Misrepresentation. There are three types of misrepresentation: fraudulent misrepresentation; negligent misrepresentation at common law and under statute; and innocent misrepresentation

        One of the remedies available is to avoid the contract. In all cases of misrepresentation, the innocent party may avoid the contract. In other words, misrepresentation makes the ensuring contract voidable. The representee will have several courses or action which he may take. If he decides that, despite the misrepresentation, the contract operates to his advantage, the innocent party may decided to enforce it. Being voidable, the contract is valid and enforceable unless and until it is avoided. The representee therefore may choose the course of action which best suits him. However, if he decides that he does not wish to be bound by the contract because of misrepresentation, the representee may simply refuse to perform his side of the bargain and if, the other party sues him in breach, he will plead the misrepresentation as a defence. Alternatively, if he wishes to avoid the contract, the representee may give notice by words or conduct to the representor, telling him that the contract is being set aside.

        Instead of or as well as giving notice of the fact that he is avoiding the contract, the representee may apply to the court for an order of rescission. Rescission is an equitable remedy, which sets the contract aside and puts the parties back in the position they were in before the contract was made as if they had never entered the contract in the first place. There must be giving and taking back on both sides. Thus, if the contract is one for the sale of goods, both the goods, and the price paid for them, must be returned.

        There are certain bars, however, to the availability of rescission which in some circumstances, it is unreasonable or impossible to put the contracting parties back into their pre-contractual position, and in these cases the injured party may lose the right to rescission. First, it may be lost where they party to whom the statement was made had affirmed the contract. That is, the party to whom the statement has been made, knowing or having discovered that the statement was false and with full knowledge of their right to rescind, nevertheless expressly states that they intend to continue with the contract, or if they do an act which the intention may be implied. In Long v Lloyd, it was held that the plaintiff had affirmed the contract with full knowledge of the false statement, and had therefore lost the right to rescind.

        The second way in which the right to rescind may be lost is by lapse of time. When there is an unreasonable lapse of time, the representee must act swiftly to rescind the contract. Lapse of time without any step towards repudiation being taken does not in itself constitute affirmation, but it may treated as evidence of affirmation, and it was said in a leading case that when the lapse of time is great ‘it probably would in practice be treated as conclusive evidence’ of an election to recognize the contract. In the case of fraudulent misrepresentation, time starts running from the discovery of the fraud, but in the case of any non-fraudulent misrepresentation, time will run from the date of the contract. In Leaf v International Galleries, it was held that a contract of sale of goods could not be rescinded on the basis of a non-fraudulent misrepresentation when five years had elapsed between the sale and discovery of the truth.

        The next bar arises where restitution is impossible and it is known as restitution in integrum impossible. The rule is that rescission cannot be enforced if events which have occurred since the contract and in which the representee has participated make it impossible to restore the parties substantially to their original position. The doctrine finds its most common application when the things delivered to the representee under the contract have been radically changed in extent or character by him or with his consent. Rescission is equally impossible if the subject matter of the contract is a mine that has been worked out or operated for a substantial time, or if it comprises goods that have been consumed or altered by the buyer. In Clarke v Dickson, Crompton J commented that ‘If you are fraudulently induced to buy a cake you may return it and get back the price; but you cannot both eat your cake and return you cake’.

        The final bar arises where rescission would affect the rights of third parties. If a third party acquires rights in property, in good faith and for value, the misrepresentee will lose their rights to rescind. It constitutes a major limitation where goods obtained on the basis of a (probably fraudulent) misrepresentation have been sold on to an innocent third party. The courts will not, in such a situation, require the third party to disgorge the goods. 

        We have seen that as the law has finally developed, any misrepresentation gives rise to a right in the representee to rescind. Somehow or other, obviously, there will be some cases in which the innocent party suffers a loss that cannot be put right by rescission, even if an indemnity payment is ordered. Where a party is induced to enter a contract by misrepresentation, they have a right to damages for any loss. The right to damages, on the other hand, is not universal but depends on showing that the representor’s statement is either fraudulent or negligent in the senses set out above. However the Misrepresentation Act 1967 made a further important change in by conferring on the court a general power to grant damages in lieu of rescission. By section 2 (2) of the Act it is provided that:

Where a person has entered into a contract after a misrepresentation has made to him

otherwise than fraudulently, and he would be entitled by reason of misrepresentation to rescind the contract, then, if it is claimed in any of the proceedings arising out of the contract that the contract ought to be or has been rescinded, the court or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of the opinion that it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as to the loss that rescission would cause the other party. 

        For fraudulent misrepresentation, the claim for damages is a claim in the tort of deceit. Tort damages aim to put the claimant back in the position held before the tort was committed (which, in the case of damages for misrepresentation, means the position at the time of the false statement before the contract was made), by making good any losses caused by the misrepresentation. There is authority for the view that in considering what consequential loss can be recovered, the test of remoteness is not the normal one of foreseeability. In Doyle v Olby (Ironmongers) Ltd, the Court of Appeal held that ‘the defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement…it does not lie in the mouth of the fraudulent person to say that [the damage] could not reasonably have been foreseen’.

        A representee who has entered into contract following a negligent misrepresentation may sue for damages either at common law or under section 2 (1) Misrepresentation Act 1967. For damages under common law, the claim is one in tort and so the tortuous rules apply. Furthermore, since the action lies in negligence, there can be no doubt that any problems of remoteness are to be resolved by applying the foreseeability test in the tort of negligence. In Esso Petroleum Co Ltd v Mardon, the Court of Appeal applied the same test to damages for breach of warranty and for negligence but this was because the warranty was that the forecast was carefully made and not that it was correct.

