Misrepresentation
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5 – MISREPRESENTATION Contract law does not have specific principle requiring disclosure, but there are certain cases where it is needed. Where there is misrepresentation, non-disclosure or mistake, the possible responses are: 1. The contract is void ab initio 2. The contract is voidable via rescission 3. The contract can be rectified to correct the mistake (see previous supervisions) 4. Damages can be awarded to remedy the wrong Where the issue is a statement made in course of negotiations, the remedy will depend on classification of the statement: 1. Contractual term (a ‘warranty’) – damages for breach of contract, possibly termination for breach (depending on nature of term) 2. Misrepresentation – rescission (subject to bars), and potential tort or Misrepresentation Act 1967 damages At one point, misrepresentation could be ground for rescission and damages were available only under the tort of deceit if there was fraud; no damages for innocent misrep. In Hedley Byrne v Heller (1964), HOL made clear breach of the DOC to avoid negligent misstatement could give rise to damages. 1967 Misrepresentation Act extended damages under s 2(1) to the case of misrepresentation inducing a contract where the representor cannot prove absence of negligence or bad faith. This made inference of collateral contract less necessary, although still necessary because representations as to future are harder to fit in scope of Act. Categorising statements made in negotiations Mere puffs These have no legal effect, they mean nothing - Dimmock v Hallett (1866) (auctioneer claim that land ‘fertile and improvable = puff) - Cf. Carlill v Carbolic Smoke Ball Co (1893) (CBS tried to claim promise puffery; Bowen said extravagant promise was with aim to profit, should be bound) Contractual Terms (warranties) The test is whether parties objectively intended it to be a term (see identification of terms – S3) - Heilbut, Symons & Co v Buckleton (1913) (Moulton: question is whether there is “evidence of an intention by one or both parties that there should be contractual liability in respect of the accuracy of the statement”) A misrepresentation can be a contractual term, but does not need to be to ground a misrep claim. See statute about implied terms under CRA and SGA (see S3), esp CRA 2015. Misrepresentations A material false representation of fact or law, addressed to the claimant, which induced C’s entry into the contract. - Pankhania v Hackney LBC (2002) (Confirms false statements of law can be misrep) A statement of fact is required for misrepresentation; this must be objectively decided (would reasonable person think the representor asserting a fact?) v Statement of fact is distinct from an opinion, which is not an actionable representation Where there is an imbalance of knowledge, the better-informed party making the statement “impliedly states that he knows facts which justify his opinion” – thus it is a statement of material fact (Bowen, Smith v Land & House Property Corpn (1884)) - Smith v Land & House Property Corpn (1884) (most desirable tenant) - Esso Petroleum Co Ltd v Mardon (1976) (bad petrol production estimate; because of expertise, representation figure arrived at with reasonable care and skill) Where parties have equal knowledge, statements of opinion will usually be taken as such - Bisset v Wilkinson (1927) (sheep farm conversion, 2,000 sheep = opinion, best guess) In an insurance contract, statement of belief does not carry implied representation there are reasonable grounds for the belief, though there must be some basis - Economides v Commercial Union (1997) (underestimate of flat’s contents’ worth) v A misrepresentation as to a man’s intention is a misstatement of fact - Edgington v Fitzmaurice (1885) (stated intent to use investment to expand business; actual intent to pay off existing debt = misrepresentation, misstatement of fact) § Bowen: “the state of a man’s mind is as much a fact as the state of his digestion … A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact” If someone changes mind later, will not be a misrepresentation if it was an accurate statement of intention at the time (but presumably only if after contract – if before, duty to correct) - Kleinwort Benson v Malaysia Mining Corpn (1989) (statement of policy to insure subsidiaries; policy changed ≠ misrep) § Cf. Wales v Wadham (1977) (said non-disclosure of wife’s change of intention not misrep, but this is a bad decision) v Misrepresentation can be made through conduct; see below for non-disclosure vs mere silence - Spice Girls Ltd v Aprilla World Service BV (2002) (acted like H would still be in group) v If statement is true when made, but becomes false (or party finds out), duty to correct the