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60 Cards in this Set
- Front
- Back
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MISREPRESENTATION - definition
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AMBIGUOUS STATEMENT OF FACT OR LAW
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MERE PUFFS
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So vague as to have no legal effect. Crucial test however is a verifiable fact and so if claim is precise enough, there might be liability (Carlill v Carbolic Smoke)
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STATEMENTS OF OPINION OR BELIEF
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Bisset v Wilkinson [1927]
Statement of opinion or belief |
The claimant purchased a piece of farm land to use as a sheep farm. He asked the seller how many sheep the land would hold. The seller had not used it as a sheep farm but estimated that it would carry 2,000 sheep. In reliance of this statement the claimant purchased the land. The estimate turned out to be wrong and the claimant brought an action for misrepresentation. The Privy Council held that the statement was only a statement of opinion and not a statement of fact and therefore not an actionable misrepresentation. The claimant's action was therefore unsuccessful.
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Esso
Petroleum
Co
Ltd
v
Mardon
[1976]
Statement of opinion or belief |
Mr Mardon entered a tenancy agreement with Esso Petroleum in respect of a new Petrol station. Esso's experts had estimated that the petrol station would sell 200,000 gallons of petrol. This estimate was based on figures which were prepared prior to planning application. The planning permission changed the prominence of the petrol station which would have an adverse affect on the sales rate. Esso made no amendments to the estimate. The rent under the tenancy was also based on the erroneous estimate. Consequently it became impossible for Mr Mardon to run the petrol station profitably. In fact, despite his best endeavours the petrol station only sold 78,000 gallons in the first year and made a loss of £5,800. E liable in damages for either breach of warranty or negligent misrepresentation
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Smith v Land & House Property Corp (1884)
Statement of opinion or belief |
Land and House contracted with Smith to buy the title of the Marine Hotel at Walton-on-the-Naze. Smith had advertised that it was let to Fleck, "a most desirable tenant". Land and House agreed to buy the hotel however Fleck, who had been overdue with rent, went bankrupt just before transfer of title. Land and House refused to complete the transaction, defending Smith's specific performance suit on the basis that the description of Fleck's virtues was grounds for misrepresentation. APPEAL DISMISSED.
Bowen held that when facts are equally known to both sides, then statements are generally opinions, however when facts are not equally known, then a statement of opinion by one who knows the facts best is often a statement of material fact as they are implying that his opinion has justification. In this case, with Fleck being behind in his rent, the statement of him being a "desirable tenant" was not a true statement and thus Land and House were entitled to not complete the transaction due to misrepresentation.
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Edgington v Fitzmaurice (1885)
Statement of present intention as statement of fact Plurality of inducements |
The claimant purchased some shares in the defendant company. The company prospectus stated the shares were being offered in order to raise money to expand the company. In fact the company was experiencing financial difficulty and the money raised from the sale of the shares was going to be used to pay the company debts.Held: Despite the fact that the statement related to a statement of future intent, it was an actionable misrepresentation as the defendant had no intention of using the money to expand the company.
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Kleinwort Benson Ltd v Malaysian Mining Corp [1989]
Statement of present intention as statement of fact |
Malaysia Mining Corporation Metals Ltd (MMC Metals) was a wholly owned subsidiary of the defendant, MMC BHD. MMC Metals approached the claimant KB Bank for a loan. MMC Metals was a relatively newly formed company lacking in the size and resources of MMC BHD. The bank approached MMC BHD asking if they would act as guarantor for the loan. MMC refused to act as guarantor but stated they it was their company policy to ensure that their subsidiaries are always in a position to meet their debts. In reliance of this letter of comfort the bank advanced money to MMC Metals. MMC Metals subsequently went into administration having not paid the loan. KB brought an action against MMC BHD to recover their loss based on the assurance given in the comfort letter.Held:The comfort letter had no legal effect. The fact that MMC BHD had refused to act as guarantor demonstrated they did not intend to be legally bound. The comfort letter referred to company policy at that time, a representation of fact as the policy at the time when the statement was made. There was nothing to stop the company changing its policy, not a promise that they would not change their policy for the future.
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East v Maurer (1991)
Statement of present intention as statement of fact - loss of opportunity/profits |
Damages for deceit should compensate the plaintiff for all losses suffered, including loss of profits that could reasonably have been anticipated. D ran two hairdressing salons in neighbouring areas. P purchased one of the salons. During negotiations, D had falsely represented that he personally would not be working at his other salon. P failed to make a profit, and discovered that D was working full time at his salon. P was unable to sell the salon for three years. At trial P was awarded damages of GBP 33,328, including GBP 15,000 for loss of profits during the period in which P owned the business. D appealed against the award for loss of profits. HELD, allowing the appeal in part, that (1) damages for deceit were assessed on the basis that P should be compensated for all losses suffered, and that where the losses were made in the course of running a business, the assessment of damages would include both actual losses incurrred and loss of profits that could reasonably have been anticipated; (2) P had failed to earn expected profits from the business and was entitled to the loss of expected profits, but the judge had erred in assessing damages on the basis that D's statement amounted to a warranty that the business would have remained at the same level, and appropriate damages for loss of expected profits were GBP 10,000
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Representation made by another
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Representation must have been made by the party against whom relief is sought, or his agent.
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Non-disclosure amounting to misrepresentation
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No duty to disclose material facts known to the person but unknown to the party. There are exceptions.
