Misrepresentation in English Contract Law from an Economic Perspective

Abstract

The law-and-economics movement has made a huge impact on the scholarship of contract law in the US. But compared to their US counterparts, English legal scholars are less enthusiastic about adopting the economic approach in their research. Existing studies have rarely, from an economic perspective, considered the topic of misrepresentation. This thesis fills the gap in the literature by applying the law-and-economics analytical framework to the study of misrepresentation in English contract law. The study investigates only the law of pre-contractual misrepresentation, a term conventionally used by contract lawyers to refer to a body of legal rules governing four types of conduct: fraudulent misrepresentation, negligent misrepresentation, innocent misrepresentation and pre-contractual disclosure. Based on the existing law-and-economics theories, this thesis explores three primary economic dimensions of the law. First, what are the costs generated by a misrepresentation? Second, from an economic perspective, how should the law govern misrepresentations? It is demonstrated that if the objective of the law is assumed to be the enhancement of economic efficiency (Kaldor-Hicks test), the legal rules should vary with the type of misrepresentation. There is no unique legal model which is efficient in governing all types of misrepresentation. Thirdly, with the aid of an analytical framework developed by the author, a critical evaluation of the current law is conducted with a focus on two issues: (1) how the current law adjusts the costs associated with a misrepresentation; (2) how the contracting parties' incentives in relation to making a representation are modified by the current law.In examining these issues, the author seeks to show that the law-and-economics approach can generate insights valuable for the understanding the law of misrepresentation, with particular emphasis on how the law can be used as a regulatory instrument to shape the parties' behavior in making representations in the pre-contractual context.