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42 Cards in this Set
- Front
- Back
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Misrepresentation - Introduction
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A misrepresentation is a defect that occurs during the formation of the contract. Where a misrepresentation has been made, the consent of the other party is not fully informed and there can be no true agreement. An actionable misrepresentation is made at the precontractual stage. A misrepresentation may be defined as "a statement of fact which had induced the representee to enter into the contract but which did not form part of the contract."
Where a misrepresentation has been found to have been made, the representee is entitled to avoid the contract and the court may put the parties back into the position they occupied before entering into the contract. The representation must be one of fact and not one of intention or opinion. A statement of intention, if honestly held, cannot be false at the time it was made because it can only be made true or false depending on some future event. In order to be actionable as a misrepresentation, the statement must be one that induces the other party to enter into the contract. If the representee did not rely on the false statement, then no action can lie. Silence is generally not actionable as a misrepresentation. It is only where that silence can be interpreted as an active misrepresentation that it will ground in liability. |
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Wales v Wadham [1977]
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A wife who was separating from her husband told him that she had no intention of remarrying. The husband entered into an agreement with her whereby she would receive£ 13,000 from the sale of
their home. She later remarried and her former husband argued that the agreement entered into upon their separation had been vitiated by her statement. The court held that there had been no misrepresentation. The statement had been honestly made and was true at the time it was made. |
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Esso Petroleum v Marsden [1976]
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An oil company confirmed that a certain petrol station would produce a certain level of sales. This representation was taken to be a statement of fact on the basis that the representee was entitled to believe that the oil company had exercised skill and care in calculating the figure. The statement of opinion was treated as a statement of fact and as it was untrue, it amounted to a misrepresentation.
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Bissett v Wilkinson [1927]
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The statement by a landowner to a possible purchaser that, in his opinion, the land could hold 2,000 sheep for grazing purposes was found not to be an actionable representation. The land had never been used for grazing purposes before (the purchaser was aware of this), and both the vendor and purchaser were farmers and were in equal position to judge.
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Hummingbird Motors v Hobbs [1986]
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The defendant sold a car to the plaintiff. He signed a statement to the effect that the mileage on the car was accurate, to the best of his knowledge. It transpired that the mileage was incorrect. It was held that the statement was found not to be one of fact because it had been qualified by the maker.
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Smith v Chadwick (1884)
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The claim that a misrepresentation was made 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, but it must be a real and substantial reason for entering into the contract.
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Edgington v Fitzmaurice (1885)
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The plaintiff purchased debentures based partly on a misleading prospectus. It was held that this amounted to an actionable misrepresentation.
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Attwood v Small (1838)
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The purchaser of a mine was mistakenly informed by the seller of its excellent potential. Prior to the sale, the purchaser had commissioned his own independent survey of the mine. In the absence of reliance, the false statement was not actionable.
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Darlington Properties Limited v Meath County Council [2011] IEHC 70
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The defendant County Council owned land which they decided to sell and put out to tender. The defendant commissioned a brochure which stated that the land was a zoned site with frontage onto three
roads. The first of these roads only led to a cul-de-sac, the second was not of a size which made it useful but the third indicated that it would lead onto a new distributor road which the defendant planned on building. This distributor road would give the property direct access to Ashbourne town centre and this fact made the property very valuable. The plaintiff was successful with its bid to purchase the land. The plaintiff was also reassured by the defendant regarding access to the distributor road in the subsequent contracts which were drawn up. After the purchase, the plaintiff discovered that the defendant had given planning permission to another company for development which made access to the distributor road impossible. The plaintiff sued for negligent misstatement. Held - the defendant was induced to enter in the purchase of the land on foot of representations made by the defendant in the brochure, tender documents and conditions of the contract for sale. The distributor road was crucial to the plaintiff's decision to tender for the land. A special relationship existed because the defendant not only as the vendor in a sale to a purchaser but also it was the very planning authority that gave permission to the other development in circumstances where it knew or should have known how important access to the distributor was to the plaintiff. |
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Gil v McDowell [1903]
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A farmer brought an animal to a market where heifers and bullocks were being sold. The purchaser bought the animal on the basis that it 'was either a heifer or a bullock'.