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With v O'Flanagan [1939] Non-disclosure amounting to misrepresentation - Duty to correct a representation later made false |
The claimant purchased a medical practice from the defendant. The claimant was induced to buy the practice by the defendant's statement that the practice took £2,000 per annum. This statement was true at the time it was made. However, subsequently the defendant became ill and many patients went elsewhere. By time the sale was completed the practice was virtually worthless.Held:Where a statement is rendered false by a change in circumstances there is a duty to disclose the change. A failure to do so will result in an actionable misrepresentation.
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Notts Patent Brick v Butler [1886]
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The buyer of land asked the seller's solicitor if there were any restrictive covenants on the land and the solicitor said he did not know of any. He did not say that he had not bothered to read the documents. The court held that even though the statement was literally true it was a misrepresentation. There were restrictive covenants and the contract could be rescinded.
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Jones v Bowden [1813]
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Seller did not disclose that the goods were notdamaged by sea water. Because of the custom of this particular trade, that theseller should disclose this particular type of problem. The buyer can rescind.
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Pankhania v Hackney London BC [2002]
A misrepresentation of law can become a statement of fact - date of transaction rule - Misrepresentation Act s.2(1) |
The claimants purchased property induced by a representation that the current occupiers of the property were contractual licensees, whose occupation could be terminated on giving 3 months notice. In fact the current occupant was in fact a tenant protected under the Landlord and Tenant Act 1954. This was a misrepresentation as to law which had previously been assumed not to be an actionable misrepresentation through analogy with case law based on restitutionary claims for mistake of law. The rule barring recovery for mistake of law was abolished by the House of Lords in Kleinwort Benson v Lincoln County council. The High court held that actions based on misrepresentation of law could now be actionable based upon that change of law. The claimant's action was therefore successful.
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When a representation becomes a term of the contract
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The injured party has two claims: breach of contract AND misrepresentation
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A misrepresentation has no legal effect unless it is material
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Must affect the judgment of a reasonable person in entering into the contract, or must be one that would induce the person to enter into the contract without further investigation that the person would have otherwise made
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Horsfall v Thomas [1862] A misrepresentation has no legal effect unless it is material - Known to the misrepresentee |
If a person purchases an article which is to be manufactured for him, and the manufacturer delivers it with a patent defect which may render it worthless, if the purchaser has had an opportunity of inspecting it, but has neglected to do so, the manufacturer is not guilty of fraud in not pointing out the defect.—The defendant employed the plaintiff to make for him a steel gun for which he was to pay by two bills of exchange. The plaintiff delivered the gun with a defect in it which the plaintiff might have seen on examination, and which would have justified him in refusing to receive it. The defendant without examining the gun accepted and delivered to the plaintiff the bills of exchange.
The claimant purchased a gun which had a concealed defect. His action for misrepresentation failed as he hadn't inspected the gun before purchasing it. Therefore the misrepresentation did not induce him to enter the contract as he was unaware of it. |
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Clef
Aquitaine
SARL
v
Laporte
Materials
(Barrow)
Ltd
[2000]
A misrepresentation has no legal effect unless it is material - Known to the misrepresentee - loss of opportunity if more profitable bargain had been in the cards |
S appealed against a finding that they were liable to C in damages in tort for their fraudulent misrepresentations as to the fixing of prices in distribution agreements with C. S, who argued that their deceit had caused C no actual loss, submitted that the judge had erred in awarding damages for what in effect amounted to C's loss of extra profit which was not recoverable for the tort of deceit. C cross appealed the judge's award of simple interest, contending that compound interest should have been awarded on the misrepresentation damages. The court held that (1) it did not matter that C's claim for damages was not based on S's deceit causing them to enter into a loss making transaction, and (2) there was no basis for interfering with the judge's refusal to award compound interest.
C agreed to purchase and distribute S's products in France, on the understanding that the prices at which S were offering the products to C were the lowest available. It later transpired that S had been selling the products to bulk customers in the UK at much lower prices. The judge in the court below awarded damages with simple interest against S for breach of contract and fraudulent misrepresentation. S appealed, arguing that (1) no actual loss had been caused to C by the deception, as its only effect had been that C were deprived of the opportunity to make a larger profit than they had done, and (2) the Limitation Act 1980 rendered aspects of the claim statute barred. C counter appealed against the awarding of simple as opposed to compound interest on the ground that S should not be allowed to benefit from the fraud. HELD, dismissing the appeal and the cross appeal, that (1) it was not necessary for C to show that it had made a loss. It was enough to show that without the fraud it would have entered into a more profitable arrangement. The judge had been entitled to find that if the misrepresentation had not been made C would have secured a more advantageous arrangement on price with S, and (2) the claim was not time barred as the fraud had only been discovered in 1996 and the writ was issued that year. Although it could have been discovered had C made more extensive enquiries, C could not be criticised for failing to do so since it had reasonably assumed that the business relationship was based on trust and openness. To require more from C would have been to impose "exceptional measure" as the test rather than "reasonable diligence". |
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Reliance
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Representee must have relied on it to the extent that the representation induced him to enter into the contract.
"BUT FOR" TEST: had the misrepresentation not been made, the representee would not have contracted "But for" test not required in case of FRAUDULENT misrepresentation, sufficient to show it was A REASON |
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Raiffeissen ZentralBank Osterricht AG v Royal Bank of Scotland [2010]
Reliance |
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Barton v Armstrong [1976]
Reliance |
Armstrong was the chairman and held the largest sharing holding in Landmark Corporation Ltd a public company. Barton was the managing director and also had a substantial shareholding in. There were two other directors Bovil and Cottrel. There had been a long history of ill will between the parties and a struggle over who should have controlling power with Armstrong being the most aggressive. The other directors in the company were also unhappy with Armstrong and wanted him to be removed for abusing certain privileges and they disagreed with the way he ran the company believing him to be putting the company at risk of insolvency. However, Armstrong refused to resign. The three managed to take control of subsidiary companies and removed all credit facilities from Landmark Corp. When Armstrong discovered the credit had been removed he made a number of death threats to Barton to pressure him into signing an agreement which contained various elements including the purchase by Barton of Armstrong's shares in the company at a substantial over value. Barton agreed to this partly due to the threats but also due to the fact that it would mean that Armstrong would no longer have controlling interest and he believed he would be able to turn the company around without Armstrong's dealings. However, the company became insolvent shortly after and Barton sought to have the contract set aside.Held: The contract could be set aside. Where there is duress to the person there was no obligation to show that he would not have entered the agreement but for the threat, it simply being sufficient that the death threats were a cause.
