Obligations, Contract - Misrepresentation

Vitiation of Contractual Consent

In cases of misrepresentation, consent is vitiated - made invalid or defective, so voiding the contract.

Factors impacting this include misrepresentation, unilateral mistake, incapacity, duress, undue influence, unconscionability, common mistake, frustration, and illegality.

The result is either a void contract (mistake or illegality) or a voidable contract (misrepresentation, duress, undue influence) which may be carried out still.

Misrepresentation - Terms v Representations

Statements made during contracting can either be terms (included in contract, an important aspect, stated close to the creation of the contract, oral statement made into writing, statement made by skilled person) or representations (facts stating truth, which may persuade someone to enter into a contract).

See Dick Bentley and Oscar Chess cases.

Misrepresentation - Is it actionable?

The statement made must be of fact, addressed to the misled party, and have induced them into the contract. Non-disclosure (silence) does not made a misrepresentation actionable

Misrepresentation - actionable? Half-truths and Dimmock v Hallet [1866] and Webster and Others v Liddington [2014]

Half truths allow some things to remain unsaid, and the unsaid can change the meaning of what is said.

Dimmock v Hallet [1866] - Buyer brough land which was being let to tenants, so thought he would not have to find new ones. The tenants had already been given notice to end the lease, so the land was not profitable to the buyer.

Webster and Others v Liddington [2014] - Beauty clinic offered a cosmetic procedure to make you look younger, by cultivating cells from the body in foetal bovine (calf) serum, and injecting them into the face - the use of foetal bovine serum was not disclosed to clients.

Misrepresentation - actionable? Change of circumstances and With v O’Flanagan [1936]

Change of circumstances has a legal positive obligation to disclose.

With v O’Flanagan [1936] - A profitable medical practice was sold, but the decline in sales due to the leading doctor’s period of illness had to be disclosed to buyers.

Misrepresentation - actionable? Contracts uberrimae fidei

Contracts of utmost good faith - deals with fiduciary relationships, where things must be disclosed.

Misrepresentation - actionable? Concealment or conduct, Gordon v Selico Co (1986) and Spice Girls v Aprilia [2002]

Attempting to hide or conceal a defect can amount to misrepresentation.

Gordon v Selico Co (1986) - There was an extensive cover up of very bad dry rot in a flat being sold.

Spice Girls v Apirilia [2002] - Aprilia made scooters and had a photoshoot with the 5 girls to promote the collaboration. They group knew ginger spice planned to leave, but did not disclose this - when she left, the promotional material was outdated. The lack of positive statement from the Spice Girls, entering negotiations, and photoshoot suggested there would be 5 of them in marketing campaigns. Found liable for negligible misrepresentation = damages for Aprilia.

Misrepresentation - Statement must be one of fact, Bisset v Wilkinson [1927] and Esso Petroleum v Mardon [1976]

Opinions and puffs (sales talk) are not included.

Bisset v Wilkinson [1927] - W purchased land from B for sheep farming, B guessed 2,000 sheep could graze there wrongly, but had never raised sheep - ruled mere opinion, as he could not have known.

Esso Petroleum v Mardon [1976] - Esso sold a petrol station franchise, claiming it had sales capacity potential, and inducing the buyer to purchase. Losses were incurred when this turned out to not be true. The expertise of Esso meant this could not be ruled as an opinion - they knew sales capacity, so it was misrepresentation.

Misrepresentation - Statement must be addressed to the party misled and Commercial Baking Company of Sydney v RH Brown & Co (1972)

This must come directly from the other party or via a third party.

Commercial Baking Company of Sydney v RH Brown & Co (1972) - Baking company told Brown their client was in good financial standing - untrue, and was held to be misrepresentation.

Misrepresentation - Statement induced the party into the contract

Statement must be proven as enforcing the contract, and the party must have relied on it. Uses ‘but for’ test of causation - w/o the statement, would there be a contract?

Misrepresentation - inducing statement? Awareness, Horsfall v Thomas (1962) and Hunt v Optima (Cambridge) Ltd (2014)

Claimants unaware of the misrepresentation cannot claim to have been induced by it.

Horsfall v Thomas (1962) - seller tried to conceal a defect when selling a gun. Buyer did not inspect the gun, so could not claim misrepresentation, since they were not impacted by the concealment and would have bought the gun anyway.

