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Contract Law: Misrepresentation
- Module
- Contract Law
- Institution
- Kings College London (KCL)
Comprehensive notes for Contract Law: Misrepresentation.
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CONTRACT LAW VITIATING ELEMENTSOVERVIEW: KEY QUESTIONS:
Definition of misrepresentation: false statement of fact or law, 1. What is an actionable
which is not a term of the contract, made by one party (the misrepresentation?
misrepresentor) to another party (the misrepresentee), who then
relies upon this misrepresentation and is induced to enter the 2. What are the different types of
contract. misrepresentation?
Types of misrepresentation: innocent; fraudulent; and 3. What remedies are available for
negligent. misrepresentation?
Remedies available for misrepresentation: misrepresentation
renders contract voidable, which means misrepresentee may be
able to rescind contract (set aside the contract and allow it to be
STRUCTURE:
restored to the position that the parties were in before the
contract was made) and/ or be awarded damages for
Is it an actionable misrepresentation? =
misrepresentation.
FALSE
- However, rescission may be lost where any of the bars of
FACT/ LAW
rescission (see s. 1 Misrepresentation Act 1967) apply:
ADDRESSED
if the misrepresentee has already affirmed the contract/ the
INTENDED
contract has been performed; the misrepresentation has
INDUCE
become a term of the contract.
What type of misrepresentation is it? =
- The remedies are dependent upon the type of
misrepresentation that has been made: under fraudulent,
Fraudulent – false, without belief
the damages are in the tort of deceit; under negligent,
in its truth or recklessness.
there can either be common law damages for negligent
misstatement or damages in statute – s. 2(1) of MA
Innocent – reasonable grounds
1967); or if it is innocent, there can only be one remedy,
for belief in statement.
rescission in lieu of damages or vice versa.
Negligent – common law:
Changes to business-to-consumer (B2C) contracts made by
KNOWLEDGE, RELIANCE,
Consumer Protection (Amendment) Regulations 2014/870 to
PURPOSE, ACTED UPON TO
Consumer Protection from Unfair Trading Regulations
DETRIMENT AND
2008:
REASONABLE PERSON IN
SAME POSITION; s. (2) MA
- After 1st October 2014, consumers who entered into
1967/ statute: PARTY TO
contract for sale/ supply of product by trader, or entered
CONTRACT, ACTUAL LOSS
into a contract to sell product to trader (e.g. selling a car to
AND FICTION OF FRAUD.
a car dealer), or paid dealer for supply of product, and that
trader engaged in prohibited practices in relation to
What remedies are available for
product, e.g. misrepresentation, have ‘rights to redress’
misrepresentation?
(right to unwind, right to discount and specific right to
damages) under regulations.
Fraudulent – RESCISSION AND/
OR DAMAGES IN TORT OF
- Instead of ‘rights to redress’, a consumer may rely upon
DECEIT.
the general remedies. They may do so, due to the scope of
the remedy in damages available.
Negligent – RESCISSION AND/
OR DAMAGES IN TORT OR
- However, a consumer may not recover damages for
STATUTORY DAMAGES.
misrepresentation under s. 2 of MA 1967 if they have rights
to redress, rendering it more likely for them to use the
Innocent – RESCISSION OR
CPRs. This showcases the limitation to the usefulness of a
DAMAGES (one option).
B2C misrepresentation claim outside CPRs.
- The initial step is to confirm whether or not a misrepresentation has actually been made (remember difference
between misrepresentations and warranties, as a warranty is a term of the contract, whereas misrepresentations are
not) – then, it can be established whether or not the statement is an actionable misrepresentation.
Key:
REQUIREMENT
WHAT CONSTITUTES AS FULFILLING THIS REQUIREMENT?
WHAT DOES NOT COUNT AS PART OF THIS REQUIREMENT?
CASE
, CONTRACT LAW VITIATING ELEMENTS
WHAT IS AN ACTIONABLE MISREPRESENTATION?
An unambiguous false statement of fact made to a party, which induces said party to enter into the contract with the
party who made the statement.
