Misrepresentation


Question:
(a) Explain, making reference to relevant cases, the operation of the Misrepresentation Act 1967 section 2(1). 
 Question
Where a claimant has a choice of suing either for damages for breach of contract or for misrepresentation it cannot be said that one
remedy is always preferable to the other.’ 
Discuss.
 Question
In English law damages for misrepresentation may be recovered through a number of different actions. The situation is far from satisfactory.’ 
Discuss. 

____________________________________________________________________________________________________________________

RESCISSION:

Redgrave v. Hurd

(1881) 20 Ch D 1, Court of Appeal

The first is that it demonstrates that the availability of rescission is not confined to cases of fraudulent misrepresentation. It extends to non-fraudulent misrepresentations ( Lord Esher MR )

 CONTRARY BUT NOT PREVAILED CASE OF HART v O CONOR

Contrast Redgrave with Hart v. O’Connor [1985] AC 1000 where the defendant was held to be entitled to hold the plaintiff to the terms of his contract despite the fact that the
plaintiff had an inadequate understand- ing of the transaction into which he was entering. The Privy Council focused on the defend- ant’s knowledge of the plaintiff’s capacity at the
time of entry into the contract, and not upon the knowledge which he gained subsequent to the making of the contract. In other words, the fact that the defendant subsequently realized
that the plaintiff did not understand the nature of the transaction into which he had entered did not give to the plaintiff a right to set aside the contract
 The second point to note is that the Court of Appeal held that the defendant had relied upon the plaintiff’s misrepresentation notwithstanding the fact that he failed to take the
opportunity that was given to him to discover the truth. The defendant was held to be enti- tled to set aside the contract notwithstanding his own carelessness.
 Today the remedy of damages is more widely available and it is suggested that the careless- ness of the representee can be taken into account when assessing damages (unless the mis-
representation was made fraudulently).
 This requires him to bring his decision to the attention of the other party and, according to Dyson LJ in Islington London Borough Council v. UCKAC [2006] EWCA Civ 340, requires
him also to obtain a court order.
 take such steps as are reasonable to demonstrate that he is setting the contract aside (usually by notice to the police or some other official or quasi- official body).

Car and Universal Finance Co v. Caldwell

  The court in Caldwell was required to carry out the familiar exercise of deciding which of two innocent parties should bear the loss caused by the fraud of a third party. The Court of
Appeal decided that the loss should be borne by the plaintiff purchaser on the basis that the seller had taken all reasonable steps to notify the fraudster of his decision to rescind the
contract and on the ground that the fraudster did not wish to receive any communication from the defendant seller. A different result was reached in Scotland in Macleod v. Kerr, 1965
SC 253 where the Court of Session came down on the side of the innocent purchaser on the basis that notification given to the police by the seller did not suffice to rescind a contract
with a third party (the fraudster).
 the effect of rescission was to revest ownership of the car in Mr Caldwell.

loss of the right to rescind

There are a number of such ‘bars’. The first is that a claimant cannot rescind the contract if he affirms the contract after discovering that a misrepresentation was made to him.

Secondly, the right to rescind is lost if a bona fide third party purchaser for value acquires the goods which are the subject matter of the contract before the contract has been set aside. This
was the principle that was invoked by the plaintiff purchaser in Caldwell, discussed earlier, but his attempt to invoke the principle failed on the ground that the defendant had validly set aside the
contract before Norris sold the car on to any bona fide third party purchaser for value. Thirdly the right to rescind can be lost by lapse of time (except in the case of a fraudulent
misrepresentation).

In Leaf v. International Galleries [1950] The right to rescind is often said to be lost where it is impossible to restore the parties to their pre-contractual position.

