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New Zealand Law Students Journal |
Last Updated: 30 August 2012
SHOULD AN INNOCENT
HALF-TRUTH BE AN
ACTIONABLE
MISREPRESENTATION UNDER THE CONTRACTUAL
REMEDIES
ACT 1979?
EMMA
BIGGS[*]
Introduction
A vendor, in an attempt to procure a sale, accurately states that the
property is let, but omits the further fact that the tenants
have recently given
notice to quit. Should the vendor be liable to the reliant purchasers for
damages as a consequence of this unqualified
statement?[1] Furthermore, should
liability attach despite the vendor, or their agent, being ignorant of the issue
of a notice to quit?
Liability for inadvertent, or innocent, half-truths
is an unsettled issue in New Zealand law. The position is governed by the
Contractual
Remedies Act 1979, which offers little direction on the matter. In
Ladstone Holdings v Leonora Holdings Ltd,
[2] Potter J of the High Court
purported to exclude the possibility of liability for such innocent half-truths.
However, it is submitted
that such a conclusion is inherently misguided.
This paper addresses Potter J’s reasoning, and focuses on the
policy behind the enactment of the Contractual Remedies Act (“the
Act”). Additionally, a large body of law from various jurisdictions is
examined, as there is no definitive law on this issue
in New Zealand. Analogy is
also drawn to the Fair Trading Act 1986 and Trade Practices Act 1974 (Cth), in
an attempt to clarify the correct position under the Contractual Remedies Act
1979.
A. Nature of a Misrepresentation Cause of
Action
In connection with the formation of contracts, an action for
misrepresentation must be brought under the Contractual Remedies Act
1979. This
legislation deals with the effect of pre-contractual statements. Any
misrepresentation inducing entry into a contract
is redressable in damages as of
right, as if the false statement were a term of the contract that has been
broken.
A misrepresentation may be broadly defined as an erroneous
statement of fact made to one contracting party, at a time prior to that
party's
entry into the contract, regarding some existing fact or past event. A claimant
must show that such a misrepresentation was
made; that it was made by the other
contracting party or his agent; that it was made to the claimant (or intended to
be received
by him or her); and that the misrepresentation induced the claimant
to enter into the contract.
[3]
This requirement for
inducement is does not demand that the misrepresentation was the sole reason for
the plaintiff entering into
the contract. Rather, the misunderstanding created
by the misrepresentation must have been one of the reasons that induced the
plaintiff
to contract. This is assessed
objectively.[4] A representation will
not be actionable if it was of a kind that no reasonable person in the position
of the plaintiff would have
relied on
it.[5] Additionally, there is no
“inducement” unless the representor intended the representee to be
induced, or used language
that would induce a normal
person.[6]
For the purposes of
this discussion, the issue of inducement is irrelevant. The focus is primarily
on the first requirement, which
is the existence of a misrepresentation. The
element of intention, as required by the need for inducement, does not apply
when determining
whether a statement was a misrepresentation. The foremost issue
is falsity. Was the statement, objectively assessed, untrue? The
Oxford English
Dictionary defines “false” as erroneous, not true or correct. Such a
definition must be taken into consideration
when determining liability, as
falsity may exist regardless of knowledge. The enquiry into falsity is made at
the time of reliance;
that is when the false statement induces entry into the
contract.[7]
B. Categorisation of half-truths
The general rule is that mere silence cannot amount to a
misrepresentation.[8] Parties to a
contract are under no obligation to ensure that the opposing parties are fully
informed as to any aspect of the transaction.
Thus, in Spooner v
Eustace,[9] a vendor’s
failure to point out the encroachment of a building onto a neighbouring property
did not amount to a misrepresentation.
However, an exception exists
where the representor is under a “duty to disclose”. Such a duty is
imposed on contracts
uberrimae fidei (contracts of utmost good faith), and where
there exists a fiduciary relationship between the contracting parties.
These are
two very narrow exceptions, and apply primarily in narrow circumstances such as
insurance contracts and in partnership
agreements.
It is a conceptual
mistake to treat liability for half-truths as connected to the rule against
silence, or to view it as analytically
dependent on the “duty of
disclosure” exception. Despite popular academic and judicial commentary to
the contrary, the
subject matter of “half-truths” does not fall
under the heading of “exceptions” to the general rule that
silence
is not a misrepresentation. Nor are half-truths to be considered “partial
non-disclosure”.[10]
Admittedly, half-truths mislead because of what they omit to say, rather than
what they do say, and thus they do involve an element
of
“non-disclosure” or “silence” on the part of the
representor. It is arguable that the plaintiff’s
error is the result of
the defendant’s failure to
speak.[11] But this does not relate
to any failure of the representor to adhere to an imposed “duty of
disclosure”.[12]
As
Bigwood argues, the objection to half-truths does not lie in an alleged
“breach” of a duty to disclose sufficient information
to the
representee.[13] As I have
previously stated, this duty to disclose applies in extremely limited
circumstances. This is confirmed by Spencer Bower,
Turner and Sutton, who state:
“This situation is not one which involves a duty to disclose ... [T]he
proper place for its discussion
is therefore in a work on Actionable
Misrepresentation, and not in one on
Non-disclosure.”[14] The only
operative obligation in a half-truth case is the normal obligation on all
parties in pre-contractual negotiations, namely,
not to mislead by their factual
statements or conduct. This duty is of course imposed by s 6 of the Contractual
Remedies Act.
Therefore, in all half-truth cases, the
representor’s statement must be viewed as itself a misrepresentation. It
is not a true
statement that gave rise to a duty to disclose further
information. It is not an omission. Rather, the representor’s omission,
whether innocent or fraudulent, renders the initial statement objectively
false.[15] The statement is false
and misleading because it is incomplete and therefore does not tell the full
story. The statement itself is
the operative representation and, given that it
is false, it constitutes an actionable misrepresentation, providing the falsity
induced
the contract in question.
When considering a half-truth and a
purely false statement, their practical effect cannot be differentiated. Their
natural effect
is to unambiguously mislead or deceive the representee, or to
lead them into error.[16] Both the
purely false statement and the half-truth are false, and this is the essential
determination for this paper.
C. Fraudulent half-truths
It is settled law that an accurate statement may nonetheless be misleading if
the representor intends to mislead, and no mention is
made of matters that
qualify or alter the truth of the statement actually made. The half-truth
creates a misleading impression because
of what is unsaid – by concealing
known facts, whose effect would be to make the initial statement false. Although
the party
to the contract may have been legally justified in remaining
completely silent on the fact, by venturing to make a representation
upon the
matter, such a representation must be a full and frank statement, and not a
partial and fragmentary account.[17]
This is illustrated by the English case of Dimmock v
Hallet,[18] where it was held
that if a vendor chooses to state that the farm for sale is let, they must not
omit the further fact that the tenants
have given notice to quit. This principle
remains settled under the Act. In Wakelin v RH and EA Jackson
Ltd,[19] a prospective purchaser of
a lunch bar was told, by the vendor’s agent, and in response to a direct
question, that the nearest
competition was “half a mile away”, and
that the council could no longer grant permission for additional lunch bars in
the area. This statement was literally true, but nonetheless misleading, as the
agent knew that nearby premises were being converted
to house a competing
lunch-bar business. The Judge stated: “In my opinion this is a typical
case where an answer given to a
specific question, although theoretically true,
constitutes a misrepresentation for the reason that it does not indicate the
true
position.” [20] The
representor had painted an erroneous picture to the plaintiffs.
In the
recent decision of Thompson v
Vincent,[21] the Court of Appeal
discussed half-truths. In this case the Thompsons sold a motel business,
comprising a 20-year lease of a newly
constructed block of units. The motel
complex was marketed as having 24 units, when in fact there was planning consent
for only 12.
The purchasers (the Vincents) alleged misrepresentation. The Court
stated: [22]
We leave open the question whether, in absolute terms, this was a situation of duty to speak. If the vendors had said nothing whatsoever as to unit numbers, caveat emptor principles might apply. The present was not a case of complete silence. Nor was it a contract uberrima fides. It was, quite simply, a situation of half-truth, silence as to the other half rendering what was said deceptive. It was a half-truth to say the complex had 22–24 units without going on to say there was planning consent for only 12 of that number. There was, as the point sometimes is put, a “material distortion”. A half-truth is an untruth. What was said was wrong.