In fact, it was a hermaphrodite. The seller's silence in these circumstances accounted to a misrepresentation. The purchaser was entitled to believe that what he was buying was either a heifer or a bullock. |
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Contracts Uberrimae Fides
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These agreements are also known as contracts of the utmost good faith. In these contracts, the law as a matter of policy places an obligation on the shoulders of one party to declare all relevant and material information to the other side when entering into the contract. Fatlure to disclose such information (or remaining silent when one should speak up) can amount to an actionable misrepresentation.
Contracts of insurance are the most common form of this type. These contracts require full disclosure from the party seeking the insurance because, as Scrutton L.J. pointed out in Rozanes v Bowen [1928] Lloyds Rep 98, "the underwriter knows nothing and the man who comes to him to ask him to insure knows everything." It is not necessary that the insured disclosed every single detail, simply those details which could be considered material to the contract Carter v Boehm (1766). In the case of marine insurance contracts, the requirement of disclosure has been put on a statutory footing under s 18(2) of the Marine Insurance Act 1906, which provides that a proposer (person seeking the insurance) must disclose all material facts that would influence the reasonable and prudent insurer in deciding what premium to fix, or whether to take on the risk. |
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Rozanes v Bowen [1928]
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Scrutton L.J. pointed out that, "the underwriter knows nothing and the man who comes to him to ask him to insure knows everything."
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Walters v Morgan (1861)
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In the words of Lord Campbell:
There being no fiduciary relation between vendor and purchaser in the negotiation, the purchaser is not bound to disclose any fact exclusively within his knowledge which might reasonably be expected to influence the price of the subject to be sold. Simple reticence does not amount to legal fraud, however, it may be viewed by moralists. But a single word, or (I may add) a nod or a wink, or a shake of the head, or a smile from the purchaser intended to induce the vendor to believe the existence of a non-existing fact, which might influence the price of the subject to be sold, would be sufficient ground for a Court of Equity to refuse a decree for a specific performance of the agreement. |
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s 18(2) of the Marine Insurance Act 1906
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s 18(2) of the Marine Insurance Act 1906, which provides that a proposer (person seeking the insurance) must disclose all material facts that would influence the reasonable and prudent insurer in deciding what premium to fix, or whether to take on the risk.
Under s 18(2) of the Marine Insurance Act 1906, any fact is material that would affect the judgment of the reasonably prudent insurer. This test is a very high hurdle that the insured must negotiate. It is not a subjective test that is dependent on what the insurer actually thought relevant, but rather is an objective test from the point of view of the reasonable insurer. |
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Carter v Boehm (1766)
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Lord Mansfield noted:
The question ... must always be whether there was under all the circumstances at the time the policy was underwritten a fair representation or a concealment; fraudulent if designed; or though not designed varying materially the object of the policy and changing the [risk] understood to be run. |
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Chariot Inns Ltd v Assicurazioni SPA [1981] IR 199
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The plaintiffs sought insurance for a licensed premises. The insurance company sought to avoid the contract on the basis that the plaintiffs had not disclosed the fact that some time previously premises owned by a related company of the plaintiffs was damaged in a fire. The underwriter who dealt with the contract of insurance for the plaintiffs admitted that if such a fact had been disclosed to him at the time, it would not have affected his judgment.
