LAW221 Contract Law A

Part 5 Vitiating Factors 13. MISREPRESENTATION

Misrepresentation

 Misrepresentation - a representation of fact, which does not accord with true facts, made before or at the time of contract with regard to some past or present fact and induces party to enter into contract  Representation must be
 of fact(s);  false;  relied on and induce the party to enter the contract; and  made before or at time of contract.

Types of Misrepresentation

 Misrepresentation may be  Fraudulent  Negligent  Innocent  BUT note that contractual misrepresentation overlaps with the tort

action of negligent misrepresentation (duty; breach; and, loss)

Misrepresentation of Facts
1. Misrepresentation of fact (not law or opinion)

Edgington v Fitzmaurice. Company prospectus, debentures for alteration to property and development of supply of cheap fish. Inquiry whether debentures a first charge on property. On faith of assurance, debentures taken. Company in poor financial position and wound up. Insufficient funds to repay debentures so personal action against appellants company officers. Held true objects not in prospectus, so misrepresentation. Bisset v Wilkinson vendor NZ farm, not used for sheep, vendor says carrying capacity for 2,000 sheep. Property used for sheep farming, but unprofitable. Action for misrepresentation. Privy Council held opinion not fact based on relevant factors (material facts of transaction, knowledge and relative position of parties, words of representation and condition of subject matter). Here purchasers knew farm had never carried sheep so not justified in regarding vendors words as anything more than opinion.

Misrepresentation - False
2. Misrepresentation must be false   The representation must be false A statement which is literally true but which, because it does not indicate the whole truth, gives a false impression, may amount to a misrepresentation. Dimmock v Hallett vendor of land stated that the farms on it were fully occupied and let but omitted the further fact that the tenants had given notice to quit. Held to amount to a misrepresentation. Silence ? May be misrepresentation contracts of insurance uberrimae fidei (utmost good faith)
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Reliance on Misrepresentation
3. Misrepresentation must induce representee to enter contract   Onus of proving the misrepresentation rests upon the person alleging Holmes v Jones pastoral property sale- false statements on stock numbers. Purchasers checked property (by agent Easy) and true stock before contract. ...when a purchaser chooses to rely upon his own judgment or .. agent, he cannot afterwards say that he relied upon a previous representation made by the vendor. per Griffiths CJ at 1702 . Here representee relied on own inspection and not induced Redgrave v Hurd. Solicitor says practice worth 300 annually but actually 200. Explained difference by letter-books, dairies and a day-book but only 5/6 per annum. D finds practice worthless and refused to complete. P sued for specific performance. CA held D entitled to rescission. : Where you have neither evidence that [the defendant] knew facts to show that the statement was untrue, or that he said or did anything to show that he did not actually rely upon the statement, the inference remains that he did so rely, and the statement being a material statement, its being untrue is a sufficient ground for rescinding the contract. per Jessel MR at 22

Fraudulent Misrepresentation
Derry v Peek P sued directors of tram company. Fraudulent misrepresentation in prospectus on right to use steam/mechanical power. P allotted shares Company right contingent on consent of third parties, which not given. Company wound up.  Held, on the facts ...making a false statement through want of care falls far short of, and is a very different thing from, fraud, and the same may be said of a false representation honestly believed though on insufficient grounds. Lord Herschell at 375  Heavy onus of proof  Elements of fraudulent misrepresentation (Lord Herschell at 374) means a false statement made:  (1) knowingly  (2) without belief in its trust; or  (3) recklessly, careless whether it be true or false (lack of honest belief that statement true) 
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Negligent Misrepresentation
Shaddock & Associates Pty Ltd v The Council of Parramatta    Council negligent for failure to disclose road widening proposal on certificate (under local government statute) in conveyancing transaction, completed with considerable reduction in value and prevent proposed development of site. Tort of negligent misstatement Why? I can see no reason in principle why a person who, being possessed of special knowledge, undertakes to impart information to another, and is aware that the other will act in reliance on the information, should be in a different position from a person who, being possessed of special skill, undertakes to advise another, knowing that the other will act on his advice.....I find it difficult to see why in principle the duty should be limited to persons whose business or profession includes giving the sort of advice or information sought and .why it should not extend to persons who, on a serious occasion, give considered advice or information concerning a business or professional transaction. (Emphasis added) at 233-234 per Gibbs CJ ...liability for negligent misstatement is not confined to those who carry on, or profess to carry on, a profession, business or occupation involving the possession of skill and competence at 250 per Mason J.
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Negligent Misrepresentation

Elements of negligent misrepresentation to be proved by representee:     (1) representor is aware that he/she is being trusted by the representee to give advice/information; (2) subject matter must be of a serious business nature; (3) the representor realises that representee intends to act on advice/information; and (4) the circumstances are such that it is reasonable for the representee to seek and rely on the speaker