It is thus evident that a half-truth is an actionable misrepresentation
because what was said is wrong. This is settled law. However,
the role of fraud
in a half-truth case is yet to be determined.
D. Innocent half-truths – should fraud be a
requirement for liability?
In the vast majority of half-truth cases the representor knew of the
existence of a fact, and failed to disclose it, presumably in
an act of
deliberate concealment. In other words, most half-truths involve an element of
fraud.[23] But is fraud a necessary
requirement before a half-truth can be deemed an actionable misrepresentation
under the Act?
Fraud is deemed as such by Potter J in Ladstone
Holdings v Leonora Holdings
Ltd.[24] In that case a property
was represented as “presently available for
development”.[25] After
contract formation it was discovered that there was a privately owned ceramic
tunnel running under the land. The purchaser
had not been told of the existence
of the tunnel, as the vendor was unaware of it. The purchaser alleged, inter
alia, that “presently
available for development” constituted a
misrepresentation, because it was made untrue by the omission of the existence
of
the drain.
It was held that the undisclosed facts regarding the drain
did not render the initial representation
untrue.[26] Redevelopment would be
hampered and delayed by the drain, but the property was still available for
redevelopment.[27] There was no
misrepresentation at all. However, Potter J went on to discuss liability for
misrepresentation and half-truths. She
stated:
[28]
It is arguable that because under s 6 of the Contractual Remedies Act a misrepresentation can be innocent or fraudulent, then if the representor's statement is in fact false it is irrelevant whether or not the representor knew of the undisclosed facts (see Law of Contract in New Zealand at p 333). I do not accept that argument.
Various aspects of Potter J’s reasoning will be examined in
turn.
1. The Purpose of the Act and the Common Law
Potter J reached her conclusion by stating:
[29]
It would not serve... the policy of the Act...if non-disclosure of facts unknown to the representor could constitute a misrepresentation, whether innocent or fraudulent, under s 6.
Therefore, the policy and reasoning behind the Contractual Remedies Act
1979 must be investigated, to determine whether in fact Potter
J’s
conclusion is correct.
(a) The Position at Common Law
The current liability for innocent misrepresentations differs greatly from
the previous position. At common law, misrepresentations
were governed by a
complicated and strange amalgam of law and equity, and of contract and
tort.[30] If a statement could be
treated as forming part of the contract, the representee could sue for damages
for breach of contract. Additionally,
the misrepresentation might be treated as
forming a collateral contract, and therefore damages were available for its
breach. If
the representation had been made fraudulently, the representee could
have a claim for damages under the tort of deceit, and would
be allowed to
rescind the contract at common law or in equity. If the representation had been
made negligently, relief could be sought
under the tort of negligent
misstatement. [31]
If the
representation was innocent, that is, made without negligence or fraud, the
remedy lay in equity only. The representee could
not recover damages; instead,
they had to choose whether to rescind the contract or perform it, without
compensation for the loss
arising from the
misrepresentation.[32] The Court of
Chancery could order rescission regardless of whether the misrepresentation was
innocent or fraudulent. As stated in
Derry v Peek:
[33]
Where rescission is claimed it is only necessary to prove that there was misrepresentation; then, however honestly it may have been made, however free from blame the person who made it, the contract, having been obtained by misrepresentation, cannot stand.
The availability of rescission was justified either because the
representor should have found out the full truth before speaking his
fragmentary
words, or else he acted “morally delinquently” by resisting the
claim after discovery of the true
position.[34]
However,
rescission was not always an adequate remedy. It could be lost in several ways,
for instance if it was no longer possible
to restore the parties to their
original position. A precondition to rescission being available was that
performance of the contract
could in fact be reversed. As such, the representee
must have been able to return to the representor whatever he received under the
contract.[35] Additionally,
rescission ceased to be available for a non-fraudulent representation if the
representee delayed too long after the
time of the contract before claiming the
remedy.[36] Such a lapse of time
could be taken as evidence of affirmation of the contract, or it could be a
defence to rescission in its own
right.[37] The right to rescission
for innocent misrepresentation was also severely limited by the rule in
Seddon’s case, which barred
rescission if the contract was executed on
both sides. Such a rule was arguably unfair, as often the representee would not
discover
the falsity of the representation until after the contract had been
executed.[38]
Additionally,
rescission could impose a liability upon the representor that was
disproportionate to the importance of his assertion.
This led to the anomaly
that the remedy of rescission was available for a minor innocent
misrepresentation, when damages would have
been more appropriate. The 1967
Contract and Commercial Law Reform Committee argued that financial adjustment
would bring about a
more proper
settlement.[39]
(b) Philosophy behind the Contractual Remedies Act
1979
The Act implemented the 1967 Contract and Commercial Law Reform Committee
report on Misrepresentation and Breach of Contract. The
Committee recommended
that damages should be recoverable for both innocent and fraudulent
misrepresentation, whereas previously damages
had only been available for
fraudulent misrepresentation. Such recommendation was adhered to 11 years later
in the Committee’s
further report on misrepresentation and breach of
contract, where they concluded that the intervening years had not affected the
need for reform.[40]
Where a
person has made a representation that induces another to contract with him, he
should be responsible for the accuracy of the
representation, regardless of
fault.[41] This was the philosophy
behind the statutory liability for innocent misrepresentation. The Contract and
Commercial Law Reform Committee
was strongly opposed to the intrusion of
negligence. They stated:[42]
It is beside the point whether an undertaking was given on reasonable grounds or not; it suffices that it was given. It seems to us that the proper as well as the traditional approach is to look not a whether there was any fault on the part of the representor but at the expectations of the representee that naturally arise from the undertaking.
Under the heading “damages for innocent misrepresentation”,
the 1967 report stated “we are all agreed that innocent
misrepresentation
should be remediable by an award of
damages”.[43] The reasoning
behind this conclusion was twofold. First, the drastic nature of rescission was
considered inappropriate, as unwinding
the contract was not always the aggrieved
party’s preferred remedy,[44]
and, as discussed, often too extravagant a penalty upon the misrepresentor.
Secondly, an award of damages “is a more business-like
solution to many
cases”.[45]
In the
explanatory note to the Contractual Remedies Bill 1978 it is stated that the
proponents of the Act hoped to rationalise and
simplify the law, by giving
substantially the same remedies for an inducing misrepresentation as for breach
of contract.[46] The principal
effects of the Bill are listed; the first being that damages may be claimed for
innocent misrepresentation as well
as
fraudulent.[47] It appears evident,
then, that the inclusion of innocent misrepresentations was to be considered as
a substantial change in the law.
Therefore, in 1979, the Contractual
Remedies Act was passed, with s 6(1) expressly stating that the same remedies
are available for
breach of an innocent misrepresentation, as for a fraudulent
one. Since the enactment of the Contractual Remedies Act there has been
a
further development, the passing of the Fair Trading Act 1986. This makes
alternative remedies available for misrepresentation,
and thus is a useful
analogy, as I will discuss later. Issues as to liability under the Fair Trading
Act will often arise in tandem
with, or intermingled with, enquiries as to
liability under the Contractual Remedies Act 1979.
(c) The Position under the Act
The enactment of the Contractual Remedies Act 1979 means that the law on
remedies for pre-contractual statements is thus governed
substantially by
statute in New Zealand. The main statutory remedy for both fraudulent and
innocent misrepresentations is now damages,
with the misrepresentation to be
treated as if it were a term of the contract that has been broken. The common
law availability of
damages for deceit or negligence is
removed.[48] This means the type of
misrepresentation is irrelevant when assessing liability. Dawson and McLauchlan
state that if a representor
deliberately fails to tell the full truth, this is a
case of fraudulent
misrepresentation.[49] If they did
not know that which they failed to disclose, and did so innocently, it is a case
of innocent misrepresentation. In other
words, the intention to deceive
determines “not the fact of misrepresentation, but the type of
misrepresentation. Of course,
in the view of s 6, the latter issue is no longer
important.”[50]
(d) What was Potter J referring to?
