FRAUDULENT MISREPRESENTATION
It is very difficult to prove fraudulent misrepresentation. Burden of proof = claimant. Standard of proof = slightly higher than regular burden in civil cases. Once fraud has been proven, there are no defences, motive is irrelevant. Remedies for fraudulent misrepresentation: rescission AND damages AND indemnity (if relevant).
RULE	CASE	EXCEPTION	CASE
Definition	DERRY V PEEK A false representation is made: Knowing it was untrue; or Without belief in its truth; or Reckless as to its truth. One of these must be proven in order for there to be fraud. THOMAS WITTER V TPB INDUSTRIES Definition of reckless: a disregard for the truth…where the defendant has shut his eyes to the facts, or purposely abstained from enquiring into them.
Courts will ignore any investigation undertaken by Claimant	S PEARSON V DUBLIN CORP
Failure to disclose a change of circumstances will at least be negligence, but may also be fraudulent if it was done deliberately and dishonestly.	BANKS V COX Deliberate failure to inform prospective purchasers of change in the social services budget, which would impact the nursing home business. HELD: Deliberate nature of the failure to disclose change in circumstances meant that the misrepresentation was dishonest and therefore fraudulent. ERLSON PRECISION HOLDINGS LTD V HAMPSON INDUSTRIES LTD Forecasts provided to a potential buyer of shares over a ten-month negotiation period included details of contracts with the company’s second biggest customer. This customer had terminated its supply arrangement a few month after the initial supply arrangement (making the business unsaleable), but was still included in the proceeding forecasts – CEO aware of this but did not correct forecasts. HELD: CEO ought to have corrected details of the forecasts. Failure to do so constituted fraudulent misrepresentation.
REMEDY 1: RESCISSION IS AVAILABLE FOR ALL CATEGORIES OF MISREPRESENTATION – SEE BLOW.
REMEDY 2: DAMAGES Representee may sue for damages in an action for the tort of deceit. Measure of damages All the damage directly flowing from the tortious act of fraudulent inducement Does not need to be foreseeable Loss can’t be too remote Confirmation of Doyle and addition of two further conditions for measure of damages: Claimant must mitigate as soon as fraud is discovered Damages awarded will be reduced by the value of any benefit the plaintiff has acquired	DOYLE V OLBY C purchased an ironmonger’s business from D. Prior to sale, D produced accounts which showed considerable annual profits. C was told that all trade was done over the counter. D also promised not to engage in similar business within a 10-mile radius. C found out the turnover had been misrepresented, half of the trade was done with the director’s brother acting as a part-time traveller and an associated company began to canvass the vendor’s former customers. HELD: Fraudulent misrepresentation – C awarded damages for all losses directly flowing from the misrepresentation, regardless of foreseeability. NEW SMITH COURT V SCRIMGEOUR VICKERS
Loss of profit may be claimed. Not on contractual measure but on tortious measure of what C would have made if the contract never happened. Loss of profit can be claimed if C can prove that he had alternative contractual transactions at the time of contracting which he would have entered into, but for the fraudulent misrep.	EAST V MAURER C bought a hairdressing salon from D. D had another salon on the same road but said he would not work at the other salon – untrue. As a result, C was unable to make a profit – clients moved to other salon. HELD: C awarded for loss, not on the basis of what he would have made if contract was properly enforced (contractual measure) but on what he would have made if the contract had never happened and he had instead bought a similar salon in a similar town (tortious measure). CLEF AQUITAINE SARL V LAPORTE MATERIALS LTD	If you’ve made any profit, no damages awarded – need to have shown a loss.	DOWNS V CHAPPELLE C bought a bookshop from D based on a misrepresentation its turnover and profits. Bookshop had been making a profit, but not enough to support C’s borrowing liabilities. Had to sell for a lot less than they had bought the shop for and claimed for their loss. HELD: Loss was irrevocable because C had made a profit.
Contributory negligence is not a defence.	STANDARD CHARTERED BANKING V PAKISTAN NATIONAL SHIPPING
REMEDY 3: INDEMNITY
INNOCENT MISREPRESENTATION
Definition found in MA 1967 s 2(1): a statement made where the representor proves that not only did he believe that what he was saying was true, but where he also proves that he had reasonable grounds for belief in the truth of his statement. Until the MA 1967 any misrepresentation which was not made fraudulently was deemed to be innocent misrepresentation. Remedies for innocent misrepresentation: rescission and courts have the discretion to award damages in lieu of rescission under s 2(2) MA 1967.
NEGLIGENT MISREPRESENTATION
Did not exist prior to MA 1967. Definition found in MA 1967 s 2 (1): the defendant will be liable for negligent misrepresentation unless he can prove that he had reasonable grounds to believe up to the time the contract was made that the statement was true. There must be a contract between misrepresentor and misrepresentee. Otherwise, act is irrelevant and you would have to claim for negligent misstatement.
Burden of proof is on the defendant. Where a representor is found liable for negligent misrepresentation, he will be treated as if he had made a fraudulent misrepresentation.	HOWARD MARINE AND DREDGING CO V OGDEN & SONS LTD D hired two barges from C. C told D that the barges’ capacity was 1600 tonnes, but it was actually 1550 tonnes. Figure was derived from Lloyd’s Shipping Register, but was wrong. CA HELD: negligent misrepresentation under MA s 2(1) because the correct figures were in the ship’s documents and D showed no objectively reasonable ground for disregarding the figure in the documents and relying on the Lloyd’s register instead.
REMEDIES: Rescission OR damages in lieu of rescission MA 1967 s 2(2) – see below AND Damages MA 1967 s 2(1) – awarded for loss as a result of the misrepresentation. AND Indemnity
Damages will be the same as if D had made a fraudulent misrepresentation	ROYSCOTT TRUST V ROGERSON
NEGLIGENT MISSTATEMENT (TORTIOUS CLAIM)
D owes a duty of care where a special relationship exists between the parties.
Establishment of action for negligent misstatement at common law.	HEDLEY BYRNE V HELLER & PARTNERS C were advertising agents who asked their bank, D to check a prospective client’s financial status. D replied back ‘without responsibility’ that the prospective client was ‘considered good for its ordinary business engagements’. C booked advertising space on behalf of the client, assuming liability for any default. Client then went into liquidation. HELD: Statement made by D could give rise to an action in tort – negligent misstatement. Burden on Claimant to prove: It was reasonably foreseeable by the representor that the representee would rely on the statement There was sufficient proximity between the parties It would be just and reasonable for the law to impose a duty
It must be reasonably foreseeable that C would rely on D’s statement.	ESSO V MARDON
It must be fair, just and reasonable to impose a duty.	CAPARO INDUSTRIES V DICKMAN
REMEDIES: No rescission Damages available are those available for negligence only. These will be assessed according to the ‘reasonable foreseeability’ test in The Wagon Mound (No 1).	THE WAGON MOUND (No 1) Could the defendant foresee/ought to have foreseen that particular kind of damage suffered by the claimant?

