Elements in a Contract 20
The Misrepresentation Act 1967 also governs the law on
misrepresentation. S2(1) of the act states that: - 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 ground to believe and did believe up to the time
the contract was made the facts represented were true.
Under s2 (2) of the act the court has a discretion to award
damages instead of rescission. “Where a person has entered into a contract
after a misrepresentation has been made to him otherwise than fraudulently, and
he would be entitled, by reason of the misrepresentation, to rescind the
contract, then, if it is claimed, in any proceedings arising out of the contract,
that the contract ought to be or has been rescinded, the court or arbitrator
may declare the contract subsisting and award damages in lieu of rescission, if
of opinion that it would be equitable to do so, having regard to the nature of
the misrepresentation and the loss that would be caused by it if the contract
were upheld, as well as to the loss that rescission would cause to the other
party”.
When there has been breach of a contract, especially for
fraudulent misrepresentation or a breach of s2 (1) of the Misrepresentation Act
1967, the courts are more inclined to award damages. In cases of negligent
misstatements damages are awarded to put the parties back in the position they
would be in, had they not entered into the contract and it is not to allow the
aggrieved party to profit from the deceit of another. Therefore, the damages
that are awarded may at times be less than the damage that was suffered or
incurred.
In Doyle v Olby (Ironmongers) Ltd 1969 for example, the
plaintiff (claimant) purchased a business from the defendant and entered into
the contract based on statements made by the defendant that inflated the
profits of the business and the scope of the business. When the plaintiff
discovered that these statements were untrue he brought an action against the
defendants on the grounds of misrepresentation and his claim was upheld. The
court held that in instances of misrepresentation the plaintiff was entitled to
claim for damages that directly resulted from or was directly caused by the
fraudulent misrepresentation regardless of whether the loss was foreseeable or
otherwise.
In all the three categories of misrepresentation i.e.
fraudulent misrepresentation, negligent misstatement, and innocent
misrepresentation the court has a discretion to either award damages or to
allow rescission.
In assessing damages the court will take into account the
remoteness of the damage. The common-law test to assess the remoteness of
damage for negligent misstatements is the test given in the Wagon Mound (1) (1961).
The defendant’s vessel the Wagon Mound was docked in a wharf in Sydney and
unknown to the defendant the boat leaked oil and the resulting fire caused
damage to not only the defendant’s vessel but also to the wharf and to 2 other
vessels. The court had to determine the scope of the defendant’s liability. It
was held that the defendant was only liable for the damages that he could
foresee and the court found in favor of the defendant supplanting or overruling
the earlier decision in Re Polemis.
In Re Polemis (1921) one of the men employed to load and
unload cargo from a ship dropped a plank into the ship’s cargo hold and the
plank struck a flint which caused a spark that came in contact with petrol
fumes and the resulting fire spread to the hull of the ship and set the whole
ship on fire. The court had to decide as to the extent of the defendant’s
liability.
It was held that the defendant was not only liable for the
damages that he could foresee but was also liable for all the other damages
that resulted as a consequence of his action(s) regardless of whether the
damage was foreseeable of otherwise. It suffices that the defendant caused the
initial act which set in motion a chain of events that resulted in damage that
would otherwise not have been foreseeable by a reasonable man.
Copyright © 2019 by Dyarne Ward and Kathiresan
Ramachanderam
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