Misrepresentation

Untrue Statement

An untrue statement of fact must have been made by the other contracting party (or by their agent acting within the scope of their authority), or the other contracting party must have known of the untrue statement. The statement may be in any form - spoken, written or by conduct.

Innocent misrepresentation

Before Hedley Byrne v Heller, the phrase 'innocent misrepresentation' was used to describe all misrepresentation which were not fraudulent. The appearance of two classes of negligent misrepresentation, one in Hedley Byrne and the other in Misrepresentation Act 1967, means that innocent misrepresentation now applies only to misrepresentations that are made entirely without fault. Where one party has entered into a contract because if the other's false statement, the other party can avoid liability for damages by providing that at the time the contract was made they believed the statement to be true, and had reasonable grounds for that belief - this is statutory defence laid down in section 2(1) of the Misrepresentation Act 1967.

Bars of rescission

Rescission is quite a drastic remedy as it brings the whole contract to an end. Restrictions have therefore been placed on its availability. The wronged party may lose the right to rescission when it is unreasonable or impossible to put the contracting parties back into their precontractual position. The four circumstances in which this will be the case are where: - The innocent party affirms the contract (affirmation) - there is a lapse of time - the parties cannot go back to their original, pre-contractual position - rescission would deprive an instant third-party of rights acquired over the property, which is the subject of the contract

Subsequent falsity

a misrepresentation may occur where a statement was true when it was made, but because of a change of circumstances has come incorrect. By the time it is acted upon. Keeping silent about the change can amount to misrepresentation. - With O'Flanagan [1936] the legal principle of this case is that: keeping silent about a change of circumstances can amount to misrepresentation

Partial revelation

if one party makes a statement which is itself true, but which misrepresent the whole situation because of what is left unsaid, the statement may amount to a misrepresentation. - Dimmock v Hallett (1866) Omitting this fact presents such a distorted picture of the true situation that the court held there were had been a misrepresentation.

constructive knowledge

in some situations a party to a contract may not have actual knowledge of a misrepresentation, but for Public policy reasons, they will be treated as if they did have that knowledge, known as constructive knowledge.

types of misrepresentation

there are four types of misrepresentation: fraudulent misrepresentation; negligent misrepresentation at common law:negligent misrepresentation under statute; and innocent misrepresentation. Which category a misrepresentation falls into depends on the state of mind of the person making the statement. The reason why the categories matter is that the remedies of each type differs

fraudulent misrepresentation

this is also known as the tort of deceit. it was defined by Lord Herschell in - Derry v Peek (1889). The House of Lords held that as the directors believe that the consent of the broad of trade was more or less inevitable, given the passing of the act, they were inaccurate, but not dishonest, and there was therefore no fraudulent misrepresentation. Their Lordship defined fraudulent misrepresentation as a false statement that is made '(1) knowingly, or (2) without belief in its truth, or (3) recklessly as to whether it be true or false'. In practice, a successful claim for fraudulent misrepresentation is rare because it is difficult to prove a defendant had one of these three states of mind, particularly where the defendant's is a largely, was that this business. the legal principle this case is that if a person makes a false statement which he or she does not at the time believe to be true, this is a fraudulent misrepresentation.

Doctrine of Misrepresentation

A misrepresentation is an untrue statement of fact by one party which has induced the other to enter into the contract. A misrepresentation renders the contract voidable and it may also give rise to a right to damages depending on type of misrepresentation that has occurred. For a misrepresentation to be actionable, it has to fulfil three requirements: - there must be an untrue statement; - it must be a statement of fact, not mere opinion; - and it must have induced the innocent party to enter the contract.

All or Nothing

Partial rescission is not possible. - De Molestina v Ponton (2002) the high court stated that the victim of misrepresentation was permitted to rescind the whole of a contract, but not part of one. If the whole contract could not be rescinded then it could not be rescinded at all; instead an award of damages would generally be made. This is because rescission is supposed to put the parties back into the position they were in before the contract was made; it should not create a completely new agreement.

