assessed in contract on an expectation basis, that is what the party would
have expected to receive had the contract been carried out correctly. This
would, of course, take into account lost profit. On the other hand, in tort
damages are assessed on a reliance basis, that is where the aim is to put
parties back to the position at the outset, which they would have been in
before the wrong happened. So, in the case of a sale, it takes parties back
to the starting-point, but does not replace lost profit. Because in fraud
damages are assessed on a tort basis, it has been decided, in the case of
Royscott v Rogerson (1991), that damages under the Misrepresentation Act
1967 should also be awarded on this basis. However, this has been taken a
step further by the case of East v Maurer (1991) where it was said that in
certain circumstances lost profits may also be recovered.
A further provision is made in s.2(2) that where misrepresentation is
found to exist, the court ‘may 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 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. Damages are then
given in lieu – see Zanzibar v British Aerospace (2000). When used, this
is a statutory bar to rescission (see page 180).Indemnity
In its aim to restore the parties to their original position, the court may
order an indemnity to accompany an order of rescission. This is a money
payment in respect of obligations necessarily created by the contract, and
should be distinguished from damages. The difference can be seen clearly
in the following case.
178 Contract law
Whittington v Seale-Hayne (1900)
The buyer of a farm enquired particularly about the water supply,
drains and sewage system, and was told that they were all in order. He
subsequently bought the farm and installed his prize poultry. However,
the water system and drains were found not to be satisfactory, the
manager becoming ill and many of the poultry dying as a result. The
court allowed rescission, but as the misrepresentation was not
fraudulent, and this was before the Misrepresentation Act 1967,
damages were not payable. This took the buyer back to the original
position as far as the farm went, and an indemnity was ordered which