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When the representee decides to test the accuracy of the representation
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Representee is relying on his judgment rather than on the representation...does not apply in case of fraudulent misrepresentation
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Attwood v Small [1835]
When the representee decides to test the accuracy of the representation |
The claimants purchased Corngreaves estate from the defendant for £600,000. Corngreaves estate consisted of mining land, iron works and various properties including a mansion house. Many of the properties were subject to leasehold and generated income. The mines were to be worked by and profit to go to the claimant. A preliminary agreement was made between the parties whereby the claimant agreed to purchase subject to being satisfied that the reports and accounts given by the defendant were accurate. The claimant then had his accountants and directors check out the accounts and reports who were satisfied they were accurate. The claimant then proceeded with the purchase. It then transpired that the accounts had greatly exaggerated the income generated by the estate and the claimant sought to rescind the contract based on the misrepresentations contained in the reports and accounts.Held:The claimant was unsuccessful. By getting his own experts to check out the reports he had not relied on the accounts but his own judgment.
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S Pearson & Son v Dublin Corp (1907)
When the representee decides to test the accuracy of the representation - exception due to fraudulent misrepresentation |
A contractor having sued the other party to the contract (a public authority) in an action of deceit for damages for fraudulent representations made by the agent of the public authority as to the nature of the works to be executed, one defence was that by a provision in the contract the plaintiff must verify all representations for himself and not rely on their accuracy. Another defence was that the Action was not brought in due time within the Public Authorities Protection Act, 1893:—Held, that the contract, truly construed, contemplated honesty on both sides, and protected only against honest mistakes; and that the Public Authorities Protection Act, 1893, did not apply, the act complained of not being done in pursuance of a public duty within the meaning of the statute.
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Redgrave v Hurd (1881)
Opportunity to find out the truth - contributory negligence - rescission for misrepresentation - contract voidable |
A solicitor purchased into the partnership in the solicitors' firm. He was told the partnership had an income of £300 per year and was given the opportunity to look at the accounts. He declined the offer to check the accounts and took them at their word. In fact the income was only £200 per year. Held:He was entitled to rescind the contract as he relied on the statement. The fact that he had declined the offer to check the books reinforced rather than negated that reliance.
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Damages for Misrepresentation - FRAUD
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Person who suffers loss as result of entering into contract based on fraudulent misrepresentation can claim damages in action of DECEIT in common law. Can also rescind.
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Derry v Peek (1889)
What is the state of mind of the representor who makes a fraudulent false statement? |
Statement is fraudulent if made: with knowledge of its falsity, without belief in its truth, or recklessly not caring about its truth (Kriti Palm [2006])
In a company prospectus the defendant stated the company had the right to use steam powered trams as oppose to horse powered trams. However, at the time the right to use steam powered trams was subject of approval of the Board of Trade, which was later refused. The claimant purchased shares in the company in reliance of the statement made and brought a claim based on the alleged fraudulent representation of the defendant.Held:The statement was not fraudulent but made in the honest belief that approval was forthcoming. |
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Polhill v Water (1832)
Intention to deceive suffices - intention to defraud not necessary |
A representor knew his statement was false, but his motive was to benefit his principal, not himself, or to injure anyone else. Despite good motives, this was still deceit.
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Angus v Clifford (1891)
Intention to deceive suffices - intention to defraud not necessary |
If a person who makes a false statement entertains a bonâ fide belief that the statement is true, an action of deceit cannot be maintained against him on the ground that he formed his belief carelessly or on insufficient reasons. If he had formed no belief whether the statement was true or false, and made it recklessly without caring whether it was true or false, an action of deceit will lie against him. But not so if he carelessly made the statement without appreciating the importance and significance of the words used, unless indifference to their truth is proved. The directors of a company for purchasing and working a mine issued a prospectus containing a statement that the reports of certain engineers therein mentioned were “prepared for the directors.” The reports were appended to the prospectus, and gave a very favourable account of the mine. The reports were, in fact, prepared for the vendors of the mine with a view to the formation of the company, but there was no evidence that they were incorrect or exaggerated. The Plaintiff took shares in the company on the faith of the prospectus, and the shares having greatly fallen in value, he brought an action of deceit against the directors claiming damages. The Court held, on the evidence, that the directors had no intention to deceive, and used the expression, “prepared for the directors,” carelessly, not thinking it important, and without considering the true effect of the words:—Held, (reversing the judgment of Romer , J.), that the Plaintiff could not maintain an action of deceit against the directors for the misrepresentation.In the absence of evidence that the reports were incorrect, quære , whether the falsity of the statement that they were prepared for the directors was material.
