The Gazette 1979

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