Remedies for misrepresentation

The effect of a misrepresentation is generally to make a contract voidable, rather than void, so the contract continues to exist unless and until the innocent party chooses to have it set aside by means of rescission. Where a contract is entirely executory, the innocent party may simply choose not to perform their side of the bargain; the misrepresentation prevents the other party from forcing the innocent party to perform. In some cases, damages may be available, either instead of or (in certain cases) as well as rescission

rescission

rescission is a equitable remedy, which sets the contract aside and puts the parties back in the position they were in before the contract was made. It is available for all four types of misrepresentation. An injured party who decides to rescind the contract can do so by notifying the other party or, if this is not possible owing to the conduct of the defaulting party, by taking some other reasonable action to indicate the intention to rescind. - Car and Universal Finance Co Ltd v Caldwell (1965) the Court of Appeal held that: by contacting the police and the Automobile Association, the defendant had made his intention to rescind the contract sufficiently clear. As soon as he did this, the ownership of the car reverted to him. This meant that at the time the car was 'sold' to the claimant, the car dealer had no legal right to sell it, and so it did not belong to the claimants. An injured party can also applied to the court for a formal order of rescission, which provides that any property exchanged under the contract reverts to its former owners.

voluntary assumption of responsibility

- Banque Financiere de la Cite v Westgate Insurance (1989) the Court of Appeal suggested that a party might incur liability for remaining silent where the court found: - There was a voluntary assumption of responsibility by one party, and - relies on the voluntary assumption by the other. This will be difficult to show in normal commercial negotiations. The court gave the example of a father who engaged an estate agent to advise's son regarding the purchase of a property. The estate agent would be regarded as having assumed responsibility to the son. That interpretation of the law was accepted by the House of Lords in - Hamilton v Allied Domecq (2007) the House of Lords believe the defendant. It concluded that the defendant's had effectively remained silent on this issue and, as there was no evidence they had voluntarily assumed responsibility towards the client, no liability had been incurred for the silence. Mr Beatty was not under a duty to tell the claimant about the defendant's distribution strategy when it differed from the one favoured by the claimant. The House of Lords noted: a failure on the part of Mr Beatty to speak might be regarded as morally questionable. But that is a different from saying that he was under a legal duty to speak.

Damages

Clearly there will be some cases in which the innocent party suffers a loss that cannot be put right by rescission, even if an indemnity payment is ordered. Suppose a food manufacturer buys a packaging machine, having been assured that it will keep product fresh for six months. In fact, the packaging only gives a shelf life of two months, and everything goes off before it can be sold. Being told that the buyers can give back the machine and get their money back is not going to provide a satisfactory solution - their loss can only be compensated for by damages. Where a party is induced to enter a contract by misrepresentation, they have a right to damages for any loss, unless the misrepresentation is innocent, where an award of damages is at the judge discretion. Damages for misrepresentation are calibrated using the tort measure, rather than the contract measure. Contract. Damages are designed to put claimants in the position they would have held if the contract had been performed as agreed, so they aim to provide any (foreseeable) financial benefit that successful performance of the contract would have provided. Tort damages aim to put the claimant back in the position held before the tort was committed (which, in the case of damages for misrepresentation, means the position at the time of the false statement before the contract was made), by making good any losses caused by the misrepresentation. It is often said that as a result, tort protects a bad bargain and contract a good one. To illustrate the difference, imagine that Ann makes the following bad bargain. She wants to buy a particular type of bus to complete her collection of wedgwood. Then claims to be selling such a vase, which would normally be worth £500; realising how much Ann 16, then asked for £1000 and Ann pay that sum. In fact, the vase is not a wedgwood at all, and is only worth £100. On these facts, the damages for the misrepresentation, calculated on the tort measure, would be £900 - Ann already has a vase worth £100, and receiving the £900 takes her as nearly as possible back to the position she started in. If contract damage were payable, she would receive £400 - if the contract had been performed as agreed (meaning if the misrepresentation had been true), she would have ended up with a vase worth £500, so the £400 tops up the value of the class. She has, to put her as near as possible to the position she would have been in. If, on the other hand, Ann had made a good bargain, contract damages would be more helpful. Suppose the vase would have been worse £1500 if the representation was true, and and paid £1000 for it, and then discovered that representation was false, and the vast was only worth £900. In tort, all she can recover is £100, whereas in contact, she could have recovered £600.

