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 v. 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 v. Gibson, re contract for a sale of an interest in land should be retained, finality in these cases being the predominant consideration 10 . 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 12 . 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 14 . 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 15 . 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 16 .

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 17 . 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" 18 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 41