77 / 244
GAZETTE
JULY-AUGUST
1979
measure of damages recoverable may differ according to
the cause of action. This important practical con-
sequence flows from the theoretical differences under-
lying principles of assessment. Whilst the starting point is
the same in that an award of damages is seen as com-
pensatory the essential differences that underline contract
and tort actions can result in the measure of damages
differeing quite dramatically according to the cause of
action. In an action for breach of contract the courts seek
to place the contracting party in the position he would
have been in if the contract had not been broken. If a
person strikes a good bargain and the bargain is broken
the injured party should find his negotiating skills re-
warded, or more accurately, compensated; so if I buy a
ton of coal for £10 and at the time of delivery and breach
a ton of coal is worth £30, £30 should be my measure of
damages. This is known as an award of damages for loss
of expectation. However, if an action is brought in tort the
courts do not seek to allow a party to be in a better
position than if the tort had not been committed. Indeed if
the tort arises from a contract the courts go further by
placing the party in his pre-contractual position. So if I
enter into a contract to buy coal and it is represented that
a ton of coal is worth £30 and I pay £10, if I subse-
quently discover a misrepresentation has been made and I
sue in tort I will be placed in the position I was in before
the tort was committed. Thus I will be awarded my £10
by way of restitution. See
Treitel, The Law of Contract
4th Edition Chapter 21 and
Ogus, The Law of Damages
especially pages 286-8.
The question of classifying the right to damages
created by Section 42(1) at first sight should be a rather
simple task. It will be noted that that section imposes
upon a misrepresentor the duty to pay damages where
fraud cannot be shown. An innocent misrepresentor
"shall be so liable", i.e. liable in deciet. Therefore it seems
the tortious measure should apply.
Two difficulties however result from this proposition.
First of all the English Courts have indicated that the
measure of damages in tort and contract should, in cer-
tain instances, be the same. In
Jarvis v. Swans Tours
[1972] QB, Denning M.R. said " ...[i]t is not
necessary to decide whether they [the statements] were
representations or warranties: because since the Mis-
representation Act 1967, there is a remedy in damages
for misrepresentation as well as for breach of warranty."
This, of course, ignores the theoretical differences relating
to principles of assessment as well as the difference
between the rules on remoteness of damage. Lord
Denning's dictum above however has since applied in two
decisions which suggest on the one hand that all
consequential loss will be recoverable under the new
statutory right to damages, see
Davis A Co. v A (fa
Minerva
[1974] 2 Lloyds L.R. 27 and secondly, that
despite the wording of Section 42(1), damages for loss of
bargain will be recoverable. This second feat is achieved
by Graham J. in
Watts
v.
Spence
(supra). That case con-
cerned an action in damages against a husband who
purported to sell a house, his interest being that of a joint
tenant with his wife. An action brought against him for
damages looked destined to meet the full force of (he rule
in
Bain
v.
Fothergill
until Graham J. allowed the
pleadings to be amended to avert to S. 2(1) of the Mis-
representation Act. Graham J. in awarding damages said,
"The 1977 Act for the first time enables a plaintiff to sue
for innocent misrepresentation, a cause of action now
made akin to an action for damage for fraud. The 1967
Act has thus created a new cause of action, one with
which
Bain v. Fothergill
never had anything to do. The
practical effect is however, that some purchasers who
would have been caught by
Bain v. Fothergill
if the 1967
Act had not been passed can now by suing on the new
statutory Tight,
get damages for loss of bargain
which
they could not have recovered before." [italics added].
Thus, it seems even in those limited situations to which
S. 42(1) applies in Ireland there is authority for the view
that loss of expectation can be compensated for, even
though the cause of action is a cause of action ánalagous
to an action in tort!
(3) The Proviso to S. 42(1)
The effect of the proviso is to bring together principles
of tort and contract by rendering misrepresentations
actionable if fault can be attributed to the representor.
Thus an innocent misrepresentation in the narrow sense
that the representor was, objectively speaking, innocent of
fault still remains non-compensable. The proviso has been
recently considered in the case of
Howard Marine A
Dredging Co. Ltd. v. A. Ogden A Sons. (Excavations)
Ltd.
[1978] 2 WLR 515. In that case the plaintiffs who
were negotiating with an engineering firm who wished to
hire barges misrepresented the capacity of the barges. The
figure represented was an incorrect recollection of the
capacity of the barges as contained in Lloyd's Register.
That figure in the Register was also incorrect and the
correct capacity could have been discovered by con-
sulting the ship's documents in the plaintiff's possession.
When the error was discovered the plaintiff barge owners
sought to rely on an exemption clause and themselves
sued for arrears of hire charges. On appeal the con-
tractors were held entitled to damages in tort under
Section 2( 1) of the 1967 Act. The owners were not able to
rely upon the proviso. Whilst the misrepresentor did
believe that the facts stated were correct he could not
show any objectively reasonable ground for disregarding
the figure in the ship's documents. Thus it seems the mis-
representor will not be entitled to exclude liability merely
by showing the belief was held.
S. 42(2)
It has already been suggested that the law of mis-
representation is curious if only because the courts of
equity permitted rescission for any misrepresentation.
Thus the more drastic remedy of rescission was available
in cases where damages were not. The courts have re-
cently attempted to control the extent to which
repudiation will be available in contracts for die sale of
goods: see
Cehave N.V. v. Bremer
Handelsgesellschqft
mbH
[1975] 3 All ER 739. The provisions of section
42(2) also attempt to control the extent to which
repudiation will be possible by permitting a court or
arbitrator, in cases of non-fraudulent misrepresentation to
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 circumstances set out in that section.
Whilst the English and of course the Irish courts have not
considered the effect of this provision one great difficulty
arises from the wording of Section 42(2) of the 1978 Jrish
Bill and Section 2(2) of the 1967 English Act. For the
judicial power to substitute damages for rescission to
operate the representee at the time of adjudication must
be in the position where "he would be entitled, by reason
of the misrepresentation, to rescind the contract." Thus if
79