidence is enough raise presumed UI on its own. Here, Lord Nichools ⇒ a relationship of trust and confidence alone is not enough (there must also be a transaction that calls for explanation).
Lloyd’s Bank Ltd v Bundy [1975] Q.B. 326
undue influence (presumed) -
here the UI was with regard to the bank agent
Held ( leading judgement by Eric Sachs): the charge is to be set aside under UI (normal application : father and bank ⇒ fiduciary care
“a relationship under which the complainant generally reposed trust and confidence in the wrongdoer, the existence of such relationship raises the presumption of undue influence”
Lord Denning LJ suggests a broad approach which reunites ui, duress and unconscionability ⇒ inequality of bargaining power. Later rejected by the HoL in National Westminster Bank plc v Morgan [1985] AC 686, 707-708 => Lord Scarman : However, this broad umbrella does not exist in English Law. No relief for inequality of bargaining power: in some instances protection offered by statutes.
e.g. Consumer Credit act 1974; Consumer Rights Act 2015: relief for strict inequality of bargaining power:
A son to an elderly man (C) is creating a company. the son’s company wants to secure an overdraft ( but tbh it’s at the brink of bankruptcy) and C agrees to give the bank (D) charge over his house (sole asset). C recieves advice from an employee of the bank (H) + C had long-term relationship with the bank.
C placed trust and confidence in bank manager for financial advice.
Conflict of interest between the father and the bank.
Boustany v Pigott [1995] 69 P & CR 298
Unconscionable bargain
To establish an unconscionable bargain, not only must the transaction be unfair, it must have been procured by morally reprehensible conduct
Held: The lease was set aside for unconscionable bargain
An elderly woman (C)’s affairs were managed by her cousin
D, knowing that the cousin was away, invited C to a tea party where she flattered C and gave her a ride to the solicitor where C agreed to lease premises to B for less than 1/6 of the market value for ten years
C entered into the transaction despite the solicitor’s advice against it
Credit Lyonnais Bank Nederland NV v Burch [1997] 1 All ER 144
undue influence (unconscionable bargain)
C claim failed; the charge was avoided against D
The severe disadvantage of the transaction to D that C cannot be deemed to take reasonable steps to be discharged of constructive notice
Where a transaction is excessively onerous, the third party has to take steps beyond what was laid out in Barclays v O’Brien to avoid being fixed with constructive notice of undue influence
The relationship of employer and a junior employee (especially in a small company) is likely to give rise to a relationship of trust and confidence, which can be inferred where there is a particularly onerous transaction
Burch (D), a 20-year-old employee, had a close relationship with the owner of the company, Mr Pelosi, she worked at and his family
Pelosi persuaded her to offer her flat as security for the company’s debt
The bank, Credit Lyonnais (C), wrote to D twice to advise her of the unlimited nature of the mortgage, whether it was what was agreed and advised her to seek independent advice
Pelosi dictated to D on what she should reply, and D was not aware of the extent of the company’s debt nor did she obtain independent legal advice
When C issued proceedings for possession, D argued that the mortgage was set aside for undue influence
Gordon v selico
misrepresentation - false
m/r by active concealement
Al-Hasawi v Nottingham Forest FC Ltd [2019] EWCA Civ 2242
Statutory misrepresentation
The court held that there were reasonable grounds because the party making the m/r relied on info from the club responsible officer.
Erlanger v New Sombrero Phosphate Co (1873) 2 App. Cas. 1218
m/r - recission
There is an equitable discretion in cases of substantial restitution to order rescission while allowing for a financial adjustment to take account of inability to make full restitution:
D sold an island for phosphate mining to C for £110,000, but failed to disclose that they bought it just days before for 55K in breach of their fiduciary duty.
C sought rescission of the contract.
Raffles v Wichelhaus (1864) 2 H. & C. 906
bilateral mistake - cross-purposes
= example of cross purposes: one party intends ship 1 and the other party intends ship 2) ⇒ contract is void bc parties at cross purposes
Raffles = established cotton dealer in Liverpool wants to sell the cotton to Wichelhaus coming on the ship Peerless Bombay. In this case, they were two ships Peerless, but they came at different times (October and Different)
McRae v Commonwealth Disposals Commission (1951) 84 C.L.R. 377 (HCA)
mistake as to existence of the SM
the plaintiff was awarded damages for breach of contract.
