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CHAPTER 2

THE WEAPONS OF LAW

2.8.3The Measure of Damages as a result of a successful Action based on the Common Law liability under Negligent Misrepresentation
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We have seen, in Section 2.3.3 and Section 2.8.1, that where a person has entered into a contract as a result of a negligent misrepresentation made to him, he may elect to either affirm or rescind the contract (with the exception that, in certain circumstances, the Court has the power under Statutory Misrepresentation legislation to award damages in lieu of rescission), and he may also sue for damages for any loss suffered ————— provided the relationship between the parties is such as to give rise to a 'duty of care'.

We have also seen, in Section 2.3.4 (a) and (b), that silence by one party to a contract may constitute negligent misrepresentation and give rise to a liability for damages.


Again (as in the case of a fraudulent misrepresentation), it is the tort measure of damages that applies.

So, in the context of a pre-contract negligent misrepresentation, the measure of damages is, as was the case with a fraudulent misrepresentation, the amount by which the claimant is worse off as a result of entering into the contract in reliance on the misrepresentation.


BUT, for a negligent misstatement the representor is liable only for the losses which he could reasonably have forseen.
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While the test for remoteness of damage for fraudulent misrepresentation is that any loss flowing directly from the misrepresentation can be recovered, whether foreseeable or not, the test of remoteness, based on the Common Law liability under Negligent Misrepresentation, is limited by the requirement of foreseeability. The test of remoteness under the negligent mis-statement tort created by the decision in Hedley Byrne v Heller was the negligence test of reasonable foresight; that is, only foreseeable damage following from the statement could be recovered.32A


Thus the Common Law draws distinctions to reflect moral differences between the fraudulent representor and the negligent representor.33



The measure of loss in a claim in the tort of negligence will also depend upon the scope of the 'duty of care' undertaken by the representor. If he undertakes a general duty to advise the representee about the transaction, his duty may extend to the consequences generally of the representee having entered into the contract, which could include losses which flow from fluctuations in the market in a case where, for example, the advice induces the representee to enter into a contract to purchase property.33A



Bear in mind also that a fiduciary relationship is one giving rise to a 'duty of care' that carries a much stronger liability than that under the principle enunciated in Hedley Byrne v Heller !

In cases where there is a breach of a fiduciary or confidential relationship, the injured party will be entitled to rescind the contract or transaction, to be restored to the pre-contractual position, and to recover any profit made by the other party as a result of the breach.33B





In the case of an Action taken for Negligence or Negligent Misrepresentation, the burden of proof rests with the party alleging the negligence or negligent misrepresentation.


However, as we have seen in Section 2.3.4 (a), where a fiduciary or confidential relationship (as distinct from a special relationship under the principle enunciated in Hedley Byrne) exists, the person in whom the confidence is reposed, and who thus possesses influence over the other, cannot hold that other party to the contract unless he satisfies the court that it is ADVANTAGEOUS to the other party — AND — that he has disclosed all material facts within his knowledge.34

The injured party need only prove the existence of a fiduciary or confidential relationship,and this major burden of proof is imposed by Law on the party under the fiduciary duty.

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It will become clear, from the following Section (Section 2.8.4), that an Action under the Common Law Hedley Byrne precedent presents the least attractive course of action for the plaintiff in the case of Negligent Misrepresentation. 


Note! It is, however, important to emphasise the fact that the ‘duty of care’, as flowing from the Hedley Byrne principles, can give rise to an Action for damages where Silence (i.e. ‘failure to make full disclosure of all material facts known’) constitutes a Negligent Misrepresentation. (But, even in this regard, see also 'Silence as Statutory Misrepresentation' in Section 2.3.5 and Section 2.8.4.)


 


32, 33, 33A Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 324.

32A Wheeler and Shaw, Contract Law, (1st ed.), p. 284.

33B Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 342.

34
Furmston, Cheshire, Fifoot and Furmston's Law of Contract, (15th ed.), p. 379 and 380.

 

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