Given the reasoning and philosophy behind the Act, the “policy of the
Act” cannot be said to deem inadvertent half-truths
non-actionable. It
rather suggests otherwise. It is possible that Potter J was instead referring
to Parliament’s intention
to preserve the pre-Act conception of an
actionable
“misrepresentation”.[51]
Unlike s 7, s 6 does not purport to be a code. It is generally accepted that the
common law remains relevant to determine whether
a statement amounts to a
misrepresentation under the Act.
[52] As the Court of Appeal has
stated:[53]
It is only partly true that the Act “sweeps away” the previous common law. In significant areas it builds upon it, as can be seen by the continued use of common law concepts such as “misrepresentation”.
Furthermore, the 1967 report, under the heading “damages for
innocent misrepresentation”, expressly states that “in
this context
the terms ‘representation’ and ‘misrepresentation’ are
intended to have their common law
meanings”.[54]
If
this is what Potter J was referring to, the question therefore becomes, would an
inadvertent half-truth, on ordinary common law
principles, be an
“innocent” misrepresentation and thus have justified rescission of
the contract in equity?[55] The
purpose of the section was not to create sanctions for pre-contractual
misrepresentations where none existed at common
law.[56] In other words, one must
look to the common law to define “misrepresentation”; although the
context of the enquiry is
somewhat different, its relevance now in determining
liability in damages.
Given that half-truths, at least fraudulent ones,
are deemed misrepresentations under the common
law,[57] Potter J’s reasoning
is once more sparse, and arguably erroneous.
Conclusion
Potter J’s reference to the “policy of the Act” does
nothing to bolster her argument against liability for inadvertent
half-truths.
It does rather the opposite. At common law the sanction of rescission acted to
assist victims of wholly innocent representations,
and while the sanction now
available is widely removed from this position, the Act was not intended to
change the meaning of “misrepresentation”.
The recognition of
liability for innocent half-truths is consistent with the reasoning behind the
pre-Act remedy for innocent
misrepresentation.[58] Likewise, it
evident from the 1967 Contract and Commercial Law Reform Committee report that
the Contractual Remedies Act was enacted
to assist victims of innocent
misrepresentations, rather than working to their detriment.
[59]
Bigwood is disinclined
to determine the question of legal liability for inadvertent half-truths by
reference to the spirit of the
Act, or to Parliament’s intention to
distinguish between innocent and fraudulent
untruths.[60] Rather, the decisive
question is whether such misrepresentation would have justified rescission at
common law.[61] Although such a
determination is essential, it is submitted that the intention of Parliament and
the 1967 report are a fundamental
indication as to how this issue should be
resolved. The Committee’s determination to provide a more adequate remedy
for innocent
misrepresentation suggests that liability should attach for
inadvertent half-truths. However, the decisive determination is indeed
whether a
false representation was actually made.
1. Potter J’s incorrect application of Savill v NZI
Finance
Potter J’s reasoning also largely rests upon a quote from Hardie Boys
J’s judgment in Savill v NZI
Finance:[62]
Not only must the representation have caused the representee to enter into the contract but also the representor must, either in fact or in contemplation of law have intended to cause him to do so ... I cannot think that the legislature intended such a change, which would make the test of inducement a purely subjective one, judged from the point of view of the representee ... Therefore I consider that it remains the law that it is not enough for a party to say that a representation caused him to act in a particular way. He must also show either that the representor intended him to do so, or that he “wilfully used language calculated, or of a nature, to induce a normal person in the circumstances of the case to act as the representee did.”
However, Potter J’s reliance on this quote is misguided. The
reference to “the test of inducement” is clear. In
the light of
this, it appears evident that Hardie Boys J was referring to the element of
“inducement”, as required by
a misrepresentation cause of action.
Additionally, the leading textbook on contract law also reproduces Hardie Boys
J’s quote
under the heading
“inducement”.[63] As I
have previously stated, the issue of inducement is separate from the initial
enquiry as to whether there is a misrepresentation.
Hardie Boys
J’s analysis is accurate, as it applies to this separate element of the
misrepresentation enquiry. In Savill v NZI
Finance,[64] the appellants were
sued on a guarantee. They claimed they were induced to sign the guarantee by a
representation, made by the respondent’s
solicitor, that he was satisfied
with a letter stating that a collateral transaction was unconditional. The
issue was whether it
could be said that Mr Levin (the solicitor) intended the
Savills to act upon his statement, or could be held to have so intended
because
his words were calculated to have that result. Hardie Boys J held there was no
ground for concluding that a reasonable person
would have thought that Mr Levin
meant for them to execute the guarantee on the strength of what he
said.
In the light of this, Potter J’s reference to Hardie Boys
J’s quote must been seen as an assertion that to make innocent
half-truths
actionable would be inconsistent with the need for intention when assessing
inducement. Such an assertion is deeply flawed.
Providing it can be shown that
the representor intended the representee to rely on the literally true part of
the statement to induce
entry into the contract (or he wilfully used language
calculated, or of a nature, to induce a normal person in the circumstances
of
the case to act as the representee did), and the representee was induced, Hardie
Boys J’s concerns are met.[65]
For example, in Thompson v Vincent a statement that the unit block
comprised 24 units was intended to induce the purchasers into entering the
purchase agreement. The
sellers did not intend to the statement to be
misleading, but this was deemed
irrelevant.[66]
Therefore,
Hardie Boys J’s quote does not demand an objective intention to mislead or
deceive by one’s fragmentary statement
as a precondition to liability
under s 6 of the Contractual Remedies
Act.[67] It is confined to a
requirement of intention merely to induce entry into the contract by what was
actually stated. In referring to
Savill v NZI Finance, Potter J has not
bolstered the argument in favour of making inadvertent half-truths
non-actionable. Rather, by referring to the
need for intention in a completely
separate enquiry, her reasoning appears, with respect, somewhat awry.
2. Other Case Law
In giving her conclusion, Potter J makes no reference to any other case law
that deals with innocent half-truths. It is imperative
that a significant body
of such case law be discussed because, as mentioned, Parliament, in enacting s
6, did not intend to alter
the fundamental nature of liability for
misrepresentation.[68] Given that
there is no definitive law as to whether an inadvertent half-truth attracts
liability, the weight of obiter statements
in case law will likely be a
significant factor in the determination of this issue.
In Ware v
Johnson,[69] the purchaser of a
failed kiwifruit orchard business alleged that the vendor had made a
pre-contractual statement that constituted
a misrepresentation by way of a
half-truth. The vendor’s representative, Mr Johnson, had represented that
the vines would produce
their first crop in May 1982 (as would be the normal
expectation if they were in good health), and had stated that the kiwifruit
vines had been sprayed with herbicides normally used on kiwifruit, without
saying that Krovar, a harsh herbicide, had also been
used.[70] Prichard J concluded that,
on the facts, misrepresentation was not made out, but still offered obiter as to
the issue of knowledge.
The Judge quoted from Spencer Bower and Turner,
Actionable Misrepresentation:[71]
But there are other cases where in the course of the negotiations the party has let fall something which, whether he so intended or not, he immediately perceives to have a delusive effect on the mind of the representee, and where, by not correcting the delusion, he is deemed to confirm and perpetuate it, and so to misrepresent.
This led Prichard J to
conclude:[72]
It comes back to a question of whether there was a duty to say anything further; and that, in turn, depends upon whether the representor appreciates that what he said, in conjunction with what he has not said, has misled or will mislead the representee unless the necessary correction is made.
