Teacher Resource 6

Vitiating factors: working through a misrepresentation scenario questions exercise

Sara has been the owner of the ‘Cake and Coffee Cafe’ for 30 years. She has decided to sell the café and move to Spain. Carlos is a fan of cake baking and sees the sale of the café advertised in the local estate agents. He visits the café and notices in the window a Food Hygiene Notice with a very good grading of 5. Carlos is very impressed.

Carlos is concerned about competition from other cafes and asks Sara if there are any other cafes nearby. Sara says no. She fails to mention that planning permissions has been granted to turn a shop across the road into a café.

Carlos asks Sara to show him the accounts for last year. The accounts suggest the business is very healthy. Just to make sure, Carlos asks his friend Lucas, an accountant, to look over the accounts. Lucas agrees the Cake and Coffee Café is a very profitable looking business. Carlos decides to buy the café.

Between Carlos agreeing to buy the café and the contracts being finalised, the new café opens across the road and is very popular. Sara’s café is given a one star Food Hygiene Grading. The number of customers visiting the Cake and Coffee Cafe has dropped considerably.

Consider whether Carlos will be successful in an action for misrepresentation.

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What was said? Authority (where appropriate)

Who are the parties Carlos is the claimant as he has suffered damage/loss. Sara is the defendant as Carlos will claim she has misrepresented elements of the café.

Briefly what has been said or shown

1. Are there other cafes nearby – answer No.

2. Failure to mention planning permission for a new café

3. Healthy accounts but later drop in trade

4. Food Hygiene Grading change

Is there an untrue statement of fact or mere opinion?

The answer regarding no other cafes nearby is true and not a misrepresentation. It is fact and not merely opinion

Bissett v Wilkinson, Smith v Land & House Property Cory, Esso Petroleum Co Ltd v Mardon

Was there silence about an important issue?

Sara was silent about the planning permission. Mere silence will not usually amount to a false statement. Caveat emptor – there is no positive obligation to disclose information. However, partial revelation/ misleading half-truth may amount to a misrepresentation.

Dimmock v Hallett, Spice Girls Ltd v Aprilia World Service BV

Was Carlos induced or did he rely on the word of another?

The statement regarding no other cafés nearby will have been an inducing factor so too will the healthy accounts. However, in terms of the accounts did Carlos rely on accounts given to him by Sara or did he rely on the word of Lucas the accountant?

JEB Fasteners Ltd v Marks Bloom & Co Ltd, Museprime Properties v Adhill Properties Ltd, Attwood v Small, Redgrave v Hurd

Have circumstances changed?

Where a statement was true when it was made but because of a change of circumstances has become incorrect by the time it is acted

Davies v London and Provincial Marine Insurance Co, With v O’Flanagan

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What was said? Authority (where appropriate)

upon this may be considered a misrepresentation due to subsequent falsity. Two key factors have changed. The Food Hygiene Grading has been reduced to one and the number of customers visiting has dropped considerably. Sara has not made mention of these two facts.

Were the statements made before or at the time of the contract?

All statements were made before or at the time of the contract

Roscorla v Thomas

Has there been a misrepresentation?

YES

Explain fraudulent misrepresentation

Founded in the tort of deceit. Requires the claimant to establish fraud. The test for fraudulent misrepresentation is that the representation must have been made (i) knowingly; or (ii) without belief in its truth; or (iii) recklessly, careless whether it be true of false. The remedies are to sue for damages, seek rescission of the contract

Derry v Peek

Innocent misrepresentation Only applies to misrepresentations that are made entirely without fault. No right to damages but the court has the discretion to award damages as an alternative to rescission.

S2(1) Misrepresentation Act 1967

Negligent misrepresentation at common law

Founded on developments in relation to negligent misstatement. Duty of care is based on the ‘special relationship’ between the parties. Remedies available

Hedley Byrne & Co Ltd v Heller & Partners Ltd. Caparo Industries Plc v Dickman

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What was said? Authority (where appropriate)

include damages under the tort measure for foreseeable damage, rescission in equity.

Negligent misrepresentation under statute

The claimant simply needs to prove the elements of an actionable misrepresentation (untrue false statement of material fact made by one person to another, before or at the time of the contract which operated to induce the other party). The burden of proof is reversed – the defendant must show that he/she held a reasonable belief in the truth of the statement. Remedies include sue for damages under the tort measure, rescission in equity

Howard Marine Dredging Co Ltd & A Ogden & Sons (Excavating) Ltd

Apply the most appropriate to the scenario

Whilst it appears that Sara satisfies elements of fraudulent misrepresentation, it is notoriously difficult to prove. Carlos would be advised to claim misrepresentation under statute – s2(1) Misrepresentation Act 1967. Sara would be required to prove that at the time the contract was made, she believed the statement(s) to be true and had reasonable grounds for that belief. She needs to prove she was not negligent. Carlos merely needs to show there has been a misrepresentation.

Decide on remedies Damages, rescission S2(2) Misrepresentation Act 1967

Any reason why rescission Third party rights. Courts are White v Garden

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What was said? Authority (where appropriate)

may not be available? very reluctant to grant rescission where to do so will affect the rights of a third party. Therefore, if a third party has gained rights to the goods rescission will be unavailable.

Affirmation. If the claimant is taken to have affirmed the contract, then they will lose the right to rescind the contract.

Long v Lloyd

Lapse of time. ‘Delay defeats equity’. Failure to promptly claim for rescission will mean it is unavailable as a remedy.

Leaf v International Galleries, Zanzibar v British Aerospace (Lancaster House) Ltd

Impossibility of restitution (restitution in integrum). If it is not possible to put the parties back into their pre-contractual positions rescission will be unavailable.

Vigers v Pike, Lagunas Nitrate Co v Lagunas Syndicate

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