Lapse of time

In the case of non-fraudulent misrepresentation, that's a time can operate as a separate bar to rescission where the innocent party has no knowledge of the misrepresentation and so cannot be treated as having implicity affirmed the contract. Claimants are barred from rescinding a contract if a long time has passed after the contract was made. Where there is a fraudulent misrepresentation, that's a time is merely evidence of affirmation, as time only starts to run from discovery of the truth. - Leaf v International Galleries (1950) the Court of Appeal refused to grant rescission, stating that: 'it behoves the purchases either to verify or, as the case may be, to disprove the representation within a reasonable time, or else stand or fall by it'. It is important to remember that rescission is an equitable remedy, and the court therefore have a discretion to refuse rescission where it is equitable to do so - in this case, for example, it might seem unfair to the original seller, who had not been trying to deceive the buyer and, five years on, had every reason to believe that the picture had been accepted. The position may well have been different if the misrepresentation had been fraudulent - in that case, the court would probably have taken account of the time that lapsed between discovering the misrepresentation and the application for rescission, rather than the time since the contract was made. - Zanzibar v British Aerospace (Lancaster House) Ltd (2000): the Zanzibar Government sought to rescind the contract. The action was unsuccessful because the Zanzibar government had delayed bringing the proceedings for several years after receiving the plane, so their right to rescission had been lost.

silence

It is natural that a sales person will sing the praise of good being sold, while remaining silent about their weaknesses. mere silence will not usually amount to a false statement, even though it may involve concealing some facts which is highly significant. Under the traditional rule of caveat empotor (Latin for '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. Even if one contracting party knows that the other has misunderstood some aspects of the situation, there is no duty to point this out. - Walters v Morgan (1861) the Court held that: There was no misrepresentation since the claimant had not said anything to mislead the defendant as to the value of the land. Silence can not amount to misrepresentation. However, the court refused an order of specific performance as the claimant had sought to take advantage of the defendant's ignorance by rushing him into signing the lease. - Smith v Hughes (1871) the court held that: both actions failed. The action based on misrepresentation failed as you cannot have silence as a misrepresentation. The defendant had not mislead the claimant to believe they were old oats. The action based on mistake failed as the mistake was not as to the fundamental terms of the contract but only a mistake as to quality. - Fletcher v Krell (1873) the court held that: her silence did not amount to a misrepresentation. it should be noted, however, in the Specific context of consumer contracts, under the consumer protection from unfair trading regulations 2008, a criminal offence will be committed by a retail trader (usually a shop) that unfairly misleads a consumer by failing to give information. In addition, there are five types of situations where the law does impose a duty to disclose information. To remain silent about a material fact in any of these circumstances can therefore amount to a misrepresentation.

Affirmation

Once the innocent party becomes aware of a misrepresentation, it can choose to rescind or affirm the contract.For a contract to be affirmed, the innocent party must have full knowledge of the misrepresentation and either declare their intention to proceed with the contract (express affirmation) or do some act from which such an intention may reasonably be inferred (implied affirmation). For example, the representee's continued use of the subject matter of the contract may amount to an implied affirmation. - Long v Lloyd (1958) it was held that: he had affirmed the contract. A number of cases have been reported involving contracts for the sale of shares. A person who applies for and obtain's shares upon the faith of prospectus containing a misrepresentation is entitled to rescind the contract and to recover the price paid; but if after learning of the misrepresentation, he or she, for example, attempt to sell the shares, the rights to rescind is lost, since these acts show an intention to treat the contract as steel existing (Re Hop and Malt Exchange and Warehouse Co, exp Briggs (1866)). They are acts of ownership over the shares, which are inconsistent with an intention to repudiate the contract. If an innocent party, aware of the misrepresentation, expresses an intention to continue with the contract, or does something, suggesting an intention to continue with it, that party is considered to have affirmed the contract; the innocent party will not be allowed to change his or her mind later and rescind unless the position of the other party was unaffected by the potential affirmation. - Habib Bank Ltd v Nasira Tufail (2006): Nasira affirmed the mortgage, but was later allowed to rescind because the position of the bank had not changed as a result of the potential affirmation. To prevent rescission the bank had to show that in reliance on Nasira's conduct it acted to its detriment. Strictly speaking, simply doing nothing about a contract does not amount to affirmation. But if, once the innocent party knows about the misrepresentation, he or she takes no action for a long period of time to rescind the contract, this may be treated as evidence that the contract has been affirmed. Lapse of time without any step towards repudiations been taken does not in itself constitute affirmation, and when the lapse of time is great it probably would in practice be treated as conclusive evidence that the contract has been affirmed.