However, the impact of this case and its accompanying quote is somewhat
lessened by academic criticism. Bigwood notes the discernible
inconsistencies in
Spencer Bower and Turner’s approach to actionable misrepresentation via
partial-truths.[73] There is no
mention of knowledge in the authors’ encapsulation of their discussion
dealing with partial-truth-telling. Additionally,
Burrows notes the influence of
Spencer Bower and Turner on cases, particularly Ware v Johnson, and
remarks that the requirement of fraud is somewhat alien to the spirit of s 6,
and also to the overriding importance of reliance
evinced by the other
cases.[74]
Other obiter
statements also collaborate Potter J’s conclusion. In a 2010 application
for summary judgment it is
stated:[75]
The plaintiffs also invoke the doctrine of misrepresentation by silence or half-truth. They claim that the failure to disclose the Transit proposals meant the express statements were a half-truth i.e. that what was left unsaid (the existence of the Transit proposals) rendered the express statements misleading. For summary judgment purposes, it was accepted the plaintiffs would be required to prove the defendant had knowledge of the undisclosed fact.
Although it has very limited precedential value, this quote is relevant
given its recency. However, the Judge, like many academics,
appears to have
mistakenly equated “knowledge of the undisclosed fact” with fraud.
As previously discussed, knowledge
is separate from the determination of whether
there was an intention to mislead. Therefore, while the Judge’s
terminology may
be mistaken, it suggests that at least some judges believe that
a mental state akin to fraud is required. It confirms, at least,
the unsettled
nature of the law in this area, and emphasises the need for clarification.
Having considered a selection of case law that suggests inadvertent
half-truths are not misrepresentations, one must now consider
those that suggest
otherwise. In King v
Wilkinson[76] the purchasers of
a property brought a claim under s 6 of the Contractual Remedies Act. They
claimed that the position of the fence
misrepresented the property’s
boundary, and the Judge held this to be an actionable misrepresentation.
However, the Judge,
in obiter, also considered a statement made by the
defendant’s real estate agent. The question of boundaries was raised by
the plaintiffs, who asked the agent whether the fence constituted the boundary.
The agent replied, pointing at the fence on the eastern
boundary, that the fence
represented the boundary. Although this was accurate regarding the eastern
fence, the agent’s statement
needed qualification as to the true position
of the southern boundary. As regards this half-truth, the Judge stated, albeit
obiter: [77]
The agent was undoubtedly innocent in saying and indicating that the boundaries of the property were as fenced. That is immaterial because of the provisions of the Contractual Remedies Act 1979.
In Adele Holdings v Westpac Finance Ltd
[78] it was argued that the presence
of a Transcabin on the land for sale was one of the factors that induced the
plaintiff to enter into
the contract, believing the structure to form part of
the land. However, the Transcabin was a chattel. The defendant denied liability
on the basis that they had no knowledge of the fact that the cabin was a chattel
only. Doogue J stated that “it is clear that
it was an innocent
misrepresentation, but, in my view, it is nonetheless a
misrepresentation”.[79] The
Judge would have found for the plaintiff on this issue, had it been necessary to
do so.
Returning to the case of Thompson v
Vincent,[80] the Court of Appeal
stated:[81]
The Thompsons are correct that their state of mind in relation to the representation – fraudulent, negligent, or otherwise – is not relevant in light of s 6. The Judge's finding that Mr Thompson “well knew” what he said was wrong is not relevant to the existence or absence of misrepresentation (although not entirely irrelevant to other discretionary matters such as interest and costs).
This explicit statement from the Court of Appeal in 2001 is arguably
detrimental to Potter J’s argument. Unlike in Ladstone Holdings,
the Court in this decision was dealing with a half-truth, and held that there
was a misrepresentation as
pleaded.[82]
One case that
deserves considerable attention is Clarkson v Whangamata Metal Supplies
Ltd.[83] In that case the
purchasers of land alleged misrepresentation, as a structure (a quarry) on the
land encroached upon adjoining crown-owned
property. The plaintiff purchasers
claimed that the encroachment was a breach of an implied term, a breach of the
Contractual Remedies
Act, and a breach of the Fair Trading Act. Venning J found
an implied term that the quarry sold under the agreement for sale and
purchase
was located on the property described in the
agreement.[84] Therefore, the vendor
was in breach of this term.
It was therefore strictly unnecessary to
consider the alternative causes of action that dealt with encroachment (that is,
liability
under the Contractual Remedies Act and the Fair Trading Act). However,
Venning J continued, in obiter, to conclude on these issues,
in deference to
counsel’s
submissions.[85]
The nature
of the representation was in dispute. The plaintiff submitted that the
representation was by positive conduct, specifically
the placement of the pit
and of the crushing plant. The defendants treated the representation as one by
silence. Venning J held that
the pit and crushing plant were described as assets
of the property in the sale and purchase agreement, therefore the physical
presentation
of the property in the agreement constituted a representation that
the pit and crushing plant were within the boundaries of those
properties.[86] The Judge
stated: [87]
In my judgment the representation was made, not by silence, but rather, by positive conduct, as the plaintiff submitted. More accurately the positive conduct was a half-truth: the defendants were silent as to the true boundaries ... The defendants’ silence can be construed as positively affirming the misconception which the physical presentation of the property formed: King v Wilkinson (1994) 2 NZ ConvC 191,828.
Thus, it is clear that Venning J was dealing with a half-truth situation.
Additionally, it was an innocent half-truth, as the defendants
did not know of
the encroachment. The defendants naturally relied on Potter J’s judgment
in Ladstone to absolve themselves
of liability. Venning J did not accept this,
and went further to criticise Potter J’s reasoning. This quote is
essential to
the deliberation contained in this paper, and thus is reproduced in
its entirety: [88]
In Ladstone Potter J held that the representation by silence generally needs to be a deliberate nondisclosure of the fact known to the representator (see paras 52-55). In reaching that conclusion Potter J referred to the objective approach advocated by Hardie Boys J in Savill v NZI Finance Ltd [1989] NZCA 150; [1990] 3 NZLR 135. The reasoning in Ladstone has been criticised: see Professor Bigwood “The full truth about half-truths” [2006] NZLJ 114. In the article Professor Bigwood averts to the fact that the objective approach of Hardie Boys J in Savill relates to the inducement aspect of s 6 of the Contractual Remedies Act rather than the representation aspect which was the matter before Potter J and is the matter before this Court. It is strictly unnecessary for this Court to resolve the issue but in my judgment there is force in Professor Bigwood’s argument that the reliance by the Judge in Ladstone on the objective approach was mistaken. Half-truth cases involve both silence and positive representation. Innocent half-truths are not simply representations by silence. The approach taken in Ladstone, that for there to be a misrepresentation by silence would generally require deliberate nondisclosure of a fact known by the representator, may not be applicable to innocent half-truths.
This succinct statement has much to recommend it. The High Court confirms
my previous discussion of Savill and the requirement for intention in the
inducement enquiry. Venning J goes as far as to state that Potter J’s
reliance on
Hardie Boys J’s quote in Savill was indeed mistaken.
The Judge concludes that innocent half-truths may not require deliberate
non-disclosure.
It is submitted that Clarkson should be taken as
decisive on this matter. The High Court, albeit obiter, offers a well-reasoned
opinion
suggesting that inadvertent half-truths are capable of attracting
liability. The leading contract textbook compares Ladstone with Clarkson,
and states, in reference to Clarkson, “it is submitted that this view is
the preferable
one”.[89]
Given the
discrepancies between the decisions I have discussed, liability in this area
remains unsettled. However, the decisions in
favour of liability for inadvertent
half-truths outweigh the alternative, both in quantity and calibre of reasoning.
The culmination
of decisions such as Thompson v Vincent and Clarkson
suggest that any decisive decision on this issue will feasibly purport to create
liability for inadvertent half-truths.
3. Fair Trading Act 1986 and Trade Practices Act 1974
(Cth)
Having discussed liability for inadvertent half-truths under the Contractual
Remedies Act 1979, it is instructive to consider the
position under the Fair
Trading Act 1986. Section 9 of the Fair Trading Act states: “No person
shall, in trade, engage in conduct
that is misleading or deceptive or is likely
to mislead or deceive.”[90]
The Act is clearly apt to cover any conduct that could be classified as a
misrepresentation for the purposes of the Contractual Remedies
Act 1979, and
thus it is arguable that inadvertent half-truths are capable of also attracting
liability under s 9 of the Fair Trading
Act 1986. Thus, the issue of half-truths
must be considered under the Fair Trading Act 1986, to assist in determining the
position
under the Contractual Remedies Act.
