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Topic 11- Misrepresentation (Recission (Equitable remedy Allows the…
Topic 11- Misrepresentation
Reform
Law Reform Consultation Paper on Insurance Contracts 2011
The insurer should be required to show that non-disclosure of material fact
played a part in the insurer's decision
AN insurer should not be permitted to repudiate liability on the basis of non-disclosure of matieral facts of which insured
could not be reasonably be expeced to have had acual knowledge of at the time of applying for cover
Two definitions of material facts proposed:
a) Facts which, in he circumstances, a reasonable insured would know to be
highly relevant
and should be disclosed
b) facts which, in the circumstances, a reasonable insured would know to have a
decisive influence
on the insurer's decision in accepting the risk or in setting the level of the premium
The pre-contractual duty of disclosure should continue to be the basis on which a contract of insurance is a contract of utmost of good faith
The insurer should be under a statutory duty to explain to a proposer to both the nature of the duty of disclosure and the consequences of non-disclosure
Actual Knowledge
The duty to disclose should be restricted to facts or circumstances of which the person applying for insurance cover has actual knowledge
that the duty would not therefore extend to every fact or cicumstance which ought to be known by him or her (constructive knowledge
Categories of Misrepresentation
Negligent
Innocent
Fraudulent Mispresentation
Fraudulent Misrepresentation
Tort of deceit
: Made where a person makes a false statement that the mater of the statement knows to be untrue or is reckless as to whether it is true or false i.e. the maker must have an honest belief in the statement's truth
Derry v Peek
:
Facts: Promoters of a co issued a prospectus that the co had a right to run a train service
While promoters beleived this statemnet to be true, not the case
they beleived obtaining the consents was a mere formaility
ISSUE: Shareholders induced by ths representation purchased shares in the co
Consents were not forthcoming
HELD: no fraudulent misrepresentation
Fenon v Schofield
: Seller of land represented to the buyer the river than ran through it would yield 400 salmon a year
Statement was false and seller aware of this
HELD: Contract avoided for fraudulent misrepresentation
3 aspects:
1.D knows the statement is true
they have no belief it is true
or
reckless as to whehter it is true
Recklessness as to the truth of the statement can amount to a fraudulent misrepresentation
Moran v Orchanda Ltd:
Seller of licensed premises provided purhcaser with incorrect turnover figures
This statement was found to be reckless as Ds had failed to keep proper books
Negligent Misrepresentation
Negligent misrepresentation can give rise to a cause of action in both contract and tort
In tort action: action for negligent misrepresentation may be brought under
Hedley Byrne v Heller
: duty of care exists between the parties
In contract, an action for neglgient misrepresentation may be brought under the
Esso Petroleum v Mardon
line of authority only where contract
resulted from teh misrepresentation
A negligent misrepresentation occurs where a false statemnt is carelessly, but not deliberately
Thomas Witter v TBP Industries
: D sold a co tp P on basis of audited accounts
These accounts gave a false image of the co's financial position because they had been prepared negligently
The seller not aware of the errors and therefore had not acted dishonestly
HAD ACTED NEGLIGENTLY
Innocent Misrepresentation
A statement that is neither falsely nor negligently made, but is nevertheless untrue
Recission
Equitable remedy
Allows the other party to avoid the contract
Contract remains valid until the injured party seeks to rescind it
Once contract rescinded, as if contract enver came into existence and courts will try and put the parties back into the position they occupied before entering into the contract
Discretionary (equitable remedy)
WIll not be rewarded as of right
Courts may take factors into account before deciding whether to grant it
Affirmation
The right to rescind will be lost where, after discovering the misrepresentation, the representee nevertheless decides to continue with, or affirm, the contract
where he does so, right to rescind is lost
Re Hop and Malt Exchange and Warehouse Co
:
Facts: P induced to purchase shares by D's misleading prospectus
Issue: Once misrepresentation ws discovered, however P continued to deal in the shares
HELD: actions in dealing with the shares amounted to affirmation of the contract and he was therefore prevented from rescinding contract
Delay/ Laches
Recission will be granted only where it is sought in good time
The more time passes, the harder it is to put the parties back into original positions
Leaf v International Galleries
: A delay of 5 years found to be too long where an innocent misrepresentaiton as to the name of eh artist was made
