La1106 – Exam Notes

Lecture 9

Misrepresentation

Misrepresentation definition

• 
  Mistake induced by a false representation of the other party
  
• 
  A misrepresentation is a false statement of a material fact made expressly or impliedly by one party to the contract (representor) to the other party (representee) to induce the latter to enter into the contract.
  

Pre-contractual statements may be

• 
  Incorporated into the contract
  
  • 
    A term
    
  • 
    If misrepresentation is a term, then a breach of contract has occurred
    
  • 
    Parties may then sue for breach
    
• 
  Not incorporated
  
  • 
    Mere representation
    
  • 
    There is no breach
    

Remedies

• 
  Damages in contract
  
  • 
    Breach of term
    
• 
  Damages in tort
  
  • 
    Misrepresentation
    
  • 
    Tort of deceit
    
• 
  Statutory damages
  
  • 
    Under ACL/FTA
    
  • 
    Often broader in approach, meaning more reliable remedy
    
  • 
    Fewer matching conditions
    
  • 
    Ambient of remedies available
    
  • 
    Help decide whether conduct is misleading
    
  • 
    Largely relevant in trade/commerce situations
    

To avoid a contract based on representation, a party must establish:

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  The statement made was false
  
• 
  The statement was one of fact
  
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  The statement was intended to induce and did induce the innocent party
  
• 
  The inducement was material
  

False statement was made

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  Statement must be
  
  • 
    False
    
  • 
    A ‘positive’ statement
    
    • 
      Includes spoken words, a written statement, conduct
      
    • 
      Contrasted with pure silence and inaction
      
    • 
      Where there is no duty to disclose, silence in itself will not amount to misrepresentation
      
      • 
        W Scott Fell & Co v Lloyd (1906) 4 CLR 572
        
    • 
      If the buyer does specifically ask a question, the seller is obliged to tell the truth or it may amount to misrepresentation
      
• 
  Exceptions to the silence provision
  
  • 
    Distortion of positive representation (half-truth)
    
    • 
      Dimmock v Hallett (1866) LR 2 CH App 21.
      
    • 
      Krakowski v Eurolynx Properties ltd (1995) 183 CLR 563.
      
      • 
        Though it was a half-truth, it amounted to a false statement
        
  • 
    Subsequent discovery by representor that statement was false
    
    • 
      Davies v London and Provincial Marine Insurance Company (1878) 8 Ch D 469.
      
  • 
    Statement becomes untrue because of change of circumstances
    
    • 
      With v O’Flanagan [1936] 1 Ch 575.
      
  • 
    Parties are in a fiduciary relationship
    
    • 
      Duty to disclose material facts
      
  • 
    Contracts made in good faith
    

Statement was one of fact

• 
  It must be a statement of past or existing fact, and not
  
  • 
    Puff
    
    • 
      Dimmock v Hallett
      
    • 
      Carlill v Carbolic Smoke Ball Company
      
  • 
    A statement of intention or promise as to the future, but exception if:
    
    • 
      Representor had no intention to comply
      
      • 
        Edgington v Fitzmaurice
        
    • 
      Statement is based on a current situation.
      
      • 
        Balfour and Clark v Hollandia Ravensthorpe
        
  • 
    A statement of opinion
    
    • 
      There can’t be a statement of misrepresentation for a statement of opinion
      
    • 
      On cannot be held to their opinion unless they can prove that it was true
      
    • 
      Bissett v Wilkinson
      
  • 
    Exceptions to statement of opinion
    
    • 
      Representor never held that opinion and lied about it
      
    • 
      Representor did hold opinion but no reasonable person would
      
    • 
      Representor implied they knew the facts
      
    • 
      Representor held themselves as an expert
      
      • 
        Esso Petroleum v Mardon [1976] QB 801
        
    • 
      Facts cannot be equally known on both sides
      
      • 
        Smith v Land & House Property Corp (1884) 28 Ch D 7
        

Statement of fact v Statement of law

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  Statements of law generally are not excepted as arguemtns, because it is expected that people know the law, and they can look it up if they don’t
  
• 
  Public Trustee v Taylor [1978] VR 289.
  