In Des Forges v
Wright,[91] a s 9 claim was
brought, as the seller of a distribution agreement (Wright) had failed to inform
the purchasers that a major supplier
was for sale. Wright had no knowledge of
that fact. On appeal it was argued that knowledge is irrelevant for the purposes
of a claim
under the Fair Trading Act, and thus its absence should not defeat a
s 9 claim. Elias J noted that an omission may be misleading
or deceptive
conduct, and stated “the question whether conduct is misleading or
deceptive is substantially a question of fact
and
degree”.[92] Intention to
mislead or deceive is irrelevant. However, this is qualified by her statement
that no policy of the Act would be served
by imposing liability for a wholly
unconscious omission.[93] In
Ladstone Holdings, Potter J heavily relies upon this statement when
reaching her conclusion.[94]
Although Elias J’s statement regarding a “wholly unconscious
omission” may initially seem to deem innocent half-truths
as
non-actionable, it is essential to note that a half-truth must not be
categorised as an omission. A half-truth attaches liability
because what is said
is misleading, as it has not been qualified. Bigwood notes that Elias J’s
holding regarding wholly unconscious
omissions should only apply to pure
omissions, not half-truths. Because of this, he submits that Des Forges
should not be followed in a case involving innocent
partial-truth-telling.[95] It is
submitted that such a conclusion, while in principle accurate, is unnecessary.
It is arguable that Elias J did not purport
to conclude that a “wholly
unconscious omission” included a half-truth. Indeed, Des Forges v
Wright does not involve a half-truth at all. In obiter Elias J stated:
[96]
It is not suggested by Mr Des Forges in his evidence that Mr Wright made any explicit representation as to the continuation of the business in its present form. If such representation had been made, at least where there was no basis for it, it could well constitute misleading or deceptive conduct even though innocent in the sense that the fact that it was wrong was not known.
Elias J was dealing with a situation of pure silence, and clearly held
that no liability should attach. However the above quotation
suggests that this
is not the case for half-truths. It is arguable that Elias J’s reference
to an innocent representation,
which the representor does not know is wrong, can
logically extend to include a half-truth. Admittedly there is a
“basis”
for half-truths, as that which is said is accurate, but is
deemed inaccurate by what is unsaid. However, as discussed, when considering
a
half-truth and a purely false statement, their practical effect cannot be
differentiated. Therefore, Elias J’s statement
can reasonably extend to
include half-truths, as well as baseless innocent representations.
Proceeding on this assumption, an erroneous half-truth creates
liability, even if the omitted facts are
unknown.[97] However, where no
positive representation is made at all, Des Forges v Wright naturally
shows that there will be no liability. In adherence to the previous assumption,
Potter J’s reliance on Des Forges v Wright is mistaken. Indeed,
Bigwood confirms that Potter J’s reliance on Elias J’s statement
regarding a “wholly unconscious
omission”[98] does not lead
one to conclude that innocent half-truths are non-actionable. This is confirmed
in Clarkson, where Venning J stated:
[99]
In Des Forges v Wright [1996] 2 NZLR 758 the Court held that there should be no liability for an omission which is wholly unconscious. Half-truths may sometimes be wholly unconscious but they are not wholly omissions.
Therefore, Venning J found that there was an argument that the
defendant’s inadvertent half-truth would constitute misleading
and
deceptive conduct under the Fair Trading
Act.[100] Given our previous
assumption, such a conclusion was consistent with, rather than contrary to, the
decision of Des Forges v Wright.
Thus, it is arguable that an
inadvertent half-truth is capable of attracting liability under the Fair Trading
Act. It is submitted
that such a conclusion bolsters the argument for the
liability of half-truths under the Contractual Remedies Act. As discussed, mere
silence cannot constitute a misrepresentation for the purposes of either Act.
Additionally, it appears that an inadvertent half-truth
can constitute
misleading conduct under the Fair Trading Act, which suggests liability must
also attach under the Contractual Remedies
Act.
In Ladstone Holdings v
Leonora Holdings Ltd, Potter J considered Fair Trading Act liability and
discussed Des Forges v Wright. Her obiter discussion centred on the
theoretical possibility that “presently available for development”
constituted
an inadvertent
half-truth.[101] In such an
instance, Potter J held that there would be no liability under the Fair Trading
Act. As previously explored, this was
due to her reliance on Elias J’s
statement that “no policy of the Act is served by imposing liability for
an omission
that which is wholly
unconscious”.[102] As
discussed, this quote from Des Forges v Wright does not purport to equate
inadvertent half-truths with omissions. When coupled with the discussion by
Bigwood and the decision in
Clarkson, it is evident that Potter J’s
reliance on this quote is incorrect.
Additionally, when Potter J recites
Elias J’s “wholly unconscious” point, she changes the wording.
Potter J states
“while in some circumstances silence can mislead and
deceive, conduct cannot properly be regarded as misleading and deceptive
which
is wholly unconscious”.[103]
Elias J referred to ‘omissions’, not conduct. As discussed, the use
of the word ‘omissions’ is the reason
why Elias J’s statement
does not apply to half-truths. A half-truth is not an omission. However, conduct
can be viewed as half-truth.[104]
This inaccuracy is further proof that Potter J did not fully comprehend what
Elias J was purporting to say. Bigwood’s conclusion
that subsequent courts
should be slow to follow Ladstone is indeed
sound.[105]
One can also
argue by analogy to the Trade Practices Act 1974, the Australia equivalent to
the Fair Trading Act.[106] Section
52 states that a corporation shall not, in trade or commerce, engage in conduct
that is misleading or deceptive or is likely
to mislead or
deceive.[107] As the New Zealand
Court of Appeal has
stated:[108]
The category of misleading or deceptive conduct in trade arguably is wider than contractual misrepresentation. However, there remains a close analogy ... The Australian approach [in the Trade Practices Act] is a commonsense one. It is common sense which can find equal application here [in a claim under Contractual Remedies Act].
The notion of misleading or deceptive conduct is wider than that of an
actionable misrepresentation under the general law. Silence
may constitute
misleading deceptive conduct, even though it would fail to be considered an
actionable misrepresentation.[109]
However, it is apparent that silence per se will rarely ground liability under s
52.[110] Rather the majority of
cases that find liability for “silence” are situations of
half-truths.[111] Therefore, one
can clearly breach s 52 by failing to disclose the whole truth, thus creating an
erroneous position by what has been
disclosed.
[112] As Gilles notes, such
conduct will often be able to be viewed in conventional terms as positive
conduct that misleads or
deceives.[113]
But is
knowledge of the undisclosed facts required? Section 52 imposes strict
liability, as no intention to mislead or deceive needs
to be proven. It is
sufficient if the conduct is objectively
misleading.[114] It would
therefore appear that the assumption formed from Des Forges v Wright
applies, creating liability for inadvertent
half-truths.[115] Pengilley states
that such a conclusion would be consistent with all Australian
authority.[116] However, the
application of Des Forges v Wright to Australia is complicated by s
4(2)(c)(i) of the Trade Practices Act. This states that refraining to do an act
may constitute conduct, but such conduct must not be inadvertent. While this
statutory
indication is possibly identical to the conclusion reached in Des
Forges v Wright, the difference between statutory provisions in Australia
and New Zealand may make Australian application of Des Forges
inappropriate.[117]
It is
uncertain as to what bearing s 4(2) has on the issue of inadvertent half-truths.