 A claimant cannot get back the purchase price he has paid for the goods and keep the goods themselves. He must return the goods and may also have to make an allowance to the
vendor for the use that he has made of the goods. But a defendant cannot resist rescission on the basis that he has suffered a loss which cannot be made good so that he cannot be
restored to his pre-contractual position (McKenzie v. Royal Bank of Canada [1934] AC 468).
 The aim is therefore to prevent the unjust enrichment of the claimant and not to restore both parties to the position they were in before the contract was concluded (Halpern v. Halpern
(No 2) [2007]
 The common law took an extremely restrictive view of the right of the claimant to rescind the contract. In order to be able to rescind the contract the claimant had to be able to restore
to the defendant the very benefit which he had obtained from the defendant. In Clarke v. Dickson (1858) E

Erlanger v. New Sombrero Phosphate Co (1878) The defendants submitted that the plaintiff was not entitled to rescission because the parties could not be restored to their pre-contractual
position. It was held that the plaintiff was entitled to rescind the contract and recover the purchase price on terms of giving up possession of the mine and accounting to the defendants for any
profits made from working the mine.

practical justice’ (see also Spence v. Crawford [1939] 3 All ER 271 and, for a more recent example, Crystal Palace FC (2000) Ltd v. Dowie [2007] EWHC 1392 (QB), [2007] IRLR 682) and
the principal issue is the extent to which the courts are willing to allow a party who wishes to rescind a contract to offer a money allowance for the benefit that he cannot physically give back.

The greater the willingness of the court to allow the claimant to make a money payment in this way, the less significant this barrier to rescission will become. The courts have not recognized a
right in the claimant to make a money allowance in order to rescind a contract. Instead they have emphasized their discretion and the aim of doing practical justice on the facts of the case. The
position has been summed up as follows

The final circumstance in which the right to rescind may be lost is where the court exercises its discretion under section 2(2) of the Misrepresentation Act 1967 to award the claim- ant
damages in lieu of rescission. The final circumstance in which the right to rescind may be lost is where the court exer- cises its discretion under section 2(2) of the Misrepresentation Act 1967
to award the claim- ant damages in lieu of rescission.

 Section 2(2) can come to the aid of such a defendant by confining the claimant to a remedy in damages.

 Section 2(2) provides: where a person has entered into a contract after a misrepresentation has been made to him otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation,
to rescind the contract, then, if it is claimed in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and
award damages in lieu of rescission, if of the opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss tha ause to the other party. would be caused by it if
the contract were upheld, as well as to the loss that rescission would
  CONTRIBUTORY NEGLIGENCE also is added in s2(2)
 willingness of the court to use section 2(2) in order to stop a claimant escaping from a bad bargain

William Sindall plc v. Cambridgeshire County Council

Hoffmann LJ identifies and applies the three factors identified as relevant by section 2(2), while at the same time emphasizing that the discretion given to the court under section 2(2) is a broad
one. As we shall see (p. 621, Section 5(d)), there are difficulties in discerning the basis on which damages are to be awarded under section 2(2). Nevertheless, section 2(2) is a useful provision in
so far as it enables a court to do what the Court of Appeal did on the facts of this case, namely block an attempt to use an innocent misrepresentation as a pretext to get out of what has become a
bad bargain.

____________________________________________________________________________________________________________________

Damages notes:

 Pre1963 only fraudulent misrepresentation gave rise to damages.

 Decision of Hedley Byrne v heller. Allowed claimant to claim damages for deceit, negligent and innocent.

S2(1)

 Only applies if a direct misrepresentation is made by a party.

LIMITATION.

If the misrepresentation was made by another party, it will not apply like A misrepresent B to form a contract with C then the Contract of B and
C cannot come under s2(1)

TORT OF DECIET TORT OF NEGLIGENCE S2(1) statute

Common law Common law MISREPRESENTATION ACT

S2(1) primary application Roy Scot trust v Rogerson

Balcombe L.J: car dealer innocently misrepresents the finance company, which induced the finance company to come into hire purchase
agreement, later the hirer default and sold the car, Whether the finance company can recover its damages? under s2(1)

Held that the damages will be measured on same principle as the damages are in tort

The tort of deceit was use this was as if the person would be put into the position if the statement was truth or if he would not have invested
in and invested on any other business, hence the unforeseen loss can also be claimed. Doyle v Olby.