Remedies for misrepresentation are separate from other remedies.

There are three categories of misrepresentation:

Fraudulent Misrepresentation – comes from the Tort of Deceit at common law.
Innocent Misrepresentation – definition and remedies found in the MISREPRESENTATON ACT 1967
Negligent Misrepresentation -- definition and remedies found in the MISREPRESENTATON ACT 1967. This category did not exist before the Act.

You can also make a separate claim under tort for Negligent Misstatement. Negligent Misstatement comes from the Tort of Negligence at common law and you don’t need to go through the actionable elements with this.

RESCISSION

Available as a remedy for fraudulent, negligent and innocent misrepresentation. No rescission for Negligent Misstatement.

Misrepresentation renders the contract voidable, so until the representee decides to rescind the contract, it still exists.

GR: Misrepresentee must take reasonable steps to communicate the intention to rescind to the misrepresentor

Rescission available for innocent misrepresentation even if the representation subsequently becomes a term in the contract. Even where the contract has been performed, rescission for innocent misrepresentation is still available.

s 1 MA 1967

CAR & UNIVERSAL FINANCE CO V CALDWELL

D sold his car to a rogue on the basis of a misrepresentation. Rogue then sold the car to C and disappeared.

Who owned the car?

HELD: D owned the car because he took reasonable steps to communicate his intention to rescind the contract to the rogue – he called the police. He did this before the car was sold on to C.

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#14771 - Misrepresentation 2 Categories And Remedies - GDL Contract Law

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