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GDL Law Notes GDL Contract Law Notes

Misrepresentation 2 Categories And Remedies Notes

Updated Misrepresentation 2 Categories And Remedies Notes

GDL Contract Law Notes

GDL Contract Law

Approximately 560 pages

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MISREPRESENTATION 2: CATEGORIES AND REMEDIES

FRAUDULENT MISREPRESENTATION
  • It is very difficult to prove fraudulent misrepresentation.

  • Burden of proof = claimant.

  • Standard of proof = slightly higher than regular burden in civil cases.

  • Once fraud has been proven, there are no defences, motive is irrelevant.

  • Remedies for fraudulent misrepresentation: rescission AND damages AND indemnity (if relevant).

RULE CASE EXCEPTION CASE
  • Definition

DERRY V PEEK

A false representation is made:

  • Knowing it was untrue; or

  • Without belief in its truth; or

  • Reckless as to its truth.

One of these must be proven in order for there to be fraud.

THOMAS WITTER V TPB INDUSTRIES

Definition of reckless: a disregard for the truth…where the defendant has shut his eyes to the facts, or purposely abstained from enquiring into them.

  • Courts will ignore any investigation undertaken by Claimant

S PEARSON V DUBLIN CORP
  • Failure to disclose a change of circumstances will at least be negligence, but may also be fraudulent if it was done deliberately and dishonestly.

BANKS V COX

Deliberate failure to inform prospective purchasers of change in the social services budget, which would impact the nursing home business.

HELD: Deliberate nature of the failure to disclose change in circumstances meant that the misrepresentation was dishonest and therefore fraudulent.

ERLSON PRECISION HOLDINGS LTD V HAMPSON INDUSTRIES LTD

Forecasts provided to a potential buyer of shares over a ten-month negotiation period included details of contracts with the company’s second biggest customer. This customer had terminated its supply arrangement a few month after the initial supply arrangement (making the business unsaleable), but was still included in the proceeding forecasts – CEO aware of this but did not correct forecasts.

HELD: CEO ought to have corrected details of the forecasts. Failure to do so constituted fraudulent misrepresentation.

REMEDY 1: RESCISSION IS AVAILABLE FOR ALL CATEGORIES OF MISREPRESENTATION – SEE BLOW.

REMEDY 2: DAMAGES

Representee may sue for damages in an action for the tort of deceit.

  • Measure of damages

  1. All the damage directly flowing from the tortious act of fraudulent inducement

  2. Does not need to be foreseeable

  3. Loss can’t be too remote

  • Confirmation of Doyle and addition of two further conditions for measure of damages:

  1. Claimant must mitigate as soon as fraud is discovered

  2. Damages awarded will be reduced by the value of any benefit the plaintiff has acquired

DOYLE V OLBY

C purchased an ironmonger’s business from D. Prior to sale, D produced accounts which showed considerable annual profits. C was told that all trade was done over the counter. D also promised not to engage in similar business within a 10-mile radius. C found out the turnover had been misrepresented, half of the trade was done with the director’s brother acting as a part-time traveller and an associated company began to canvass the vendor’s former customers.

HELD: Fraudulent misrepresentation – C awarded damages for all losses directly flowing from the misrepresentation, regardless of foreseeability.

NEW SMITH COURT V SCRIMGEOUR VICKERS

  • Loss of profit may be claimed.

Not on contractual measure but on tortious measure of what C would have made if the contract never happened.

  • Loss of profit can be claimed if C can prove that he had alternative contractual transactions at the time of contracting which he would have entered into, but for the fraudulent misrep.

EAST V MAURER

C bought a hairdressing salon from D. D had another salon on the same road but said he would not work at the other salon – untrue. As a result, C was unable to make a profit – clients moved to other salon.

HELD: C awarded for loss, not on the basis of what he would have made if contract was properly enforced (contractual measure) but on what he would have made if the contract had never happened and he had instead bought a similar salon in a similar town (tortious measure).

CLEF AQUITAINE SARL V LAPORTE MATERIALS LTD

  • If you’ve made any profit, no damages awarded – need to have shown a loss.

DOWNS V CHAPPELLE

C bought a bookshop from D based on a misrepresentation its turnover and profits. Bookshop had been making a profit, but not enough to support C’s borrowing liabilities. Had to sell for a lot less than they had bought the shop for and claimed for their loss.

HELD: Loss was irrevocable because C had made a profit.

  • Contributory negligence is not a defence.

STANDARD CHARTERED BANKING V PAKISTAN NATIONAL SHIPPING
REMEDY 3: INDEMNITY
INNOCENT MISREPRESENTATION
  • Definition found in MA 1967 s 2(1): a statement made where the representor proves that not only did he believe that what he was saying was true, but where he also proves that he had reasonable grounds for belief in the truth of his statement.

  • Until the MA 1967 any misrepresentation which was not made fraudulently was deemed to be innocent misrepresentation.

  • Remedies for innocent misrepresentation: rescission and courts have the discretion to award damages in lieu of rescission under s 2(2) MA 1967.

NEGLIGENT MISREPRESENTATION
  • Did not exist prior to MA 1967.

  • Definition found in MA 1967 s 2 (1): the defendant will be liable for negligent misrepresentation unless he can prove that he had reasonable grounds to believe up to the time the contract was made that the statement was true.

  • There must be a contract between misrepresentor and misrepresentee. Otherwise, act is irrelevant and you would have to claim for negligent misstatement.

  • Burden of proof is on the defendant.

  • Where a representor is found liable for negligent misrepresentation, he will be treated as if he had made a fraudulent misrepresentation.

HOWARD MARINE AND DREDGING CO V OGDEN & SONS LTD

D hired two barges from C. C told D that the barges’ capacity was 1600 tonnes, but it was actually 1550 tonnes. Figure was derived from Lloyd’s Shipping Register, but was wrong.

CA HELD:...

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