Contract Law Misrepresentation Cases and Academics

Legrand

- "buyers will still wish to maintain their competitive advantage over other buyers (to whom they would not be required to reveal information)" - Criticises and dismisses information-reward argument "because it permits an 'ascertainable detriment' to the mistaken party which must in the end undermine the 'moral acceptability' of contract law."

Erlanger v New Sombrero Phosphate

- A party can rescind if he makes substantial although not precise payments which account for any profits made off the subject-matter - Erlanger should have declared any conflicting interests to the company promoted and cannot make any "secret profits". - A promoter who breaches any duty to the company by failing to disclose to the company conflicting interests would be liable. Thus, held that contract cannot be rescinded

S Pearson v Dublin Corporation

- A party cannot exclude liability for his own fraudulent misrepresentation

Dimmock v Hallett

- A seller of land told a prospective buyer that the farms on the land were let, but did not mention that the tenants were about to leave - Exception to silence rule: half-truths, misrepresentation to make statements which are not completely false but misleading because they do not reveal all relevant facts

Redgrave v Hurd

- A solicitor wanted to sell his law practice and told the buyer it was worth £300 a year and invited him to inspect the papers. The buyer didn't. Turned out the practice was only worth less than £200. If the claimant has a misrepresentation made to him and then is offered the means of discovering the truth, but does not take the offer up, the misrepresentation may still be considered an inducement, but the only thing one can claim in such situation is rescission. - Not a defence to say the representee has a chance to discover the untrue statement; no general duty to investigate. - Even if representee could carry out own investigations (increasing likelihood of discovering misrepresentation) but failed to do this, failure does not prevent him from relying on misrepresentation - Contract could be rescinded

Long v Lloyd

- Affirmation is a bar to rescission, if claimant affirmed contract after he is aware of misrepresentation, will lose right to rescind contract - BUT claimant will NOT lose right if he takes corrective action (tries to fix) on discovering misinterpretation - Pearce LJ: final acceptance by plaintiff of lorry, knowing all that he did about condition and performance of lorry, extinguished any right of rescission remaining after completion of sale - Accepting repairs from seller confirmed he took corrective action, different situation may exist where party repairs property independently

Re Hop and Malt Exchange and Warehouse, ex p Briggs

- An attempt to sell property (whether successful or not) treated as affirming contract as selling is an act of ownership which is inconsistent with intention to repudiate contract

Henderson v Merrett Syndicates

- Arose out of substantial losses suffered by Lloyds insurance syndicates in 1990s- questions over whether existence of contractual liability prevented existence of concurrent duty of care in tort and also whether there was a duty of care towards members on syndicate managers (some members had contracts and did not) - An assumption of responsibility can be applied from a relationship where D has held themselves out as having some kind of advantage/superiority consisting of a special skill or knowledge, which D has led C to believe he will use to his benefit (to be assessed objectively) ; this was the case on the facts. Lord Goff contends that can draw this test from the breadth of the principle in Hedley Byrne.

Pilmore v Hood

- BUT representation made by one to party to another, inducing third party to contract, is actionable by third party provided first party knew or should know that representation likely to be communicated to third party - Followed in Clef Aquitane Sarl v Lapore Materials, and Yianni v Edwin Evans and Sons

Caparo Industries v Dickman

- D were auditors of Fidelity- C relied on audited accounts in order to launch 2-stage takeover bid- sue for their losses - Lord Bridge: causations against general test and prefers expansion of negligence by analogy. But suggests three step test of foreseeability, proximity, FJR. Lord Oliver: emphatically rejects idea of common test and argues that it would "Bedevil the laws development" - ECONOMIC LOSS: in purely economic loss cases, the requirement of proximity requires reliance on a statement 1) intended for C and 2) for a purpose which it was intended C should be able to rely on it for. This means D have to know statement to be communicated to C- not sufficient for statement to be in general circulation. On the facts, no duty. First purchase: not intended to receive audited statements as members of public. Second purchase: were shareholders, but audited accounts for the intended purpose of allowing shareholders to make management decisions rather than investment decisions. - Lord Bridge's analysis has been regarded as classic exposition of modern test- possibly contrary to Lord Bridge's intentions!

