MISREPRESENTATION
Revision
Introduction
A misrepresentation is a false statement of fact or law
which induces the representee to enter a contract.
Where a statement made during the course of
negotiations is classed as a representation rather than a
term an action for misrepresentation may be available
where the statement turns out to be untrue. There are
three types of
misrepresentation: innocent misrepresentation,
negligent misrepresentation and fraudulent
misrepresentation.
Introduction
The affect of a finding of misrepresentation is the
contract is voidable ie the contract exists but may be
set aside by the representee. The remedy available
depends on the type of misrepresentation, but generally
consists of rescission and or damages. The right to
rescind the contract may be lost in some circumstances.
The law relating to misrepresentation is mainly found in
common law with the Misrepresentation Act
1967 providing some further details.
Introduction
In order to amount to an actionable misrepresentation
certain criteria must be satisfied:
False statement
There must be a false statement of fact or law as oppose to
opinion or estimate of future events: Bisset v Wilkenson
[1927] AC 177 and Esso Petroleum v Mardon [1976] QB
801
A statement of opinion may amount to an actionable misrep
where the representor was in a position to know the facts:
Smith v Land & House Property Corp (1884) 28 Ch D 7
Introduction
A statement as to future intent can not amount to a misrep
unless the representor had no intention of carrying out the
stated intent: Edgington v Fitzmaurice (1885) 29 Ch D
459
False statement of law will now amount to an actionable
misrep: Pankhania v Hackney [2002] EWHC 2441
Silence will not generally amount to a
misrepresentation: Smith v Hughes (1871) LR 6 QB
597 and Walters v Morgan (1861) 3 DF & J 718
Introduction
Unless it is a contract of uberrimae fidei. ie one of
utmost good faith such as an insurance contract or where the
representor is in a fiduciary position. In such contracts a duty
exists to disclose all material facts and a failure to do so
may give rise to an action for misrepresentation: HIH
Casualty and General Insurance Ltd v Chase Manhattan
Bank [2003] UKHL 6
If a statement made becomes false because of a later change
of circumstances, there is an obligation to disclose the change
of circumstances:With v O'Flanagan [1936] Ch
575
Inducement/Reliance
Once it has been established that a false statement has been made
it is then necessary for the representee to demonstrate that the
false statement induced them to enter the contract. There can be
no inducement or reliance if the representee was unaware of the
false statement: Horsfall v Thomas [1862] 1 H&C 90
If the representee or their agent checks out the validity of the
statement they have not relied on the statement: Attwood v Small
[1838] UKHL J60
)
If the representee is given the opportunity to check out the
statement but does not in fact check it out, they are still able to
demonstrate reliance: Redgrave v Hurd (1881) 20 Ch
D1
Types of misrepresentation
Once it has been established that a false statement was made
and that it induced the contract, it is necessary to determine
the type of misrep in order to determine the available
remedy. A misrepresentation can be classed as either:
Fraudulent misrepresentation
Negligent misrepresentation under s.2 (1) Misrepresentation
Act 1967
Negligent misstatement at common law.
Wholly innocent misrepresentation
Fraudulent misrep
Lord Herschell defined fraudulent misrepresentation
in Derry v Peek as a statement which is made either:
i) knowing it to be false,
ii) without belief in its truth, or
iii) recklessly, careless as to whether it be true or false
The burden of proof lies on the claimant: Derry v Peek
(1889) 5 TE.L.R. 625
Negligent Misrepresentation under
the Misrepresentation Act 1967
Under s.2(1) Misrepresentation Act 1967, a
negligent misrepresentation is a statement made
without reasonable grounds for belief in its truth.
The burden of proof being on the representor to
demonstrate they had reasonable grounds for
believing the statement to be true.
This burden of proof is difficult to discharge:
Howard Marine v Ogden [1978] QB 574
Wholly innocent Misrepresentation
An innocent Misrepresentation
exists where the representor can
demonstrate reasonable grounds for
belief in the truth of the statement.
See s.2(1) MA 1967
Remedies
Remedies available for misrepresentation are
dependent on the type of misrepresentation. For
all types the remedy of rescission is available.
This is putting the parties back in their precontractual position. Each party gives back the
benefit which they have received under the
contract. However, it is not always possible to
rescind the contract and in some circumstances
the right to rescind may be lost.
Remedies for fraudulent
misrepresentation
Where there has been a fraudulent misrep, the
innocent party is entitled to rescind the contract and
claim damages. The damages that are awarded are not
based on contractual principles but the damages
available in the tort of deceit. There is thus no
requirement that the damages are foreseeable: Doyle
v Olby [1969] 2 QB 158 and Smith New Court
Securities v ScrimgeourVickers [1996] 3 WLR
1051
Remedies for negligent
misrepresentation
S.2(1) Misrepresentation Act 1967 states that the
same remedies are available where the statement
was made negligently as if it were made
fraudulently. Royscott v Rogerson confirmed that
the principle in fraudulent misrep relating to
tortious damages applied also in negligent
misrep: Royscott Trust v Rogerson [1991] 2 QB
297
Remedies for innocent
misrepresentation
Under s.2(2) Misrepresentation Act
1967 the remedies for an innocent
misrep are rescission or damages in lieu
of rescission. The claimant cannot claim
both. Damages are assessed on normal
contractual principles.
Bars to rescission
The right to rescind the contract
may be lost where a third party
acquires rights, where the
representee affirms the contract,
through lapse of time or where
restitution in integrum impossible.
3rd party acquires rights
If a third party acquires rights in the goods, eg
where they have been sold on or subject to a
charge or mortgage, rescission will not generally
be granted as it will prejudice the third party. If
however, the representee does an act to rescind
the contract before a sale has taken place the 3rd
party has not acquired any rights: Car &
Universal Credit v Caldwell [1964] 2 WLR
600
Affirmation
If the representee does an act to adopt
the contract, or demonstrate a
willingness to continue with the
contract after becoming aware of the
misrepresentation they will lose the
right to rescind: Long v Lloyd [1958]
1 WLR 753
Lapse of time
The right to rescind will be lost after a
lapse of time. If the misrep is negligent
or fraudulent, time only starts to run
from discovery. If a wholly innocent
misrep time runs from the entering of
the contract: Leaf v International
Galleries [1950] 2 KB 86
Restitution in integrum impossible
Where it is impossible to restore
the parties to their
precontractual position, eg
where the goods have perished
or have been consumed, the right
to rescind will be lost.
Attribution
Slides adapted from:
http://e-lawresources.co.uk/Misrepresentation.php
