TOPIC 5(a): MISREPRESENTATION by r29355TZ

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									A PRE-CONTRACTUAL
REPRESENTATION                                                    ELEMENTS:
- A Statement (or                                                 - One party to the other
Conduct)                                                          - A statement of Fact
                                      MIS-                        - Must be a false statement
- Not a “puff”                   REPRESENTATION                   - Was intended to induce the
- Can be incorporated as a                                        contract
   term (but generally not)                                       - Did induce the contract
   allowing suit for breach




    FRAUDULENT                      NEGLIGENT                       INNOCENT

  A deliberate untruth           A negligent untruth            Defendant thought it
                                                                   was the truth



       SUE in TORT of                SUE in TORT of                  NO SUIT
       DECEIT and                    NEGLIGNCE
       RESCIND                       and RESCIND                     But can RESCIND
       - if not affirmed             - if not affirmed               - if not affirmed

TOPIC 5(a): MISREPRESENTATION

Misrepresentation: a statement made by one party to the other, before or at the time of contracting, about an
existing or past fact that is false.
    1. Is it a puff, term or representation?
            a. Puff – no reasonable person would believe it true
            b. Term – contractual statement (look at time, content, written doc, expertise – Topic 3).
            c. Representation - look at time, content, written doc, expertise – Topic 3
    2. If it is a term:
            a. Has term been breached? Topic 7
            b. Is term condition or warranty or intermediate term? different remedies.
    3. If it is a representation:
            a. Misrepresentation? Look at elements.
                     i. If yes, what type? Fraudulent, negligent, innocent? Different remedies.
Elements: of Misrepresentation
        1. representation made party to party
        2. statement of fact
        3. false
        4. intended to induce
        5. acted as inducement

Element 1: A Representation must be made
    direct (spoken/words) v indirect (silence/conduct)
    generally there is no misrepresentation in silence
General rule: silence is not a representation
    Waters v Morgan (1861)
    Spooner v Eustace [1963] NZLR 913 (caveat emptor – let the buyer beware)
    Davies v London & Provincial Marine Insurance (1887) 8 Ch D 469

Exceptions to the general rule about silence
    Duty to disclose if subsequent events (but before contract completed) make statement false – to
      knowledge of representor, or discovered by representor.
              Jones v Dumbrell [1981] VR 199 – D represent to J in Sept that he wanted to purchase shared
              in company which they had shares, and he did not intend to resell shares. J did not want to sell
              to outside, so sold to D at undervalue. D did not disclose to J that from Nov (under completion
              of sale) he intended to purchase shares to resell.
              With v O’Flanagan [1936] Ch 575
    Half truths – statement may imply (falsely) that there are no other facts that qualify statement.
              Jennings v Zilahi-Kiss (1972) 2 SASR 493
              R v Kylsant [1932] I KB 442
    active concealment
              Schneider v Heath (1813) 170 ER 1462
    Contracts of insurance: uberrimae fidei - fullest confidence.
           Duty imposed applicant for insurance to disclose all material facts known to him/her.
           Insurance Contracts Act 1984 (Cth) s 21 (1): disclose any matter known to be relevant to
              decision of insurer, and what a reasonable person would expect to be relevant.
    Contracts of guarantee (guarantor contracts with creditor to pay back debts of debtor in exchange for
      benefit on debtor eg. more time):
           Limited duty imposed – no duty of creditor to disclose to guarantor of risk to be run. Only if
              concealment (of “not naturally to be expected” facts) would otherwise misrepresent the trans.
           Westpac Banking Corporation v Robinson (1993): bank under no duty to disclose to
              prospective guarantor of a customer’s account that account was overdrawn. Grantee would
              naturally be expected that bank not satisfied with customer’s credit.
           Commercial Bank of Australia v Amadio (1983): bank bound to reveal that overdraft limit for
              debtor was temporary and bank had, with debtor, selectively dishonoured the debtor’s cheques.
              Matters occurring between bank and debt were not expected.
    Fiduciary relationships – F is person who undertakes to act in interests of another and not in self-
      interest eg. partners, principal and agent, director and company, solicitor and client.
           Duty to disclose material faces AND to give advice of entering into contract.
           McKenzie v McDonald [1927] VLR 134: P (widow with money/family problems) got D estate
              agent to sel her farm and find suitable home in city. D knew of P’s circumstances, got info on
              farm but did not give it to her. D suggested P accept lower price for farm and exchange for
              dwelling he owned. Advantaged D and disadvantaged P. Court: duty of disclosure.
    Contracts for sale of land:
           Not duty of general disclosure – caveat emptor (buyer beware)
           There is duty to disclose presently existing latent defects of title, but not existence of
              possibility which might/does affect value (Dormer v Solo Investments Pty Ltd [1974])
    Statute – expressly impose duties of disclosure eg. corporations law, consumer credit, trade
      description, food labelling and land laws.