HOWEVER: Courts will be more flexible where victim has been subject to a fraudulent misrepresentation
O'Kelly v Glenny
: P sold her interest in her dead father's estate to her solicitor on the basis of a false misrepresentation made by him
Notwithstanding fact she discovered fraud 10 years later, court rescinded contract
The doctrine in Seddon v North Eastern Salt
Doctrine provides that the right to rescission for misrepresentation will be lost once contract execued
The right is only lost in cases involving innocen misrepresentation
APPLICATION LIMITED BY S44 SALE OF GOODS AND SUPPLY OF SERVICES ACT 1980
: Right of recission will not be lost even where the contract has been executed in contracts involving for teh sale of goods or supply of services, hire purchase agreements and contracts for the letting of goods
Restitution in Integram is Impossible
An order of rescission will no be granted where the courts of opinion that full restitution is impossible
it isnot possible to put the parties back in the position they were in before they entered into contract
It is not necssary to bring back to EXACT position they were in
Clarke v Dickson
: Recission of a contract for sale of mind refused as all its reserves exhausted
Rights of Third Parties
Recission will not be awarded where to do so would unfairly prejudice the right sof third parties
Anderson v Ryan:
D agreed to swap his car for another purportedly owned by another person
D did not realize the other party had fraudently represented to him that he had good title to car
D not entitled to resind contract as it would affect third party rights
Statutory Remedies
Section 45 Sale of Goods and Supply of Services Act 1980:
provides right to damages in cases of innocent misrepresentations:
45.—(1) 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 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.
Allows individual making misrepresentaiton to avoid liability if he or she can prove they believed or had reasonable grounds for believing, the truth of the statement
Clarke: this defence is too wide- would be prefereable to hold the misrepresentor liable in damages simply upon proof that he statement was false
Howard Marine and Dredging v A ogden and Sons
Facts: Ps hired barges to the D
The capacity of the barges was stated by P's marine manager to be up to 1.600 tonnes
Marine manager stated the tonnage from his memory of the shipping docs
Issue: actual tonnage in docs was 1,055
Ds pleaded innocent misrepresentation
HELD: C of A- the D could not show it was reasonable for the marine manager to rely on recollection rather than consult the doc itself
Damages were more appropriate
Case law in UK
Indicates remedy under s45(1) only available to supplement shortcomings of the range of remedies available to victims of innocent misrepresentation
Resolute Maritime v Nippon Kaiji Kyokai
HELD: victim of an innocent mispresentation by an agent of D could not use provision to claim damages
Court noted the victim had a cause of action in tort in such circumstances (Hedley Byrne) and the law of contract would not interfere in such circumstances
Damages in Lieu of Recission:
S45(1) of Act provides that a court may declare a contract is subsisting but award damages instead of rescission if they believe it is just and equitable to do so in the circumstances
Despite judgemetns indicating otherwise, it appears that
the right to damages will be lost if the right to rescisssion is lost e.g. because of lapse of time, affirmation etc
Floods of Queensferry Ltd v Shand Construction (No 3)
: the court indicated at the time of the hearing of the application for damages in lieu, rescission should be a 'live' remedy
Production Technology Consultants v Barlett
FACTS: Ds made innocent misrep during negotiations for sale of land
P discovered this misrep immediately prior to conclusion of the contract but still closed the deal
ISSUE: D argued that in closing, the P affirmed the contract therefore P lost right to sue
HELD: RIGHT TO RESCIND MAY BE LOST BY AFFIRMATION
however, that did not affect P's statutory right in circumstances
Extent of damages
Debate
The section indicates that damages will be measured in tortious terms 'shall be so liable' which seems to refer to tort of deceit
Royscot Trust Ltd v Rogerson
: It was held the P is therefore entitled to recover any loss which flowed from D's fraud, even if it was foreseeable
Enright notes- justifiable in case of fraud but diff in cases of careless misrepresentation
William Sindall v Cambridgeshire County Council
As regard extent of damages recoverable in such circumstnaces the courts have stated it should be in line iwht the contract and not tort measure and only foreseeable damage should be considered
In determining whether to exercise the right to rescind or choose damages the court sated following measures relevant:
The nature of the misrepresentation
The loss to the misrepresentee if rescission is not granted
The loss to the misrepresentor if rescission is granted