Walton j in F&B Entertainment ltd v leisure enterprise. S2(1) wording is clear the person making the innocent misrepresentation shall be so
liable, as if the representation was made fraudulently.

Eveleigh lj chesneau v interhome “By so liable” mention in s2(1) means that the a person is liable as he would be if he made the mis
representation fraudulently.

Trietal debate and application proposition:

 Damages measure in s2(1); Tort of deceit

 Damages recover in s2(1): tort of deceit

Critique of s2(1) wording interpretation

Professor trietal: “declared s2(1) a “fiction of fraud” means that the negligent representor will now be liable in such circumstances
as fraudulent. Preferable view is that the severity of deceit rule can only be justified in cases of actual fraud and the
remoteness under s2(1) should depend, as in action based on negligence, on the test of foreseeability.

Lord Lindley 1904: stated a somewhat moral dilemma that it is painful to treat an honest man as fraudulent under the
parliament guidance but contrary to that the naturally felt abhorrent cannot justify the position, to not hold, someone for
the act they are accountable under parliament declaration.

Considering trietal proposition “Chitty on contracts 26 th" mentions.

HOUSE OF LORDs signified, though the damages for unforeseeable losses suffered because of fraud would only be
applied only in the case of actual fraud.

No authority for above proposition

Professor frumstons in Cheshire, fifoot and furmstons law of contract: cited treitels that damages in s2(1) should be calculated on
the same principle as govern the tort of deceit corresponding the theory of fiction of fraud.

It was highlighted in s2(1) does look like an action in tort than one in contract. The rules for negligence are the natural ones to apply.
Fiction of fraud critique:

It is impossible to defend the drafting of s2(1), section does not say that negligent would be treated as a fraudulent one, but wording
incorporate some rule related to fraud but nothing in the wording requires the measure of damage for deceit to be applied to the statutory
action.

ACTUAL RULE OF ROYSCOT:

A NEGLIGENT MISREPRESENTAR NOW HAS TO PAY DAMAGES AS IF HE IS FRAUDLENT.

COURT OF APPEAL: No fiction of fraud as the claim which is brought requires them to pay under fraud.
CRITIQUE: Professor hooley in: Damages and misrepresentation Act 1976(1991). It treats a foolish but honest man as dishonest.

SMITH NEW COURT SECURITIES V SCRIMGEOUR VICKERS:

Lord Steyn affirmed the rule of royscott regarding the fact that damages are measured based on the categorizing the person as a fraud
disregarding that he is innocent.

PRACTICAL CRITICISM/ATTACK on ROYSCOTT:

Courts have not considered fiction of fraud relevant in Gran Gelato v Richliff.
Like s2(1) Defense:

The defense of contributory negligence this defense is available in tort of negligence but not in tort of deceit. This defense was not available in
deceit highlighted in standard chartered bank v Pakistan national shipping corporation. This is lack of coherence stated by Ivan McKendrick.

Hamblen J, there is a ‘real possibility’ that Royscot will be reversed when the issue is at some future time considered by the Supreme Court
(Cheltenham Borough Council v. Laird [2009]

S2(1) REMOTENESS CONCEPT:

The effect of this section is that it puts a person in a position he would have if the misrepresentation was not made.

Fraudulent remoteness
In s2(1) under fraudulent mis representation the remoteness rule is that losses which are directly flow from mis representation are counted
regardless of the fact they are reasonably foreseeable or not. Smith new court v Scrimgeour.
Negligence remoteness:
Losses which are reasonably foreseeable will be accounted case: The Wagon Mound no1.

____________________________________________________________________________________________________________________
RULE: OF s2(1) is easy to apply as claimant only needs to proof misrepresentation and does not need to proof that it was fraudulent and just
the former can help him claim the damages under fraud. Unless defendant can reasonably proof, he believed he was telling the truth.

Howard Marine v Ogden

Plaintiff sold two barges to Ogden and stated the capacity is 1600 tones as written in Lloyd’s register. But there was a ship document under
Howard (plaintiff possession which states the original capacity of the ship weight which is 1055 tones.