Doyle v Olby

- Damages for fraudulent misrepresentation, defendant is liable for damages that flow from the misrepresentation whether foreseeable or not - Lord Denning: all loss suffered by misrepresentee due to fraud should be recovered and 'it does not lie with fraudulent person that they could not have been foreseen'

UK Misrepresentation Act 1967 Section 2

- Damages for misrepresentation - Person entered into contract after misrepresentation and then suffered loss, person making misrepresentation liable to damages if fraudulent or not, unless he had reasonable ground to believe and believed up to time contract was made that the facts were true - Section 2(1): establishing misrepresentation

Esso Petroleum v Mardon

- Defendants presented the inflated figure of petroleum sales as an estimate rather than as a hard fact. - Exception to misrepresentation: statement of opinion comes from expert, may amount to representation that expert made statement taking into account all relevant circumstances - Denning distinguished from Bisset because each party was 'equally able to form an opinion.' - Lord Denning: man with special knowledge or skill has duty of reasonable care to see representation is correct and reliable, if he negligently misleads he is liable in damages - Contractual situation duty: 1. Duty may arise in pre-contractual relationship 2. Individual giving advice need not be in business of giving that type of advice 3. Duty can arise in circumstances where one party possessed superior knowledge and skill which other person relied on

Edgington v Fitzmaurice

- Directors of company issued prospectus inviting subscriptions for debentures - stated that money raised would be used to invest in the company. Real object: to pay off liabilities. Misstatement of "man's mind" = misstatement of fact. - Exception to misrepresentation: statement of opinion not genuinely held may be treated as false statement of fact in relation to state of mind - Misrepresentation was a real and substantial part of their decision - Bowen LJ: plaintiff's mind disturbed by misstatement of defendants and caused what he did, mere fact of plaintiff also making mistake could make no difference

With v O'Flanagan

- Doctor selling his practice, worth of the practice was true at the time but the doctor fell ill and was unable to keep up with his work, lost patients, by the time the contract was signed, there was almost no income. - Misrepresentation, under obligation to notify changes of circumstances

Morgan

- Duty to disclose information is vital to insurance law, "insurers could not price risks without full information about person seeking insurance" - Seller would have "unjust advantage over buyer"

Spice Girls v Aprilia World Service

- Fact that one of the Spice Girls was going to leave before product promotion was NOT disclosed - Half-truth, partial non-disclosure - Sir Andrew Morrit V-C: sufficient that misrepresentation is a material inducement, does not have to be the only one

Turner v Green

- Failure to disclose favourable terms - BUT generally no duty of disclosure

Vadasz v Pioneer Concrete

- Flexible approach where it was prepared to rescind the guarantee as regards the existing debt but willing to enforce it in relation to future indebtedness

Le Lievre v Gould

- Fraudulent misrepresentation - Lord Escher: "A charge of fraud is such a terrible thing to bring against a man that it cannot be maintained in any court unless it is shown that he has a wicked mind."

Derry v Peek

- Fraudulent misrepresentation under the tort of deceit, company thought they could run steam-run trams; at the time of statement to investors they believed it to be true. - HL: an absence of an honest belief is necessary to constitute fraud - Lord Herschell: "fraudulent' defined as "to have been made knowingly; or without belief in its truth; or recklessly, careless whether it be true or false" 1. Knowingly 2. Without belief in its truth 3. Recklessly, careless whether it be true or false

William Sindall v Cambridgeshire CC

- Hoffman LJ: damagers should never exceed sum, which would be awarded if representation had been a warranty - Evans LJ: difference between property value with defence and property value if representation was true is the correct measure

Peyman v Lanjani

- If innocent party not only aware of facts giving right to rescind but also legal right to rescind, right may be lost by affirmation

