Misrepresentation, affirmation and the right to rescind | ZFZ Postcard Cases

Facts

Before chartering out the Vessel the Owner had advertised in its circular inaccurate consumption figures allegedly recorded during the previous voyages. The Charterparty too contained speed and consumption warranties, however they differed considerably from the pre-contractual representations. In addition, the warranties guaranteed compensation to the Charterer in case of overconsumption. When the Charterer had discovered the Vessel’s defects it threatened to rescind the Charterparty for misrepresentation if the deficiencies were not rectified. Nonetheless the Vessel was ordered on another voyage. After that the Charterer purported to rescind the contract.

Held

Generally, a misrepresentation is a false statement of fact that induces the other party to contract but does not of itself form part of the contract.

The Court’s decision to dismiss the Charterer’s appeal pertains to the issues of the viability of the Owner’s representation, inducement and affirmation.

Lord Justice Males stated that there is no general rule that, merely by offering to contract, a party represents that it is able and willing to perform the contract; each case must be judged on its facts. In the given instance, a prospective charterer familiar with the market would have interpreted the Owner’s circular as merely indicative of the Vessel’s past performance; no representation could be inferred from that.

A party is induced by a misrepresentation if they would not have entered the contract, had the representation not been made. The Charterer acknowledged that the prospect of compensation under the consumption warranty was far more attractive than the past consumption figures allegedly represented by the Owner; hence, there was no inducement.

It is settled law that if the claimant has affirmed the contract after he becomes aware of the misrepresentation, he will lose the right to rescind the contract. Despite knowing about the Vessel’s faults, the Charterer fixed the Vessel for another voyage, thus losing the right to rescind the contract.

Conclusion

The decision reaffirms the existing authorities. It also serves as an additional argument in favour of cementing the desired commitments as contractual terms, rather than relying on alleged representations made before or during negotiations.

For further information, please reach out to Andriy Shalennyy. To read the full decision, please click here.