  • 
    Statement of law, but the court found that it was a fraudulent misrepresentation
    

Statement was intended to and did induce the innocent party

• 
  Representation made directly or indirectly to the innocent party
  
  • 
    If a third party volunteers information, it cannot be used to argue misrepresentation unless the third party is an agent of the misrepresenting party
    
• 
  Must be a causal link between representation and the entry into the contract
  
  • 
    Reliance requires awareness and knowledge
    
  • 
    If the representee is not aware if the misrepresentation when entering the contract, they cannot rely on misrepresentation
    
  • 
    If the representee knows that the representation is false, the cannot rely on misrepresentation
    
    • 
      No reasonable person will rely on information they know is false
      
  • 
    Redgrave v Hurd (1881) 20 Ch D 1.
    
    • 
      Redgrave misrepresented income when Hurd wished to buy practice
      
    • 
      Hurd refused to proceed when he learned the falsity of the representations
      
    • 
      Redgrave sued for specific performance
      
    • 
      Contract could be rescinded
      
    • 
      Court decided that just because you have the means to find the information is fraudulent if you look hard enough, it doesn’t mean you lose the right to break the contract once you discover the misrepresentation
      
  • 
    Attwood v Small (1838) 6 CI & Fin 232
    

Statement was material to inducement

• 
  Statement was material, but not necessarily the only or major cause
  
  • 
    Nicholas v Thompson [1924] VLR 554
    
• 
  The fact that the representor intended to induce the buyer is enough to show that it is material
  

Categories of misrepresentation

• 
  Depending on the representor’s state of mind, representation can be
  
  • 
    Fraudulent
    
    • 
      The representor had knowledge and intended to mislead
      
  • 
    Negligence
    
    • 
      The representor should have had knowledge, but did not intend to mislead
      
  • 
    Innocent
    
    • 
      No knowledge of falsity, and no intention to mislead
      

Fraudulent misrepresentation

• 
  No honest belief in truth
  
• 
  Derry v Peek (1889) 14 App Cas 337 - Lord Herschell
  
  • 
    ‘…Fraud is proven when it is shown that a false representation has been made
    
    • 
      Knowingly or
      
    • 
      Without belief in its truth, or
      
    • 
      Recklessly, careless whether it be true or false.’
      

Remedies for fraudulent misrepresentation

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  Rescission
  
  • 
    Contract is voidable
    
  • 
    Rescission must be communicated to the other party, unless it is impossible
    
  • 
    Car & Universal Finance Co Ld v Caldwell [1965] 1 QB 525
    
• 
  And/or damages in tort (deceit)
  
  • 
    Available whether or not the contract is rescinded
    
• 
  Damages in contract (if statement is in fact a term)
  

Negligent misrepresentation

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  Representor owes a duty of care to the other party
  
• 
  Knows or ought to know that the innocent party relies on their advice and they must live up to that duty
  
• 
  Hedley Byrne Ltd v Heller & Partners [1964] AC 465
  
• 
  Innocent party relies on representors advice and there is a reasonable expectation that they would, representor can be held liable
  
• 
  Must be found that negligence has occurred
  
  • 
    Duty of care owed – person is held competent to give advice and it is reasonable for representee to rely on advice
    
  • 
    Breach of duty of care
    
  • 
    Damage has been caused
    

Remedies for negligent misrepresentation

• 
  Rescission
  
  • 
    Contract is voidable
    
  • 
    Rescission must be communicated to the other party.
    
