Chapter 5 in essence

1. A false statement of fact can be:

  1. a term of the contract giving rise to remedies for breach (primarily expectation damages, termination, and specific performance);
  2. a mere representation generating the main remedies of reliance damages and rescission; or
  3. of no legal effect such as a ‘mere puff’ or an honest statement of intention yielding no legal redress.

2. The term-representation distinction is said to depend on the intention of the parties, but the factors influencing the court’s determination include the importance of the statement to the representee, the relative knowledge and expertise of the parties, and whether the representee was advised to verify the truth of the statement.

3. The importance of the term-representation distinction lies in the remedies available (ie whether damages are recoverable, how damages are measured, and whether and when the claimant can get out of the contract). Section 1(a) of the Misrepresentation Act 1967 allows a claimant to rescind the contract for a misrepresentation, although it has been incorporated into the contract as a term and its breach would not have entitled the claimant to terminate the contract. Whether the remedies for breach or for misrepresentation are preferable in any case will depend primarily on whether the claimant has made a good bargain or a bad bargain.

4. The definition of a misrepresentation is:

  1. an unambiguous false statement of existing fact (or, now, of law);
  2. addressed to the claimant; and
  3. which induces the claimant to enter the contract.

5. Statements of intention, opinion, and law imply statements of fact to the effect that the statements are honestly made. Further, where the speaker is in a better position to know the truth, his statements of opinion and of law will imply a statement of fact to the effect that he has a reasonable basis for his statements. If either is untrue, there is a misrepresentation.

6. There is no general duty of disclosure; no liability attaches to silence even if the silent party knows or suspects the other party is ignorant or wrong. However, liability can attach where the silent party:

  1. fails to correct a statement falsified by change of circumstances before contract formation;
  2. tells a ‘half-truth’; or
  3. owes the other party a duty of utmost good faith or a fiduciary duty.

7. To satisfy the inducement (or causation) requirement, the misrepresentation need only be ‘a’ reason for the representee entering the contract. There is no inducement if the representee was unaware of the misrepresentation, knew it was untrue, did not allow it to influence him, or regarded it as unimportant.

8. Where one contract party makes a misrepresentation to the other, section 2(1) of the Misrepresentation Act 1967 imposes liability on a misrepresentor to pay damages unless he can prove that he honestly and reasonably believed, up to the time of contract formation, that his statement was true. Only where the parties are not in a contractual relationship must the representee resort to the tort actions of deceit and negligent misrepresentation to obtain damages. Then, the representee must prove the representor’s fraud or negligence.

9. A section 2(1) claim is preferable to a claim in tort since it:

  1. lowers the qualifying threshold;
  2. reverses the burden of proof; and
  3. yields a generous measure of damages via the ‘fiction of fraud’ (it is not reduced by remoteness or contributory negligence, and may include loss of opportunity and reduction in the value of the property acquired under the contract at, and even after, the time of contracting).

10. Reliance damages under section 2(1) should be distinguished from other money claims related to rescission (eg recovery of money paid, indemnity, and damages in lieu of rescission) and for breach.

11. Rescission is available for all types of misrepresentation subject to the bars of:

  1. affirmation;
  2. lapse of time;
  3. third party rights;
  4. impossibility of precise mutual restitution; and
  5. inequity under section 2(2) of the 1967 Act.

In practice, (iv) is the main bar, although its strictness has been relaxed.

12. Rescission has the effect of to restoring the claimant, so far as is possible, to their position before the contract was entered and to prevent their unjust enrichment by requiring them to return any benefits received. In contrast, termination for breach acknowledges the validity of the contract and damages aim to put the claimant in the position that they would have occupied if the contract had been performed.

13. A representor cannot exclude liability for his own fraud. Otherwise, section 3 of the Misrepresentation Act 1967 requires any exemptions of liability for misrepresentation to be reasonable.   Whether ‘no statement of fact’ and ‘no reliance’ clauses are subject to the test of reasonableness has caused difficulties that have not been resolved by the device of ‘contractual estoppel’.  Ultimately, substance rather than form should be determinative.  In general, courts seem relatively willing to uphold exemptions for misrepresentation than for breach.  In any case, the Unfair Terms in Consumer Contracts Regulations 1999 subjects all variations of these clauses (including ‘no agent authority’ and ‘entire agreement’ clauses to the test of fairness where they are non-negotiated and in consumer contracts.

14. The Consumer Protection from Unfair Trading Regulations 2008 allow consumers to seek civil redress where misleading or aggressive practices by businesses have caused them to enter the contract or to make payments for goods or services (including digital content).  

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