Element 2: The Representation is a Statement of Fact

Must be statement of past/existing fact not future intention
   Generally: promise is not misrepresentation just because it does not happen
   However: every promise implied a representation of fact – present intention to fulfil promise.
   If no present intention is established  misrepresentation.
      Edgington v Fitzmaurice: directors of company said money lent to them would be used to complete
       alterations to company’s buildings. In fact, intended to use money to pay off company debts. Thus,
       misrepresentation.
      Trade Practices Act s 51AA
      Fair Trading Act s 41

Must be statement of fact not opinion.
   Merely statement of belief – particularly where representor (to knowledge of representee) has no
      personal knowledge of facts upon belief is based.
          o Bisset v Wilkinson [1927] AC 177: B selling holding in NZ to W. Holding had not been used as
              sheep farm and W knew this. Court held: statement by B that land could support 2000 sheep,
              though wrong, was just a opinion.
   Exception: opinion implies fact if representor was (or implied that he was) in position to know facts to
      justify opinion.
          o Smith v Land and House Property Corporation (1884) 28 Ch D 7: vendor described tenant as
              “a most desirable tenant” when in fact tenant was in overdue in rent. Statement implied he had
              grounds that justified opinion.

Must be statement of fact not law.
   This rule essentially abolished (David Securities Pty Ltd v CBA (1992) 175 CLR 353)
   Fraudulent misrepresentation of law can ask for relief (Public Trustee v Taylor (1978) VR 289)

Element 3: The Representation Must be false
             Krakowski v Eurolynx Properties Ltd (1995) 130 ALR 1

Element 4: The Representation was Made to Induce the Contract
             Peek v Gurney (1873) LR 6 HL 377
   Exception:
    representee is a member of a class (Commercial Bank of Sydney v RH Brown 1972 126 CLR 337)
    representor knows that the representation is likely to be passed onto ultimate representee (Pilmore v
      Hood 1983 AC)

Element 5: The Representation Does Induce the contract (must prove reliance)
    Only if representee KNOWS/BELIEVES falsity of representation is misrepresentation defeated
       Gipps v Gipps [1978]
       Gould v Vaggelas (1985) 157 CLR 215
    Representee is under no obligation to search out the truth
       Redgrave v Hurd (1881 20 Ch D1: R stated business brought in 300 pa. Produced summaries that
          said business made 200. H asked about difference and R referred to papers which related to other
          businesses. Instead papers showed only trifling returns – if H examined them would have found
          out truth.
    Representation need not be the sole inducement
       Gould v Vaggelas (1985) 157 CLR 215

Effect of Finding Misrepresentation –Remedies
 Defence to specific performance
 voidable –choice by innocent party whether to terminate (rescind) contract or affirm and continue.
 Damages: only if tort (deceit or negligence) is established.
 Recission: contract set aside ab initio (from the beginning).

                                        Types of Misrepresentation
Fraudulent Misrepresentation
Derry v Peek (1889):
False representation has been made
        1. knowingly, or
        2. without honest belief in its truth, or
        3. recklessly without care as to whether true or not.
Need not be “material” (would induce reasonable person):
     Enough that representor intended and representee does act so.
     Nicholas v Thomspon [1924]: representees induced to purchase representor’s interest in a speculative
        venture by fraudulent misrepresentation that he had been offered very large sum of money for his
        interest but had turned it down.
Party not immediate recipient:
     Liable if intended other party to act on representation
     Commercial Banking Co of Sydney Ltd v RH Brown & Co (1972)

Re Hoffman; Ex parte Worrell v Schilling (1989) 85 ALR 145: H owned business and wanted S to buy 1/3
into it. H said they were down on money and just wanted some extra cash. S bought but turned out business
was bankrupt and his money was used to pay off debts.
     Fraudulent because they knew the truth would not convince S to buy
     Half-lie

Disclaimer of responsibility NOT effective.

Effect of finding Fraudulent Misrepresentation:
 innocent party can elect to rescind or affirm and claim damages in tort for fraud

Innocent Misrepresentation
Representor had an honest belief in the truth of the statement
Representee must be reasonable in being induced
Effect of finding Innocent Misrepresentation:
     innocent party can elect to rescind or affirm
     no claim in tort for damages is possible (not fraudulent or negligent)

Negligent Misrepresentation
Must establish:
    False statement of fact or opinion.
    Duty of care owed (take reasonable care that information is accurate and advice is sound)
    Breach of duty
    Damage from breach

San Sebastian v Minister of Administering the Environmental Planning and Assessment Act. (1986 CLR)
  Duty of care arises when:
       Representee relies upon the advice giver to take care the advice is correct
       Representor knows or ought to know the other is relying on him
              to take reasonable care
              that the advice or information is correct
              and that he may act on that advice
       Unless it is unreasonable for the victim to rely and act on the advice or information
       Circumstances to take into account:
              Nature of subject matter, occasion of interchange,
              Identity and relative positions of parties in regards to knowledge and capacity
              Eg. MLC v Evat (1986)
          Representor must carry on specialized advice giving business
               Held by PC in MLC v Evat [1971]
               But rejected in Shaddock v Parramatta.

