In deciding whether an actionable misrepresentation has taken place, outline the principles which the courts will employ in determining whether the claimant has been induced by a false statement of fact into entering the contract.

Lastly, the representation must be a material inducement to entry into the contract. There are two elements at work here. Firstly, the representation must be material, the sense that it would affect the judgement of a reasonable person. Secondly the representation must actually induce the contract in the sense that it need not be the sole inducement: it is sufficient that it was an inducement which was actively present to the representatee’s mind. However, the claimant will not be able to show that the representation induced him into a contract, where the plaintiff was unaware of the existence of the representation and where the plaintiff knew that the representation was untrue and also where the claimant did not allow the representation to affect his judgement, as he regarded the representation as being unimportant or where he relies upon his own judgement. In Atwood v Small the claimant was unable to rescind his contract, since he had relied upon his agents’ report rather than Atwood’s representation. Such a rule however, does not apply to the claimant who has the opportunity to discover the truth himself but does not take it. In such a situation the plaintiff remains entitled to relief against the misrepresentator.

2. Advice Dr Perkins as to her rights under the law of misrepresentation, in the following separate circumstances [750 words max in total for answering both sub-questions].

(i) Dr Perkins will need to seek advice on her possible remedies in misrepresentation. Did Haddrell make a false a statement of fact?

The first statement concerned the growth prospects of his company. There seems to be no suggestion that the statement is phrased as an opinion, but even if it were, it would be argued that Haddrell is an expert and that his statement is presumably based upon facts known to him. Alternatively the principle of Caveat Emptor, suggest that Perkins bear the risk that the company might go into liquidation.

   However, was Haddrell exaggerating in his statement and did he realise that his statement had no guarantee of being successful? Could Hadrell have induced Perkins to pay £100.00 to pay off his debts after receiving a letter from his creditor?

If so, Haddrell’s statement contrasts with his original intentions, thereby conveying the wrong impression to Perkins. Hence, the statement constitutes a half-truth, thus a statement of fact. Furthermore, Haddrell’s statement that ‘clinical trials will prove successful Biologic’ is relatively vague and ambiguous, as it implies the future not the present. In Scott v Hanson the description of land being ‘uncommonly rich water meadow’ was held only to constitute a misrepresentation with reference to non-meadow land, rather than meadow that was of poor quality. Perkins will need to show that Haddrell had no facts upon which to base his statement. Moreover, an actionable misrepresentation may lie where an opinion is stated and the representor is the only person to be in a position to know the facts. Therefore, it is worth pointing out, that has the claimant relied upon any representing in entering the contract rather than her own judgement? If so what type of Misrepresentation? Any proof of fraud? Is there a special relationship between the Perkins and Haddrell? And if so, under s.2(1) of the Misrepresentation Act, can the Perkins discharge the burden of proof?

(ii) In the interim if all fails, Perkins should consider claiming damages for a breach of contract. The test for determining whether a pre-contractual statement has become part of the contract is one of objective intent. Even if the courts hold that bio-technology goes into liquidation, thus Perkins should have investigated further?

 Perkins could argue that Haddrell possessed specialist knowledge and that she was not encouraged by Haddrell to verify his statement since it was an offer of employment. Equally, by verifying Haddrell’s statement, by, for example, inquiring about the company would not jeopardise Perkins’s case, as constructive knowledge is insufficient to prove non-reliance. Haddrell would also point out that the statement was not incorporated into the written contract and that Perkins previous experience of being employed in the scientific sector should be taken into account as it created an equality of expertise between the parties, and finally Perkins did not place any specific emphasis on Haddrell’s statement, when entering into the contract. Moreover, a person who misinterprets his present intention does make a false statement of fact because the statement of his intention is a matter of fact.

The decision can go either way, and if the statement proves to constitute a term of the contract, then, Perkins remedy would be damages. These will depend on whether the parties have foreseen the effect of the growth of bio-technology. It is unlikely that Perkins could establish a fraudulent misrepresentation as Haddrell would have to possess a ‘wicked mind.’ Furthermore, liability that is imposed under s.2(1) of the Misrepresentation Act 1967; a claim in deceit and damages at under the principles of common law, are needlessly burdensome for a representee. In effect, s.2(1) imposes liability for negligent misrepresentation instead and reverses the normal burden of proof; once the representee proves that there had been a misrepresentation, it is then that the burden shifts to the representator to show that he had reasonable grounds to believe that the facts represented were true. Thus, the question here is whether Haddrell ought to know the success of bio-technology, e.g. previous clinical trials and the letter from his creditor.

  In conclusion, Perkins will probably be best advised to pursue her claim under s.2(1) of the 1967 Act, as damages will be assessed in the tort of deceit, with all its related advantages. Perkins will be entitled to reclaim all those damages from her reliance such as the loses sustained in ownership of the company and was induced into entering into the contract and also show that’s she attached considerable importance to the statement. 

