MISREPRESENTATION FRAMEWORK
The law imposes a duty not to make any false statements of fact or law to the other contracting party and thereby inducing them to enter the contract.
1. Was it a representation or a promise?
1.1 Promise: is where the statement maker accepts obligation to do or not to do something; or
1.2 Representation: is statement asserting the truth of certain facts.
2. Was it a misrepresentation?
There are 3 requirements here you need to consider:
2.1 Unambiguous false statement of existing fact or law, not:
2.1.1 Mere puffs - statements that are so vague (unspecific) that they cannot be a promise which is incorporated into the contract as a term . The more specific the less likely to be puff – Carlill v Carbolic
2.1.2 Statements of opinion or belief which are unfounded are not misrepresentations – (Bisset v Wilkinson). In Bisset v Wilkinson – Farm vendor represented to prospective purchaser that, in his opinion, the land could carry 2000 sheep. It could not. It was held this was not misrepresentation because it was an honest opinion. If the farmer said it could hold 2000 but did not genuinely think that then it would then this could be an actionable be misrepresentation. Nonetheless, the courts will infer that the representation must be made with "reasonable care and skill" where the representor has more information than the representee – (Esso v. Mardon). (if done without skill liable for misrepresentation even if honestly believed so). The case of Esso v. Mardon involves a misrepresentation in which representatives of Esso told a station buyer that a redesign would not have an impact on sales. Yes, it did. Seen as having "special knowledge and skill in forecasting and were held to represent they made the forecast with reasonable care and skill( Esso distinguished out from Bisset and were held accountable.
2.1.3 A statement of intention - A claim of the truth that a fact exists or existed is known as a representation. It is a factual statement. As a result, it cannot make any references to promises or future occurrences. Therefore, if the representor promises something about a future goal but is unable to carry it out or if circumstances change and he decides not to pursue that desire, it is not considered a misrepresentation.
2.1.3.1 A person who fails to carry out his stated intention does not make a misrepresentation (he honestly represented his intention at the time) (Wales v Wadham)
2.1.3.2 Misrepresentation of present intention is a misrepresentation because it is a false statement of facts (Edgington v. Fitzmaurice). In Edginton v Fitzmaurice the directors of a corporation asked the public to purchase bonds, claiming that the proceeds would be used for corporate expansion, but the funds were intended to settle outstanding debts of the company; found accountable for misrepresenting.
2.1.3.3 Statements of law used to not give rise to an action but do now – In Pankhania v London Borough of Hackney during an auction for a car park, occupied by NPC under a assured business tenancy, the defendant misrepresented the state of the law saying that NPC has a licence which induced the claimant to purchase.
3. Which is addressed to the party misled; and
3.1 Direct communication
3.2 A representation made by A to B would also make A liable to C where it was reasonable for A to foresee that the representation would be passed onto C and C would act upon it – Smith v Bush.
4. Which induces the contract
a) If the misrepresentation was of a kind that would influence a reasonable man's decision about whether to engage into the terms of this contract, it "induces."
b) The court will assume that misrepresentation did incite the representee if it would have done so for a reasonable person. Showing that the representee did not, in fact, depend on the representation is the representor's responsibility.
c) If the other party would not be influenced by the misrepresentation, then the burden of evidence is with the representee to demonstrate that it did influence them.
d) It is not necessary for misrepresentation to be the only enticement; it is sufficient to have an inducement that is active on the mind of the representee.
5. A person may rely on a misrepresentation even though he had, but did not take, the opportunity to discover the truth – (Redgrave v Hurd). In Redgrave v Hurd concerned a innocent misrepresentation about the worth of a solicitor's business led to the individual being committed to the purchase of the practice; he was permitted to cancel the agreement despite the fact that he had the chance to examine the accounts and, as a result, uncover the truth (but did not do so).
6. Was there a duty to disclose?
6.1 There is no general duty to disclose – thus a party is justified in not disclosing certain information but once he disclosed, he must do so truthfully – or else misrepresentation.
6.2 Exceptionally, a person is bound to disclose facts where he:
6.2.1 Fails to correct a statement falsified by change of circumstances before contract formation. A representation once made, is deemed to be a continuing representation so that once it becomes false to knowledge of representators, and he fails to correct it, it becomes a misrepresentation (With v O’ Flaggan). In With v. O' Flaggan, the buyer was required to report a change in circumstances; the vendor became sick, rendering the medical practice worthless.
6.2.2 Communicates a "half-truth," which is accurate in its literal sense but omits important details (Notts Patent v. Co Butler). Here Butler questioned whether there were restrictive covenants on the property in, claimed not to be aware of any and did not mention that he had not bothered to check.
6.2.3 Falsifies by actions (omits to undo the impression created (Ward v. Hobbs). In Ward v. Hobbs, when animals were brought to the market, intentionally ill, and sold "with all fault"); the court concluded that, in the absence of "all faults," he would have implicitly conveyed that the pigs were healthy when he brought them to the market.
7. Was liability for the misrepresentation excluded?
7.1 Under Common Law a representor cannot exclude liability for his own fraud (but can for negligent or innocent misrepresentation).
