Chapter 7Introduction to the law of contractThe injured party is more likely to be successful under
the Act, because it reverses the normal burden of proof.
Thus, the defendant will only escape liability if he or she
can prove that the statement was made innocently. The
judge may also award rescission as well as damages.
3 Innocent misrepresentation.An innocent misrepres-
entation is a false statement made by a person who had
reasonable grounds to believe that it was true, not only
when it was made, but also when the contract was entered
into. The basic remedy is rescission of the contract: under
s 2(2) of the Misrepresentation Act 1967, the court may
in its discretion award damages instead. There was some
uncertainty about whether damages could be awarded
under s 2(2) if rescission was no longer available because,
for example, a third party had acquired rights in the
subject matter of the contract (see below). In Thomas
Witter Ltd v TBP Industries Ltd(1996) the Court of
Appeal decided that damages could be awarded under
s 2(2), provided that the right to rescind had existed at
some time, but it was not necessary for the right to
rescind to exist at the time the court gave judgment.
Rescission
Rescission aims to restore the parties to their pre-
contractual positions. Money or goods which have
changed hands must be returned. Like all equitable
remedies, it is not available as of right. In particular, the
court may refuse to award rescission in the following
circumstances:
■where the injured party has received some benefit
under the contract or has in some way affirmed it: a
long delay in taking legal action is taken as evidence
of affirmation (LeafvInternational Galleries(1950):
see above, p 232 );
■where the parties cannot be restored to their original
positions because, for example, goods have been de-
stroyed or they have been sold to a third party (Lewis
vAveray(1971): see above, p 234 ).
Duress and undue influence
The general rule of law is that a contract will be valid
only if the parties entered into it freely and voluntarily.
At common law, where a party to a contract or his or her
family is subjected to violence or threats of violence, the
contract may be avoided on the grounds of duress.239
Bartonv Armstrong(1975)Armstrong was the chairman and Barton the managing
director of an Australian company. Armstrong threatened
to have Barton killed if he did not sign an agreement to
buy out Armstrong’s interest in the company on very
favourable terms. The Privy Council held that the agree-
ment was signed under duress and could be avoided by
Barton.Traditionally, the common law doctrine of duress was
limited to violence and threats of violence to the person.
However, in recent years the courts have recognised eco-
nomic duress as a factor which may invalidate consent
and render a contract voidable.North Ocean Shipping Co Ltdv Hyundai
Construction Co Ltd(1978)
The defendant shipbuilders agreed to build a tanker for
the claimant shipowners. The price was payable in US
dollars in five instalments. After the first instalment had
been paid, there was a sharp fall in the value of the US
dollar and the defendants threatened to break the con-
tract unless the claimants paid an extra 10 per cent on
each of the remaining instalments. The claimants had
already entered into a lucrative contract to charter the
tanker on its completion and, anxious to take delivery, they
reluctantly paid the increased instalments. Eight months
later they brought an action to recover the excess over
the original contract price. It was held that the contract
was voidable on the grounds of economic duress, but
that the claimants could not recover the excess because
they had affirmed the contract by failing to protest before
they did.Atlas Express Ltdv Kafco (Importers
and Distributors) Ltd(1989)
Atlas, a road carrier, entered into a contract with Kafco,
a small company importing and distributing basketware,
to deliver cartons of basketware which Kafco had sold
to Woolworths. Atlas’s manager had quoted a price of
£1.10 per carton based on an assumption that each load
would contain between 400 and 600 cartons. However,
the first load contained only 200 cartons. Atlas’s man-
ager refused to carry any more cartons unless Kafco