A number of expert witnesses testified to the effect that, objectively, the information was material. The Supreme Court found that the test of materiality was an objective one and it was irrelevant what the insured or the underwriter thought. The insurance company was entitled to repudiate the contract on this basis. Kenny J put the test thus: It is not what the person seeking insurance regards as material, nor is it what the insurance company regards as material. It is a matter or circumstance which would reasonably influence the judgment of a prudent insurer in deciding whether he would take the risk and, if so, in determining the premium he would demand. The standard by which materiality is to be determined is objective, not subjective. The matter has, in the last resort, to be determined by the court: the parties to the litigation may call experts in insurance matters as witnesses to give evidence of what they would have regarded as material but the question of materiality is not to be determined by the parties. |
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Pan Atlantic Insurance Co v Pine Top Insurance Co [1994] 3 AllER 581
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The majority held that the test of materiality was to be modified somewhat - the material to be disclosed is of the kind that the prudent insurer would like to know the information, even if it ultimately did not affect his decision to take the risk. However, in order to be actionable as a misrepresentation it would have to be also proven that the insurer would not have made a decision to provide the insurance cover had he known of the information. Clark (p.350) has
questioned whether this decision would be followed by the Irish courts. |
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Aro Road & Land Vehicles v Insurance Corporation of Ireland Ltd [1986] IR 403
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The Irish Supreme Court approved the reasonable prudent insurer test.
The managing director and main shareholder of an insured company failed to disclose the' fact that he had a 20-year-old criminal conviction for receiving stolen goods. The insurance company sought to avoid the contract of insurance on the basis that this failure to disclose amounted to an actionable misrepresentation. While upholding the general rule, the court was of the opinion that the nature of this case justified it being treated as an exception. In delivering his judgment, McCarthy J. questioned the strictness of this requirement in the following manner: If the determination of what is material were to lie with the insurer alone I do not know how the average citizen is to know what goes on in the insurer's mind, unless the insurer asks him by way of the questions in a proposal form or otherwise. I do not accept that he must seek out the proposed insurer and question him as to his reasonableness, his prudence, and what he considers material. The proposal form will ordinarily contain a wide ranging series of questions followed by an omnibus question as to any other matters that are material. In the instant case, if Mr. Mansfield had ever had the opportunity of completing a proposal form, which, due to the convenient arrangement made between the insurers and C.I.E., he did not, there is no reason to think that he would have recounted petty convictions of about 20 years before the time. For the reasons I have sought to illustrate, in my view, the learned trial judge failed correctly to apply the very stringent test; in my judgment, the insurers failed to discharge the onus of proof that lay on them. Henchy J also found that in cases where the insured is sold 'over-the-counter' insurance i.e. where the names of the parties are simply requested to fill in the proposal form, then the insured is indicating that he is willing to accept something less than the usual standard in terms of disclosure. |
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Kelleher v Irish Life Assurance Company Ltd [1993] ILRM 643,
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McCarthy J.'s line of thinking in Aro Road & Land Vehicles -v- Insurance Corporation of Ireland was followed by Finlay C.J. in the Supreme Court, where it was stated that the test of materiality should focus on the reasonable man reading the insurance form and what he would think would be material information that should be disclosed, even if it was not specifically requested on the application form.
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The Test re Uberrimae fides in Ireland
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As a result of the decisions in both Aro Road and Kelleher, Buckley has commented that "the test for materiality in Ireland has moved from the traditional "prudent insurer" to the "reasonable proposer".
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Keating v New Ireland
Assurance [1990] ILRM 110 |
Keating had taken out a life assurance policy. At the time of completing the form, he disclosed that he had been suffering from a minor gastric complaint.
He did not realise at the time that he was actually suffering from angina (a heart condition). Keating later died as a result of the angina and the insurance company sought to avoid the contract on the basis that he had not disclosed a material fact to the insurance company. McCarthy J. held that "full disclosure" related to actual knowledge; honesty is all that is required. |
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Economides v Commercial Insurance [1997] 3 WLR 1066
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Wilful ignorance will not absolve the insured. In the words of Brown L.J.:
Honesty of course requires .. . that the assured does not wilfully shut his eyes to the truth. But that, sometimes called Nelsonian blindness - the deliberate putting of the telescope to the blind eye - is equivalent to knowledge. |
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The Basis of Contract Clause
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In order to offer themselves greater protection, insurance companies will generally insert what is known as a "basis of contract" clause in the contract of insurance.