=> the court held that when one party is responsible for a mistake they cannot rely on the mistake (it would probably fit under the modern M/R Act s2(1)) = the contract is good
at the end of WWII, the CDC sells McRae the right to salvage a tanker at a specific place. But this place does not exist and the tanker did not exist. CDC argues that the contract is void
Sheikh Brothers Ltd v Ochsner (1957), [1957] A.C. 136
common mistake possibility of the performance = physical impossibility
=> void for mistake as essential/fundamental to contract
both partes thought that a crop of land could produce sisal
Cooper v Phibbs (1867) L.R. 2 H.L. 149
common mistake possibility (legal impossibility)
= void at common law : you can pay the lease of sthg you own
The HoL held the contract was voidable and set aside for common mistake. (however, the current law is that common mistake renders the contract void)
- Cooper mistakenly rented a fishery from his cousins, believing them to have inherited the fishery from his uncle.
- In actual fact, his uncle only had a life tenancy of the fishery (a now defunct ownership interest lasting for one’s lifetime) while he held the residual interest, and thus Cooper inherited the fishery after the uncle’s death.
- Cooper sought to have the contract set aside for mistake.
Griffith v Brymer (1903) 19 T.L.R. 434
common mistake as to possibilty of the performance (commercial impossibi
The commercial reason for this agreement does not exist => void for mistake as to the possibility of the performance ( commercial impossibility)
Coronation of King Edward VII – one party rented to another a room to view the coronation. However, there was no coronation on this day because it was canceled.
**Associated Japanese Bank (International) Ltd v Credit du Nord S.A. (1988), [1989] 1 W.L.R. 255
mistake ( quality of the subject matter)
Steyn J at the High Court : this contract (A and Credit) is void as to the quality of the subject matter (contract of A & B).
Quality of the contract of A&B = the existence of the machines = Common mistake + Fundamental – 2nd contract essentially different
contract between A and B for the sale and lease of machines. B owns machine and would pay a monthly rent to lease the machines from A (=tax advantage). A Wanted a guarantee and contracted at Crédit du Nord : in exchange for money, they guarantee that B can pay. Except B never had the machines.
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2002] 4 All ER 689 (CA) :
common mistake as to quality of the SM
⇒ held: C’s claim succeeded as there was no common mistake as to quality of the SM
Lord Phillips added to Lord Atkin’s criteria (in Bell and Lever Brother: common + existence quality: renders fundamentally different) and a mistake is only operative => thus almost never a mistake as to the quality of the SM
A vessel began to sink. The owner contacts T to salvage the vessel. They are mistaken as to what is the nearest vessel to the vessel.
- GPS chartered The Great Peace that was supposedly 35 miles away, but was actually 410 miles away
- D contracted with a nearer vessel and cancelled the charter with C
- The charter provided that D have to pay compensation in the event of cancellation, but D refused to pay
- C made claim for cancellation fee, D argues that contract was void under common law or voidable under equity for common mistake
T raises as defence a mistake as to the quality of the subject matter: which vessel is closer.
Smith v Hughes (1871) LR 6 QB 597
mistake as to terms : promise
=> a retrial was ordered
Hannen LJ p.610: sets out the test for when you have a mistake as to the promise
- The buyer has to be mistaken as to the promise of the seller (here : age of the oats)
- The seller knows of the buyer’s mistake as to his promise
armer comes to a racehorse owner to make a offer to sell oats by showing a sample. The racehorse owner concludes that these are old oats by looking at them and considering the price (only food acceptable for horses). However, when delivery, he realises these are new oats. The farmer sues for the payment of oats.
Trial judge directed the jury to rule that the seller is liable if he knew that teh farmer wanted old oats rather than new oats
Hartog v Colin & Shields (1939), [1939] 3 All E.R. 566
unilateral mistake as to terms
A contract is void if there is a unilateral mistake as to a term in the contract and the other party knows or ought to known of the mistake
Facts
- D sold 30,000 Argentine hare skins to C, by mistake offering them at a price per pound instead of at a price per piece
- When D refused to deliver the goods, C brought claim for breach of contract
King’s Norton Metal Co. v Edridge (1897) 14 T.L.R. 98
unilateral mistake as to identity
Where parties contract at a distance, a person who lies about their identity by inventing a wholly fictitious identity is not lying about any fundamental term of the contract. Such a person is merely lying about their attributes, so the contract cannot be void for mistake.
=> contract not void for mistake, merely voidable for m/r
= the mistake as to identity must be material (real identity)
A rogue ordered goods from King’s Norton Metal. When placing the order, he convinced King’s Norton Metal that he was a wealthy businessman associated with ‘Hallum & Co’. In fact, there was no such company. The rogue then took possession of the goods on credit, sold them to Edridge Merrett and vanished.
King’s Norton Metal sued Edridge Merrett for the return of the goods under the tort of conversion. To establish this, they had to show that their contract with the rogue was void for unilateral mistake. If it is was merely voidable for misrepresentation, then property would have passed to the rogue, who would have passed that property to the claimant before the contract could be voided.