3. The relevant case-law on section 2 of the Misrepresentation Act 1967, demonstrates that while the wording of the different subsections engender certainty, some form of amendment by Parliament is needed to ensure that a just result is always achieved.

Discuss [750 words max]

In the case of a claim under s2 of the Misrepresentation Act 1967, the measure of damages recoverable has been the source of some considerable controversy.

Some argue that damages aim to protect the claimant’s reliance interest. But it is unclear whether exemplary damages can be recovered for a fraudulent misrepresentation, although aggravated damages may be recovered.

 Others have argued that damages should put the claimant in the position he would have been in, had the representation been true. As Taylor has pointed out (1982), the Act itself was capable of either construction and it has therefore been left to the courts to resolve this issue. In Gosling v Anderson & Jarvis v Swan’s Tours Lord Denning appeared to suggest that the measure of recovery was the expectation measure. But since then, recovery has been confined to the reliance measure, as a representator does not promise anything; he simply asserts the truth of his statement and invites reliance upon the statement. It is therefore suggested that the appropriate measure of damages should be the reliance measure.

Thereby damages are now available for all non-innocent misrepresentations, and innocence in this context is difficult to prove. As mentioned above there where confusion upon which damages would be awarded under s.2(1), but has know become clear that the measures of damages is based on the tort of deceit. The effect of this is that, unlike damages for breach of contract, which are limited by the reasonable contemplation of the parties’ damages under s.2(1) are best on a direct consequence test in which reasonable foresee ability has no relevance. This gives the law of misrepresentation an expansion, as many types of non-pecuniary loss which are not normally available for breach of contract can be recovered in the tort of deceit using s.2(1) (e.g. mental distress and anxiety). Thus the Misrepresentation Act is not confined to its own facts and it could be argued if such an expansion in law is just?

Furthermore, the need to seek out the existence of a collateral contract has been reduced by s2 (2) of the Misrepresentation Act. Thus the courts have not been able to find the existence of such a collateral contract in every case. 

Under s2 (2), it states that power to award damages is discretionary. Damages are in lieu of rescission, so that if the claimant wishes to rescind he can only claim an indemnity. Hence, it is not clear what the appropriate measure of damages under s2 is. But, since the measure under s2 (1) is probably tortuous, it is unlikely that the contractual measure will be recoverable under s2 (2), because that would put the victim of an innocent misrepresentation in a better position than the victim of negligent misrepresentation. Finally, if the claimant has the right to rescind, but has lost it, does he also lose the right to claim damages under s2 (2)? Since damages are granted in lieu of rescission, the representee must be entitled to rescind at the date of the court hearing. Therefore, if the representee has lost his right to rescind the court cannot award him damages under s.2(2).

   

    Hence, where a pre-contractual statement constitutes a breach of contract and a misrepresentation, the representee must think hard before action to pursue. However, against this must be contrasted the problems of recovering any damages for purely innocent misrepresentation, the possible barriers to the remedy of rescission, including the exercise of judicial discretion under s.2(2) of the Misrepresentation Act.

There is no doubt that the Act has added complexity to the law. It may well be thought that the solution propounded by the Act is in any event not the best way of approaching a legal dilemma. Had the courts been willing to develop the law along more flexible lines, then the Act could have been unnecessary. The Act has also altered the law, whereas before 1967 a representee was always entitled to rescind a contract for misrepresentation, however innocent or trivial, the court is no empowered to refuse to permit rescission and to award damages in lieu. For example, a person buys a house with some minor misrepresentation (i.e. state of the drains), then it would be absurd to rescind the contract after the buyer has moved into the house. Therefore, a form of check and balance is needed by Parliament, particularly the kind of damages obtainable for pre-contractual misrepresentation, whether fraud, or under the Act, to keep the law of misrepresentation intact.

References

Section 2(1) and (2) of the Misrepresentation Act 1967

  - Entry into contract after misrepresentation has been made fraudulently

Articles

The Law reform Committee Report of 1962-damages should be recoverable from the misrepresentor unless belief in representation as true.

Law Reform (Contributory Negligence) Act 1945-should damages be reduced?

Bibliography

Andrew Burrows. Remedies for TORT and BREACH of CONTRACT. 2ND Edition. (Butterworths 1994)

Ewan McKendrick. Contract Law. (Macmillan 1990)

Smith & Thomas. A CASEBOOK ON CONTRACT. 9th Edition. (Sweet & Maxwell 1992)

P.S. Atiyah. THE LAW OF CONTRACT. 4th Edition. (Clarendon Law Series 1989)

H.G. Beale, W.D. Bishops, M.P. Furmston. CONTRACT CASES & MATERIALS. Misrepresentation: 285-288; 292-297; 300 (limits to rescission); 297-300 (damages). (Butterworths 1992)

Simon Salzedo, Peter Brunner. BRIEF CASE on Contract Law. (Cavendish Briefcase Series 1995)

---