Effectively, this clause means that the insured warrants that all the answers provided by him are "true and complete". Such clauses attempt to impose a strict liability standard on the insured - if any answer given, even if done so honestly, is defective in any way, then the entire contract must fail as the clause warranting that all answers are true and complete forms the basis of the entire contract. Such clauses as a double-lock of protection from the insurer's point of view, and where the insured has signed such a clause it is "not open to [him] to say that the obligation [to disclose] has been substantially complied with, or that the answer he made to a question was more or less accurate." Given the harshness of such clauses, the courts will view them strictly and will read them contra-proferentem, i.e. against the party seeking to rely on them. Insurers may stipulate for any warranty they please and if an assured undertakes that warranty, although it may be something not within his or her knowledge, he or she must abide the consequences. But when insurers intent that there is to be a warranty of that sort they must make it perfectly plain that such is their intention and they must use unequivocal language such as persons with ordinary intelligence may without any difficulty understand. |
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Keenan v Shield Insurance Company Ltd [1987] IR 113
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In that case the insured, when seeking house insurance, stated in the insurance form that he had made no previous claims. He had, however, made a claim for £53 the year before, which he had forgotten. The contract of insurance was subject to a "basis of contract" clause and the insured's honest, absentminded failure to disclose the previous claim meant the insurer was entitled to avoid the contract.
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Keating v New Ireland Assurance Company pic [1990] ILRM 110
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The insured, who had not been aware he was suffering from angina, failed to declare the illness. The contract was subject to a "basis of contract" clause, which provided that all the answers given by the insured were "true and complete". The court interpreted this clause narrowly and found that it simply required the insured to disclose all answers known to the insured.
The court noted that the insurance company relying on such clauses must ensure that they are drafted properly. |
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Categories of Misrepresentation
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There are three categories of misrepresentation:
(1) Fraudulent, (2) Negligent and (3) Innocent. |
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Fraudulent Misrepresentation
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This is an action in tort- the tort of deceit. This sort of misrepresentation is made where a person makes a false statement that the maker of the statement knows to be untrue or is reckless as to whether it is true or false, i.e. the maker must have an honest belief in the statement's truth.
Recklessness as to the truth of the statement can amount to a fraudulent misrepresentation. |
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Derry v Peek (1889) 14 App. Cas.337
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The promoters of a company issued a prospectus that stated that the company had a right to run a train service. While the promoters believed this statement to be true, this was not in fact the case - they believed that obtaining the consents was a mere formality.
Shareholders induced by this representation purchased shares in the company. The consents were not forthcoming. The court held that there was no fraudulent misrepresentation. |
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Fenton v Schofield (1966) 100 ILTR 69
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The seller of land represented to the buyer that the river that ran through it would yield 400 salmon a year. This statement was false and the seller was aware of this. The contract was avoided for fraudulent misrepresentation.
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Moran v Orchanda Ltd (Unreported, High Court, 25 May 2000)
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The seller of licensed premises provided the purchaser with incorrect turnover figures. This statement was found to be reckless as the defendants had failed to keep proper books.
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Negligent Misrepresentation
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Negligent misrepresentation can give rise to a cause of action in both contract and tort. In tort an action for negligent misrepresentation may be brought under the Hedley Byrne v Heller [1964] AC 465 line of authority and may be brought only where a duty of care exists between the parties.
In contract, an action for negligent misrepresentation may be brought under the Esso Petroleum v Mardon [1976] QB 801 line of authority only where a contract resulted from the misrepresentation. A negligent misrepresentation occurs where a false statement is made carelessly, but not deliberately. |
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In Thomas Witter v TBP Industries [1996] 2 All ER 572
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The defendant sold a company to the plaintiff on the basis of audited accounts. These accounts gave a false image of the company's financial position because they had been prepared negligently. The seller was not aware of the errors and therefore had not acted dishonestly. He had, however, acted negligently.