Academics believe that s 4(2) may only apply to cases of pure silence. In a
half-truth case, it is argued the provision has no application, as the
defendant’s
actions constitute a mix of refraining to act (the
non-disclosure) and a representation (which is not covered by 4(2)(c)(i)). Thus,
as Gilles states, “collectively the defendant’s conduct is not truly
a refusal to
act.”[118]
Alternatively,
the half-truth could be split in half, thus comprising both a positive statement
and, separately, an omission. By not
providing additional qualifying facts, the
defendant has refrained from acting, and such an act must be
intentional.[119] However,
Pengilley states that such an argument is “a somewhat thin straw to
grasp”.[120] Given my
previous discussion on the nature of half-truths, it is submitted that the
former view is correct, as the defendant’s
initial disclosure is the
operative misleading statement. Therefore, the representor has not refrained
from acting in the usual sense
of the phrase. Indeed, in Cheshire and
Fifoot’s Law of Contract it is suggested that, to the extent that s 52 and
s 4(2) are inconsistent, the former should prevail so that an element of
deliberateness is not a necessary requirement in half-truth
cases.[121] Likewise, Australian
courts may be encouraged to hold Des Forges v Wright as applicable
Australian law, as the New Zealand High Court sees its application in Australia
as “beyond
doubt”.[122]
From the
weight of available authorities, it is evident that where silence alone is
concerned, the defendant must have actual knowledge
of the facts he failed to
disclose.[123] This is consistent
with Des Forges v Wright, and the application of s 4(2)(c)(i). The
position regarding inadvertent half-truths remains unsettled. Regardless of
whether s 4(2) is applicable to half-truths, one must consider that s 9 of the
Fair Trading Act is demonstrably similar to, and indeed derived from,
the Trade
Practices Act 1974. Thus, the exclusion of an “inadvertence” section
in the Fair Trading Act suggests that the legislature intended an inadvertent
failure to act as capable of attaching liability in New Zealand.
It is
argued that the issue should be decided in principle, rather than a superficial
discussion of the word
“inadvertence”.[124]
When approaching the Fair Trading Act or the Trade Practices Act, academics and
judges agree that the issue is substantially a question of fact and degree, in
light of the circumstances.[125]
In Forwood Products Pty Ltd v
Gibbett,[126] a claim was
brought under s 52 of the Trade Practices Act. The Court confirmed that it is
not necessary that the misrepresentation be known by the respondent to be false
or misleading.[127] However,
instead of a complex discussion of inadvertence, the Court focused on the
whether the defendant’s conduct was misleading
overall. The Court stated:
“the question is whether, in all the circumstances, that conduct
contravened s 52”.[128] This
approach must also be adopted when considering the Contractual Remedies Act,
demanding a general investigation into “falsity”
of the statement,
rather than a strict process of categorisation and determination of
knowledge.
Other Jurisdictions
It is beneficial to explore the status of inadvertent half-truths within
alternative jurisdictions. In the United Kingdom, this was
initially governed by
the common law. Relief afforded to a representee did not extend to an award of
damages, unless the representee
could further show that the representation was
made fraudulently, negligently or in breach of a fiduciary duty. Therefore,
damages
were not available for a purely innocent misrepresentation. However, the
introduction of the Misrepresentation Act 1967 (UK) provided
the possibility of
an award of damages despite the absence of fraud on the part of the
representor.
It is instructive to compare s 6 of the Contractual Remedies Act
with s 2(1) of the Misrepresentation Act 1967. This provision differs
from the
New Zealand position, as s 2(1) does not abolish the common law actions for
fraudulent and negligent misrepresentation.
[129] Equity and actions in tort
for deceit and negligent misstatement run parallel to the Act. However, the Act
provides the only recourse
for purely innocent misrepresentation. Under s 2(2),
damages are available for innocent misrepresentation in lieu of rescission,
if
it is equitable to do so, having regard to the nature of the misrepresentation
and the loss that would be caused if the contract
was upheld, as well as the
loss that rescission would cause to the other
party.[130]
In the United
Kingdom, as in New Zealand, a statement may amount to a misrepresentation if
facts are omitted that render that which
has actually been stated false or
misleading in the context in which it is
made.[131] It must always be
proved that the incompleteness rendered the initial statement fallacious and
false.[132] However, the leading
UK text onerously concludes that these cases of partial disclosure can either be
explained as cases of actual
misrepresentations, or as cases in which there is a
duty to disclose certain facts by reason of the facts already
stated.[133] As previously
discussed, half-truths must not be categorised as depending on a “duty to
disclose”. This distinction is
important, as the Misrepresentation Act
1967 only applies to actual misrepresentations, not breaches of duties to
disclose. The text
later states that cases of partial non-disclosure will
normally be treated as cases of actual misrepresentation, thus falling within
the Act, whereas complete non-disclosure will not. Indeed, academics accept that
non-disclosure is not sufficient for a claim under
s 2(1), since it refers to
liability for a misrepresentation that has been
“made”.[134] This is
consistent with New Zealand’s position on mere
silence.[135]
It must be
asked whether fraud is required by s 2(1) of Misrepresentation Act, in relation
to a claim of misrepresentation. The section
states that the defendant is
liable, even if he was not fraudulent, “if the person making the
misrepresentation would be liable
to damages in respect thereof had the
misrepresentation been made
fraudulently”.[136] However,
fraud is not a requirement. The reference to fraud is historical, and arguably
an unnecessary complication in the
Act.[137] It merely means that a
claimant must prove all the elements of the tort of deceit except for fraud.
This equates to the claimant
proving the defendant intended him to act on the
statement, and he did in fact act on
it.[138]
The position of
statutory liability in the United Kingdom appears substantially similar to that
under the Contractual Remedies Act
1979. However, the Misrepresentation Act
presents one fundamental difference. An innocent representor is liable, unless
he proves
that he had reasonable grounds to believe, and did believe at the time
the contract was made, that the facts represented were true.
This statutory
defence is similar to negligent misstatement, a previous remedy for a victim of
an innocent
misrepresentation.[139] However,
there are two important differences. The burden of proof is reversed, meaning
that the representor must prove they had reasonable
grounds, rather that the
representee having to prove the representor failed to take reasonable care.
Additionally, there is no need
to prove a duty of care between the contracting
parties.
Is this “reasonable grounds” defence of relevance
to New Zealand? Given the similarities between the two Acts, it is arguable
that
an innocent representor could claim they had reasonable grounds for their
belief, and thus should be excused from liability
under the Contractual Remedies
Act. However, the Contract and Commercial Law Reform Committee report deems such
an argument unsuccessful.
The Committee expressly rejected the English approach.
At paragraph 1.2 they state: “the changes recommended in England and
now
given effect to by the Misrepresentation Act 1967 do not go far enough and carry
their own
disadvantages”,[140] and
“the subject should be approached in a more fundamental
way”.[141] More explicitly,
the Committee stated:[142]
Our second object is against the intrusion of negligence ... [I]t is beside the point whether an undertaking was given on reasonable grounds or not; it suffices that it was given.
The report repeatedly rejects the English
approach,[143] as “damages
should be available for all
misrepresentations”.[144]
This explicit rejection, when coupled with lack of reference to
“reasonable grounds” within the Contractual Remedies
Act, makes it
clear that this defence is not available in New Zealand. In addition, when faced
with the Committee’s determination
to provide damages regardless of
reasonable grounds for belief, the argument for inadvertent half-truths is
indeed strengthened.
The common law position in Australia parallels that
existing in the United Kingdom. If the representor has an absence of belief in
the truth of representation, or knowledge of its falsity, the representee can
bring an action for deceit. Honesty is sufficient to
defeat such a claim. Thus,
the remedy for innocent misrepresentation lies in equitable rescission.
Dimmock v Hallet and Peek v Gurney apply in Australia, providing
liability for a half-truth, when a withholding makes an active misstatement
absolutely false. As the
High Court of Australia stated, a contract may be
set-aside in equity so long as the court can achieve practical justice between
the parties.[145]
The
Australia legislative position differs somewhat from the New Zealand approach.
Legislation dealing with innocent misrepresentation
exists only in the
Australian Capital Territory (Civil Law (Wrongs) Act
2002)[146] and South Australia
(the Misrepresentation Act 1972). The object of these Acts was to directly
reform the common law of misrepresentation. Like New Zealand and the UK, the
Acts permit
an award of damages for innocent misrepresentation. However, the
application of the Acts is limited to misrepresentations made in
trade or
business (SA) or in the course of trade or commerce
(ACT).[147] Both Acts provide that
it is a statutory defence to the action for damages that the representor had
reasonable grounds to believe,
and did in fact believe, that the representation
was true.[148]
Apart from
ACT and SA, Australia thus remains governed the common law. The High Court of
Australia has stated:[149]
The court will be more drastic in exercising its discretionary powers in a case of fraud than in a case of innocent misrepresentation ... The court will be less ready to pull a transaction to pieces where the defendant is innocent, whereas in the case of fraud the court will exercise its jurisdiction to the full in order.