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Negligence at common law
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misrepresentation is negligent if false statement is made carelessly and in breach of a duty of care owed by the representor to the representee
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Hedley
Byrne
&
Co
Ltd
v
Heller
&
Partners
Ltd
[1964]
Negligence at common law - assumption of responsibility |
FACTS: → Hedley (a firm) wanted to know if it would be advisable to extend credit to a customer, Easipower. → Hedley asked Heller whether it would be advisable. → Heller advised Hedley that it was appropriate to extend credit to Easipower. → Hedley extended credit and Easipower went out of business. → Hedley sued Heller ISSUE: Did Heller owe Hedley a duty of care? → Does the duty of care apply to statements that cause pure economic loss? RATIO: A duty of care can arise with respect to careless statements that cause pure economic loss (obiter)As noted later, in Queen v Cognos Inc, [1993] 1 SCR 87, the Hedley Byrne test has 5 general requirements: → 1. There must be a duty of care based on a “special relationship” between the representor and the representee. → 2. The representation in question must be untrue, inaccurate, or misleading. → 3. The representor must have acted negligently in making said misrepresentation. → 4. The representee must have relied in a reasonable manner, on said negligent misrepresentation. → 5. The reliance must have been detrimental to the representee in the sense that damages resulted. ANALYSIS: The court dismissed the case since there was no duty of care based on the facts. Significant obiter: A duty of care can arise with respect to careless statements that cause pure economic loss |
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Caparo
Industries
Plc
v
Dickman
[1990]
Special relationship between parties - duty of care test - representation made for a particular purpose |
Caparo Industries purchased shares in Fidelity Plc in reliance of the accounts which stated that the company had made a pre-tax profit of £1.3M. In fact Fidelity had made a loss of over £400,000. Caparo brought an action against the auditors claiming they were negligent in certifying the accounts.Held:No duty of care was owed. There was not sufficient proximity between Caparo and the auditors since the auditors were not aware of the existence of Caparo nor the purpose for which the accounts were being used by them. Lord Bridge:(The Caparo test)“What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of "proximity" or "neighbourhood" and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.” In relation to economic loss:“One of the most important distinctions always to be observed lies in the law's essentially different approach to the different kinds of damage which one party may have suffered in consequence of the acts or omissions of another. It is one thing to owe a duty of care to avoid causing injury to the person or property of others. It is quite another to avoid causing others to suffer purely economic loss… To hold the maker of the statement to be under a duty of care in respect of the accuracy of the statement to all and sundry for any purpose for which they may choose to rely on it is not only to subject him, in the classic words of Cardozo C.J. to "liability in an indeterminate amount for an indeterminate time to an indeterminate class" (Ultramares Corporation v. Touche (1931) 174 N.E. 441, 444).”
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Smith v Eric Bush (1990) representation made for a particular purpose |
A surveyor, Eric Bush, was employed by a building society, Abbey National, to inspect and value 242 Silver Road, Norwich.[1] Eric Bush disclaimed responsibility to the purchaser, Mrs Smith, who was paying a fee of £36.89 to the building society to have the valuation done. The building society had a similar clause in its mortgage agreement. The property valuation said no essential repairs were needed. This was wrong. But Mrs Smith relied on this and bought the house. Bricks from the chimney collapsed through the roof, smashing through the loft. Mrs Smith argued there was a duty of care in tort to exercise care in making statements and then that the clause excluding liability for loss or damage to property was unreasonable under 2(2) and 13(1) of UCTA 1977. The value of the property at the time was around £88, 000The case was joined with another appeal, Harris v Wyre Forest District Council. In this one, it was the Council that was the mortgagee. It also did the valuation. It also had a disclaimer, which was challenged by the home buyer.
It was held that it was not unreasonable for the purchaser of a modest house to rely on the surveyors' evaluation, as it was such common practice. In this way the court extended Hedley Byrne liability to proximate third parties.[2]Under UCTA 1977 an initial issue was the scope of the Act's coverage under s 13. Lord Templeman said the Act regulated ‘all exclusion notices which would in common law provide a defence to an action for negligence.’ Lord Griffiths said s.13 was ‘introducing a ‘but for’ test in relation to the notice excluding liability’, so courts should decide whether a duty of care would exist but for the exclusion. Lord Jauncey said the wording of s 13 was ‘entirely appropriate to cover a disclaimer which prevents a duty coming into existence.’The Lords decided that even though the defendants had issued a liability waiver, this could not stand up to the test of reasonableness under s.11. That was because the purchase of a house by a private citizen like Mrs Smith was bound to be one of the most expensive in a lifetime, and it was more reasonable that a professional surveyor bear the risk of liability. The Lords did however say that not all exclusion clauses used by surveyors would be unreasonable, for instance in big property developments. |
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James McNaughton Paper Group v Hicks Anderson (1991) representation made for a particular purpose |
a more restricted approach, focusing in the adviser's actual and constructive knowledge of the purpose for which the statement was made. Thus, the duty was to be limited to transactions or types of transactions where the adviser knew or ought to have known that the advisee would rely on the statement in connection with that transaction without obtaining independent advice. It also had to be shown that the advisee did in fact reasonably rely on the statement without using his own judgment or obtaining independent advice.