         For damages under section 2 (1) Misrepresentation Act 1967, it reverses the burden of proof. Damages will be accessed on the same basis as fraudulent misrepresentation rather than the tort of negligence which is direct consequence rather than foreseeable reasonability. In Royscot Trust Ltd v Rogerson, the Court of Appeal held that in an action for misrepresentation under section 2 (1) of the Act, the correct measure of damages is tortuous rather than contractual. The fiction of fraud was embraced and damages were purported to grant based on a deceit measure on the grounds that the words were clear. This meant that the defendant was liable for all loses flowing from the defendant’s misrepresentation and not simply for those losses which was reasonably foreseeable.

        In cases of non-fraudulent misrepresentation, section 2 (2) of the Act gives the court a discretion where the injured party would be entitled to rescind, to award damages in lieu of rescission. Damages under section 2 (2) cannot be claimed as such, they can only be awarded by the court.

Problems of Remedies Available

        Some criticisms against the rules there outlined, however, have been made. Firstly, the rules are too complicated and equivalently, in practice, hard to apply in particular is this so concerning to the representation-term distinction and the condition-warranty distinction. Some writers assert that they are incompetent for commercial purposes. No two lawyers can begin to agree upon the classification of any given statement.

Besides, the Court of Appeal has now sanctioned the use of the (relatively generous) test appropriate for fraud in all cases of misrepresentation falling under section 2 (1) of the Act, although such cases are just as likely to be negligent misrepresentations as fraudulent ones. The use of the fraud measure in Royscot, where the defendant was said to be “innocent”, looks paradoxical and is not likely to make the law clearer or simpler. The court felt constrained, however, by the plain words of the section (the fiction of fraud’) was that the defendant should be liable in damages as if the misrepresentation had been made fraudulently.  Professor Treitel comments about the ‘fiction of fraud’: ‘it seems to be quite unnecessary; and it could have the mischievous consequence of importing rules which have been developed in the context of fraudulent misrepresentation and which are quite inappropriate where there is no actual fraud.’

Likewise, the element of ‘lapse of time’ in bars of rescission seems to be problematic. The right will be lost of a claimant takes too long to bring an action in court. The amount of time that needs to pass is not specified, and a judge will decide that on case by case basis according to what he thinks is fair. In Leaf v International Galleries, Denning LJ held that it was too late to rescind 5 years after the formation of contract. However, the Limitation Act 1980 section 5 gives a six year limit from the date of a breach of contract to claim damages which was an available remedy for Mr. Leaf. Clearly, laches is a ‘somewhat uncertain’ doctrine. There is authority that an innocent party must have known of a right to rescind before time starts to run, which seems to contradict the decision in Leaf.

Apart from that, there is a difficulty in the aspect of determining the measure of damages, that is, whether the ordinary limits on the types of loss recoverable in cases of breach of contract should apply to actions for misrepresentation. In particular, damages are not normally awarded in actions for breach of contract to cover disappointment and distress, but only for actual financial losses incurred by extracting oneself from a bad bargain. But this limitation has not been observed in claims for losses resulting from fraud. In East v Maurer, for instance, the court awarded £1,000 as general damages for disappointment and inconvenience. In addition, another difficulty in calculating damages arises from the question of whether the rules should differ between fraudulent and negligent misrepresentations. In particular, some losses resulting from a misrepresentation may seem so remote and unforeseeable that compensation for those losses should only be awarded, if at all, in cases of deliberate fraud. Although the common law adopts this division, the statutory claim for damages for negligent misrepresentation under the Misrepresentation Act 1967, s. 2 (1) appears on its wording to insist upon identical treatment for cases of fraud and negligence, and it has been so interpreted by the courts.

For innocent misrepresentation, because of the confused state of the law, it is hard for an innocent party to decide whether he has an option to rescind or affirm, and he tends to and is often advised to, equivocate for innocent misrepresentation is not always available. Where it is available, the party misled is constrained either to sacrifice the bargain or to go without a remedy. This is a difficult alternative for him and in most cases some financial adjustment would bring about a more fitting settlement. In other cases, rescission will impose a liability upon the misleading party which is altogether disproportionate to the significance of his assertion. This would be prevented by the payment of appropriate compensation. The situation is even less satisfactory where rescission is not available.

Conclusion

        The United Kingdom Law Reform Committee in its Tenth Report made some recommendations which go to the criticisms mentioned above. It is recommended that contracts for the sale or other disposition of an interest in land should not be capable of being rescinded after execution. An exception should, however, be made for leases to which section 54 (2) of the Law of Property Act 1925 applies. Besides, where the court has power to order rescission, it should have discretion to award damages instead of rescission if it is satisfied that damages would adequately compensate the plaintiff, having regarded that the injury is small compared with what rescission would involve. A single “core limitation regime” which will apply to, as far as possible, to all claims for a remedy of a wrong, claims for the enforcement of a right and claims for restitution is likewise suggested. In conclusion, the remedies available for misrepresentation today are still remained controversial. Lots of problems existed should be faced squarely and reforms for remedies are needed in order to guarantee the ones who ask for remedies for misrepresentation served fairly and justly.

                

        

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