Foundation Law2013/14

In last week’s lecture we looked at…….

The different types of contracts: bilateral and unilateral contracts

Consideration and intention to create legal relationships in contract law

What is consideration?

……something of value that is exchanged , which makes the contract enforceable

5 rules on consideration

Third parties and the doctrine of privity (+ the statutory exception)

Intention to create legal relations: business and social/domestic presumptions

We will be examining statements (representations) made by a party to another, which induces (persuades) the other party to enter into a contract but the statement then turns out to be false (a misrepresentation), which results in the innocent party suffering some form of damages/loss

Explain what is a misrepresentation and the nature of representations;

Understand the extension of the tort of negligence to cover words and not simply actions;

Outline and explain the different types of misrepresentations;

Outline the remedies that are available for misrepresentation under the Misrepresentation Act 1967; and

Show knowledge and understanding of the Hedley Bryne v Heller & Partners (1963) case and explain the exception to claims for pure economic loss in negligence.

Consider this scenario.............

Tom, who is selling his BMW 320 Coupe to Jerry, tells Jerry that the car is very fuel efficient and can do 40 miles per gallon

(MPG).Jerry relies on this statement and buys Tom’s car but later discovers that in fact it

only does 30 MPG!

Misrepresentations are false statements of fact, which induced the innocent party into entering into a contract

This usually results in the innocent party suffering some form of loss or damage

Therefore, in the example given earlier, Jerry, having relied on the statement made by Tom (with respect to the car’s fuel efficiency) has picked up a bad buy which will now cost him a lot to run!!!!

Representor……..The person making the statement

Representee…….. The person to whom the statement is being made to

Esso Petroleum Co.Ltd v Marden (1976): when Esso sued for rent arrears, Marden was able to counterclaim for the financial loss because of the statement made about the amount of petrol that the station was likely to sell

Spice Girls Ltd v Aprilia World (2000):a misleading statement can also be made by conduct (actions)

The statement or representation must be about a material fact and must not simply be a mere opinion or an advertising “puff”

For example, a seller describes her handbag as being “a very lovely and stylish limited edition Louis Vitton handbag”

“very lovely and stylish”-mere “puff” “Limited edition Louis Vitton handbag”-

representation

There are three types of misrepresentations

1. False/Fraudulent misrepresentation2. Negligent misrepresentation3. Innocent misrepresentation

A fraudulent statement, as defined in the case of Derry v Peek (1889), is a false statement that is made: Knowingly; Without belief in its truth; or Recklessly, careless whether it is true or false

Essentially, false misrepresentation is a statement made dishonestly with the intention to fraud

Example: a seller of a Chanel handbag knows that it is fake but nonetheless tells the buyer that it is genuine. The statement made by the seller is dishonest and therefore, it’s a false misrepresentation of the handbag

This is whereby the maker of the statement is careless (negligent/reckless) about the facts

The maker of the statement must have specialist knowledge upon which the claimant has relied

The leading case on negligent misrepresentation is the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963)

Facts………………

Heller & Partners’ reply to the request…..

“Without responsibility on part of this bank, Easipower is considered good for its ordinary business engagements”

Easipower collapsed as a company and as a result Hedley Byrne lost £17,000 as they were not paid

Hedley Byrne sued Heller & Partners in negligence

Their argument was that Heller & Partners owed them a duty of care and breached that duty by stating something about Easipower that was misleading

The damage suffered however, was pure economical (PEL)

The court held that a duty of care existed-proximity was present and it was reasonably foreseeable that the actions of the Defendant (Heller & Partners) would affect the decision of the Claimant (Hedley Byrne)

However, the courts inserted that for a duty of care to exist between the two parties; there must be a special relationship

This special relationship was based on the exchange of words between the parties and the element of reliance of the claimant on the defendant’s words

The principle of neighbourhood (from the case of Donoghue v Stevenson) was not used in this area of law and instead, the “special relationship” test was adapted

The disclaimer (“without responsibility on part of this bank”) was sufficient to waive the bank of any responsibility; however, it was held that:

“if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a person takes it upon himself to give information or advice to, or allows his information or advice to be passed on to, another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise”

The advice is needed for a specific or general purpose

This purpose is made known, either expressly or implicitly, to the adviser at the time when the advice is given

The adviser knows that the advice will be used for that purpose by the advisee

The adviser knows that the advice is likely to be acted upon without further independent inquiry; and

The advisee does in fact act on the advice and subsequently suffers financial damage.

These conditions were recognised in the case of Caparo v Dickman (1990), which stated that damages for a negligent misstatement could be claimed, where financial loss occurred as a result of the defendant’s breach of the “special relationship”

Mutual Life v Evatt (1971) - the adviser must also have a special skill, upon which the claimant had relied

Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963) created an exception to the PEL rule in negligence, whereby provided that you can establish the existence of a special relationship, a claim for economic loss can be made in the tort of negligence

This is simply whereby the maker of the statement honestly believes that the statement is true

Under the Misrepresentation Act 1967, an innocent party may be able to claim remedies for the misrepresentation

In the case of fraudulent/false misrepresentation, the innocent party may terminate the contract and the goods or money exchanged can be ordered to be returned. This is known as rescission and is an equitable remedy, granted at the discretion of the court. Furthermore, the innocent party may also bring a claim for damages (for the tort of deceit)

However, an innocent party cannot make a claim for rescission if: The innocent party was aware of the misrepresentation; The goods that had been exchanged have been disposed; Another party has acquired an interest in the goods; or The innocent party waited too long before claiming this remedy

(the Limitation Rules will apply).

  Remedies

False/fraudulent misrepresentation

Rescission of the contract + damages

Negligent misrepresentation

Rescission of the contract + damages

Innocent misrepresentation

Court decides whether rescission is appropriate or whether to award damages instead.

Hand out:

Reading List Jacqueline Martin, “GCSE Law” 5th edition, Chapter

31, pages 252-254

List of Cases

Preparatory Questions

Additional Tasks

Quiz 3- Law of Torts