Key Points
- Rescission of a contract is barred where there is significant change to object sold
- Damages in lieu of rescission is available under s2(2) Misrepresentation Act 1967 even if rescission is barred
- Clauses that exclude liability for misrepresentation are unreasonable and void if they do not include an explicit carve out for fraud
Facts
- D had negligently misrepresented the profit estimate of a company it sold to C
- The contract included a non-reliance clause that stated: “… the Purchaser acknowledges that it has not been induced to enter into this agreement by any representation or warranty other than the statements contained or referred to in Schedule 6”
- Significant changes had been made to the company since the sale was completed
- C sued for misrepresentation under s2(1) MA 1967 and sought both damages and rescission
Held (High Court)
- D was liable for damages under s2(1) MA 1967 for negligent misrepresentation but rescission was barred
- The non-reliance clause was void under s3 MA 1967
Jacob J
On rescission
- It was impossible to restore the parties to their original position by restitution
- The nature of the company had changed too much for counter-restitution of it to be made to D – there were numerous staff changes, including the departure of key personnel, changes to pension arrangements etc.
On s2(2) MA 1967 (obiter)
- The power to award damages in lieu does not depend on an existing right to rescission at the time of the trial, it depends on the right to rescission having existed in the past
- Bars to rescission depend “on a host of factors which have nothing to do with the behaviour of either party”
- Therefore, had D only committed innocent misrepresentation, rescission was barred but damages could still be awarded under s2(2) MA 1967
On s3 MA 1967
- Any attempt to exclude liability for fraudulent misrepresentation is automatically unreasonable and void under s3 MA 1967
- The test under s3 MA 1967 is whether “the term” as a whole is a “fair and reasonable one to be included”, meaning that the clause must be judged for every potential effect
- The exclusion of all types of misrepresentation including fraud by the clause meant that it cannot be reasonable and thus was void as a whole
Commentary
- A non-reliance clause must specifically state that it is not excluding liability for fraud, and not just avoid mention of fraud, to avoid the entirety of the non-reliance clause being void (if the whole clause is void liability for non-fraudulent misrepresentation will not be excluded)
- Regarding the point on the availability of damages in lieu of rescission, Jacob J relied on the speech of the Solicitor General in Parliament
- However, as Hugh Beale (Beale, “Points on Misrepresentation” (1995) 111. L.Q.R. 385) points out out, the literal words of s2(2) and the Law Reform Committee report suggest otherwise
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