Vitiating factors: misrepresentation as a false statement of fact inducing the contract, the three types (fraudulent, negligent and innocent), and the remedies of rescission and damages.

What this dot point is asking

This dot point covers misrepresentation, a vitiating factor that can make a contract voidable. You need to explain what makes a statement an actionable misrepresentation (a false statement of fact that induces the contract), the three types (fraudulent, negligent and innocent), and the remedies (rescission and damages) under the Misrepresentation Act 1967. WJEC tests application to scenarios, advising whether a misrepresentation has been made and what remedies follow.

The answer

What makes a misrepresentation actionable

The requirements are:

• A statement of fact, not mere opinion (Bisset v Wilkinson, an honest estimate of land capacity) or sales "puff", though an opinion by someone with special knowledge may be actionable (Smith v Land and House Property).
• Not generally silence: there is usually no duty to disclose, but exceptions include a half-truth, a change of circumstances before contracting (With v O'Flanagan), and contracts of utmost good faith (such as insurance).
• Inducement: the statement must have induced the contract, that is the claimant relied on it (Attwood v Small, where the claimant relied on their own checks instead).

The three types

Remedies

The two remedies are rescission and damages:

• Rescission sets the contract aside and restores the parties to their pre-contract positions. It is available for all three types, but is barred by affirmation, lapse of time, the acquisition of third-party rights, and where restoration is impossible.
• Damages depend on the type: in the tort of deceit for fraudulent misrepresentation; under section 2(1) for negligent misrepresentation; and in lieu of rescission under section 2(2) at the court's discretion for innocent misrepresentation.

Examples in context

The fact-versus-opinion line decides many claims. In Bisset v Wilkinson a vendor's honest estimate of how many sheep his land could carry, on land never used for sheep, was opinion, not a statement of fact, so it was not an actionable misrepresentation; but in Smith v Land and House Property a landlord's description of a tenant as "most desirable", when he knew the tenant was in arrears, was actionable because he had the special knowledge to know it was false. Derry v Peek then defines fraud strictly: a statement is fraudulent only if made knowingly, without belief in its truth, or recklessly, so an honest if careless belief is not fraud. The Misrepresentation Act 1967 fills the gap, because section 2(1) lets a claimant recover for a negligent misstatement and puts the burden on the representor to prove reasonable grounds, which in Howard Marine v Ogden the defendants could not do.

Try this

Q1. What three things must an actionable misrepresentation be? [3 marks]

• Cue. A false statement of fact, made by one party, that induces the other to enter the contract.

Q2. What is the test for fraudulent misrepresentation? [2 marks]

• Cue. A statement made knowingly, without belief in its truth, or recklessly as to its truth (Derry v Peek).

Q3. Advise whether an actionable misrepresentation has been made and the remedies available. [20 marks]

• What the marker wants. The requirements (fact, not opinion; inducement), the type (fraudulent, negligent or innocent), and the remedies (rescission and the correct measure of damages), applied with a conclusion.