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Exam Notes for Contract Law B
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01 MISREPRESENTATIONDuty to disclose
1. General rule: There is no duty to disclose material facts known to one party but not to the
other during contract negotiations (Keates v Cadogan)
Mere non-disclosure / Silence does not amount to misrepresentation
A positive action is required: Words / Conduct (Third Equitable Benefit Building
Society v Borders)
Exception: Uberrimae fidei contracts – Contracts of the utmost good faith
- Obligation to disclose all material information relevant to the transaction under
consideration (e.g. insurance contracts)
Elements of an actionable misrepresentation
2. (1) A statement (2) of fact / law (3) made by / on behalf of the representor (4) to the
representee (5) that is false, (6) induces the representee to enter into the contract & (7) is
material
3. (1) A statement
Objective test: Its impact on a “reasonable representee in the position of & with the
known characteristics of the actual representee” (MCI WorldCom International Inc v
Primus Telecommunications Inc)
Statement: “A definite / clear expression of something” (Oxford Dictionaries) that
invites reliance
- Express
Words: Spoken / written
- Implied
Actions
Walters v Morgan: Nod, wink, shake of the head, smile
Bodger v Nicholls: Taking a cow to a public market states absence of
knowledge of infectious diseases In determinate contexts, actions that
otherwise bear no special meaning can be deemed to imply precise
representations
Spice Girls Ltd v Aprilia World Services: The representation implicit in
the approval & use of the promotional material amounted to a
misrepresentation by conduct
4. (2) Of fact / law
Fact: An expression regarding a determinate state of affairs, past / present
- Exceptions
Mere puffs (“sales talk”)
Exaggerated praise which cannot be the basis for an actionable
misrepresentation (Dimmock v Hallett)
Ratio: Intrinsically unreliable
Court pleadings
The purpose of these statements is to advance the case of the party, to
be admitted / denied by the opposing party & ultimately submitted for
judicial decision (Boileau v Rutlin)
- Statement of opinion: Where the representor expresses their subjective views
about a specific matter
General rule: Not actionable in itself
Ratio: Intrinsically subjective
Smith v Land & House Property Corp
o Fact: C purchased a hotel after a tenant was described as most
desirable
o Held: Contract rescinded for misrepresentation
, o Principle: An opinion itself may not form a misrepresentation, but
the facts which formed that opinion may give rise to a
misrepresentation; An opinion must be made with reasonable
grounds supporting it
Exception: Actionable where the statement implies a statement of fact
A statement of opinion always implies a statement of fact that the
representor genuinely holds that opinion (Bissett v Wilkinson)
If the representor has special knowledge / expertise relative to the other
party, / is in a strong position to verify the truth Implied statement of
fact that there are reasonable grounds to support the opinion
o Esso Petroleum Co Ltd v Mardon
- Fact: Esso severely underestimated the sales of petrol in a
petrol station due to changing circumstances which he was aware
of Mardon relied on this estimation
- Held: Esso liable (there was reliance & the Hedley Byrne
principle was applicable)
o Bissett v Wilkinson
- Fact: A merchant of land represented that the land was capable
of rearing a certain number of sheep The land was only
suitable for less sheep
- Held: No misrepresentation (D was not an expert Had not
provided any assurance)
- Statement of intention: An expression regarding a present plan for future conduct
General rule: Not actionable (present intention)
Ratio: Subjective & predictive nature Intrinsically unreliable
Exception: Actionable where the statement implies a statement of fact
A statement of intention always implies a statement of fact that the
representor genuinely holds that intention (Edgington v Fitzmaurice;
Spice Girls Ltd v Aprilia World Services)
‘Continuing representation’ principle: If a person states that they have a
particular intention, yet they subsequently change their mind, before the
conclusion of the contract, they must inform the person to whom they
expressed their intention (conflicting authorities)
o Traill v Baring
- Fact: D changed his mind in assurance of a risk
- Held: Contract rescinded (significant statement of intent)
- Preferred authority: Consistent with principles of representations
which are later falsified
o Wales v Wadham
- Fact: Prior to a divorce settlement agreement, the wife
represented that she had no intention of remarrying Before the
agreement was concluded, her intentions changed, but the
representation was not corrected
- Held: No rescission (the statement was true at the time)
Law: An expression regarding the state of the law
- Historically not actionable
- Kleinwort Benson Ltd v Lincoln City Council: H/L held for the 1st time that money paid
as a result of mistake of law could be reclaimed by the mistaken party
- Applied in Pankhania v Hackney LBC
5. (3) Made by / on behalf of the representor
General rule: The statement must’ve been made by the party against whom relief is
sought (Hasan v Willson) / by his agent (Garnac Grain Co Inc v H.M. Faure &
Fairclough Ltd)
, Exception: A statement made by a 3rd party may be actionable if one of the contracting
parties had notice (actual / constructive) of this vitiating factor (Royal Bank of Scotland