Question:
 Whether under tort of negligence Howard statement breached the duty of care.
 Whether Howard o Loughlin statement was misrepresentation was liable under s2(1).

Lord denning rejected the tort of negligence stating Howard owe no duty of care under common law. During negotiation if a person
misrepresents a person to regards to any essential information, he is liable under s2(1) fraud liability regardless of if he is innocent or
negligent.

Prior to s2(1) innocent person was not liable (heilbut v buckleton) but now he is under s 2(1).

Recently if he proves he negligently did that he is liable Esso petroleum v mardon.

But if he proves that he truly reasonably believed the statement is true he is not liable under s2(1).

The burden of proof s2(1)

 The burden of proof on representor is difficulty to negate the liability by proving that they believed on the statement.

 Howard(agent), O Loghlin primary representor: It is not relevant whether the agent reasonably believed the statement is true or the
courts will only see the other party of the contract whether he/she believed the statement id true or not. Hence agent is not included
resolute maritime v Nippon.

 And suppose if other party is a company, then the relevant individual identified with that company will suffice MCI world com
international v primus telecommunication.
Advantages of s2(1)

no need to show duty of care as in tort of negligence.

More generous approach in remoteness of damages.
Claim same damages as deceit under without proofing that person was fraudulent.

Circumstance preferably to Using tort of negligence and deceit instead of s2(1)

If he is not in a direct contractual relationship: then he cannot bring s2(1)

If he himself was careless he can avoid the defense of contributory negligence under tort of deceit.

Courts would avoid s2(1) as it is draconic especially the consequence of s2(1) liability mechanism. Avon insurance v Swire Fraser, Raiffeisen
zentral bank v royal bank of Scotland.

____________________________________________________________________________________________________________________

DAMAGES IN COMMON LAW

 TORT OF NEGLIGENCE
 TORT OF DECEIT

NEGLIGENCE:

Defendant must proof that claimant owed a duty of care and has breached the duty of care. Hedley Byrne v heller partner ltd.

Tort of DECIET:

Prior to Hedley v Byrne only tort of deceit was applicable to recover damages.

____________________________________________________________________________________________________________________
S2(2):

Allows a court to give damages in lieu of recession.

Measure of damages in s2(2):

William sindall plc v cambridgeshire county council.

Hoffmann l.J:

section2(2) is concerned with damages caused by the property not being what it was represented.

S2(3) contemplate that damages under s2(2) would be less than s2(1).

Law reform committee reports that s2(2) was enacted to avoid the hardship on the representor as he won’t get any benefit of the bargain.

Warranty in a term would have ground to a claim of modest damages.

Evan Lj: highlighted two consequences: damages under s2(2) are co extensive with those under s2(1),
 Section 2(3) suggest that they are or may be different.
 innocent misrepresentation or non-negligent defendant will be liable under s2(2)
 if damages under s2(2) are provided the claimant will not suffer any net loss.
the loss of property value done via some other extraneous reason, the loss will be calculated at the date when the property was
transferred: McGregor on damages 15th Waddell v blockey.

Since this case the house of lord held in south Australia asset v York Montague ltd.
Difference between the contract price and the actual value of the property considering misrepresentation the general fall of value will not be
considered.

Claimant cannot invoke s2(2) to recover damages. It’s a court discretion. Even if court has jurisdiction to rescind the contract at the date of
hearing Zanzibar v British aerospace.

Indemnity:

A person can claim indemnity after restitution Whittington v seal Hayne: the plaintiff entered a lease of farm which he intended to use
Breeding poultry he was misrepresented by defendant that farm is sanitary, but it was, and his animals died he this case was prior rto s2(1) Act
it was in 1900. Hence, he applied for recission with indemnity for his animal loss. Courts rejected his indemnity demand because at that time
damages could only be covered via tort of deceit, and he failed to proof that it was fraudulent. But he was able to recover rent paid and the
cost of repair. These were given because these obligations were directed by land authority and favored defendant as benefits he accumulated
as a result of lease. Hence the courts gave any enrichment which the claimant provided to defendant.