Phillips v Brooks Ltd (1919), [1919] 2 K.B. 243
unilateral mistake as to identity (face to face - inter presentes)
The contract is voidable for fraud
=> Presumption arises when you see them face to face that you intend to deal with that person. The contract is then voidable for fraud and not void for mistake.
he is selling jewelry. A man (rogue) comes in pretending to buy a ring by cheque pretending to be a Lord.
Solle v Butcher [1950] 1 K.B. 671
mistake in equity (recission)
The lease was voidable and set aside
=> Denning LJ sought to lay down an equitable doctrine of mistake, under which contracts would be voidable and not void in this case
equitable doctrine of mistake rejected by the courts in GPS v Tsavliris
The landlord (D) purported to increase rent from £140 to £250.
However, the parties had not abided by the legally required procedure to vary rent under the Rent Acts, as such the actual rent payable by the tenant (C) was fixed at £140 under the law.
C sued D for restitution of overpaid rent.
D made a counterclaim for rescission of the lease on the ground of common mistake so as to avoid paying restitution for rent that was already paid.
F.E. Rose (London) Ltd v William Pim Jnr & Co. [1953] 2 Q.B. 450
mistake in equity (rectification)
The Court held in favour of the defendant. Though the parties were subjectively mistaken as to the nature of ‘feveroles’ and ‘horsebeans’, their objective conduct indicated only an intention to contract for ‘horsebeans’. As such, the claimant was not entitled to rectification.
This Case is Authority For…
Rectification is only available where there is clear proof that the written agreement does not correspond to the contract the parties entered into. It cannot make a new contract. The courts must examine their objective evidence – the subjective beliefs of the parties are not relevant.
The claimants received a third-party order for ‘Moroccan horsebeans described in Egypt as feveroles’. A feverole is a specific type of horsebean. The claimant’s agent did not know what a feverole was, so they asked one of the defendant’s agents. The defendant’s agent responded that they were normal horsebeans and that the defendant could supply them. On this basis, the claimant contracted to purchase ‘horsebeans’ from the defendant. In fact, the beans supplied were not feveroles.
The claimant sought damages for breach of contract. To achieve this, they applied to the court to rectify the contract to add the word ‘feveroles’ after the word ‘horsebeans’. They argued that there had been a mutual mistake, such that the written contract did not reflect the parties’ true intentions.
IFE Fund SA v GSI International [2007] EWCA Civ 811
negligent m/r - damages
need to establish a duty of care to receive damages.
‘The foundation for liability for negligent misstatements demonstrates that where the terms on which someone is prepared to give advice or make a statement negatives any assumption of responsibility, no duty of care will be owed. Although there might be cases where the law would impose a duty by virtue of a particular state of facts despite an attempt not “to assume responsibility”, the relationship between GSI either as arranger or as vendor would not be one of them.’ ([28] per Waller LJ)
Hughes-Holland v BPE Solicitors [2017] UKSC 21, [2017] 3 All ER 969
negliegent m/r - damages - remedies
for negliegent m/r : differentiate advice and information. (info no liab
Lords might have said of the ‘advice’ cases that the client was entitled to the losses flowing from the transaction if they were not just attributable to risks within the scope of the adviser’s duty but to risks which had been negligently assessed by the adviser. If the adviser has a duty to protect his client (so far as due care can do it) against the full range of risks associated with a potential transaction, the client will not have retained responsibility for any of them. The adviser’s responsibility extends to the decision.
[41] “By comparison, in the ‘information’ category, a professional adviser contributes a limited part of the material on which his client will rely in deciding whether to enter into a prospective transaction, but the process of identifying the other relevant considerations and the overall assessment of the commercial merits of the transaction are exclusively matters for the client . . . In such a case . . . the defendant’s legal responsibility does not extend to the decision itself. It follows that even if the material which the defendant supplied is known to be critical to the decision to enter into the transaction, he is liable only for the financial consequences of its being wrong and not for the financial consequences of the claimant entering into the transaction so far as these are greater.
AXA Sun Life Services plc v Campbell Martin Ltd [2011] EWCA Civ 133
exclusion of liability for m/r
GR : Entire agreement clauses generally do not exclude liability for prior misrepresentations s 2(3) of the M/R Act 1967
D (AXA) had committed fraudulent misrepresentation against Cs. Clause 24 of AXA’s contract with Cs states: “This Agreement…herein constitute the entire agreement…this Agreement shall supersede any prior promises, agreements, representations, undertakings or implications whether made orally or in writing” (an “entire agreement clause”)
Issue arose as to whether clause 24 excludes liability for misrepresentation
Raiffeisen Zentralbank Osterreich AG (RZB) v The Royal Bank of Scotland PLC (RBS) [2010] EWHC 1392
exclusion of liability for m/r
the relevant inquiry is whether:
- ‘ whether the alleged representation was made (or…was intended to be understood and acted on as a representation) or whether it excludes or restricts liability in respect of representations made, intended to be acted on and in fact acted on’.
