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CHAPTER 2

THE WEAPONS OF LAW

2.8.4The Measure of Damages as a result of a successful Action based on the Statute Law liability under Misrepresentation
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The Statute Law applicable in the United Kingdom is the Misrepresentation Act, 1967. The Statute Law applicable in Ireland is the Sale of Goods and Supply of Services Act, 1980 (specifically Part V, Misrepresentation).



The liability to damages as stated in Section 2(1) of the U.K. Misrepresentation Act 1967, and similarly in section 45(1) of the Irish Sale of Goods and Supply of Services Act 1980, is as follows:

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 representation would be liable to damages in respect thereof had the representation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time that the contract was made that the facts represented were true.


The Act’s wording clearly states that the liability to damages is as if the misrepresentation were ‘fraudulent misrepresentation’. As we have already seen in Section 2.8.2, this means that any loss which flows from the misrepresentation can be recovered, whether foreseeable or not.



Naturally, defendants sought to limit the damages available (under Section 2(1) of the U.K. Misrepresentation Act 1967) to those available at Common Law under the Hedley Byrne v Heller precedent, by attempting to invoke the requirement of foreseeability of loss (see Section 2.8.3). Such a restrictive interpretation would infer that the purposive intent of Parliament, when drafting the legislation, differed in meaning from what was written in the Act. (i.e. Parliament did not mean what it said, and Parliament did not say what it meant to say). In view of Parliament's use of the expressly inclusive clarifying phrase, 'notwithstanding that the misrepresentation was not made fraudulently', within the Section's wording, such an inference could never be countenanced.


Note!
It is also worth highlighting the fact that the Irish legislature did not see fit to in any way limit the liability to damages following misrepresentation, when drafting the Misrepresentation section of the Sale of Goods and Supply of Services Act, 1980. They did not reword the clearly stated liability to damages by interpreting a more restrictive liability to damages as being the purposive intent of the U.K. Parliament when drafting the Misrepresentation Act 1967, even though they had the benefit of thirteen years hindsight.



The issue seemed to have been well and truly put to bed by the judgement of the Court of Appeal in the case of Royscot Trust Ltd. v Rogerson (U.K. 1991), when, in relation to Section 2(1) of the Misrepresentation Act (U.K.1967), Balcolme L.J. posed the matter thus :

The first main issue before us was: accepting that the tortious measure is the right measure, is it the measure where the tort is that of fraudulent misrepresentation, or is it the measure where the tort is negligence at common law? The difference is that in cases of fraud a plaintiff is entitled to any loss which flowed from the defendant’s fraud, even if the loss could not have been foreseen………. In my judgement the wording of the subsection is clear: the person making the innocent (i.e. negligent) misrepresentation shall be ‘so liable’, i.e. liable to damages as if the representation had been made fraudulently….35


Balcolme L.J. cited the judgement of Eveleigh L.J. in Chesneau v. Interhome Ltd. (U.K. 1983), whose judgement was to similar effect:

“By ‘so liable’ I take it to mean liable as he would be if the misrepresentation had been made fraudulently.” 36


In his judgement Balcolme L.J. said that the finance company (the plaintiff) was entitled to recover all the losses suffered as a result of its entering into the agreement with the defendant, even if those losses were unforeseeable, provided that they were not otherwise too remote.
36A







So the measure of damages is exactly as it is for ‘fraudulent misrepresentation’ (as in Section 2.8.2), and the test for remoteness of damage, under Section 2(1) of the U.K. Misrepresentation Act, 1967 or under Section 45(1) of the Irish Sale of Goods and Supply of Services Act 1980, is that any loss flowing directly from the misrepresentation is recoverable whether foreseeable or not.



Therefore, an Action on the basis of Misrepresentation under Statute Law will yield the same damages as an Action based on Fraudulent Misrepresentation under Common Law, with the very important additional benefit that the burden of proof is reversed. The defendant must show, objectively, that he had reasonable grounds for believing that the facts represented were true, and that he did believe up to the time that the contract was made that the facts represented were true.37 (See Section 2.3.5.)


Therefore, notwithstanding the fact that fraud may be present, it would only be prudent that the primary thrust of a legal action following Misrepresentation should, where possible, be directed towards the Statutory Law (this, obviously excepting the issue of Silence as a Misrepresentation under the principles enunciated in Hedley Byrne, as related below and as already noted at the end of Section 2.8.3). Bear in mind, however, the fact (as previously highlighted in Section 2.3.5) that the liability to damages for misrepresentation under Statute Law only applies where a person has (a) entered into a contract after a misrepresentation has been made to that person and (b) the misrepresentation is made by another party to the contract, and not by a third party.38





Read again the matters related under 'Silence as Statutory Misrepresentation ?' in Section 2.3.5.


It was reasoned that, silence, as a breach of a fiduciary duty to disclose, could constitute statutory misrepresentation under the above Acts. It was further reasoned that, in certain circumstances, silence, as a breach of the duty to disclose following from a special relationship 'duty of care' existing under the principles enunciated in Hedley Byrne v Heller, could also constitute statutory misrepresentation under the above Acts.   


In cases where there is a breach of fiduciary duty to disclose, there would appear to be no advantage gained by channelling the action through Statutory Misrepresentation; the damages flowing from an action based on a breach of fiduciary duty may be even more extensive than those flowing from an action based on fraud (see Section 2.8.3).


But, in cases where there is breach of the duty to disclose following from the special relationship 'duty of care' existing under the principles enunciated in Hedley Byrne v Heller, IF the silence by the party under a duty to speak is 'tantamount to an implied statement that there is nothing relevant to disclose', THEN (the other necessary conditions giving rise to a misrepresentation being satisfied) it could be logically argued that an action may be pursued under Statutory Misrepresentation.



Remember also that, in circumstances where silence distorts a positive statement, in that what is not disclosed makes what is said become a false representation, (again, the other necessary conditions giving rise to a misrepresentation being satisfied) such silence may also give rise to an action under Statutory Misrepresentation [see Section 2.3.4 (b)].    



35, 36, 36A Wheeler and Shaw, Contract Law, (1st ed.), p. 281 to 283.

37 Wheeler and Shaw, Contract Law, (1st ed.), p. 277.

38
Beatson, Burrows and Cartwright, Anson’s Law of Contract, (29th ed.), p. 326.

 

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