Misrepresentation and economic duress

1. Misrepresentation and economic duress

2. Objectives • Explain what is meant by misrepresentation. • Understand the types of misrepresentation under common law: fraudulent misrepresentation, innocent misrepresentation and negligent misrepresentation. • Explain misrepresentation by statute under the Misrepresentation Act 1967. • Understand the meaning of economic duress and its distinction with duress.

3. What is a misrepresentation? A representation is a statement made at the time of the contract being made and can be incorporated into the contract. If the representation is falsely made, however, it can be a misrepresentation and can cause the contract to be voidable. Legal Definition: A misrepresentation is a statement of material fact1, made by one party to a contract to the other party2to the contract, during the negotiations leading up to the formation of the contract3, which was intended to operate and did operate as an inducement4to the other party to enter the contract, but which was not intended to be a binding obligation5 under the contract, and which was untrue or incorrectly stated6. Key Cases: 1 Bisset v Wilkinson (1927), Edgington v Fitzmaurice (1885) 2Peyman v Lanjani (1985) 3Roscorla v Thomas (1842) 4 JEB Fasteners Ltd v Marks Bloom & Co Ltd (1983), Attwood v Small (1838) 5 Couchman v Hill (1947)

4. Fraudulent Misrepresentation Derry v Peak (1889) - if a person makes a false statement which he or she does not believe to be true at the time, this is a fraudulent misrepresentation. The claimant will then sue for damages under the tort of deceit • Where fraudulent misrepresentation is alleged, fraud must also be proved. • The damages will then be awarded according to the tort of deceit and are also available under s2(1) Misrepresentation Act 1967. The equitable remedy of rescission is also available. The defendant is responsible for all losses including any consequential loss providing a causal link between the fraudulent misrepresentation and the claimant’s loss.

5. Negligent Misrepresentation Hedley Byrne v Heller & Partners (1964) – damages may be recovered for a negligent misrepresentation where a financial loss has been incurred and where there is a special relationship between the parties. Three requirements: • The party making the statement must be in possession of the particular type of knowledge for which the advice is required. • There must be sufficient proximity between the two parties that it is reasonable to rely on the statement. • The party to whom the statement is made does rely on the statement and the party making the statement is aware of that reliance. Damages will be applied according to the standard tort measure of negligence or under s2(1) Misrepresentation Act 1967. The equitable remedy of rescission is also available. Also see: Esso Petroleum Co Ltd v Mardon (1976)

6. Innocent Misrepresentation • Any misrepresentation not made fraudulently was historically classed as an innocent misrepresentation regardless of how it was made. • Since the emergence of the Hedley Byrne principle and the passing of the Misrepresentation Act 1967, the only misrepresentations that can be claimed to be made innocently are those where a party makes a statement with an honest belief in its truth – for example, where the party merely repeats inaccurate information, the truth of which they are unaware. • The main remedy for innocent misrepresentation is the equitable remedy of rescission; that is to void the contract as if it never happened. Damages are also available under s2(1) Misrepresentation Act 1967.

7. Activity Suggest what type of misrepresentation is involved in the following examples: • Colin is selling his motorcycle to Keith. Keith asks what is the capacity of the engine. Colin, after looking at the registration documents, tells him that it is a 600cc. Unknown to Colin, the documents are incorrect. • Sophie, a salesperson, tells Aiden that a carpet is able to be cleaned with bleach, without checking the manufacturer’s specification that would have revealed that it is not. • Harry, who has no qualifications at all, tells prospective employers at an interview that he has a degree in marketing. • Michelle recently purchased “beef burgers” from her local supermarket, only to later discover in the newspaper that that brand actually contained horsemeat.

8. Misrepresentation under statute s2(1) Misrepresentation Act 1967 “Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true” In other words, a party who has been a victim of a misrepresentation has an action available without having to prove either fraud or the existence of a special relationship under the Hedley Byrne criteria. The burden of proof is reversed so that the person making the statement has to prove that they were not negligent.

9. Misrepresentation under statute s2(1) Misrepresentation Act 1967 Key Cases: • Howard Marine and Dredging Co Ltd v A Ogden and Sons (Evacuations) Ltd (1978) • Spice Girls Ltd v Aprilla World Service (2002) Under s2(2) Misrepresentation Act 1967the judge has the discretion which remedy to apply. Rescission will not therefore be available if the judge has decided that damages is a more appropriate remedy.

10. Economic Duress A contract may be set aside because extreme coercion has rendered the contract otherwise commercially unviable. Five conditions need to be satisfied in order for there to be a finding of duress: • Pressure was exerted on the contracting party – North Ocean Shipping Co v Hyundai Construction Co (1979) [The Atlantic Baron] • The pressure was illegitimate – Atlas Express Ltd v Kafco (Importers and Distributors) Ltd (1989) • The pressure induced the claimant to enter the contract – Barton v Armstrong (1975) • The claimant had no choice but to enter the contract – Universe Tankships v International Transport Workers’ Federation (1983) • The claimant protested at the time or shortly after the contract was made - North Ocean Shipping Co v Hyundai Construction Co (1979) [The Atlantic Baron]