#19859 - Misrepresentation Pq Notes 2 - Contract Law

Misrepresentation – Notes from Davies Ch16

A Summary of This Chapter

• A false statement of fact or law which induces a party to contracting can be a misrepresentation

• Misrepresentation can be by words or conduct

• The truth of the statement of fact or law is assessed at the time of contract

• All misrepresentations mean V can rescind the contract contract set aside, both parties restored to the position they were in before the contract

• Where it is impossible to put the parties back into their original position, rescission will be barred; or where V has affirmed the contract; or where a long period of time elapses; or where a third party who has acquired rights for value in good faith would be disadvantaged by rescission

• Common law damages are available for the tort of deceit, or for negligent misrepresentation

• But most damages are made under s.2(1) Misrepresentation Act 1967. D can only escape if they can prove they had reasonable grounds to believe, and did in fact believe, the statement of fact or law was true. This is a high bar. The statutory remedy is the same as for fraud or deceit, notwithstanding any defence of contributory negligence

• Court has discretion to award damages in lieu of rescission under s.2(2) Misrepresentation Act 1967

• A consumer can seek remedy under s.2(4) MA 1967

• Terms restricting liability or remedy will not be enforced if they are unreasonable, or unfair in the case of consumers

Misrepresentation

A false statement of fact or law (Pankhania v Hackney London BC for law) inducing C to enter into a contract.

Typical case would go as follows. A is looking to rent B’s room. B tells A the sink works flawlessly, but importantly this is not a term. B therefore signs a written tenancy agreement. In fact the sink is incapable of producing running water and B would not have entered into the contract had he known.

This is quite similar to the stuff about a collateral contract. The difference is that B’s assurance about the sink, which A made clear was determinative of whether he’d sign the contract, is a contractual term. For misrepresentation, it does not matter whether it becomes a term.

Establishing Misrepresentation

Statements of Opinion

A statement of opinion is not grounds for misrepresentation: it must be a statement of fact. The test for this is would a reasonable person have supposed the representor was asserting a fact, or just an opinion. In Bisset v Wilkinson, a seller of NZ land said it could carry 2,000 sheep. This turned out to be wrong, but this was not held a misrepresentation. The buyer knew the land had never been used for sheep farming, and the seller’s statement had no evidential basis so must have been an opinion. Seller had no special information or skills that would have reasonably led the buyer to believe what the seller said was true.

In Smith v Land and House Property Corp, the seller told the purchasers of a hotel the current occupant was ‘a most desirable tenant’. This was wrong: the tenant was nearly bankrupt. The seller’s argument this was an opinion failed – Bowen LJ in CA thought the seller’s statement was on a subject the seller knew everything about and the purchasers nothing. So it seems imbalance of knowledge is an important part.

The key point of differentiation between Bisset and Smith was that in the former, C could not have reasonably thought the owner really knew what he was talking about. In Smith, the purchaser was entitled to think this. This distinction was supported by CA in Esso Petroleum v Mardon. C was induced to lease Esso’s petrol station because Esso had said the annual throughput of petrol was around 200,000 gallons. The true figure was less than half. Denning held this was a statement of fact – Esso, given its expertise, had given reason for C to believe it was in a much better position to make such a prediction. There was at the very least a representation the figure was arrived at with reasonable care and skill.

Esso seemed to indicate the statement might be one of fact if D gave C a representation there were reasonable grounds for D’s statement of belief. In that case, it was the fact Esso was much better placed than C to make the statement. However, in insurance contracts, a statement of belief does not result in a representation there are reasonable grounds for the belief. In Economides v Commercial Union, C stated that to the best of his knowledge, his parents’ valuables were worth 4,000. This was a gross underestimate, but the statement was in good faith and was true because he really did believe this was the value. Thus, the insurer was not entitled to repudiate liability.