This statement, coupled with the lack of reform in the remaining states
and territories, suggests that those wronged by innocent misrepresentation
are
unlikely to have unmitigated access to the remedies they arguably deserve.
The position in Australia fails to shed light on the issue of
inadvertent half-truths. Similarly, the United States law fails to offer
any
substantial assistance. In its definition of misrepresentation, the Restatement
(Second) of Contracts confirms that half-truths
may be as misleading as an
assertion that is wholly
false.[150] A statement may be
true with respect to the facts stated, but may fail to include qualifying matter
necessary to prevent the implication
of an assertion that is false with respect
to other facts.
Whether fraud is a requirement within the United States
is somewhat more complex. As the Restatement
verifies:[151]
An assertion need not be fraudulent to be a misrepresentation. Thus a statement intended to be truthful may be a misrepresentation because of ignorance or carelessness, as when the word "not" is inadvertently omitted or when inaccurate language is used. But a misrepresentation that is not fraudulent has no consequences under this Chapter unless it is material.
Is this requirement for fraud or materiality required when defining a
misrepresentation, or is it, like the need for intentional inducement,
a
separate requirement? The rule is expressed in § 164, where it is
stated:[152]
Three requirements must be met in addition to the requirement that there must have been a misrepresentation. First, the misrepresentation must have been either fraudulent or material ... Second, the misrepresentation must have induced the recipient to make the contract ... Third, the recipient must have been justified in relying on the misrepresentation.
Therefore, an innocent half-truth could be regarded as misrepresentation,
but the additional requirements of the misrepresentation
enquiry provide that
such a half-truth would not be actionable unless material. The United States
position offers little assistance
to a jurisdiction where purely innocent
misrepresentations are actionable, regardless of materiality.
Conclusion
In Ladstone Holdings v Leonora Holdings Ltd Potter J purported to
remove the possibility of liability for an innocent half-truth. This paper has
sought to examine Potter J’s
reasoning, to determine whether such a
conclusion should represent accurate New Zealand law. For the reasons given, it
is submitted
that Potter J’s conclusion is erroneous. The element of
intention, while required for assessing inducement, does not apply
when
determining the existence of an actionable misrepresentation. Additionally, the
1967 Misrepresentation and Breach of Contract
report evidences an explicit
intention to improve the remedies available for innocent misrepresentation,
rather than abolishing such
sanctions altogether.
However, the paramount
determination is whether an erroneous statement was indeed made. As discussed, a
half-truth is misleading in
itself, as the statement fails to tell the full
story. Such a statement should be capable of attracting liability under the
Contractual
Remedies Act, irrespective of fault. As the New Zealand Court of
Appeal has stated, “state of mind in relation to the representation
– fraudulent, negligent, or otherwise – is not relevant in light of
s 6”. [153] Fraud is not,
and should not be, a necessary requirement before a half-truth is deemed an
actionable misrepresentation under the
Act. Although there is no definitive law
on this issue, it is imperative that such a conclusion be made.
[*] Emma Biggs, University of
Auckland.
[1] See Dimmock v
Hallet [1866] UKLawRpCh 94; (1866) 2 Ch App 21.
[2]
Ladstone Holdings Ltd v Leonora Holdings Ltd [2006] NZHC 300; [2006] 1 NZLR 211 (HC).
[3] J F Burrows, J Finn, and S M D
Todd, Law of Contract in New Zealand (2nd ed, LexisNexis, Wellington,
2002) at 326–336.
[4]
Edgington v Fitzmaurice [1885] UKLawRpCh 83; (1885) 29 Ch D
459.
[5] J F Burrows, J Finn, and S
M D Todd, Law of Contract in New Zealand (3rd ed, LexisNexis, Wellington,
2007) at [11.2.4].
[6] Savill v
NZI Finance Ltd [1989] NZCA 150; [1990] 3 NZLR 135 (CA) at
145.
[7] With v
O’Flanagan [1936] Ch 576, 1 All ER
727.
[8] Fox v Mackreth
(1788) 2 Cox Eq Cas 320 at 320 and 321, per Lord
Thurlow.
[9] Spooner v
Eustace [1963] NZLR 913
(SC).
[10] Rick Bigwood
“Reflections on Partial-Truths, Supervening Falsification, and
Pre-Contractual Misrepresentation” (2004) 10 NZBLQ 124 at
157.
[11] Ibid.
[12] Rick Bigwood “The
full truth about half-truths”?” [2006] NZLJ 114 at
116.
[13] Ibid.
[14] G Spencer Bower, A K
Turner, and R J Sutton, The Law Relating to Actionable Non-Disclosure and
Other Breaches of Duty in Relations of Confidence, Influence, and Advantage
(2nd ed, Butterworths, London, 1990) at 205.
[15]
Ibid.
[16] Bigwood, above n 10,
at 129.
[17] Oakes v
Turquand [1867] UKLawRpHL 18; (1867) LR 2 HL 325 at 342-343.
[18] Dimmock v Hallet,
above n 1.
[19] Wakelin v
RH and EA Jackson Ltd (1984) 2 NZCPR 195
(HC).
[20] Ibid at
197.
[21] Thompson v
Vincent [2001] 3 NZLR 355
(CA).
[22] Ibid at
[70].
[23] Burrows, Finn, and
Todd, above n 5, at [11.2.1].
[24] Ladstone Holdings Ltd v
Leonora Holdings Ltd, above n
2.
[25] Ibid at
[33].
[26] Ibid at
[51].
[27] Ibid at
[43].
[28] Ibid at
[53].
[29] Ibid at
[55].
[30] Burrows, Finn, and
Todd, above n 3, at 324.
[31]
Hedley Byrne v Heller [1963] UKHL 4; [1964] AC 465
(HL).
[32] F Dawson and D W
McLauchlan The Contractual Remedies Act 1979 (Sweet & Maxwell,
Auckland, 1981) at 3.
[33]
Derry v Peek (1889) 14 App Cas 337 at 359 per Lord
Herschell.
[34] Bigwood, above n
10, at 156.
[35] J Cartwright
Misrepresentation, mistake and non-disclosure (2nd ed, Sweet
& Maxwell, London, 2007) at
107
[36] Ibid at 104.
[37] N C Seddon and M P
Ellinghaus Cheshire and Fifoot’s Law of Contract (9th
ed, LexisNexis Butterworths, Chatswood (NSW), 2008) at 527.
[38] Ibid, at
539.
[39] Contracts and
Commercial Law Reform Committee Misrepresentation and Breach of Contract:
Report (2nd ed, Govt. Print, Wellington, 1978) at
[7.1(c)]
[40] Contracts and
Commercial Law Reform Committee “Further report on misrepresentation and
breach of contract” in Misrepresentation and Breach of Contract:
Report (2nd ed, Govt. Print, Wellington, 1978) at [3] and
[4].
[41] Dawson and McLauchlan,
above n 32, at 12.
[42]
Contracts and Commercial Law Reform Committee, above n 39, at
[9.4.3].
[43] Ibid at
[13.1].
[44] However it was the
only remedy available.
[45]
Contracts and Commercial Law Reform Committee, above n 39, at [9.4.3]. The
Committee does not expand on this concept of “business-like”.
[46] Explanatory note to the
Contractual Remedies Bill
1978
[47]
Ibid.
[48] Ibid at clause 6. At
least as between the parties to the contract in question.
[49] Providing they intended to
mislead.
[50] Dawson and
McLauchlan, above n 32, at 23. Note that this is taken from a discussion of
subsequent falsifying events (which is grouped
with half-truths) but is equally
applicable in a half-truth situation.
[51] Bigwood, above n 12, at
114.
[52] Ware v Johnson
[1983] NZHC 155; [1984] 2 NZLR 518 (HC) at 537.