Damages or rescission

Rescission is available to be as a party, regardless of which category to misrepresentation falls into. In the past, damages were only available for fraudulent misrepresentation. The case of Hedley Byrne made it clear that damages were available for negligent misrepresentation act common law, and the misrepresentation act 1967, further extending the availability of damages. First, under section 2(1), a misrepresentor will be liable in damages unless they can prove reasonable grounds for believing the statement to be true. Secondly, under section 2(2), the court has a discretion to award damages instead of rescission where the misrepresentation was not fraudulent 'if of the opinion that it would be equitable to do so'. Departing a result seems to be that there is a right to damages (assuming loss can be proved) for fraudulent and both types of negligent misrepresentation. Where a misrepresentation is innocent, the award of damages is at the court's discretion.

Third-party rights

Rescission is not possible after a third party has acquired rights under the contract. The third-party must be a bona fide purchaser for value, which means that he or she must have provided consideration and had been unaware of the earlier misrepresentation. In some ways this is simply a further example of the bar based on the impossibility of restitution. A common example of this limitation on rescission is where a car has been bought, pretending that payment is a valid cheque, when actually the cheque book has been stolen. Problems then arise if the fraudster sells on the car to an innocent third party. The contract between the fraudster and the original owner is merely voidable for misrepresentation and if the contract is not rescinded before the car is sold to the innocent third party, the courts will not return the car to the original owner. A contract is voidable for misrepresentation and not void. The title to the car, obtained by fraudster is valid until the contract has been rescinded, and any sale of it made before this to an innocent third party for valuable consideration cannot be defeated by the original owner. On the other hand, if the fraud makes the contract void. The common law on the grounds of mistake no title passes to the fraudulent person and the latter camp has none to any third party, however innocent this third-party may be. For example - White v Garden (1851): Garden was held liable to White for the value of the iron removed. The title to the iron had passed to Parker under a contract that was temporarily valid and had been passed to an innocent purchaser.

Impossible to return to pre-contractual position

Rescission will not the audit where is impossible to return the parties to their original, pre-contractual position (known as counter - restitution).The most common practical reason why the parties cannot be restored to their original position is that the subject matter of the contract has been used up all destroyed. - Vigers v Pikes (1842) the contract concerned a mind, and by the time rescission became an issue, it had been 'worked out' - there was nothing left in it to mine. Therefore rescission was impossible. Substantial restriction must be possible. If most of the subject matter of the contract can be restored to the other party, or if it can be restored, but not in its original condition, a court may order the return of the property (rescission), along with financial compensation for the partial loss of the value. - Erlanger v New Sombrero Phosphate Co (1878) where the subject matter was a mine, but where it had only been partially worked. This issue was concerned by the Court of Appeal in Halpern v Halpern (2007) the Court of Appeal accepted that an inability to make counter-restitution would block a remedy of rescission but it would be very rare that counter-restitution would be found to be impossible. The court approved the approach taken in Erlanger and suggested that the loss of document could be compensated financially.

Indemnity payment

The court can order a payment of money known as an indemnity. It is important to note that this payment is not damages; it is designed to put the parties back into their former position, and is only available for obligation necessarily and inevitably created by the contract. The distinction between an indemnity and damages can be seen in - Whittington v Seale-Hayne (1990): the court held that this was sufficient: the remainder of the claimant's claim did not inevitably arise under the terms of the lease, as the contract impose no obligation to appoint a manager or stock the premises with poultry. Only expenses which inevitably arise from a contract will be compensated by indemnity (on the facts of this case, a different decision might be reached today. If, for example, the defendant's statement was a negligent misrepresentation, allowing an award of damages, but the case still provides a valid authority on the distinction between damages and indemnity). Where misrepresentation is found to be fraudulent, and in some party who rescinds the condefraud an insurance company when taking out a policy, the insurance company is not only entitled to refuse payment of a claim against the policy, but also to keep any premiums paid.