Representation by Conduct

In Spice Girls v Aprilla World Service, C contracted to sponsor their tour. D organised a TV ad featuring all of the Spice Girls on Aprilla scooters. One of the scooters was orange, associated with Ginger Spice. But Ginger Spice left the group by the time contract was concluded. CA held Aprilla’s claim should succeed: Spice Girls had represented through their conduct in negotiations and participation in photography for the ad they did not know any Spice Girl was to leave soon. This was a false representation.

Half-Truths

In Dimmock v Hallett, landseller said two of the farms were fully let. This was not false, but he failed to say both tenants had given notice to quit. Seller had given the impression the two farms had continuing tenants. This was false and therefore misrepresentation. So, it seems if there is an underlying representation which is false, there is misrepresentation.

Similarly, in Nottingham Patent Brick and Tile v Butler, a landbuyer’s solicitor asked seller’s solicitor whether there were any restrictive covenants which would preclude the land being used as a brickfield. Seller’s solicitor replied it was not aware of any restrictions, and said this repeatedly when asked. This was technically true because he had not read the title deeds and had not checked whether there were any such covenants. There was an underlying representation the solicitor had checked, so this was misrepresentation.

Silence

This is not usually enough for misrepresentation. In Smith v Hughes, the court said passive acquiescence of seller to the self-deception of the buyer will not entitle buyer to avoid contract. For example, in Turner v Green, C had heard the result of a case crucial to his own chance of legal success. He thus negotiated a settlement with D. C knew D didn’t know about the case and would not have settled if he had known. Although Chitty J called this a ‘shabby trick’, it did not suffice for misrepresentation.

True at the Time the Contract is Made

Where D makes a statement perhaps true at the time, but because of a change of circumstances is no longer true before the contract is entered into, he must tell C.

In With v O’Flanagan, a doctor told C – potential purchaser of his practice – it was worth 2k/year. This was true at the time, but 4 months later when the contract was entered into this was not the case. Court held the representation was continuing until the contract was signed – entitled to rescission here. Presumably the opposite is true: where D makes a statement false at the time but becomes true before C enters into a contract, C cannot bring an action for misrepresentation.

Statements of Intention

As per Bowen LJ in Edgington v Fitzmaurice, the state of a man’s mind is as much a fact as the state of his digestion. A false statement of someone’s intent misrepresentation.

Wales v Wadham seems to have improperly applied With v O’Flanagan. Wales agreed to pay his wife 13,00 out of his share of sale proceeds of the matrimonial home if she would not make any further claim for maintenance. She had said previously she’d never remarry, but by the time of the agreement had decided to marry Wadham and didn’t tell Wales. Wales sought rescission arguing he’d never have agreed to the payment if he had known. Tudor Evans J distinguished With v O’Flanagan that there was no misrepresentation of fact in this case, saying a statement of intention is not a statement of existing fact unless D does not honestly hold that intention. But this is surely wrong – a statement of intention is a representation of fact whether or not that fact is true. The statement ‘I will remarry’ should have been a statement of fact – one true at the time, but one changed by the time of the contract and Wales relied on it. The result in this case was wrong.

Reliance on the Misrepresentation

C must have relied on the misrepresentation. Whether C believed this misrepresentation is irrelevant, as per UKSC in Hayward v Zurich Insurance. C had exaggerated a back injury he had suffered at work and sued employer. D – employer’s insurance – settled with C for a lot of money. Insurer later found out about the exaggeration. UKSC said insurer can rescind. Even if insurer did not really believe the extent of the injury when it entered into the settlement, it had nevertheless relied on C’s version of events to reach the settlement agreement.

This is controversial – if someone doesn’t believe the representation, how can they rely on it? However, Lindeman believes this is a good pragmatic approach but should not be expanded to contexts outside of settlement negotiations. Interestingly, the CA unanimously disagreed with UKSC, with Underhill LJ arguing although the result of the CA’s decision was unsatisfactory, the wider of principle that parties who settle claims with their eyes wide open should not be entitled to revive them only because better evidence comes along later. Lord Clarke...