Contract Law - Misrepresentation

What are the exceptions to untrue statements?

- Where the contract is a contract of the utmost good faith (uberrimae fidei) or deals with certain other fiduciary relationships (examples are insurance contracts or partnership matters). International Management Group UK Ltd v Simmonds (2003) - Where a party makes a statement that is true when it is made, but before the contract is made the circumstances change so that the statement is no longer true. In this situation, the party who made the statement has a duty to tell the other party about the change and failure to do so will amount to a misrepresentation. Spice Girls Ltd v Aprilia World Service BV - If one party makes a statement which is itself true, but distorts the whole situation because of what is left unsaid, the statement may amount to misrepresentation. This exception often arises in practice. Dimmock v Hallett (1866)

What are the necessary elements for an actionable misrepresentation?

1. There must be an untrue statement 2. It must be statement of fact, not mere opinion 3. It must have induced the innocent party to enter the contract.

What is an action for negligent misstatement (tort) or of negligence misrepresentation (contract)?

A final note should be made about the fact that when a contract exists between the representor and the representee, the representor may owe duties both in contract and tort to representeee. The best route for a representee to bring a claim in this case is via contract law and the Misrepresentation Act 1967 as opposed to common law and the tort for negligent misstatement. This is for the two following reasons: The first is that for a negligent misstatement, the burden of proof is on the claimant to establish that a duty of care existed and that the duty was breached. Conversely, in an action for negligent misrepresentation under the Misrepresentation Act 1967, the burden of proof is reversed with the maker of the statement having to establish reasonable belief. The second reason is that damages for negligent misstatement will be subject to the normal remoteness test of "foreseeable loss" as is the general rule in the tort of negligence (more on this, next year but feel free to do your own independent research). Contrariwise, for negligent misrepresentation under the Misrepresentation Act 1967, as the law currently stands, damages are awarded on the same basis as for fraud (so all direct loss is recoverable including that which might be unforeseen) and the remedy of rescission may also be available.

What is Misrepresentation?

A misrepresentation is an untrue statement of fact by one party, which has induced the there party to enter into the contract

What are remedies for misrepresentation?

A misrepresentation renders the contract voidable (by means of rescission) and it may also give rise to a right of damages depending on the type of misrepresentation.

What is Negligent Misrepresentation under the Misrepresentation Act?

A negligent misrepresentation under the Misrepresentation Act 1967 occurs where a statement is made by one contracting party to another carelessly or without reasonable grounds for believing its truth. The test is an objective one. There is no requirement to establish fraud. Once the representee (the person to whom the statement is made) proves that the statement was in fact false, it is for the maker of the statement to establish that it reasonably believed in the truth of the statement (that is, the representation). The burden of proof is therefore reversed.

What are the damages/ burden of proof for all types of misrepresentation?

A. Fraudulent misrepresentation: the claimant must prove absence of honest belief to succeed in an action for fraudulent misrepresentation. B. Negligent misrepresentation under the Misrepresentation Act 1967: the burden of proof is on the maker of the statement who has to establish reasonable belief that at the time the contract was made the statement was true. C. Innocent misrepresentation under the Misrepresentation Act 1967: same as B. D. Negligent misrepresentation under common law: this is a tort claim. The burden is on the claimant to establish all the necessary elements of a negligence in tort (duty of care, breach of duty, causality & remoteness of damage).

What are the bars to recission?

Affirmation; Impossible to return to pre-contractual position; Third party rights.

What do damages aim to do?

Aim to compensate the innocent party by putting it back in the position that it would have been had the misrepresentation not taken place.

What is Fraudulent Misrepresentation?

An action for fraudulent misrepresentation is founded in the tort of deceit. It occurs where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth (Derry v Peek (1889) App Case 337).

What are the remedies against third parties?