Remoteness of damages

The court will make a more generous award of damages where there has been fraudulent misrepresentation and misrepresentation under section 2(1) of the misrepresentation act 1967, than for common law negligent and innocent misrepresentation. This is because in the former they apply a generous remoteness test, whereas in the latter the remoteness test is narrower. - Doyle v Olby (Ironmonger) Ltd (1969) . It was stated that 440 misrepresentation, a person can be compensated for 'all the actual damages directly flowing from the fraudulent inducement'. It does not matter that the loss was not foreseeable; essentially all that is required is that the misrepresentation caused the loss. So a person claiming for fraudulent misrepresentation will frequently be able to claim for loss of profit. The House of Lords concerned with the calculation of damages for the fraudulent misrepresentation in - Smith new Court securities Ltd v Scrimgeour vickers (asset management) ltd (1996): the question before the House of Lords was whether the claimant's damages should be restricted to 4.25p per share which they had paid above the market price, or whether they could recover the whole of the loss they had suffered, including the much bigger loss caused by the hidden defect in the shares. The house held that the claimants could recover the large sum stating that the damages had to be assessed to include all the losses flowing naturally from the original fraud. There has been much debate is as to the appropriate remoteness test for damages awarded under section 2(1) of the misrepresentation act 1967. - Royscot Trust Ltd v Rogerson (1991) the Court of Appeal held that the same remoteness test should apply as for fraudulent misrepresentation. The result is that the measure of damages under section 2(1) is now as good as where there is a fraud, without the difficulties of having to prove a fraud. - Smith New Court Securities Ltd v Citibank the House of Lords appeared to have reservations about the correctness of this approach. The remoteness test of damages for common law negligent misrepresentation is that the loss must have been a reasonable foreseeable consequence of the misrepresentation (The Wagon Mound (No 1)). Unlike the position with regards to fraudulent misrepresentation, it is clear that liability is limited to the position assessed at the date of the wrong. The same remoteness test applies to award of the damages for innocent misrepresentation.

negligent misrepresentation at common law

negligent misrepresentation at common law was established by the House of Lords in - Hedleys Byrne v Heller and Partners (1964) the legal principles. This case is that the House of Lords stated, ", that there can be liability for negligent misrepresentation on the normal principles of tort, where there was a special relationship between the parties. It is still not completely clear what precisely is a 'special relationship' but, broadly speaking, it appears that such a relationship will only arise where the maker of a false statement has some knowledge or skill relevant to the subject matter of the contract, and can reasonably foresee that the other party will rely on the statement. - Esso Petroleum Co Ltd v Mardon (1976). The Court applied the Hedleys Byrne principle and Maradon recovered on his counter-claim.

misrepresentation under statue

section 2(1) of the misrepresentation act 1967 states: Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made the facts represented were true. put more concisely, this section provides that where one party enters into a contract as a result of a misrepresentation by the other, Dickinson party can claim damages, unless the other party can prove that at the time the contract was made, they believed the statement to be true, and had reasonable grounds for that belief. This effectively creates a type of negligent misrepresentation, but with the burden of proof reserved so that the person making the statement has to prove they were not negligent. The fact that the party making the misrepresentation there is a heavy burden of proof under section 2(1) is illustrated by Howard Marine and Dredging Co Ltd v A Ogden and Sons (Excavations) Ltd [1978] the Court of Appeal held that there was liability under section 2(1); the defendant had failed to prove they had not been negligent. According to Bridge LJ, 'the statute imposes an absolute obligation not to state facts facts which the representor cannot prove he had reasonable ground to believe'.

Fiduciary relationship

sometimes it is existing relationship between the parties, rather than the type of contract concerned, which gives rise to a duty to disclose important facts about a contract. The main types of relationship accepted by the courts as imposing such a duty (called fiduciary relationships) are those between parents and children, solicitors and client, trustee and beneficiary, and principal and agent. The courts have stressed that this list is not exhaustive, and it is always open to a party to show that the relationship between him or her and the other contracting party is such that one parties necessarily places some trust in the other, and that other therefore has influence over them.

inducement

the misrepresentation will only be actionable under contract law if it is at least one of the reasons for which the claimant entered into the contract. so if the claimant was not aware that the statement had been made, or knew it was untrue, or it did not affect the decision to enter into the contract, the misrepresentation will not 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. Knowledge that another party's statement was untrue will only prevent that statement from being an actionable misrepresentation if it is genuine knowledge: mere suspicion, or possession of information which could reveal the lie if checked, are not enough. - Redgrave v Hurd (1881) . The court of appeal held that the buyer had relied on the seller's words, and was entitled to do so, even if he had the means to discover that it was untrue. Where the innocent party does not rely on the other statement, and instead conduct their own investigation, or simple relies on their own judgement, the party making the misrepresentation will not be liable. - Attwood v Small (1838) the House of Lords held that the claimants had been induced to enter the contract by their surveyors report and not by the vendor's statement; if they had believed those statements they would not have had them checked. A fraudulent misrepresentation does not need to be the only reason why dealers and party entered the contract. - Edgington v Fitzmaurice (1885)the court. Nevertheless held that statement made in the prospectus was still an actionable misrepresentation. The House of Lords suggested in - Standard Chartered Bank v Pakistan national shipping Corp (No 2) (2002) that the rule in Edgington v Fitzmaurice 'probably' applies only to fraudulent misrepresentation. Therefore, the existence of other negligent or irrational beliefs for entering into the contract alongside the misrepresentation might prevent the court finding an actionable innocent or negligent misrepresentation.

