The Gazette 1982

GAZETTE

APRIL 1982

then, if otherwise, he would be entitled to rescind the

contract without alleging fraud, he shall be so entitled.

This section refers to the limitation discussed above in

relation to section 43 whereby rescission cannot be ob-

tained for innocent misrepresentation when the contract

has been performed. Section 44 (b) seeks to abolish this

rule and permit recission for innocent misrepresentation

notwithstanding the fact that the contract has been per-

formed, provided the contract is one of those listed in

section 43.

This limitation, is in fact in accordance with the

recommendations of the Law Reform Committee. The

Committee recommended that the rule in

Seddon

North Eastern Salt Co.

should be abrogated re contracts

other than those for the sale of an interest in land, while

the rule in

Wilde

Gibson,

re contract for a sale of an

interest in land should be retained, finality in these cases

being the predominant consideration

. The U.K. provi-

sion, section 1 of the 1967 Act, in fact abolished the rule

in respect to all contracts.

The U.K. provision, moreover, falls foul of the tradi-

tional doctrine of merger" which provides that on com-

pletion the contract for sale merges in the conveyance

and the parties loose the remedies that were available to

them under the contract. Instead they must rely on the

remedies available for breach of the covenants in the

conveyance.

Wylie is critical of the manner in which section 1 ig-

nores the doctrine of merger by permitting recourse to

contractual remedies, after the conveyance has been ex-

ecuted, while, as will be seen later, section 2 of the 1967

Act (section 45 (2) of the Irish provision) reasserts the

traditional position and excludes the possibility of

damages (i.e. a contractual remedy) where the contract

has merged with the conveyance

These difficulties are avoided by the Irish provisions,

limited as they are to contracts for the sale of goods,

hire purchase agreements etc. as per section 43.

As with section 44 (a), 44 (b) is subject to "the provi-

sions of this Part". Thus, if a party were to seek rescis-

sion for innocent misrepresentation of an executed con-

tract under section 44 (b), the court may, under section

45 (2), in its discretion award damages in lieu of rescis-

sion. One key consideration, in deciding whether or not

to declare a contract subsisting and award damages in

lieu of rescission, is whether or not

restitutio in in-

tegrum

is possible.

Damages for Misrepresentation

Section 45 (1) empowers the court to award damages

for non fraudulent, careless or negligent misrepresenta-

tion

. The equivalent U.K. provision is section 2 (1) of

the 1967 Act. Prior to the enactment of the 1980 Act

damages for negligent misrepresentation were available

only within the confines of the law laid down in Hedley

Byrne

This section changes the burden of proof, requiring

that the representor prove that he had reasonable

ground to believe and did believe up to the time the

contract was made that the facts represented were true.

The representations must also have resulted in the

representee entering into a contract.

It seems likely that it will be easier to obtain damages

for negligent misrepresentation under section 45 (1)

than at common law. Firstly, because of the shift in the

burden of proof. Secondly, because there is no need

under section 45 (1) to prove that "special relationship"

which is required at common law by

Hedley Byrne

Section 45 (2) gives the court a discretion to award

damages in lieu of rescission, if it is 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 the

loss that rescission would cause to the other party.

A number of factors must be satisfied. The plaintiff

must show that he 'would be entitled' to rescind the con-

tract, otherwise the court cannot exercise its discretion

to award damages. Wylie notes that this can be very

harsh on a purchaser who looses his right to rescind, not

because of his own conduct, but because of the interven-

tion of third party rights acquired without notice of his

equity

. The purchaser in such a situation may find

himself without a remedy.

Secondly, the court can exercise its discretion only in

"any proceedings arising out of the contract". In the

context of the U.K. provisions, this provision seems to

reassert the doctrine of merger, excluding the court's

discretion to award damages where the contract has in

fact merged in the conveyance, after completion. The

injured party is then forced, as was the traditional posi-

tion, to rely on the covenants in the conveyance.

The paradoxical positon that results from the U.K.

provisions has been noted above. The Irish provision,

by reason of section 43, avoids these complications.

We have already noted some of the situations where

the court may exercise its discretion to award damages

in lieu of rescission, for example, under section 44 (a)

where rescission is sought for a breach of warranty.

No general right to damages for innocent

misrepresentation exists. However where the contract

has been performed and rescission granted under sec-

tion 44 (b) then the court may award damages in lieu

under section 45 (2). Thus, in this indirect way, damages

may be obtained for innocent misrepresentation. In all

other cases (i.e. contracts outside the scope of section 43

and 44 (b) ) the injured party will have to rely on the

common law of indemnity.

This discretion to award damages in lieu of rescission

is of most importance in relation to contracts for the

sale of land and houses. For example, if a Vendor of a

house makes an innocent misrepresentation that the

house is "dry and free from damp"

it can be exterme-

ly embarrassing for him if the Purchaser seeks to rescind

the sale after the Vendor has invested the entire pro-

ceeds of the sale in a new house and has moved in with

his wife and family.

This would have been the ideal situation for the court

to exercise its discretion under section 45 (2). However

section 43 excludes contracts for the sale of land and

houses from the provisions of Part V of the 1980 Act

thus rendering section 45 (2) inapplicable in the situa-

tion in which it could be most valuable applied.

Therefore, while excluding contracts for the sale of

land, helps to avoid the difficulties with the doctrine of

merger outlined above, in other situations, it can cause

hardship, by depriving a purchaser of a right to

damages in lieu of rescission which may be too drastic a

remedy. However, in practice, the Incorporated Law

Society's General Conditions of Sale will provide house

purchasers with a contractual, as distinct from

statutory, right to damages while excluding their right to

rescind for misrepresentation. The relevant section of

Condition 21 (2) reads as follows:

" . . . any error, omission, or misstatement in the

Particulars of these Conditions or in the course of