Shaddock and Associates Pty Ltd v Parramatta City Council (1981 CLR)
       Extended duty: not limited to person who have/claim professional/business skill.
       No distinction between advice and information
       Not limited to business/formal occasions.

Applicable to pre-contractual statements
        Esso Petroleum v Marsden [1976]: M to buy petrol station. Engaged E rep to evaluate land and
          was told very successful. Council by laws said pumps must be put behind building. Failed to tell
          M. Held – negligent.

Party not immediate recipient:
     Generally: duty of care only imposed if there is special/proximate relationship between representor
       and representee.
     Exception: P must prove D knew/ought to know that representation would be communicated to P
       (either individually/member of class) and that the representation would be very likely to lead P to enter
       into transactions which would risk incurring economic loss if statement was untrue/unsound.
     Esanda Finance Corp Ltd v Peat Marwick Hungerfords (1997)

Disclaimer of responsibility EFFECTIVE but likely to be read restrictively.

Effect of Finding Negligent Misrepresentation
     Voidable - choice by innocent party whether to terminate (rescind) contract or affirm and continue
     Damages in tort of negligence

Statutory Intervention

 Trade Practices Act 1974 (Cth)
     s51A: representations as to future matter:
‘For the purposes of this Division (unfair practices in Part V – consumer protection) where a corporation
makes a representation with respect to any future matter (including the doing of or the refusing to do
any act) and the corporation does not have reasonable grounds for making the representation, the
representation shall be considered to be false.
(2) for the purposes of the application of subsection 1 the corporation shall unless it adduces evidence to the
contrary be deemed not to have reasonable grounds for making the representation.
 (3) subsection 1 shall be deemed not to limit by implication the meaning of a reference in this Division to a
misleading representation, a representation that is misleading in a material particular or conduct that is
misleading or is likely or liable to mislead.
     s 52: misleading/deceptive conduct:
‘A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is
likely to mislead or deceive’
     s 53: false representation, eg quality, age, sponsorship, price, warranty - goods/services
     s 53A: false representations/misleading conduct - land
     s 53B: false representation – employment
     s 55: mislead as to nature, manufacturing process, characteristics, suitability or quantity - goods
     s 55A: misleading conduct in relation to services
     s 59: false/mislead about business activities eg. profit, risk

Scope of legislation:
      Limited to “in trade or commerce” (does not apply under general law)
        Conduct must be in essence of corporation’s trade or commerce, and not merely incidental
          (Concrete Constructions (NSW) v Nelson (1990))
        Excludes purely private capacity of domestic transactions:
           Private sale of land by individual excluded (O’Brien v Smolonogov (1983))
           Real estate agent’s conduct included (Argy v Blunts & Lane Cove Real Estate (1990))
        Conduct while negotiating employment:
           Pre-Concrete: accepted in Patrick v Steel Mains (1989).
           Post-Concrete: rejected in Martin v Tasmania Development and Resources (1999)
           Pre-Concrete acceptance preferred (Stoelwinder v Southern Heath Care Network (2000)).
           Professional activities included.
      Claims not limited to “misrepresentation”
      Claims not limited to rescission or culpability in torts
      Exclusion clauses are always denied by judges

Test of Misleading Conduct:
    Contemplating effect on “reasonable members of the class” (Parkdale Custom Built Furniture v
       Puxu (1982)).
    Favoured test is on person, not particularly intelligent (less than average) but not unusually stupid
       (Annand & Thompson v Trade Practices Commission (1979)).

Type of Conduct:
Puffs:
     If reasonably specific and objectively tested.
     Exaggerated statements in course of negotiations not readily characterised as misleading (General
        Newspapers Pty Ltd v Telstra Corporation (1993)).
Contractual Promises:
     Contractual promises (provision of contract)  can be misleading
     Accounting Systems 2000 (Developments) v CCH Australia (1993) 114 ALR 355
Silence:
        Henjo Investments Pty Ltd V Collins Marrickville Pty Ltd (1988) 79 ALR 83: H owned restaurant. C
interested in buying and shown around restaurant, counted 128 seats. Given card by H rep which stated 128
seats. But council only license 84 seats. Exclusion clause against representation except contract doc.
         Conduct is “misleading” if it has capacity to lead/cause error.
         Law overpowers exclusion clause
         Silence may constitute breach of s52 – look at facts of case.
        CCP Airship Ltd v Primus Telecommunications Pty Ltd (2004) VSCA 232 (and s51A)
        Carpet Fashion Pty Ltd v Forma Holdings Pty Ltd (2003) NSWSC 460

Effect of breach of s52:
    s82: damages to compensate loss
    s87: courts grant any other order fit to prevent loss eg. make contract void, varied, or rescission.

Fair Trading Act (NSW)
    Extends beyond corporations to “natural persons”.
    S42 ‘A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive
       or is likely to mislead or deceive’

s41 of Fair Trading Act (NSW) (mirror of s51A but not corporations – person)
Standard of Proof:
Prior to s51A it was necessary to show that the defendant did not believe that the prediction would be satisfied
or was recklessly indifferent concerning the prediction.

								
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