7.2 Under statute (s3 Misrepresentation Act 1967) - any terms limiting liability due to misrepresentation or limiting remedies available to the other party in the event of such misrepresentation is subject to the requirement of reasonableness in s11(1) of Unfair Contract terms Act 1977.
7.3.1 Applies to both business and non-business liability. In Walker v Boyle the case shows usage example – the clause excluding recission for misrepresentation when seller said she knew of no boundary disputes to property being sold, when she should have known there was such a dispute.
8. Is the representation for a term of the main contract? (if so, remedies for breach of contract instead of misrepresentation).
8.1 Key point: depends on the intention of the parties as objectively manifested by words and conduct – (Oscar Chess v Williams).
9. Remedies for misrepresentation
9.1 All types of misrepresentation entitle representee to rescind the contract:
9.1.1 Aims to put C in the same position as before the contract was entered into.
9.1.2 Contract will be set aside, and Claimant is entitled to recover value of enrichment Defendant has received under contract.
9.1.3 Recession does not occur automatically when a misrepresentation is made. It just makes a contract voidable (as opposed to void). A decision to rescind must be brought to the notice of the representor by:
9.1.3.1 Restoring what he had obtained.
9.1.3.2 Seeking a declaration contract is invalid; and
9.1.3.3 If misrepresentation by an untraceable rogue it is not necessary to bring to his attention by notice.
9.1.4 The right to rescind may be lost by affirmation of the contract (expressly or by conduct) by representee after he discovered the truth. E.g. paying rent, using purchased goods. Note: still has right to damages
9.1.5 Provided there is no element of double recovery, Claimant may rescind and claim damages.
10. Damages alongside rescission
10.1 Damages are claimed for the financial loss suffered. The aim of damages is to put the Claimant in position he would be in were the tort (fraud/negligence) not committed – damages correct reliance.
10.2 Claim does not lie in contract but rather in tort and under statute (since contract set aside).
10.3 Fraudulent
10.3.1 Proved when a false representation has been made either: (Derry v Peek)
10.3.1.1 Knowingly;
10.3.1.2 Without belief in its truth; or
10.3.1.3 Recklessly/ carelessly whether it be true of false.
10.3.2 In fraudulent damages (but not negligent) Defendant is liable for all damages directly flowing from the fraudulent inducement whether Defendant could have foreseen such consequential loss (Smith v New Court v Scrimgeour Vickers)
10.4 Negligent
10.4.1 Applies where representor can be said to have assumed responsibility in having undertaken (although not necessarily contracted) to exercise care ensuring the accuracy of the statement – (Hedley Byrne v Heller). In Hedley Byrne v Heller the Claimant wanted to book advertising space for their clients on terms that if their clients defaulted Claimant would have to pay. Claimant thus asked their clients bank to assure their financial soundness. The bank said they were good for such transactions. They were not. The House of Lords said claim would have succeeded due to responsibility assumption (but for an exclusion clause the bank gave).
10.5 Statutory
10.5.1 The party making the misrepresentation is liable to the other in damages unless he can prove that he had reasonable grounds to believe and he did believe up to the time that the contract was made, that his statement was true - s2(1) Misrepresentation Act 1967
10.5.1.1 “Reasonable grounds to believe” in fact requires thoroughness. In Howard Marine v Ogden the Defendant hired barges from Claimant who represented that the deadweight capacity was heavier than it actually was. He based his representation on the figure in Lloyd’s Register (the “shipping bible” de fact standard) which was incorrect (unusually), instead of the ship’s documents. This overlaps quite a lot with Common Law negligence claim – but better (no need for Hedley relationship).
10.5.1.2 Damages are assessed “as if representator has been fraudulent” thus the same remoteness rules apply. In Royscott v Rogerson Claimant’s (finance company) policy not to enter HP transaction unless 20% of purchase price was put to the dealer. Defendant put down 16% but falsely stated that Mr. R had paid more. Mr. R stopped paying instalments and sold the car. Held that Mr. R’s selling the car was a direct consequence of Defendant’s negligence and so the loss could be recoverable. The result of case is that there is little practical point in suing in tort of deceit since you can recover the same measure of damages under s2(1) without even proving representor was negligent.
10.5.1.3Damages payable under s2(1) may be reduced on the grounds of representee’s contributory negligence (Gran Gelato Ltd v Richcliff).
10.5.2 The court has a discretion to award damages in lieu of recession in the case of innocent representations where the court thinks it equitable to do so (s.2(2) Misrepresentation Act). In Sindall plc v Cambridgeshire CC the Defendant had innocently failed to disclose the existence of a private foul sewer running across the land (reducing value by £17k); value of land dropped from £5m to £2m (other factors). Claimant argued they could rescind; CA found no misrepresentation. The court said if there had been they would have exercised discretion to give damages instead because loss caused by Claimant by relatively insignificant misrepresentation was trifling in comparison to the loss which Defendant would have experienced had the contract been rescinded.
10.5.3 Courts may invoke s2(2) where representee has been induced to enter what has turned out to be a bad bargain for him.
10.5.4 Damages should be less than under s2(1) because representor is innocent here (i.e. should be less than full reliance).
10.5.5 Presumably the difference in price between value as misrepresented and as actually was at that time.