[53] Thompson v Vincent,
above n 21, at [86].
[54]
Contracts and Commercial Law Reform Committee, above n 39, at
[13.3].
[55] Bigwood, above n 12,
at 115.
[56] Contracts and
Commercial Law Reform Committee, above n 39, at
[13.3].
[57] Oakes v
Turquand, above n 17. The position of innocent half-truths at common law has
not been authoritatively settled, but Potter J makes no reference
to any such
case law.
[58] Bigwood, above n
12, at 115.
[59] See Contracts
and Commercial Law Reform Committee, above n 38, at [13.3], assistance by
offering a better remedy, that would be more
readily available.
[60] Bigwood, above n 10, at
155-156.
[61] Ibid.
[62] Ladstone Holdings Ltd v
Leonora Holdings Ltd, above n 2, at [54]; quote is from Savill v NZI
Finance Ltd, above n 6, at
145.
[63] Burrows, Finn, and
Todd, above n 5, at
[11.2.1].
[64] Savill v NZI
Finance Ltd, above n 6.
[65]
Bigwood, above n 12, at 114.
[66]
Thompson v Vincent, above n 21, at
[72].
[67] Bigwood, above n 12,
at 114.
[68] They merely wished
to alter the remedies
available.
[69] Ware v
Johnson, above n 52.
[70]
Ibid at 537.
[71] Quote is from
Spencer Bower and Turner "Actionable Misrepresentation”
(3rd ed, Butterworths, London, 1974) at 99-100. Emphasis added.
[72] Ware v Johnson,
above n 52, at 539. Emphasis
added.
[73] Bigwood, above n 10,
at 154.
[74] J F Burrows
“The Contractual Remedies Act 1979 – Six Years On” [1986] OtaLawRw 3; (1986) 6
Otago LR 220 at 224.
[75]
Draper v Pegasus Town Ltd HC Christchurch CIV-2008-009-3823, 17 February
2010 at [32].
[76] King v
Wilkinson (1994) 2 NZ ConvC 191,828
(HC).
[77] Ibid at
191,832-191,833.
[78] Adele
Holdings Ltd v Westpac Finance Ltd [1987] NZHC 271; (1988) ANZ ConvR 20
(HC).
[79] Ibid at
22.
[80] Thompson v
Vincent, above n 21.
[81]
Ibid at [72].
[82] Ibid at
[75].
[83] Clarkson v
Whangamata Metal Supplies Ltd HC Auckland CIV-2003-404-6869, 8 June
2006.
[84] Ibid at
[51].
[85]
Ibid.
[86] Ibid at
[52].
[87] Ibid.
[88] Ibid at
[53].
[89] Burrows, Finn, and
Todd, above n 5, at
[11.2.1].
[90] Fair Trading Act
1986, s 9.
[91] Des Forges v
Wright [1996] 2 NZLR 758
[92] Ibid at
764.
[93] Ibid at
766.
[94]Ladstone Holdings Ltd
v Leonora Holdings Ltd, above n 2, at [67]. Potter J’s conclusion is
that innocent half-truths are non-actionable.
[95] Bigwood, above n 12, at
116.
[96] Des Forges v
Wright, above n 91, at
766.
[97] W Pengilley
“Section 52: Can the Blind Mislead the Blind?” (1997) 5 TPLJ 4 at 14.
[98] Des Forges v Wright,
above n 91, at 766.
[99]
Clarkson v Whangamata Metal Supplies Ltd, above n 83, at
[55]-[56].
[100] Ibid at
[56].
[101] Ladstone
Holdings Ltd v Leonora Holdings Ltd, above n 2, at [51]. Potter J held that
there was no misrepresentation at all, thus this discussion is in obiter.
[102] Ibid, at [65]; relying
on Des Forges v Wright, above n 91, at
765-766.
[103] Ladstone
Holdings Ltd v Leonora Holdings Ltd, above n 2, at
[65].
[104] See Adele
Holdings Ltd v Westpac Finance Ltd, above n
78.
[105] Bigwood, above n 12,
at 116.
[106] (CTH) Trade
Practices Act 1974
[107] (CTH)
Trade Practices Act 1974 s 52(1). Misleading conduct by persons is
governed by separate Acts in the individual
states.
[108] Thompson v
Vincent, above n 21, at
[71].
[109] Taco Co of
Australia Inc v Taco Bell Pty Ltd [1982] FCA 136; (1982) 42 ALR 177 at
202.
[110] P Gilles
“Non-disclosure: Trade Practices Act, s 52” (2004) 78 ALJ 653 at
664.
[111] As previous stated,
half-truths are not situations of silence.
[112] Pengilley, above n 97,
at 5.
[113] Gilles, above n
110, at 664. Emphasis
added.
[114] Ibid at
661.
[115] See Gregg v
Tasmanian Trustees Ltd [1997] FCA 128; (1997) 73 FCR 91 at 106. This is proceeding on the
assumption that Elias J did not intend to make half-truths non-actionable. See
previous discussion.
[116]
Pengilley, above n 97, at
14.
[117] The position under
Des Forges v Wright and s 4(2) is certainty the same for situations of
pure silence. For example, Wright, by providing no information as to the
proposed sale of
the Tenderkist factory, refrained from acting, and therefore s
4(2) would ensure that he is not liable as such inaction was inadvertent. This
is the same conclusion reached by Elias J.
[118] Gilles, above n 110, at
661.
[119] (CTH) Trade
Practices Act 1974 s
4(2)(c)(i).
[120] Pengilley,
above n 97, at 15.
[121] Seddon
and Ellinghaus, above n 37, at
588.
[122] Pengilley, above n
97, at 15.
[123] Gilles, above
n 110, at 663.
[124] Pengilley,
above n 97, at 15.
[125] Elias
J in Des Forges v Wright, above n 91; Gilles, above n 110, at
655.
[126] [2002] FCA 298.
[127] Forwood Products Pty
Ltd v Gibbett [2002] FCA 298 at
[3].
[128] Ibid at
[113].
[129] Dawson and
McLauchlan, above n 32, at
13.
[130] Misrepresentation Act
1967 s 2(2).
[131] HG Beale
(ed) Chitty on Contracts (29th ed, Sweet & Maxwell,
London, 2004) at [1-016].
[132]
Re Coal Economising Gas Co, Grover’s Case [1875] UKLawRpCh 165; (1875) 1 ChD 182 at
199.
[133] Beale, above n 131,
at [1-016].
[134] Cartwright,
above n 35, at 24.
[135]
Mere silence is not a misrepresentation.
[136] Misrepresentation Act
1967 s 2(1).
[137] Cartwright,
above n 35, at
246.
[138] Ibid at
248.
[139] Rust v Abbey Life
Assurance Co Ltd [1978] 2 Lloyd’s Rep
386.
[140] Contracts and
Commercial Law Reform Committee, above n 39, at
[1.2].
[141] Ibid at
[1.1].
[142] Ibid at
[9.4.3].
[143] Ibid at [9.4.3],
[13.2].
[144] Ibid at [13.2],
emphasis added.
[145] Vadasz
v Pioneer Concrete (SA) Pty Ltd 130 ALR 570
(HCA).
[146] Civil Law (Wrongs)
Act 2003 Ch 13.
[147]
Misrepresentation Act 1972 (SA) s 4(1) and Civil Law (Wrongs) Act 2003 Ch 13
(ACT) s 177.
[148]
Misrepresentation Act 1972 (SA) s 7(2)(a); Civil Law (Wrongs) Act 2003 Ch 13
(ACT) s 173(3)(a). This defence does not apply in New
Zealand.
[149] Vadasz v
Pioneer Concrete (SA) Pty Ltd 130 ALR 570 (HCA) (discussing rescission for
misrepresentation).
[150]
American Law Institute Restatement of Contract (2nd ed, St
Paul, Minnesota, 1981) §
159.
[151] Ibid.
[152] American Law Institute
Restatement of Contract (2nd ed, St Paul, Minnesota, 1981)
§ 164. Emphasis
added.
[153] Thompson v
Vincent, above n 21, at [72].
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