Elements of innocent misrepresentation:  representor believes his or her assertion to be true and consequently has no intention of deceiving the representee.  deceives representee ,material, induces representee to enter contract
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Remedies

Rescission (Contract)

Available for all types of misrepresentation: Fraudulent Negligent Innocent Only available upon proof of: Fraud (deceit) Negligence (negligent misstatement)

Damages (Tort)

Note the the various remedies in the new ACL

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Rescission

  

Rescission ab initio (restitutio in integrum) Equity, innocent party right to rescind contract ab initio (from beginning). Equity remedy , therefore discretionary:

 Rescission must be overt (by words or conduct).  Rescission annuls contract, so property passed, revests  Rescission may be partial: Vadasz v Pioneer Concrete (SA) Pty Ltd where debts from Vadapile to PC were $200,000 and V gave guarantee, which PC said, before signing was for future debts. Debt mounted and PC enforced for all outstanding amounts. V argued misrepresentation nullified whole guarantee. HCt upheld FCt SA that he who seeks equity must do equity so past debts not annulled.  Note Exclusion clauses do not protect against fraudulent misrepresentation, on the grounds of public policy but may protect, on construction, from innocent misrepresentation
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Bars to Rescission

Bar 1 Third party rights -innocent acquisition or Oakes v Turquand winding up proceedings bars right of a shareholder to rescind the contract under which he or she purchased the shares; otherwise the rights of third parties (creditors) would be detrimentally affected Bar 2 Restitution no longer possible Alati v Kruger contract for purchase of fruit business - fraudulent misrepresentation that averaged 100 per week and that new competing supermarket being opened across street. Action for rescission but K taken possession of the business prior Business failed and closed. Held rescission valid that a money payment could compensate for any difference there might be between the rental value of the premises and the rent paid by the respondent to the landlords. It was further noted that, even though the business had deteriorated, it was not due to any fault of the respondent, and that even at common law the necessity to return property in its original condition was qualified so as to allow for incidents for which the buyer was not responsible... at 224-5 per Dixon CJ, Webb, Kitto and Taylor JJ Note the Sale of Goods
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Bars to Rescission
Affirmation Coastal Estates Pty Ltd v Melevende
Bar 3 Affirmation Discovers misrepresentation Purchase Seeks legal advice & rescinds

16/17 months

Pays rates and mortgage

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Bars to Rescission
 Sholl J at 443:  (1) If [representee] knows that he has a legal right to rescind or affirm the contract...(a) if he expressly communicates to the other party what his choice is, he makes an election, which is binding..; (b) if he does anything which is referable only to a decision to adhere to the contract...that is an election and he is bound...  (2) If the defrauded party does not know that he has a legal right to rescind, he is not bound by acts which on the face of them are referable only to an intention to affirm the contract, unless those acts are adverse to the opposite party, ie, unless they involve something to the other party s prejudice or detriment  Acts of the defrauded party which are not adverse in the above sense, such as payments made by him to the other party, or to others (eg, rates), or negotiations for sale, are some but not conclusive evidence of a binding election made with knowledge of his rights. They may be enough to pass to him the shifting onus of proof...  Adam J at 453: [I]f a representee, after discovery of the facts which entitle him to avoid a contract, exercises, in an unequivocal manner, rights under the contract adversely to the other party he will in general be deemed to have elected to affirm it, although not aware of his right to elect. 14

Bars to Rescission

 

Bar 4-Pre-contractual representation Academy of Health & Fitness Pty Ltd v Power -health studio agreement free use at any time of the sauna baths at the Academys premises. P emphasised sauna and access 7 days per week, manager indicated use at any time but only alternate days as female members. P sued for the membership fee. . The preliminary question as to whether there has been an extinguishment of the equitable right of rescission for innocent misrepresentation. P had a right in equity to rescind the agreement on the ground of innocent misrepresentation that had induced his entry and right had not been lost by reason of the representation being a term of the contract that was other a warranty only. at 265-266 per Crockett J.

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Common Law Damages

 Apart from Rescission Damages at common law available for fraudulent, negligent and innocent misrepresentations in contract and damages in tort.

Gates v City Mutual Life Assurance Society Ltd  In contract, damages are awarded with the object of placing the plaintiff in the position in which he would have had the contract been performed ..entitled to damages for loss of bargain (expectation loss) and damage suffered, including expenditure incurred, in reliance on the contract (reliance loss). In tort...damages are awarded with the object of placing the plaintiff in the position in which he would have been had the tort not been committed (similar to reliance loss). (1986) 63 ALR at 607 per Mason, Wilson and Dawson JJ.