false impression (crucial moment is when representee enters contract and representation is false) - With v O’Flanagan (1936) (value of medical practice declined between representation and signing of contract) Treitel argues this also applies to stiuations where you ought to have known it was false. Cartwright argues liability for misrepresentation is strict – even if D never aware it is a misrepresentation, should be liable. Presumably converse applies – if false when made, but true when entered, no operative misrep. If maker knows statement became false and representee is in reliance, may be guilty of deceit. A material inducement is required – the representation must in fact induce entry into contract (reliance) - JEB Fasteners v Marks Bloom & Co (1938) (motivation to acquire directors, regardless of misrep) - Cf. Zurich Insurance Co plc v Hayward (2017) (false insurance claim; insurers knew it was false, but no evidence, so settled; when found evidence, fact they knew when settling didn’t prevent inducement) v Zurich Insurance made clear that: o not necessary in law to prove the representee believed the statement was true (but must still show inducement, which is a question of fact) o if representation objectively ‘material’ (would influence reasonable person), very strong inference of fact that it was causative in this case; particularly strong for a fraudulent (deliberately misleading) statement which is objectively relevant and material § Clarke said a fraudster cannot be allowed to deny the causative role the statement played, or that the statement was material Handley (2015) argues it is correct to avoid a single-cause burden – this would involve hypothetical retrospective speculation. Stapleton also approved this approach; says the but-for test is of dubious validity, since decision-makers often have many reasons to act – there may not be a but-for cause. v Misrepresentation only needs to be one reason for entering, not the only/main/decisive one - Dadourian Group International Inc v Simms (Damages) (Arden: “the misrepresentation does not have to be the sole inducement … it is enough if [it] plays a real and substantial part, albeit not a decisive part”) - Edgington v Fitzmaurice (C also relied on own mistake about receipts under contract) - Zurich Insurance v It will not be sufficient to avoid liability to say the representee had or could have investigated the matter/found out the truth themselves - Redgrave v Hurd (1881) (purchaser ≠ look at papers, would have revealed worthless; still misrep; see Jessel) - Cf. Peekay Intermark v Australia & New Zealand Banking Group (2006) (false oral statement; true nature of investment in paperwork, signed = misrep corrected) Remedies: Rescission for Misrepresentation Rescission operates where equity sets aside the contract induced by misrepresentation. Often described in the language of “unravelling”. It is “not necessary … to prove that the party who obtained [the contract] knew at the time when the representation was made that it was false…” (Jessel, Redgrave v Hurd). Rescission is strict liability; no fault or awareness is needed. Rescission makes contract voidable, not void. Takes effect retrospectively, treating situation like contract never formed (aim to put parties in start positions). (Cf. termination for breach – ends the contract moving forwards; previous rights/duties stay valid, does not matter if parties can’t be restored). Limited authority says rescission is a self-help remedy – C only needs to give D notice, contract rescinded. Exception to actual notice where contract is for transfer of property and C repossesses, or where party at fault has deliberately made it impossible to communicate and C displays intention. - Car & Universal Finance v Caldwell (1965) (notifying police and Automobile Association sufficient to rescind from the fraudulent party who absconded) v O’Sullivan (2000) doubts whether rescission is a self-help remedy – views as discretionary judicial remedy. There had been self-help rescission for fraud at common law, but equity had a broader doctrine of rescission outside fraud which was always judicial. Odd that CL is prevailing over equity here. Confusion perhaps arising from termination for breach, which is self-help. v Islington LBC v Uckac (2006), Dyson: “A contract which is void is no contract at all. Since it never exists, it is not something which … can be ‘brought to an end’. A contract which is voidable exists until and unless it is set aside by an order of rescission made by the court at the instance of a party seeking to terminate it or bring it to an end. A representee … may affirm or disaffirm the contract … If he disaffirms and seeks to bring the contract to an end, the court may make an order of rescission, but in some circumstances will