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INTRODUCTION

Whenever a contract goes badly for one party, the possibility of a

vitiating misrepresentation claim arises as a possible ground for legal

action by that party to void the contract or claim damages. There is a

large body of law on the topic of misrepresentation, but it is complex

and often difficult to reconcile. This paper considers some of the

unsettled issues and offers suggestions for resolution. In order to keep

the topic manageable (whole books have been written upon it), we will

focus on issues relating to remedies for misrepresentation in a

contractual context.

In particular, we will consider the challenges inherent in selecting the

appropriate remedy as highlighted by the oft cited authorities and

recent case law, and suggest a framework for analysis. The various

theories of remedies for contractual misrepresentation - rescission,

damages and restitution - will then be considered in light of the

framework, along with the concept of an ancillary constructive trust.

Finally, a number of theses are presented to assist in developing a

consistent and reasoned approach to remedies for misrepresentation. It

is useful, however, to begin with a brief discussion of the criteria for

discerning the kind of operative misrepresentation for which a remedy

can be obtained.

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Misrepresentation:

A misrepresentation is a false statement which persuades

someone to enter into a contract.

The contract is then void able.

Misrepresentation has 3 parts

A statement.

The statement is about a fact which can be checked.

The statement causes the party to enter into the contract.

Statement:

A statement may be verbal or written.

A statement which is half true can be misleading.

For example, if you say that your farm is rented to tenant for 290

per year, but you dont mention that the tenant has actually not

paid the rent for several months and has left the farm, and you

cannot find a new tenant.

If the statement is true when you made it, but things change and

it is no longer true before the contract is made, then you must tell

the other party.

A fact:

The representation must be a statement about a specific, existing

fact or event which can be checked

Therefore, the following things are not statements of fact

Advertising hype

Statements of law

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Statements of opinion

Statements of intention

Advertising Hype:

Statements such as this is the best toothpaste in the world orthis is the finest sofa on the market are not representations

They are simply statements made to try to interest the buyer

However, if the salesperson said something like this car uses the

same engine as a BMW then this may be a misrepresentation if it

is not true

This is closer to a statement of fact

Statements of Law: Ignorance of the law is no excuse

Everyone is assumed to know the law

One party to the contract cannot claim that he was mislead about

some part of the law affecting the contract by the other party

If he was unsure, he should have checked with a lawyer

Statements of Opinion:

Statements of opinion are not statements of fact

However, there would be a misrepresentation if what you said was

not really your opinion at all

But proving this could be difficult

Statements of Intention:

Statements of intention are not misrepresentations even if the

intention later changes

However, in a similar way to statements of opinion, if the

statement you made was never your intention then there could be

a misrepresentation

But proving this could be difficult

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At common law, a negligent misrepresentation is where you make

a statement which is false but which you believed to be true

For example, a company stated in an advert that they were

authorised by the local government

They had applied for authorisation and believed it would be

granted

However, they did not get the authority

The statement was not fraudulent because the company had a

genuine belief that they would get the authority

Innocent Misrepresentation

An innocent misrepresentation is one which the person making itnot only believes to be true, but has good reasons for believing

that

This could be because the seller had been persuaded to make a

contract by the same misrepresentation

For example, Bill makes a contract with John to buy Johns car

John tells Bill that new tyres were put on the car after it had

travelled 26,000 km

In fact, that is not true

However, John thinks it is because when he bought the car from

Bob that is what Bob told him.

Analysis:

Factors that vitiate the contract because of misrepresentation:

Misrepresentation occurs where a party is induced into entering into a

contract by anothers false statement of fact or law.

A statement of opinion will not constitute a misrepresentation unless the

representor does not honestly believe the opinion tht he states, or the representor

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represents an opinion for which he does not have reasonable grounds and impliedly

represents that he has such grounds.

A statement of intention will not constitute a misrepresentation unless the

representor, at the time that the statement was made, does not believe that the

intended state of affairs will occur.

Subject to several exceptions, silence cannot constitute misrepresentation.

A fraudulent misrepresentation occurs where a party makes a false statement

knowingly, without belief in its truth, or recklessly careless of whether it is true or

false.

Negligent misrepresentation exists at both common law and in statute.

An innocent misrepresentation is one that is completely devoid of fraud or

negligence. Damages are not available as of right where the misrepresentation is

innocent.

Misrepresentation renders a contract void able, but in certain circumstances,

the representee will be barred from rescinding the contract.

In cases of negligent and innocent misrepresentation, the court can award

damages in lieu (instead) of rescission.

Remedies for Misrepresentation

As we mentioned earlier, the remedies available for

misrepresentation depend on the type of misrepresentation.

Fraudulent Misrepresentation

The remedies here are recission and/or damages

Recission means that the court tries to put the parties back in

the position which they were in before the contract was made

However, this is not always possible

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Eg: the goods sold have been eaten

Damages is payment of money which covers all the losses which

the person makes as a direct result of entering into the contract

The remedies here are also recission and/or damages

Innocent Misrepresentation

At common law, the remedy is recission

Under the Misrepresentation Act 1967, the court can award

damages instead of recission if it thinks that is fair

Actionable Misrepresentation- False Statement

of Fact

1. Statements

Misrepresentation can be constituted by a written or verbal statement. It

can also consist in the non-disclosure of salient information.

A duty to disclose arises only in certain contexts:

a. Half-truths

Where the statement is, without further disclosure, misleading

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b. Falsification

Where the statement has become false since being made

c. Fiduciary relationship:

Where the parties are in an fiduciary relationship

(Insurer/insured, lawyer/client etc)

2. Facts

The law draws a distinction between facts, opinion and predictions:

Fact:[profitability of resort](Gould) or very large sum of money

(Nicholus)

Opinion: [this is a very good car]

Prediction: I think that this land will be sewered in four months

time (Ritter)

A statement containing evaluative or qualitative terms will not

necessarily be an expression of opinion (Nicholus).

Nicholas Vs Thompson (1924) VR:

Facts:

The contract was for the sale of rights to a film process and a

syndicate.

The buyer Nrelied upon statements made by the seller T

that he had been offered a very large sum of money for the

rights

Issue:

Was the representation one as to fact or merely an opinion?

Reasoning:

The presence of evaluative or qualitative terms (very large) do

not render any statement one of opinion

Decision:

Here, the statement was not merely an expression of an

opinion, but was, in fact, a statement of fact.

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As such, it is capable of constituting a misrepresentation

Even where a misrepresentation does contain an element of opinion,

it may still constitute a statement of fact where it is sufficiently

factual (Gould).

Ritter Vs North side Enterprises (1975) HCA:

Facts:

North Side, the seller of property, made a statement of Ritter,

the buyer, that I think that this land will be sewered within 4

months time

R relied on this statement in entering into the contract; upon

discovering that the property had not yet been sewered, he

sought recession of the contract of sale

Issue:

Was the representation one of fact or opinion?

Reasoning:

A statement of belief in the future connection of seweragepipes to a property within 4 months is only a prediction, despite

the buyers assertion that the seller didnt believe that

statement.

o This would be a representation as to a future state of

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affairs

However, the fact misrepresented was the state of mind of the

representor.