HA, accountants to the MK Paper Group (MK), appealed against the finding that they owed a duty of care, when preparing accounts, to JMPG, a firm considering taking over MK. JMPG suggested that the valuation of MK's shares for the purpose of the take over should be made on values certified by MK's accountants and examined by JMPG's auditors. The chairman of MK asked HA to prepare the annual accounts as quickly as possible. Draft accounts were provided to MK's chairman who then passed on the information to JMPG. The take over went ahead. When JMPG's accountants subsequently discovered errors in the accounts, an action in negligence was brought for loss and damage suffered in the take over. Held: Appeal allowed. JMPG should not have relied on the draft accounts without having them examined by their own accountants. The circumstances in which the necessary relationship between the maker of a statement and the recipient might be held to exist as defined in Caparo Industries Plc v Dickman [1990] 2 A.C. 605, were considered and applied. HA could not have foreseen that JMPG would treat the accounts as final without further examination and in the circumstances JMPG had been unable to prove that a duty of care was owed to it by HA. The statement must be made for a specific purpose, other wise there would be no special realtionship.(1) the purpose for which the statement was made. (2) the purpose for which the statement was communicated . (3) the relationship between the advisor, the advisee and any relevant third party. (4) the size of any class to which the advisee belongs. (5) the state of knowledge of the advisor. (6) reliance by the advisee.' |
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Henderson v Merrett Syndicates (1995)
assumption of responsibility - objective, what would be reasonable to be inferred from the representor's conduct against the background of circumstances |
the Lords reasserted the underlying principle that liability under Hedley Byrne was a voluntary assumption of responsibility for performing the given task by a person rendering professional or quasi-professional services irrespective of whether there was a contractual relationship between the pages...establishes possibility of concurrent liability in tort and contract
C and other Lloyds "names" sued their underwriting agents for negligent mismanagement of their affairs. Held: C’s claims in tort should go for trial. A claimant, who has remedies available in tort and in contract, is free to choose whichever appears to him to be the most advantageous so long as the contract does not expressly preclude this. |
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Mutual Life and Citizen's Ins v Evatt (1971) Professional skill |
Privy Council held the plaintiff can’t claim their economic cost loss cause by the negligent misstatement to the defendant. Because the defendant was Insurance Company although they give an advice but the financial advice they had given was not an expert in their professional.
The plaintiff had been an investor with the defendant. He asked them about an associated company. He was given advice which was incorrect. He claimed damages for negligence. Held: The company was not itself in the business of giving such advice. The advice had been gratuitous. The company had appreciated that he might act on the advice. However they owed him no duty of care, and therefore were not liable in damages. The company made no claim to have the necessary skill to give advice on investments, and their only duty was to give honest advice, which they had done. Lord Reid and Lord Morris of Borth-y-Gest dissenting. |
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Misrepresentation Act 1967 section 2(1)
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Statutory
liability
for
misrepresentation:
“
Where
a
person
has
entered
into
a
contract
after
a
misrepresentation
has
been
made
to
him
by
another
party
thereto
and
as
a
result
thereof
6
he
has
suffered
loss,
then,
if
the
person
making
the
misrepresentation
would
be
liable
to
damages
in
respect
thereof
had
the
misrepresentation
been
made
fraudulently,
that
person
shall
be
so
liable
notwithstanding
that
the
misrepresentation
was
not
made
fraudulently,
unless
he
proves
that
he
had
reasonable
ground
to
believe
and
did
believe
up
to
the
time
the
contract
was
made
that
the
facts
represented
were
true”.
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No special relationship
|
duty
arises
from
the
contract.
It
does
not
apply
if
a)
the
representation
is
made
by
someone
who
is
not
party
to
the
contract,
b)
when
a
concluded
contract
has
not
been
reached.
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Howard Marine & Dredging v A Ogden & Sons [1978]
|
The claimant, Ogden, hired two dredging barges from the defendant, Howard Marine (HM), for £1,800 per week to carry out certain excavation works for Northumbrian Water Authority. In order to make an accurate estimate for tender of the work to be completed, Ogden asked HM the capacity of the barge. HM checked Lloyds Register and stated 850 cubic metres. In fact the entry in Lloyds register was wrong. The capacity was in fact much lower. Consequently the work carried out by Ogden took much longer and cost a great deal more to perform. The claimant brought an action for negligent misrepresentation. HM argued that they had reasonable grounds for believing the statement to be true as they had checked Lloyds register.Held:The defendant had not discharged the burden of proof by demonstrating they had reasonable grounds for believing it to be true as they had the registration document which contained the correct capacity and there was no reason why they would have chosen Lloyds register over the registration document.
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Oscar Chess v Williams [1957]
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Mrs Williams purchased a second hand Morris car on the basis that it was a 1948 model. The registration document stated it was first registered in 1948. The following year her son used the car as a trade in for a brand new Hillman Minx which he was purchasing from Oscar Chess. The son stated the car was a 1948 model and on that basis the Oscar Chess offered £290 off the purchase price of the Hillman. Without this discount Williams would not have been able to go through with the purchase. 8 months later Oscar Chess ltd found out that the car was in fact a 1939 model and worth much less than thought. They brought an action for breach of contract arguing that the date of the vehicle was a fundamental term of the contract thus giving grounds to repudiate the contract and claim damages.Held:The statement relating to the age of the car was not a term but a representation. The representee, Oscar Chess ltd as a car dealer, had the greater knowledge and would be in a better position to know the age of the manufacture than the defendant.
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The fiction of fraud
|
The
danger
is
that
rules
that
were
made
for
the
context
of
fraudulent
misrepresentation
might
apply
to
negligent
misrepresentation.
The
rules
that
apply
to
fraudulent
misrepresentation
are
the
following:
a) it
is
sufficient
that
the
fraudulent
statement
is
‘a
reason
to
enter
into
the
contract’;
the
‘but
for’
test
does
not
apply.
b) the
fraudulent
representor
cannot
exclude
liability
for
his
own
fraud.
The
‘reasonableness
test’
does
not
apply.
It
is
doubtful
that
this
is
the
effect
of
the
‘fiction
of
fraud’
formulation.
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Affirmation
|
Affirmation
does
not
deprive
the
representee
of
right
to
damages
under
secion
s.
2(1)
of
the
Misrepresentation
Act
1967.