Government of Zanzibar v British Aerospace

- Jack QC: "power to award damages is an alternative to an order for rescission"

Thomas Witter v TBP Industries

- Jacob J: rescission might/might not be available based on range of factors, independent of behaviour of parties, suggesting bars to rescission may not be relevant

Leaf v International Galleries

- Lapse in time (significant period of time has lapsed), which may be deemed as affirmation = bar to rescission. - Claimant wanted to rescind the contract arguing that the painting she purchased five years earlier belonged to a different artists (not a Constable). - Common mistake: Both parties believed the picture to be a Constable but no common mistake: the painting sold is conditional only on a specific picture with a specific topic: Salisbury Cathedral (no mistake on subject matter), not conditional on the artist (mistake only on quality). The parties were agreed in the same terms on the same subject-matter - Denning LJ: five years elapsed without notice of rejection, cannot now claim to rescind - Jenkins LJ: if he is allowed to wait five, ten or twenty years to reopen bargain, can be no finality 1. If claimant discovers truth and takes no action, time to rescission starts then 2. If claimant does not discover truth for period of time but has opportunity and ability to discover truth, time will count from moment he could have discovered truth - No standard time set, courts consider what is reasonable in those circumstances, in this case courts suggest limited to days or weeks than years

McConnel v Wright

- Lord Collins: Claimant was tricked out of money in pocket, so highest limit of his damages is whole extent of his loss, and loss is measured by money in his pocket and not in company pocket

Fox v Mackreth

- Lord Thurlow: mere silence is not misrepresentation

Gordon v Selico

- Misrepresentation by conduct: plaintiff purchased property following inspection, representation that property did not suffer from dry rot - NOT caveat emptor: actions and statements intended to mislead purchasers, doing something that operates to mislead party, misrepresentation

Sykes v Taylor-Rose

- Misrepresentation by words: seller failed to disclose horrific murder occured in house on seller's property form - Silence, non-disclosure, NOT misrepresentation: caveat emptor (house murder), would only have to disclose if direct question is asked - BUT if question on property form was phrased properly, would be misrepresentation

Curtis v Chemical Cleaning & Dyeing Co

- Misrepresentation must be a statement (words or conduct) - Exclusion clause will not operate if its effect has been misrepresented. - Plaintiff took to defendant's shop for cleaning a white satin wedding dress with breads and sequins...Plaintiff signed, in fact contained a clause 'not liable for any damage', returned dress stained. Held: assistant, however innocent, has misrepresented the effect of the document - Denning LJ: "any behaviour, by words or conduct, is sufficient to be misrepresentation if mislead the other...if it conveys false impression, that is enough."

Bisset v Wilkinson

- Misrepresentation must be a statement of existing fact or law (opinion will generally not suffice)

Foster v Charles

- Motive is irrelevant under tort or deceit

Crystal Palace Football Club v Dowie

- Mr. D was already under contract with another football club while another manager had filled Mr. D's former position - Courts reluctant to grant rescission where it affects rights of a third party, may treat disturbing rights of third party as justification to deny award of rescission - Third party must: 1. Provide some form of consideration 2. Been unaware of earlier misrepresentation

Davies v London and Provincial Marine Insurance

- Need to disclose change of circumstances before contract is signed - Exception to silence rule (Fry LJ): change of circumstances, truthful statement of fact is made but subsequently misleading by change of circumstances, duty to correct false impression

Barclays Bank v Caplan

- Not possible to rescind part of a contract and affirm another BUT if parts can be severed so they form separate and independent contracts, each contract can be separately rescinded

Car and Universal Finance v Caldwell

- Notice must be given to party for rescission BUT unless it is impossible to trace the other party and provide notice

Anson

- Object of rescission is to restore parties to original position, misled party may claim indemnity against obligations as result of contract - Combined remedy so must first ensure rescission may be awarded, if no bars to rescission exist

Midland Bank Trust v Het, Stubbs and Kemp

- Once plaintiff can show all ingredients of tortious claim, he is NOT disentitled from pursuing it because he has a claim in contract