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Innocent Misrepresentation
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An innocent misrepresentation is a statement that is neither falsely nor negligently made, but is nevertheless untrue.
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Recission
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This is an equitable remedy and where a misrepresentation occurs, it allows the other party to avoid the contract. The contract remains valid until the injured party seeks to rescind it.
Where the contract is rescinded, it is as if the contract had never come into existence and the courts will try and put the parties back into the position they occupied (or as close as) before entering into the contract. As an equitable remedy, rescission is discretionary and will not be awarded as of right, plus the courts may take other factors into account before deciding whether to grant it. Affirmation The right to rescind will be lost where, after discovering the misrepresentation, the representee nevertheless decides to continue with, or affirm, the contract. Where he does so, the right to rescind is lost. Delay/Laches Rescission will be granted only where it is sought in good time. The more time passes, the harder it is to put the parties back into their original positions. Thus in However, the courts will be more flexible where the victim has been the subject of a fraudulent misrepresentation. Restitutio in lntegram is Impossible An order of rescission will not be granted where the courts are of the opinion that full restitution is impossible, i.e. it is not possible to put the parties back into the position they were in before they entered into the contract. It is not necessary to bring the parties back into the exact position they were in prior to entering into the contract. Rights of Third Parties Rescission will not be awarded where to do so would unfairly prejudice the rights of third parties. |
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Re Hop and Malt Exchange and Warehouse Co., Ex. p. Briggs (1866) LR 1 Eq 483,
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A plaintiff was induced to purchase shares by the defendants' misleading prospectus. Once the misrepresentation was discovered, however, the plaintiff continued to deal in the shares. He later tried to rescind the contract. It was held that his actions in dealing with the shares amounted to an affirmation of the contract and he was therefore prevented from rescinding the contract.
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Leaf v International Galleries [1950] 2 KB 86
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A delay of five years was found to be too long where an innocent misrepresentation as to the name of the artist was made.
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O'Kelly v Glenny (1846) 9 Ir Eq R 25
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The plaintiff sold her interest in her dead father's estate to her solicitor on the basis of a false misrepresentation made by him.
Notwithstanding the fact that she discovered the fraud some ten years later, the court rescinded the contract. |
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The Doctrine in Seddon v North Eastern Salt
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This doctrine provides that the right to rescission for misrepresentation will be lost once the contract is executed. This right is only lost in cases involving innocent misrepresentation, i.e. where no equitable wrong has been committed.
The application of this rule has been severely limited by s 44 of the Sale of Goods and Supply of Services Act 1980, which provides that the right of rescission will not be lost even where the contract has been executed in contracts involving for the sale of goods or supply of services, hire purchase agreements and contracts for the letting of goods. |
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Clarke v Dickson (1858) EB & E 215
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Recission of a contract for the sale of mine was refused as all its reserves were exhausted.
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Anderson v Ryan [1967] IR 34
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D agreed to swap his car for another purportedly owned by another person. D did not realise that the other party had fraudulently represented to him that he had good title to the car. The Gardai recovered the car and returned it to D. However, the car had been sold by the fraudster to A, who in turn had sold it to R. Was D entitled to rescind his contract with the fraudster and recover the car from the new owner, R?
A misrepresentation only makes the contract voidable. As R had purchased the car in good faith, without any knowledge of the defect in A's title, he was entitled to keep the car and D was barred from obtaining a grant of rescission. |
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Damages
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According to s 45(2) of the Sale of Goods and Supply of Services Act 1980 a court may award damages in lieu of rescission where it is of the opinion that it would be equitable to do so.
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William Sindall v Cambridgeshire County Council [1994] 3 All ER 932
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The court held that it should have regard to the following factors when deciding whether to make an award:
(1) the nature of the misrepresentation, (2) the loss to the mispresentee if rescission is not granted and (3) the loss to the misrepresentor if the rescission is granted. |