Duty
to
mitigate
the
loss.
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Innocent Misrepresentation
|
statement which is neither fraudulent nor negligent. representor must believe statement to be true and be able to prove had reasonable grounds to believe it is true. representee entitled to rescission and indemnity. no right to damages, but judges can award damages in lieu of rescission.
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William Sindall plc v Cambridgheshire cc (1994)
innocent misrepresentation - discretionary award - Misrepresentation Act 1967 s.2(2): person should be liable for the amount by which the actual value of what he has transferred is less than the price received by him |
LOSS OF THE RIGHT TO RESCIND…court willing to use its discretionunder 2(2) to stop a claimant escaping from a bad bargain… William Sindallagreed to buy land from Cambridgeshire County Council after they were told thecouncil were aware of no easements. But a private sewer from 20 years beforewas found after completion. The important point was, however, that afterWilliam Sindall plc made the purchase the property market crashed and the valueof the land plummeted. William Sindall plc sued for rescission formisrepresentation and common mistake. For mistake, it was held that thecontract allocated risk of unknown sewers to the buyer (now rescission forcommon mistake is impossible because of The Great Peace).Hoffmann LJ held there was no misrepresentation and no operativemistake. However, had it been necessary for the exercise of discretion under s2(2) he said that the three factors for deciding what is ‘equitable’ are,· the nature of themisrepresentation; here it was a £5m land sale, but the misrepresentation wouldonly cost £18k to put right· loss caused were the contractupheld; this is a power to award damages where none were previouslyrecoverable. Because of s 2(3) this is not compensation for the loss, butdamages for the misrepresentation as such.· taking into account that theloss of a bargain was £8m for the council and the ‘gross disparity’ to the lossto Sindall plc he would have exercised his discretion and awarded damages.Hoffmann LJ said that section 2(1) is concerned with the ‘damageflowing from having entered into the contract, while section 2(2) is concernedwith damage caused by the property not being what it was represented to be.’The point of s 2(2) is to have a different effect to s 2(1), so thatrepresentors are not unfairly oppressed when someone gets out of a bargainafter a little misrepresentation. In this case he would have exerciseddiscretion under s 2(2) so as to prevent William Sindall plc escaping from abad bargain.Evans LJ noted the loss would be very great to the Council becausenow the land was worth a fraction of the purchase price plus interest, as wellas it having to repeat the tendering process.
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Government of Zanzibar v British Aerospace (2000)
Misrepresentation Act 1967 s.2(2) - damages in lieu of rescission - representee cannot rescind and also claim damages |
The Government of Zanzibar wanted to buy an executive jet from British Aerospace. They entered a contract with a finance company. That company bought the plane and leased it back to the Government. The plane was faulty. It was returned to British Aerospace. It was repaired but the faults continued. The Government stopped paying instalments on the lease agreement. The finance company took possession of the plane and sold it. The Government brought an action against British Aerospace to rescind the contract, or alternatively get damages under MA 1967 s 2(1) or s 2(2). It said representations were made that the plane was airworthy, reliable and without design or construction defects. British Aerospace claimed that counter restitution (i.e. putting the parties back in their original position, giving the jet back) had become impossible now that the finance company sold the jet on. This acted as a bar to rescission, and damages under s 2(2) were precluded if rescission was barred. As for s 2(1), clause 23 of the sale agreement, which said the buyer would not rely on the seller's representations, excluded liability.
Judge Raymond Jack QC held that the Government had no right to rescission or damages. The contract could not have been rescinded because the plane had been sold. So counter restitution was impossible. It followed that s 2(2) damages were unavailable, because damages are dependent according to the provision's wording on the right to rescission. Damages are available only as a substitute for rescission when the court believes damages are more equitable as a solution. Judge Raymond Jack QC said,“The scheme of the section is thus in my view that s 2(1) gives a right to damages for non-fraudulent misrepresentation subject to the defence that the representor had reasonable grounds to believe his representation true, whereas s 2(2) gives the court power to award damages where this would be more equitable than making an order for rescission or upholding a previous rescission by act of party.”The second issue was that clause 23 excluded liability for misrepresentation under s 2(1). This depended on whether the clause passed the reasonableness test under s 3, in conjunction with the Unfair Contract Terms Act 1977 s 11 and Sch 2. Judge Raymond Jack QC held that there was insufficient evidence to show whether it passed or failed the reasonableness test, but that Zanzibar would not necessarily fail in showing the clause was unreasonable.See also |
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Doyle v Olby (1969)
Fraud - Remoteness |
The claimant, Doyle, purchased a business from the defendant, Olby, as a result of a several fraudulent misrepresentations relating to the profitability and operations of the business. The trial judge assessed damages on contractual principles as to what position the claimant would have been in had the statements been true and awarded a sum of £1,500. However, the claimant had suffered loss to the extent of £5,500 as a result of entering the contract. The claimant appealed on the assessment of damages.Held:Contractual damages are not applicable to misrepresentation since a representation is not a term of a contract. Where there has been a fraudulent misrepresentation damages should be assessed in the tort of deceit.Lord Denning MR stated:"On principle the distinction seems to be this: in contract, the defendant has made a promise and broken it. The object of damages is to put the plaintiff in as good a position, as far as money can do it, as if the promise had been performed. In fraud, the defendant has been guilty of a deliberate wrong by inducing the plaintiff to act to his detriment. The object of damages is to compensate the plaintiff for all the loss he has suffered, so far, again, as money can do it. In contract, the damages are limited to what may reasonably be supposed to have been in the contemplation of the parties. In fraud, they are not so limited. The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement"
Lord Denning MR increased the damages to £5500. He said Mr Doyle could claim for all damage flowing directly from the deceit which was not rendered too remote by Mr Doyle's own conduct, whether or not the defendants could have foreseen such consequential loss. The plaintiff's position before the fraudulent inducement should be compared with his position at the end of the transaction. He said damages for fraud and conspiracy are differently assessed from those for breach of contract |
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Smith New Court Securities v Scrimgeour Vickers (1997)
Fraud - Remoteness - Negligence - Misrepresentation Act 1967 s.2(1) - Fluctuations in value - date of transaction rule |
An employee of Scrimgeour, Mr Roberts, fraudulently told Smith New Court that there were close rival bids for buying shares inFerranti IS Inc. Smith bought £23.1m worth of shares. Ferranti then revealed it was a victim of a massive fraud (the ‘Guerin’ fraud, an American businessman had sold them a worthless company) and the share price fell considerably. Smith sold the shares for £11,788,204, a loss of £11,353,220. Smith then brought an action for deceit.