Attwood v Small

- Owners of mine made exaggerated statements as to its earning capacity to prospective buyers. The purchasers had these statements checked by their own surveyors, who wrongly reported that they were correct. No inducement where buyer relies on their own investigation; there must be reliance on the (mis)representation. - Assuming representation is not fraudulent, if parties were told of misrepresentation but later pursued own investigations, may be regarded as relying on own judgement than on misrepresentation

Dadourin v Simms and others

- Party must have relied on statement and it induced the contract to be misrepresentation - Suggest four steps to assist court in determining reliance and inducement as it related to contract: 1. Representation must be material 2. Known to representee 3. Intended to be acted upon 4. Acted upon

Schneider v Heath

- Placing vessel in water to hide the fact that it was not seaworthy - Exception to silence rule: active attempt to conceal defect, need to disclose defect otherwise misrepresentation

Clarke v Dickson

- Plaintiff claimed that he had been induced to invest in shares in a lead and copper mining company by company directors - Held that the contract between the parties could not be rescinded as the shares were worthless, following the wrapping up of the company - Impossibility of rescission when goods under contract have perished or been destroyed - Cromtpon J: how can rescinding contract and getting back whole price be consistent with justice

Lambert v Cooperative Insurance Society

- Plaintiff took out insurance policy, she failed to disclose husband conviction and about policy, insurer rejected her claim as she failed to disclose facts material to insurance company for risk - Exception to silence rule: contracts of utmost good faith - party is required to disclose all material facts at time of making contract, otherwise other party not upholding their side of bargain - Lord Esher: mis-statement of fact

Hedley Byrne v Heller

- Prior to this case, all misrepresentations classified as innocent or fraudulent - BUT in this case, courts accept that individual may suffer pecuniary loss by negligent misstatement of another party - Negligent misrepresentation (common law) remedy: duty of care must be shown to exist between statement maker and person who acted upon it, where special relationship must exist - To establish duty: 1. Reasonable foreseeability of reliance and harm 2. Sufficient proximity between parties 3. Just and reasonable for duty to be imposed - NO duty in this case because defendant's disclaimer was effective to exclude assumption of duty of care - Hedley test: person giving advice in professional capacity - Tortious basis for damages but test of remoteness is relevant

Royscot Trust v Rogerson

- Proper measure is tortious (damages) for statutory negligent misrepresentation - BUT if same measure for fraudulent misrepresentation, does it undermine fraud?

Newbigging v Adam

- Remedy of damages covers direct loss from contract while indemnity may cover indirect losses

UK Misrepresentation Act 1967 Section 1

- Removal of certain bars to rescission for innocent misrepresentation - Person has entered into contract after misrepresentation: 1. Misrepresentation has become term of contract 2. Contract performed or both, he would be entitled to rescind contract without alleging fraud

Horsfall v Thomas

- Representation cannot be said to have induced contract unless know to representee, to be misrepresentation - Representee was unaware of the misrepresentation at the time: a buyer who had not inspected a gun before purchasing was unable to establish that a defect had been concealed from him.

Smith v Chadwick

- Representation must be material to be misrepresentation - Misrepresentation must be likely to induce the contract and would influence a reasonable person to enter into the contract. - Claimant bought shares in a company he thought was directed by a "famous person". The claim was dismissed when it was admitted that the statement had no bearing on the purchaser's decision to buy the shares. It is not necessary for the representee to show that the misrepresentation was the sole reason he entered into the contract (inferred), but it must be a real and substantial reason (material) for entering into the contract. - Lord Blackburn: "fair inference of fact that he was induced to do so by the statement."