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Australian Consumer Law(Cth)

   

Chapter 2General protections Part 2-1Misleading or deceptive conduct S 18 Misleading or deceptive conduct (1) A person shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. Elements:     Person (nb previous TPA Corporation) Conduct Trade or Commerce Misleading or Deceptive (or likely to mislead or deceive)

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ACL S18 - Trade or Commerce

Concrete Constructions (NSW) Pty Ltd v Nelson   trade and commerce has restrictive operation -not intended to cover all conduct Here injuries to employee (N) in the course of building activities where alleged misleading and deceptive conduct from appellants foreman wrongly informing about safe removal of bolts on grates at entry points to air-conditioning shafts ...[what s52 TPA now s18 ACL ] is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. at 295 per Mason CJ, Deane, Dawson and Gaudron JJ

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ACL S18 -Misleading and Deceptive

Taco Co of Australia Ltd v Taco Bell Pty Ltd  US chain Taco Bell restaurants against Australia Taco Bell Pty Ltd restaurant Taco Bells Casa in Bondi + two in 1981 alleging contravention s 52 (now s18) and cross-claim. Also action in passing off where pretence that goods are those of another for damages or account, and injunction  word taco is of Spanish derivation and one of its meanings is a snack. It is used to denote a crisp folded corn wafer filled with other food, typically, cooked ground beef, fresh lettuce, tomato and shredded cheese. at 192 per Deane and Fitzgerald JJ  Guidance on s 52 (now s18) at 192 per Deane and Fitzgerald JJ.  [1] It is necessary to identify the relevant section (or sections) of the public  [2] [once identified], the matter is considered by reference to all within [that section of the public] including the astute and the gullible, the intelligent and the not so intelligent, the well educated as well as the poorly educated...  [3] evidence that some person has in fact formed an erroneous conclusion is admissible and may be persuasive but is not essential  [4] it is necessary to inquire why proven misconception has arisen, only by this investigation that the evidence of those who are shown to have been led into error can be evaluated and it can be determined whether they were confused because of misleading or deceptive conduct on the part of the respondent.

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Misleading and Deceptive

 Interpretation of s 52 (now s18) at 197-201 per Deane and Fitzgerald JJ.

(1) section is not a statutory re-enactment of common law passing off principles (at 197) (2) ...the primary legislative purpose [of section] was intended to serve is consumer protection....it is sufficient ..that the conduct, in the circumstances, answers the statutory description.., that it is misleading or deceptive or is likely to mislead or deceive. It is unnecessary to go further and establish that any actual or potential consumer has taken or is likely to take any positive step in consequence of the misleading or deception (at 199) 3) ...no conduct can mislead or deceive unless the representee labours under some erroneous assumption....The nature of the erroneous assumption which must be made before conduct can mislead or deceive will be a relevant, and sometimes decisive, factor in determining the factual question whether conduct should properly be characterised as misleading or deceptive or as likely to mislead or deceive. Beyond that, generalisations are themselves liable to be misleading and deceptive. (at 200) (4) ...a tendency to cause confusion or uncertainty will not suffice to establish that conduct is of the type described in [section] . (at 201) (5) ...conduct...cannot, for the purposes [of section] , be categorised as misleading or deceptive unless it contains or conveys, in all the circumstances of the case, a misrepresentation. at 202

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Misleading and Deceptive

Taco Co of Australia Ltd v Taco Bell Pty Ltd :The Full Court of Federal Court held  Respondents conduct not misrepresentation as no connection between Bondi restaurant and US Taco Bell chain.  Appellants conduct cause of any actual or likely misconception on connection between Bondi restaurant and Taco Bell chain. US company had no prior reputation in respect of the local use of that name an name, in respect of local operations, clearly associated Mexican food restaurant at Bondi.  Appellants conduct misleading or deceptive within section in the circumstances

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Australian Consumer Law(Cth)

Remainder of Chapter 2General protections also relevant            Part 2-2Unconscionable conduct 20 Unconscionable conduct within the meaning of the unwritten law 21 Unconscionable conduct 22 Unconscionable conduct in business transactions Part 2-3Unfair contract terms (already discussed in 9 Construction of Terms) 23 Unfair terms of consumer contracts 24 Meaning of unfair 25 Examples of unfair terms 26 Terms that define main subject matter of consumer contracts etc. are unaffected 27 Standard form contracts 28 Contracts to which this Part does not apply
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Australian Consumer Law(Cth) Unfair Practices