- one other concern is whether ‘the clause attempts to rewrite history ‘ = if yes likely to be an unvalid restriction of liablity.
Exception : case where the exclusion of liability for m/r clause was deemed effective.
Zurich Insurance Co plc v Hayward [2016] UKSC 48; [2016] 3 WLR 637
m/r must be material - induces the party into contract
The Supreme Court held that the trial judge was entitled to find as a matter of fact that Z was induced to enter into the settlement agreement by H’s misrepresentations, although it did not believe them and had carried out its own investigations
Chartbrook Ltd v Persimmon Ltd [2009] UKHL 38
& FSHC Group Holdings Ltd v GLAS Trust Corp Ltd
mistake in equity - rectifictaion
sets out the legal test
in FSHC Group Holdings Ltd v GLAS Trust Corp Ltd => Overruling/refining Chartbrook, the test for rectification of a common mistake is objective where rectification is based on a prior contract but subjective where it is based on a common continuing intention.
Couturier v Hastie
common mistake as to existence of the SM
The court held that the contract was void because the subject matter of the contract did not exist at the time the contract was made
A cargo of corn was in transit being shipped from the Mediterranean to England. The owner of the cargo sold the corn to a buyer in London. The cargo had however, perished and been disposed of before the contract was made. The seller sought to enforce payment for the goods on the grounds that the purchaser had attained title to the goods and therefore bore the risk of the goods being damaged, lost or stolen.
Barclays Bank plc v O’Brien [1994] 1 AC 180
presumed undue influence - de facto relationship - bank
A transaction with a third party can be avoided if the third party has actual or constructive notice of undue influence
(or if the person exerting undue influence is an agent of C - unlikely)
+ the division between de facto and legal relationships in influence acepted by the HoL ( class 2a and 2b)
+ detailed the steps to be taken into account to rebut constructive notice ( fac to face personal meeting + urge to take independant legal advice)
A husband persuaded his wife (D) to mortgage their matrimonial home to Barclays (C) so as to secure an overdraft for his business
The husband misrepresented the true extent of liability under the overdraft
The branch executing the mortgage had received but ignored instructions to ensure that the wife was aware of the risk and to advise her to consult a solicitor
When the husband defaulted, C sought to enforce the mortgage
D claimed that the mortgage was avoided against her due to misrepresentation from her husband
Derry v Peek (1889) 14 App Cas 337
fraudulent misrepresentation
A tort of deceit is proven where a false representation is made knowingly, without belief in its truth or recklessly, careless whether as to whether it is true or false.
A company’s prospectus stated that its tramways had the right to use steam power when it did not due to a lack of consent from the Board of Trade. C bought shares relying on the prospectus. The company was wound up and its directors (Ds) were sued for damages in the tort of deceit.
National Westminster v Morgan [1985] AC 686
undue influence
rejects the theory of inequality of bargaining power
there had been no UI, the contract was upheld
D and her husband bought a house on a mortgage from a building society
When the mortgage payment fell into arrears, the husband asked the bank (C) to refinance the loan
The bank manager obtained D’s signature for a legal charge on their on the house
When the husband defaulted on the loan, C sought possession of the house
D argued undue influence in defence
Huyton v Cremer
it was held that duress needed to be a ‘but for’ cause of entering into the contract.
Daniel v Drew [2005] EWCA Civ 507
actual & presumed UI divide acknowledged
Huyton v Peter Cremer
Duress needs to be a but for cause of entering the contract
Kolmar Group v Traxpo
breaches of contract are likely to amount to illegitimate pressure
Tjong Very Sumito and others v Chan Sing En and others
third-party duress requires actual or constructive notice
Tamplin v James
equitable mistake
the seller had not done any m/r so not buyer not entitled to resisit order of SP
A seller sold property in a sale-room under the description:
‘All that inn with the brewhouse, outbuildings, and premises … situate at N., NOS. 454 and 455 on the tithe map, and containing by admeasurement twenty perches more or less.’
The sale-room also provided plans of the property. At the back of the land were unfenced gardens which were not part of the sale. The buyer was acquainted with the land but did not realise that the gardens were not part of the sale. They did not look at the plans.
SAUNDERS V ANGLIA BUILDING SOCIETY [1971] 3 ALL ER 961
non est factum
Court refused non est factum because what she believed to occur was not much different from the reality of what happened (e.g. here she was relinquishing her right of ownership of the property)
Case involved a 78 year old widow. She wanted to help her nephew financially raise money. The nephew was going through a divorce and got a friend to help with the transaction. The widow wanted to let her nephew live at the house rent free for life. A document was drawn up to give effect to the agreement and she signed it without reading it because she did not have her reading glasses. She said that there was non est factum