Hunt v Optima (Cambridge) Ltd (2014) - flats were sold as free from fault, but it was only brought to their attention after the contract was agreed. If they knew it to not be true, they cannot have been persuaded by it.

Misrepresentation - inducing statement? No effect and Attwood v Small (1838)

If claimant did not allow it to impact their decision, it cannot be misrepresentation.

Attwood v Small (1838) - False statements were made about the earnings of a mine being sold, confirmed by an agent hired by buyer. The misrepresentation was then not the seller’s, but the agent’s.

Misrepresentation - inducing statement? Claimants have no duty to check and Redgrave v Hurd (1881)

Generally, claimants do not have a duty to check the truth.

Redgrave v Hurd (1881) - R misrepresented the earnings of s solicitor’s practice he was selling (as well as leasing a house), and tried to argue H should have inspected documents closer to discover this. Courts ruled in favour of H, as he had no duty to do so.

Types of misrepresentation - Fraudulent

Under the tort of deceit, when a statement is made knowingly, without belief in its truth, or recklessly (Derry v Peek (1889)). The burden of proof is on the claimant, but very difficult to prove someone was aware of their lies - criminal standards (beyond doubt).

Types of misrepresentation - Negligent and Howard Marine and Dredging Co v Ogden and Sons (1978)

The statement-makers believe in their words, but have no reasonable ground to - only recognised from 1960s.

Howard Marine and Dredging Co v Ogden and Sons (1978) - HM mistakenly guessed the capacity of barges, and claimant sued successfully.

Types of misrepresentation - negligent misstatement in common law and Hedley Byrne and Co. v Heller and Partners (1964)

Developed while statute was being drafted in Parliament.

Hedley Byrne and Co. v Heller and Partners (1964) - there must be a ‘special relationship’ between parties to give rise to a duty of care. Claimant has burden of proof - difficult to prove the relationship.

Types of misrepresentation - negligent and s2(1) Misrepresentation Act 1967

Statute alternative to common law.

s2(1) Misrepresentation Act 1967 - All C must do is prove he entered the contract due to the misrepresentation, burden is passed to D to prove reasonable grounds for belief - much easier action. There is no concern for fraud or relationships - business to business only.

Types of misrepresentation - Wholly innocent and Leaf v International Galleries (1950)

The statement-makers genuinely believe their words, and have reason to - now included under s2(1) Misrepresentation Act.

Leaf v International Galleries (1950) - Buyer bought a painting thought to be a specific artist, but was a forgery. Seller did not know, and had ground to believe it was real.

Misrepresentation damages - Fraudulent, Negligent, and wholly innocent

Fraudulent - no limit to proceedings - anything ‘directly flowing’ from the fraud.

Negligent - no limit, all losses directly flowing from negligence.

Wholly innocent - usually only rescission (cancels contract), but can be awarded under court’s discretion in s2(2) MA - ONLY if rescission is not barred.

Rescission

An equitable, restitutionary (‘giving back’) remedy setting the contract aside. rescission in breach = termination, equitable rescission is separate, and puts people back into the og positions. There are barriers to rescission.

Barriers to rescission - Affirmation and Long v Lloyd (1958)

You must take action when you discover the misrepresentation (immediately).

Long v Lloyd (1958) - defected lorry bought for second journey had affirmed the contract = no rescission.

Bars to rescission - Lapse of time, Doctrine of Laches and Leaf v International Galleries

Doctrine of Laches - ‘equity aids the vigilant not the sleeping’.

Leaf v International Galleries - 5 years had passed from sale of forged painting, so barred from rescission.

Bars to rescission - Third party rights and Crystal Palace v Dowie

Third party rights bar rescission.

Crystal Palace v Dowie - footballer made false representations about wanting to be with family to be released from employment contract, but really wanted to join another club. When he joined the new club, he could not be passed back.

Bars to rescission - No restitutio in integrum and Erlanger v New Sobrero Phosphate (1838)

The parties cannot be restored in full, such as in consumption or use - sometimes returned with small damages paid for depreciation in value.

Erlanger v New Sobrero Phosphate (1838) - phosphate mine misrepresented in sale, but the materials had been mined, so money was ordered to be paid in its place, to restore parties to their original positions.