Any person that is not party to a contract cannot bring a claim for misrepresentation under the Misrepresentation Act 1967. However, the Misrepresentation Act 1967 does not in any way affect the remedies in tort (you will learn more about tort law next year). This means that third parties (i.e. parties that are not party to the contract) may bring a claim in tort (e.g. under the tort of deceit or for negligent misstatement). You might wonder why would a non-party to the contract bring a claim in tort for a false statement? The answer is that there might be some situations where a claim for damages in tort against the representor by a third party (who is not a party to a contract but may, nevertheless, be affected by it) is the only good option (see for an example, illustration 11.5 - p. 321-322 in your book).

What is the remedy for fraudulent misrepresentation?

Damages for tort of deceit and Recission

What is the remedy for negligent misrepresentation?

Damages under s.2 (1) of the misrepresentation Act 1967 and Recission

What is Recission?

Equitable remedy designed to restore parties to pre-contractual position. Available for all 3 types of misrepresentation.

What is inducement?

For a misrepresentation to be actionable, it must have induced the representee to enter into the contract. If the representee knew the statement was a misrepresentation and did not rely on it, he cannot claim that it was induced by it to enter into the contract. Reliance is a question of fact. Redgrave v Hurd (1881); Attwood v Small (1838); Edgington v Fitzmaurice (1885). Note: For a misrepresentation to be actionable, the untrue statement must have been made before or at the time of making the contract, because otherwise it cannot have induced the contract to be made.

What are the different types of representation?

Fraudulent misrepresentation: Negligent misrepresentation at common law; Negligent misrepresentation under the Misrepresentation Act 1967 and Innocent Misrepresentation

Are non-reliance clauses effective?

However, non-reliance clauses, do not have any effect when the misrepresentation is fraudulent (Peart Stevenson Associates v Brian Holland [2008] EWHC). In addition, like all exclusion clauses, the effectiveness of non-reliance clauses are subject to statutory controls. In particular, their effectiveness is subject to the Consumer RightsA Act 2015 (which applies to business to consumer contracts from 1 October 2015) and the Unfair Contract Terms Act 1977 (UCTA), which applies to B2B contracts.

What is innocent misrepresentation?

Innocent misrepresentation is used to describe a misrepresentation made entirely without fault, that is, where the maker of the misrepresentation can show that it had reasonable grounds to believe its statement was true. If this cannot be shown, the misrepresentation may be fraudulent or negligent.

Who is an untrue statement made by and what form may they be in?

Made by the other contracting party, or the other contracting party must have known of the untrue statement. The statement may be in any form - spoken, written or by conduct. Silence: Under the traditional rule of 'caveat emptor' (let the buyer beware), a purchaser is required to ask questions about important matters if necessary - the seller is not usually expected to volunteer information which may put the buyer off. (Fletcher v Krell)

What is negligent misrepresentation at common law (tort law)?

Negligent misstatement occurs when a statement is made carelessly and the relationship between the parties is such that it gives rise to a duty of care on the part of the representor. An action for negligent misstatement is an action in tort which may be invoked whether or not a contractual relationship exists between the parties. Hedley Byrne v Heller Partners (1964)

What is the remedy for innocent misrepresentation?

Recission (unless the court award damages in lieu of rescission under s2(2) of Act.

What are non-reliance clauses? (Excluding liability for Misrepresentation)

Steps may be taken to try to minimise or exclude liability for misrepresentation. One such step is to include a non-reliance clause in order to restrict liability for misrepresentation. A non-reliance clause prevents liability in misrepresentation arising because it creates an estoppel that negates the other requirements for an effective misrepresentation required to establish an actionable misrepresentation. Such a clause works by giving rise to an estoppel preventing the representee (the person to whom the statement is made) from bringing a claim for misrepresentation.

What are statements of fact?

The statement must be one of fact, that is not one of opinion. Delivering an option will not create an actionable misrepresentation. (Bissett v Wilkinson). There are some cases in which what looks like a statement of opinion will be considered by the courts to be statement of fact. An example is where one party falsely states their opinion. For example, Ann wants to sell a clock to Ben, and says she thinks the clock is 200 years old, when in fact she known it was made a month before. Her state of mind is a fact, and she is lying about it; therefore she is making a misrepresentation of fact.

What is the remedy for negligent misstatement?

Tort Damages