a statement of facts

the statement must be one of fact; merely delivering an opinion will not create an actionable misrepresentation. - Bissent v Wilkinson (1927) in this case it was regarded as no more than a matter of opinion, on the grounds that both parties were aware that the land had never been used for sheep farming, and therefore neither could expect the other to know as a matter of fact, how many sheep it could support. there are some cases in which what looks like a statement of opinion will be considered by the courts as being a statement of fact. An example is when one party falsely states their opinion. For example, Ann wants to sell the clock to Ben, and says she thinks the clock is 200 years old, when in fact she knows it was made the week before. Her state of mind is a fact, and she is lying about it; therefore she is making a misrepresentation of fact. This rule was laid down in - Edgington v Fitzmaurice (1885) the legal principle of this case is that a statement about what a person is thinking is a statement of fact, and if it is false it can amount to a misrepresentation. Bowen LJ commented that: 'the state of a man's mind is as much a fact as the statement of his digestion.' In addition, where circumstance are such that the party giving an opinion appears to be in possession of facts upon which the opinion can reasonably be based, that party is effectively stating that he or she is in possession of such facts, and if this is not the case, the statement will be a misrepresentation - Smith v land and house property Corporation (1884). The Court of Appeal held that the description of Mr Fleck as 'a most desirable tenant' was not a mere expression of opinion. Since the claimant were clearly in a position to know Mr Flecks records as a tenant, their statement suggested that they were unaware of any facts which could be regarded as making him an undesirable tenant, which was clearly untrue. The statement was therefore an actionable misrepresentation. Bowen LJ stated that: in a case where the facts are equally well-known to both parties, what one of them 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 the one who knows the facts best involves very often a statement of material fact, for he impliedly states that he knows the facts which justify his opinion. to be an actionable misrepresentation, a statement must refer to an existing fact, not something in the future. The exception is a statement of intention, since this comes under the rule that a statement about the state of one's mind is a statement of fact: saying you intend to do something in the future implies that the intention already exists (Edgington v Fitzmaurice (1885)). Mere 'sale talk' used to recommend a product to a potential customer will not amount to a statement of existing fact. - Dimmock v Hallett (1866): this was held to be simple sale talk, and not a representation of fact. Clearly, this distinction will be difficult at times, but, in general, vague praise will be seen as mere sale talk, while more praise claims are likely to be viewed as a misrepresentation of fact. Statements of the law are not sufficient to amount to an actionable misrepresentation. In practice, it is not always clear when a statement is one as to law or as to fact.

silence (contract requiring utmost good faith)

these are often known as contract requiring uberrimae fidei, which is Latin for 'utmost good faith'. Example are contracts for insurance, the sale of shares in a company, the sale of land (where utmost good faith is required on matters affecting title to the land, although not physical defects) and certain family arrangements. Failure to disclose a matter regarding which will utmost good faith is required, allows the innocent party to rescind the contract, although damages are not available. The way the rule on utmost good faith works can be seen most clearly in insurance contracts, where the party taking out the insurance policy must tell the insurance company of any fact he or she knows about which might affect the company's decision on whether or not to accept the insurance risk, and what premium to charge. If the insured party fails to disclose any fact that affects those decisions, the contract is voidable, and the company is not required to pay out against a claim, even if that claim has no connection with the fact that was not disclosed. For example, if a client takes out a life insurance policy without revealing that they have a heart condition, and is then killed in a car accident, which has no connection with the illness, any dependants will not be able to claim against the policy. The basis for the rule is that the relevant facts are likely to be difficult or impossible for the other party to find out for themselves, so the law should ensure that one party does not have an unfair bargaining position over the other. It was applied by the High Court in - International Management Group UK Ltd v Simmonds (2003) the high court held that: the insurance contract required utmost good faith, and this requirement had been breached by failing to disclose these rumours to the insurance company when entering the contract - HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] the court held that: the clause was ineffective. The insurers were entitled to rescind the contract of insurance through both the misrepresentation and the non-disclosure. The rule on utmost good faith is subject to the provisions of the Rehabilitation of Offenders Act 1974, which states that under certain circumstances a person cannot be required to disclose past conviction and sentence.