Lord Browne-Wilkinson held that Smith New Court was entitled to the full loss of £11.3m. He laid down seven principles as follow.(1) the defendant must make reparation from all damage coming directly from the transaction(2) foreseeability is irrelevant(3) the full price paid can be recovered, minus any benefits he received resulting from the transaction(4) a general rule is that benefits include changes in market price, but this is not to be inflexible to prevent full compensation(5) that general rule does not apply when misrepresentation continues to operate after acquisition, inducing the claimant to retain the asset, or the claimant is locked into holding the property(6) consequential loss is recoverable...(7) ...subject to mitigation once fraud is discovered. |
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Royscott Trust Ltd v Rogerson (1991)
Negligence - Misrepresentation Act 1967 s.2(1) - loss must be reasonably foreseeable |
The defendant, a car dealer, mis-stated the particulars of a sale by hire purchase to the finance company, the claimant. The finance company operated a rule whereby they would only advance money if a 20% deposit was paid by the company. The defendant stated the price of the car was £8,000 and the deposit paid was £1,600 leaving the loan advanced of £6,400. This was the amount the customer needed to borrow, although the price and deposit values stated were false. The customer later defaulted on the hire purchase agreement and sold the car on. The claimant brought an action against the defendant seeking damages of £3,625 representing the difference between £6,400 paid to the defendant minus the sum of £2,774 paid by the customer before defaulting. The defendant argued that there was no loss since the defendant acquired title to the car which was worth £6,400. The trial judge accepted neither submission. He held that if the figures on the hire-purchase agreement had shown a deposit of £1200 and a cash price of £6,000, then the Finance Company would have paid £4,800 to the Dealer and would have had no recourse against it since the deposit would have been correctly shown as £1200. Because the Finance Company were induced to pay an extra £1600, that was the relevant loss suffered by the Finance Company. Both parties appealed.
Held: Damages under s. 2(1) Misrepresentation Act 1967 should be assessed on the basis of damages available in the tort of deceit not general contractual principles. This applies in the absence of fraud. The wording of s.2(1) was clear and not capable of an alternative construction. ...extent of damages available under s 2(1) for negligent misrepresentation...the appropriate measure of damages was the same as that for common law fraud, or damages for all losses flowing from a misrepresentation, even if unforeseeable. |
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Downs v Chappell [1997]
Fluctuations in value - date of transaction rule - negligence - remoteness - fraud |
The plaintiff purchased a book shop. He claimed that in doing so he had relied upon the accounts prepared and signed off by the respective defendants.Held: The judge had been wrong by testing what would have been the true figures as against those prepared when deciding what the plaintiff would have done. In deceit the plaintiff need only first to establish that there had been a material fraudulent misrepresentation. Had the plaintiff known of the deceit he would not have purchased the business, and therefore damages were to be calculated on that basis. Once he became aware of the misrepresentation, they failed to act upon an offer of purchase, and that was their own act, and damages were adjusted accordingly. Changes in the market were too remote and were not to be awarded. It then fell to decide whether the the torts themselves caused the loss. Since here if the figures had been true, the plaintiffs could have financed the purchase, no windfall was created by the award.
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Whittington v Seale-Hayne [1900]
Indemnity - no indemnity if right to rescind is barred |
Indemnities can be claimed under English Law for any consequential costs of a contract not turning on an Innocent Misrepresentation (in this case rent and similar).