But note the new and comprehensive -Chapter 3Specific protections             Part 3-1Unfair practices Division 1False or misleading representations etc. 29 False or misleading representations about goods or services 30 False or misleading representations about sale etc. of land 31 Misleading conduct relating to employment 32 Offering rebates, gifts, prizes etc. 33 Misleading conduct as to the nature etc. of goods 34 Misleading conduct as to the nature etc. of services 35 Bait advertising (already discussed in 3 Offer and Acceptance) 36 Wrongly accepting payment 37 Misleading representations about certain business activities 38 Application of provisions of this Division to information providers
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Australian Consumer Law(Cth)

False and Misleading Representations

29 False or misleading representations about goods or services (1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services:
(a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or (b) make a false or misleading representation that services are of a particular standard, quality, value or grade; or (c) make a false or misleading representation that goods are new; or (d) make a false or misleading representation that a particular person has agreed to acquire goods or services; or (e) make a false or misleading representation that purports to be a testimonial by any person relating to goods or services; or (f) make a false or misleading representation concerning: (i) a testimonial by any person; or (ii) a representation that purports to be such a testimonial; relating to goods or services; or (g) make a false or misleading representation that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits; or (h) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or

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Australian Consumer Law(Cth)

False and Misleading Representations

(j) make a false or misleading representation concerning the availability of facilities for the repair of goods or of spare parts for goods; or (k) make a false or misleading representation concerning the place of origin of goods; or (l) make a false or misleading representation concerning the need for any goods or services; or (m) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 Part 3-2); or (n) make a false/misleading representation concerning a requirement to pay for a contractual right that: (i) is wholly or partly equivalent to any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2); and (ii) a person has under a law of the Commonwealth, a State or a Territory (other than unwritten law). Note 1: A pecuniary penalty may be imposed for a contravention of this subsection. (2) For the purposes of applying subsection (1) in relation to a proceeding concerning a representation of a kind referred to in subsection (1)(e) or (f), the representation is taken to be misleading unless evidence is adduced to the contrary. (3) To avoid doubt, subsection (2) does not: (a) have the effect that, merely because such evidence to the contrary is adduced, the representation is not misleading; or (b) have the effect of placing on any person an onus of proving that the representation is not misleading.

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Australian Consumer Law(Cth)

False and Misleading Representations

30 False or misleading representations about sale etc. of land (1) A person must not, in trade or commerce, in connection with the sale or grant, or the possible sale or grant, of an interest in land or in connection with the promotion by any means of the sale or grant of an interest in land:
(a) make a false or misleading representation that the person making the representation has a sponsorship, approval or affiliation; or (b) make a false or misleading representation concerning the nature of the interest in the land; or (c) make a false or misleading representation concerning the price payable for the land; or (d) make a false or misleading representation concerning the location of the land; or (e) make a false or misleading representation concerning the characteristics of the land; or (f) make a false or misleading representation concerning the use to which the land is capable of being put or may lawfully be put; or (g) make a false or misleading representation concerning the existence or availability of facilities associated with the land. Note: A pecuniary penalty may be imposed for a contravention of this subsection. (2) This section does not affect the application of any other provision of Part 2-1 or this Part in relation to the supply or acquisition, or the possible supply or acquisition, of interests in land.

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ACL S18 - Trade or Commerce

31 Misleading conduct relating to employment A person must not, in relation to employment that is to be, or may be, offered by the person or by another person, engage in conduct that is liable to mislead persons seeking the employment as to: (a) the availability, nature, terms or conditions of the employment; or (b) any other matter relating to the employment. 33 Misleading conduct as to the nature etc. of goods A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. 34 Misleading conduct as to the nature etc. of services A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services.

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ACL Remedies
  ACL Chapter 5 Enforcement and remedies -Part 5-2 Remedies Remedies for contravention ss18-19 (misleading and deceptive conduct); ss2022 (unconscionable conduct); ss 23-28 unfair contract terms; and ss29-38 (unfair practices) are subject to the statutory remedies of Pecuniary penalties (ACL ss224-228) Injunctions (ss232-235) Action for Damages (s236) Compensation Orders (ss237-238) Orders for non-party consumers (ss239-241) on burden of proof ( s258 ) Other remedies Non-punitive orders (246); Adverse publicity orders (247); Order disqualifying a person from managing corporations (248); Declarations relating to consumer contracts (250).

      

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Cautionary note
Marks v GIO  The bare fact that a contract has been made which confers rights or imposes obligation that are different from what one party represented to be the case does not demonstrate that the party that was misled has suffered loss or damage. A party that is misled suffers no prejudice or disadvantage unless it is shown that that party could have acted in some other way (or refrained from acting in some way) which would have been of greater benefit or less determine to it than the course in fact adopted. (1998) 158 ALR at 346-7 per McHugh, Hayne & Callinan JJ:

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