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Misrepresentation Vitiating Factors: Misrepresentation Fraud à a form of misrepresentation Misrepresentation: One party enters into a contract on the basis of something that another party has told them, and this is not in fact true. From the outset, distinguish between misrepresentation (false statement of fact/law that induces a contract) and contractual term. Difference between misrepresentation and warranty (a contractual term): Warranty a. A term in the contract between the parties b. A separate contract between the parties Leading decision on difference between representations and warranties: Heilbut, Symons & Co v Buckleton [1913] If you give a contractual promise a warranty, whether it is a term of an existing contract or forms the basis of a separate contract, and it is in fact not good, then the contract is broken and you can seek damages. If however, the statement is merely a representation, if it’s not true you don’t get damages for breach of contract. At most you can establish that the representation is actionable as a misrepresentation. Lord Moulton on warranties: “animus contrahendi (intention to contract)” Þ Importance of the statement, the more important the statement the more likely for it to be a contractual form. Þ Reliance put on this statement by the parties. Þ Relative knowledge of the two parties, where a more experience + knowledgeable party makes a statement that he knows the other is relying upon, it is more likely for this to be a contractual term. Oscar Chess Ltd v Williams [1957] Lord Denning: How you determine whether something is a warranty or a representation is done on an objective basis, doesn’t look into the minds of the parties but decides whether or not it would appear that they intended the statement to be a warranty. Breach in warranty sounds in damages. Representation is not a contract but can claim damages. To get damages in representation, you must show that it is misrepresentation. English law is hesitant to impose positive duties on people. Only occurs in a limited number of contracts, e.g. insurance – must disclose all relevant details. Mentality from idea that if you make a statement, you assume liability. ----- When approaching exam questions: Q: Is this statement a warranty or representation? Þ Importance Þ Reliance Þ Relative knowledge If a contractual term is breached, it is a warranty. Is it a term of the contract? If no, then consider whether it is a representation. If warranty: This will take you down a contractual route. You’re looking to see if it’s a term in the contract, and if so, has it been breached? 1. Is this statement a term? What is the nature of this term? Is it a term of the principle contract, or does it form a collateral contract on its own right? If no, no remedy. 2. Work out what the substance of this term was. 3. Has this term been breached? 4. If yes, are damages available + how to calculate? Calculate damages – measured on an expectation basis (put you in the position you would have been in if the contract had been performed) If the answer is no damages available, then it is not a warranty. Look instead at whether it is actionable as a misrepresentation. If representation: Misrepresentation is a separate area of law; damages are calculated in tort. Different from damages for breach of contract. If a contract is entered in misrepresentation, the contract can be rescinded. Calculation of damages on tortious principles. 1. Is the statement actionable as a misrepresentation? Applicable criteria* must be applied. If not actionable as a misrepresentation, there is no remedy. 2. If yes misrepresentation, what type? o Fraudulent o Innocent o Negligent o Statutory* à Misrepresentation Act 1967 (too generous in contract to mistake) To establish which type of misrepresentation: a. Proof of which type b. Different remedies 3. What remedies are available? Determined by the type of misrepresentation. o Rescission o Indemnity (payment of expenses necessary to return party to their original position) o Damages ----- Criteria for Actionable Misrepresentation* 1. Representation is false. With v O’Flanagan [1936] The statement must be continuingly true. It cannot be true at the time of negotiation but not true when entering the contract. Conlon v Simms [2006] Duty to disclose, failure of which is false. 2. Representation is statement of fact, not of opinion Bisset v Wilkinson [1927] Vendor said how many sheep the land could hold. Was wrong but no damages because it was just opinion. "If a reasonable man with the vendor's knowledge could not have come to the conclusion he stated, the description of that conclusion as an opinion would not necessarily protect him against rescission for misrepresentation, but what was actually the capacity in competent hands of the land the purchasers purchased had never been, and never was practically ascertained." Two exceptions: a. Professional opinion on the basis of skill or expertise à Esso Petroleum Ltd v Mardon [1976] Having taken the position of and expert giving their opinion so it takes this out of the general principle that the representation must be one of fact, not of opinion. b. Opinion based on fact or exclusive knowledge à Smith v Land and House Property Corp (1884) "the facts are equally known to both parties, what one says to the other is frequently nothing but an expression of opinion . But 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 material fact, for he impliedly states that he knows facts which justify his opinion." Bowen LJ 3. Representation is one of fact, not of intention Wales v Wadham [1977] Statement of future intention is not actionable as a misrepresentation. Statement of intention = something you intend to do in the future. Exception: Cannot misstate your current intention. Edgington v Fitzmaurice [1885] Current intention is a fact, but whether it occurs in future is not actionable under misrepresentation. "there must be a misstatement 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 misstatement of fact." 4. Representation may be one of law Pankhania v Hackney London Borough Council [2002] If the representation is one of law then it is actionable. 5. Representation is addressed to the party misled Must be result of communications between misrepresentor + misrepresentee. This can occur through a third party à Commercial Banking Co of Sydney v Rh Brown and Co [1972] 6. Representation is intended to be acted upon, not “mere puff” “Sales talk” is restricted à e.g. ‘whiter than white’, Ironbru slogan 7. Representation induces the contract, i.e. is material to the agreement JEB Fasteners v Marks, Bloom and Co [1983] The statement was a factor which induced the contract. ----- Types of Misrepresentations What is necessary for proof? A. Fraudulent Derry v Peek (1889) 1. Knowledge of its falsity; 2. Have no belief in the truth of the statement; or 3. Made recklessly If one of these criteria is met it is actionable. Followed in East v Maurer [1991]. If proven fraudulent, there are generous damages available. Cannot receive double recovery. Fraud is hard to prove. Unlikely that it is a fraudulent misrepresentation. Courts don’t like the find fraud, the criteria is more rigorous because of the criminal implications of fraud. B. Innocent Easier to prove, a statement was made but it was wrong. Difficulty is no right to damages, the most you would get is indemnity. Innocent misrepresentation might get rescission of contract + indemnity. C. Negligence In the 1960s, things changed in the law of misrepresentation. Hedley Byrne & Co Ltd v Heller Partners Ltd (1964) Standard of proof: Þ Duty of care Þ Assumption of responsibility. "if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise." [at 502-503] Esso v Mardon was also negligent. "if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another - be it advice, information or opinion - with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable. If he negligently gives unsound advice or misleading information or expresses an erroneous opinion, and thereby induces the other side into a contract with him, he is liable in damages." [at 16] Caparo Industries plc v Dickman [1990] Court tried to limit the number of people to which this duty can be passed.
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