Mr Whittington bred prize poultry. He bought a long farm lease, induced by Seale-Hayne’s representation that the premises were sanitary and in good repair. But the water supply was poisoned, Mr Whittington’s manager got very ill and the poultry died. Under the lease, Mr Whittington had covenanted to carry out repairs required by the council, and these were needed after the council declared the premises unfit for habitation and the drains needed renewing. It was undisputed that Whittington was entitled to indemnity for rates paid or repairs costs. Whittington sought rescission and indemnity for loss of poultry, profits and medical expenses. Farwell J held no further losses could be claimed because it was beyond the ambit of the indemnity to which Mr Whittington was entitled. These losses did not result in a benefit to Seale. Since the representation was non-fraudulent, there could be no damages and therefore no compensation either. It was not the case that the rescinder should be in a position status quo ante because ‘to make good by way of compensation for the consequences of the misrepresentations is the same thing as asking for damages.’ There would now be a common law claim under Hedley Byrne or under s 2(1) Misrepresentation Act 1967 for damages. |
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Standard Chartered Bank v Pakistan National Shipping Corporation (no.2) [2002]
contributory negligence - fraud |
This is an important case in relation to the liability of a bank in case of contributory negligence, where false documents are delivered by the beneficiary in support of an application to get payment under a letter of credit.In the proceedings before the English Court, Standard Chartered Bank had established a good cause of action against the defendant, Pakistan National Shipping Corporation. Pakistan Shipping Corporation issued a Bill of lading which to its knowledge contained a false shipment date. The Bill of Lading was presented to Standard Chartered Bank under a letter of credit which was issued by Incobank of Vietnam and was confirmed by the Standard Chartered Bank. In fact the shipping documents were presented to Standard Chartered Bank late. However Standard Chartered Bank made the payment without the authority of Incobank, and hence claimed reimbursement on the basis of a false statement that the documents had been presented on time. Incobank refused to make payment because of discrepancies. Pakistan Shipping Corporation argued that the damages caused due to Standard Chartered Bank's negligence in failing to find out the discrepancies in the documents presented before the bank, and the Court should reduce the amount payable under the provisions of Section 1 of the Law Reform (Contributory Negligence) Act 1945.The Court of Appeal held that under section 4 of the 1945 Act, for a defence of contributory negligence, negligence should be actionable. In this case Pakistan Shipping Corporation's claim for reduction of the damages payable depends upon its establishing that the act of Standard Chartered Bank has given rise to an action for contributory negligence. However, it was unbelievable that the deceitful conduct of Standard Chartered Bank would have afforded Pakistan Shipping a defence, as in any event, a Defendant, liable in a deceit could not establish a defence based upon the contributory fault of a Claimant. Therefore, there were no grounds for reducing the damages recoverable on the basis of contributory negligence.The Court of Appeal criticised the role played by Standard Chartered Bank in this case. Lord Justice Ward referred to Standard Chartered Bank, “scandalous attempts to deceive the issuing bank on the basis of a false statement that the documents were presented to them in time.” (page 948). Later he referred to his “…..distaste for the bank's conduct. They have brought dishonour upon themselves and upon the City. It is quite another question whether the dishonest ship owners can benefit from the attempted fraud”. (page 958).
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Gran Gelato Ltd v Richcliff Ltd (1992)
contributory negligence |
Involves a solicitor's replies to preliminary enquiries in a conveyancing transaction. It was therefore foreseeable that others would rely on the answers given but the court held that there was no duty of care. A solicitor owes a professional duty of care to the client and no-one else. He or she is subject to professional rules and standards, and owes duties to the court as one of its officers. Thus, in general, when acting for the seller of land a solicitor does not owe a duty to the buyer. Contributory Negligence may reduce payable damages. A solicitor will not usually be liable to a purchaser of land for a negligent misrepresentation given on behalf of a Vendor of land. The word "right" may have a wider meaning than an accrued right.
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Car and Universal Finance Ltd v Caldwell [1961]
rescission for misrepresentation - contract voidable |
An unequivocal act communicating the wish to rescind a contract can override third party rights. The communication does not need to go to the misrepresentor. |
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Long v Lloyd [1958]
rescission for misrepresentation - affirmation |
If a contract is affirmed by a misrepresentee, rescission will be barred. |
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Leaf v International Galleries [1950]
rescission for misrepresentation - lapse of time |
Rescission must take place within a reasonable time. The claimant purchased a painting from the defendant. Both parties believed that the painting was by the artist Constable. In fact 5 years later the claimant discovered the painting was not a Constable. The claimant brought an action based both on misrepresentation and mistake.The claim based on misrepresentation was successful however, since it was an innocent misrepresentation, the claimant had lost the right to rescind the contract through lapse of time. With innocent misrep the time starts to run from the date of the contract not the date of discovery.The claim based on mistake was unsuccessful as the mistake related to the quality and did not render the subject matter something essentially different from that which it was believed to be. He believed he was buying a painting and he got a painting.
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Clarke v Dickson [1858]
rescission for misrepresentation - restitution in integrum (restoration to the whole uninjured state) |
Clarke was induced by representations made by Dickson to buy shares in the Welsh Potosi Lead and Copper Mining Company. Later when the company was being wound up Clarke discovered for the first time that the representations by which he was induced to buy the shares were false and fraudulent on the part of Dickson. Clarke therefore brought an action to recover the deposits which he had paid for the shares. The issue before the court was whether it was possible for the court to order restitutio in intergrum given that Clarke's shares were now worthless. Crompton J held that the contract could not be rescinded, since the shares were now worthless. He said where someone wants to exercise the voidable option,“...he must be in such a situation as to be able to put the parties into their original state before the contract... But then what did he buy? Shares in a partnership with others. He cannot return those; he has become bound to those others... Take the case I put in argument, of a butcher buying live cattle, killing them, and even selling the meat to his customers. If the rule of law were as the plaintiff contends, that butcher might, upon discovering a fraud on the part of the grazier who sold him the cattle, rescind the contract and get back the whole price: but how could that be consistent with justice?
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TSB Bank v Camfield [1995]
rescission for misrepresentation - All or Nothing process |
Husband and wife had secured a loan against their house for purposes of a business venture. The wife had acted as surety for the finance and had thought that the liability for which she was responsible had been limited, however this was unlimited. The bank had failed to ensure that the wife received independent and separate legal advice. The business failed and the husband and wife were liable to pay the bank. On appeal from the wife, the court decided that the wife would not be liable to pay. It would have been the responsibility of the bank under the ‘doctrine of notice’ to be aware of the rights of a weaker party. Court held she was allowed to rescind the agreement. She had not given true consent to the charge.
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De Molestina v Ponton [2002]
rescission for misrepresentation - All or Nothing process |
The claimants sought partial rescission of agreements of compromise of disputes within the estate on the basis that agreement had been obtained by fraud.Held: Recission of part only of an agreement was not possible.
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