• 
  And/or damages in tort (negligence)
  
• 
  Damages in contract (if statement is a term)
  

Rescission

• 
  Aim is to restore parties to original position
  
• 
  It is optional; plaintiff may elect to affirm the contract
  
• 
  Option to rescind must be communicated to other party unless it is a fraudulent misrepresentation and is not possible
  

Bars to rescission

• 
  Affirmation
  
  • 
    Coastal Estates Pty Ltd v Melevende [1965] R 433
    
  • 
    Innocent party must know not only of the representation, but that they have the right to rescind if they do not wish to affirm
    
  • 
    Party must consciously decide to affirm the contract
    
• 
  Execution (innocent misrepresentation)
  
  • 
    If there is an innocent misrepresentation and it has been executed than it cannot be rescinded
    
  • 
    Must be rescinded before execution is complete
    
• 
  Impossibility
  
  • 
    If it is impossible to restore the party to the position before the contract, equity will aim for substantial restoration, and make up the rest with damages
    
  • 
    Alati v Kruger (1955) 94 CLR 216
    
• 
  Laches
  
  • 
    Rescission must be done within a reasonable time of the party realising the misrepresentation
    
  • 
    If it is an innocent misrepresentation there must not be any delay as it would be unfair to the other party
    
  • 
    Leaf v International Galleries
    
• 
  Impact on third parties
  
  • 
    Where there has been a situation where an innocent third party has acquired a right by the contract, rescission cannot occur
    
  • 
    Lewis v Avery
    

Partial rescission

• 
  May be granted in the interest of justice
  
• 
  Still requires the plaintiff to perform some or part of the contract
  
• 
  Vadasz v Pioneer Concrete (SA) Pty Ltd (1995) 184 CLR 102
  

Statutory provisions

• 
  Additional remedy
  

• 
  Australian Consumer Law (Schedule 2 Competition and Consumer Act 2010 (Cth)
  
• 
  In exams, focus of common law representations before statute
  

Misleading conduct

• 
  ACL s 18
  
  • 
    Misleading or deceptive conduct: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
    

Statute v Common law

• 
  Statute are prohibitory in nature, common law merely provides victims with a remedy
  
• 
  Meaning of a person
  
  • 
    Cth level – only corporations
    
  • 
    State level – all persons
    
• 
  The conduct complained of must have occurred in trade or commerce
  
• 
  It must be misleading or deceptive, or likely to mislead or deceive
  

Misleading or deceptive conduct

• 
  ‘One meaning which the words "mislead" and "deceive" share in common is "to lead into error“…’
  
  • 
    Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 198.
    
• 
  The following can amount to this:
  
  • 
    Puff
    
    • 
      Annand & Thompson Pty Ltd v Trade Practices Commission (1979) 25 ALR 91 – Franki J
      
    • 
      ‘The question is to be tested by the effect on a person, not particularly intelligent or well informed, but perhaps of somewhat less than average intelligence, although the test is not the effect on a person who is, for example, quite unusually stupid.’
      
  • 
    Silence
    
    • 
      Was the person under a duty of disclosure, or was there a reasonable expectation of disclosure
      
    • 
      Henjo Investments PL v Collins Marrickville PL (1988) 79 ALR 83; Miller & Associates Insurance Broking PL v BMW Australia Finance Ltd (2010) 241 CLR 357.
      
  • 
    Statements as to future matters: Section 4 ACL.
    

Other differences with common law

• 
  Conduct can be misleading even if no one has been misled
  
  • 
    If it is likely to mislead or deceive
    
• 
  Culpability not necessary
  
  • 
    Innocent misleading is sufficient to bring damages under statute
    
• 
  Remedies are broader:
  
  • 
    Chapter 5 ACL: includes: injunctions, damages, compensation, variation of contract, etc.
    
• 
  Damages are assessed on the basis of reliance
  
  • 
    Marks v GIO Australia Holdings (1988) 196 CLR 494.
    
    • 
      No loss was suffered, so claims for damages were unsuccessful
      
• 
  Disclaimers or exclusion clauses will generally not be an effective defence to claims of misleading or deceptive conduct
  
  • 
    Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535