(No. 2) v Etridge)
6. (4) To the representee
3 categories of representees (Swift v Winterbotham)
- Persons to whom the statement is addressed directly
- Person to whom the representor intended / could expect the statement to be
communicated, despite not addressing it to them directly
- All members of a class to which the statement was generally directed
7. (5) That is false
General rules
- Onus of proof lies with the representee (Vernon v Keys)
- Objectively assessed: Representor’s beliefs immaterial (R v Aspinall)
- Time of assessment: When statement is acted upon (Ship v Crosskill)
- Assessed from the perspective of a normal person in the position of the representee
(Glasier v Rolls)
Exception: Where the statement has a special meaning in the particular context
Assessed subjectively (Woodhouse v Swift)
- A statement is either true / false: Mutually exclusive. jointly exhaustive (Gross v
Lewis Hillman Ltd)
The criterion to deal with partially inaccurate statements
- As long as it is substantially correct (difference immaterial) No misrepresentation
(Avon Insurance plc v Swire Fraser Ltd Raiffeisen Zentralbank Osterreich AG v
RBS)
Statements that are false, despite appearing accurate
- A partial non-disclosure can amount to a false statement: “Half-truth
Arkwright v Newbold
Fact: Corporate case where some information was removed from the
prospectus
Held: Misrepresentation
- Suppression of material facts can render an otherwise accurate statement false
Dimmock v Hallett
Fact: D told C that all farms on the land were fully let D failed to
mention that the majority of tenants had given notice to vacate
Held: Misrepresentation
- A statement which is literally true, yet is treated as false because it positively
misleads the representee
Notts Patent Brick & Tile Co v Butler
Fact: D informed C that he was not aware of any restrictive covenants,
yet omitted the fact that he had intentionally chosen not to look into this
matter
Held: Misrepresentation
- Statements that were initially true but became false subsequently, prior to the
conclusion of the contract
With v O’Flanagan
Fact: The value of a company declined after it had been correctly
represented to be a certain value prior to the contract’s conclusion
Held: Misrepresentation
Principle: “A representation made as a matter of inducement to enter into
a contract is to be treated as a continuing representation”
“Where the representation has a continuing effect, the representor has a
continuing responsibility in respect of its accuracy” (Cramaso LLP v Ogilvie-
Grant)
8. (6) Induces the representee to enter into the contract: Causation / Reliance / Inducement
A misrepresentation is actionable only if it “caused” the representee to enter into the
contract (Raiffeisen Zentralbank Osterreich v RBS)
, Subjective analysis: Impact on the actual representee
Causation test
- Non-fraudulent misrepresentation
“But for” causation: But for the representation, the representee would not have
entered that contract / not on those terms (Raiffeisen Zentralbank Osterreich v
RBS)
Not necessary for the misrepresentation to be the sole / primary cause:
Sufficient to show that it was an effective cause (JEB Fasteners v Marks Bloom
& Co)
- Fraudulent misrepresentation
Sufficient to show that it was “actively present” in the mind of the representee
(Edgington v Fitzmaurice) (more tenuous causal link than a non-fraudulent one)
- Corollaries of the causation requirement
If the representee is unaware of the false statement / knows that it is false
(Horsfall v Thomas) No reliance
If the judgment of the representee is not affected “in any material degree” No
reliance (JEB Fasteners v Marks Bloom & Co)
The fact that the representee could’ve discovered that the statement was false
by conducting the necessary due diligence is irrelevant
Redgrave v Hurd
o Fact: D misrepresented & C didn’t check the accounts
o Held: Misrepresentation Contract rescinded
o Principle: There is no duty to verify a representation, even where
it is easy & there is an invitation to do so
Exception: Where the representor was wholly innocent & the
representee was better placed to acquire accurate information, but failed
to take reasonable steps to do so No reliance but risk-taking
(Hayward v Zurich Insurance Company)
Burden of proof lies with the representee
9. (7) Material
"The statement must be one which would affect the judgment of a reasonable person
in decident whether, / on what terms to enter into the contract” (Treitel)
Objective analysis: Impact on a reasonable person in the same position
Arguable whether it is an autonomous requirement for misrepresentation
- In favour
Treitel: Materiality explains why mere puffs & informal statements are not
actionable
McDowell v Fraser Pan Atlantic Insurance v Pine Top Insurance; MCI
WorldCom International v Primus Telecommunications)
- Against
Chitty, O’Sullivan: Materiality is a significant element of causation (particularly
relevant in causation which gives rise to a rebuttable presumption) No
independent role
Exceptions: Where materiality is irrelevant
- Fraudulent representation is actionable whether it was material (Smith v Kay)
- If the contract expressly establishes that specific representations were material
Irrelevant whether they were in fact material (Andersen v Fitzgerald)
Remedies
10. Rescission
Primary remedy for misrepresentation
General rule: Available to the representee whether the misrepresentation was
fraudulent / negligent / innocent (Salt v Stratstone Specialist Ltd)
Effects of rescission
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