Peek v Gurney

- Representation must have been intended to be acted on, statement must be addressed to the party misled to be misrepresentation - Plaintiff purchased shares on the basis of false statements included in a prospectus - from people to whom the shares have been allocated - court held that prospectus was targeting people who have initially received shares - not an actionable representation

TSB Bank v Camfield

- Rescission was total and partial rescission not possible

Abram Steamship v Westville Shipping

- Rescission: makes contract voidable (rescinded by innocent party if requirements met for rescission), parties return to former state and all goods and property are returned (Lord Atkinson)

Vigers v Pike

- Right to rescind may be lost where it is impossible to restore the parties to their original position, nature of subject matter has already changed, even if goods not perished or destroyed and just altered in condition/value - Rescission of a lease of a mine was refused as there had been substantial extraction of minerals from the mine since the date of the lease.

South Australia Asset Management Corporation v York Montague

- Scope of duty of care owed by valuer to lender did not extent to fall in value of property, damagers recoverable confined to difference between correct property value at time and value negligently provided by defendant

HIH Casualty and General Insurance v Chase Manhattan Bank

- Section 3 of Misrepresentation Act: if contract contains term which excludes/restricts liability for misrepresentation, term will have no effect unless it satisfies requirement of reasonableness (CRA 2015) - Clause was ineffective, insurers were entitled to rescind the contract of insurance through both the misrepresentation and the non-disclosure.

Nottingham Patent Brick & Tile Co v Butler

- Solicitor asked if there was restrictive agreement but actually hadn't checked - Half-truth, failure to disclose all relevant facts

Howard Marine & Dredging v Ogden

- Statement maker must positively establish that they had reasonable grounds for believing truth of statement - Bridge LJ: "statute imposes an absolute obligation not to state facts which the representor cannot prove he had reasonable ground to believe." - Advantages of statutory action: no need to establish duty of care and representor may not escape liability by simply disproving negligence but by proving reasonable grounds of belief - Reasonable belief: defendant must prove reasonable belief in truth of statement, was not reasonable for them to reply on Lloyd's Register when they could have checked documentation that came with barge, thus failed to discharge reverse burden, liable for negligent misstatement - Challenge between section 2(1) of Misrepresentation Act and tort of negligence

Avon Insurance v Swire Fraser

- Statement must be false to be misrepresentation, falsity is a matter of degree - Rix J (test for determining falsity): 1. If statement is 'substantially correct' so any difference between what was represented and correct position would not be likely to induce a reasonable person to make the contract 2. To determine falsity, look at matter broadly, if overall statements in document are substantially correct than to focus 'more and more microscopically so as to concentrate on each sentence, phrase or word.'

McInerny v Lloyd's Bank

- Statement must be unambiguous to be misrepresentation - Where meaning of the statement is unclear it should be given the meaning intended by the maker of which he knows or ought to have know the recipient would place on the statement

Habib Bank v Nasira Fufail

- To affirm contract, party merely has to express intention or do something suggesting to continue with contract - Contract for mortgage induced by son's misrepresentation, bank had to show in reliance on mother's conduct to prevent rescission, BUT acted to its detriment

Smith v Land and House Property Corp

- Trying to sell a hotel and claimed that it was 'let to Mr Fleck (a most desirable tenant), in fact, Mr Fleck was declared bankrupt after the exchange of contracts, but before completion of the sale. - Exception to misrepresentation: opinion treated as fact when the statement maker must not be in a better position to know the truth - Bowen LJ: "if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion"

De Molestina v Ponton

- Victim of misrepresentation was permitted to rescind whole contract but not part of it - Colman J: If whole contract cannot be rescinded, should not be rescinded at all, damages should be sought

Peekay Intermark v Australia and New Zealand Banking Group

- Where representee did not actually rely on misrepresentation in deciding to enter contract but was persuaded by another factor, this ground is not established - Representation must be acted upon to be misrepresentation - Investment product and Russian Government bonds

Smith New Court Securities v Scrimgeour Vickers

- Wide wording of section 2(1) of Misrepresentation Act should empower purposive adoption by court - Lord Steyn: wording of statute so loose, court should not treat innocent person as if he was guilty of fraud, BUT did not empower court to discuss correct interpretation of section 2(1) nor consider if Royscot was a poor decision