This should be differentiated from mere puffs, which have no legal consequences (e.g. Red Bull stating that ‘Red
Bull gives you wings – in DIMMOCK V HALLET, the fact that the advertisement at auction had falsely described the
land as improvable and fertile was mere puff, as it was simply sale talk).
STEPS TO FINDING AN ACTIONABLE MISREPRESENTATION:
There must be a false statement of fact or law (or misleading conduct), not an opinion or a future intention, made by the
misrepresentor (or on the misrepresentor’s behalf) at the time of contracting.
1. The statement must be unambiguous (this is not a regular requirement, but is useful to mention) and false.
In AVON INSURANCE PLC V SWIRE FRASER LTD, Rix J held that the test of truth was to see whether the statement is
substantially correct: a reasonable person would not have been induced to make the contract, if there was not substantial
difference between what was represented and the correct position.
= False statement DIMMOCK V HALLET (1886): the land was for sale at auction and in the advertisement at the
auction, it was stated that two tenants had recently occupied the land (recently worked land was a significant factor
in selling); this turned out to be false, as the tenants had given notice to quit.
False statements may also include conduct (encouraging a false belief).
= Conduct GORDON V SELICO CO. LTD (1986): patches of dry rot were fraudulently covered up by the vendor,
so that the plaintiff would not have seen it on the inspection of a flat. This constituted as a misrepresentation that the
flat did not have dry rot.
An omission (failing to speak when there is a duty to do so) may also constitute as a misrepresentation. This must be
differentiated from silence: a statement may be a half-truth (what is said is true, but is misleading for it fails to significantly
represent the whole picture, e.g. failing to disclose that you smoke in regards to life insurance) and thus, a misrepresentation.
= Omission DIMMOCK V HALLETT: there was a statement that farms on the land were to be let, but failed to
mention that the previous tenants had given notice to quit. The misrepresentation was the failure to disclose the
notices to quit.
It is important to note that a statement may be true when made, but can become untrue before the contract is entered into, due
to a change of circumstances (in relation to the type of misrepresentation claim this may give rise to, it depends – if the failure
to disclose was deliberate or dishonest, then the misrepresentation is fraudulent; if the party did not realise there was a duty to
disclose, then it is negligent). There may be a misrepresentation in failing to disclose the change of circumstances.
= Failure to disclose change WITH V O’FLANAGAN (1936): the defendant wished to sell his medical practice and
told the plaintiff about the income that could be derived from the medical practice (which was true at the time), but
failed to inform the plaintiff when he became ill and the income of the practice fell drastically. He did not tell the
plaintiff of this, thus constituting as a misrepresentation.
OR
SPICE GIRLS LTD V APRILIA WORLD SERVICES BV (2002): the sponsor had not been informed that a member of the
Spice Girls had decided to leave, despite all the members of the group being aware of this; thus, when the Spice Girls sought
payment for a photo-shoot as part of the sponsorship agreement, the defendant counterclaimed for damages for
misrepresentation.
2. The statement must be of fact (or law), as only a fact can be true or untrue.
= False statement must be of fact or law PANKHANIA V HACKNEY LONDON BOROUGH COUNCIL (2002):
misrepresentation made concerning legal status of current occupier of a property being sold, which impacted the
ability to eject that occupier (law).
However, statements or belief or opinion are not statements of fact, because opinions can change – at least, this is true where
it is clear to both parties that the statement-maker is not an expert.
≠ False statement cannot be of belief/ opinion BISSET V WILKINSON: both the vendor and purchaser knew the
land had not previously been used for sheep-farming, so the vendor’s belief relating to the number of sheep that the
land could carry for the purchaser’s sheep farm was not a statement of fact, but an opinion.
However, there are times where the statement-maker is in a stronger position to know the truth, usually because they are an
expert (thus, they should know of facts to justify statements of their opinion) or because it relates to their property – thus, their
belief or opinion may constitute as fact and thus, misrepresentation.
Key:
REQUIREMENT
WHAT CONSTITUTES AS FULFILLING THIS REQUIREMENT?
WHAT DOES NOT COUNT AS PART OF THIS REQUIREMENT?
CASE
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