Solicitors Qualifying Examination

Misrepresentation | Contract Law – Study For SQE1 Exam – solicitorsqualifyingexamination.net

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Misrepresentation
IN MISREP QUESTION, ONLY MENTION THAT COULD ALSO BE EXPRESS
TERMS + THEN DISCUSS MISREP ONLY
Where there is an issue as to statement of fact / intention etc., address this
first, as if it fails here, there is no need to waste time considering anything
else!
Representations
• Representation = statement of fact or law made during negotiations
leading to a contract
• Not mere advertising puff (Dimmock v Hallett – ‘fertile and improvable’
land ≠ representation, as mere puff)
• Representations may be terms if deemed to be incorporated ~ action for
both breach of contract and misrepresentation
Actionable Misrepresentation
• Not all misrepresentation is actionable
• Actionable misrepresentation = ‘an unambiguous false statement of fact
made to the claimant and which induces the claimant to enter into the
contract with the statement maker’ (Jill Poole, Textbook on Contract Law
(OUP))
• If actionable, subject to limitations, contract voidable
Unambiguous
• Representor will not be liable if the representee has placed an
unreasonable construction on the representation (McInerny v Lloyd’s
Bank Ltd)
False
• True = substantially correct, and difference between what is represented
and what is correct would not have been likely to induce a reasonable
person in the position of C to enter the contract (Rix J, Avon Insurance Plc
v Swire Fraser Ltd)
o Here, take the meaning that the representee has been led to
believe (i.e. the reasonable construction set out when considering
if it is unambiguous)
© Liam Porritt 2020 2
Statement of fact
• Statement of fact = statement asserting a given state of affairs (Kleinwort
Benson v Malasian Mining Company)…
• ≠ Statement of opinion (Bisset v Wilkinson)
o Bisset – D states his ‘idea was that [the land] would carry two
thousand sheep’ = opinion, honestly held, with no special
knowledge as to ability of land to be sheep farm
• Exception: opinion = statement of fact, if representor did not honestly
believe / reasonable man with knowledge of representor would not
reasonably have believed (Smith v Land and House Property Corporation)
o Smith:
§ Equal knowledge = likely opinion
§ Unequal knowledge = likely representation, as implied
statement that he knows facts justifying opinion
o Esso v Mardon – Esso gave estimate of sales of petrol of petrol
station to be built; it failed to reduce estimate when planning of
petrol station changed; Esso claimed that estimate was an opinion,
as no petrol station already existed there (Bisset); HELD: statement
of fact due to expertise
• ≠ Statement of future intention (Beattie v Ebury)
o Wales v Wadham – honestly made expression of intention cannot
be grounds for misrepresentation if later change of intention +
there is no duty to inform other party of change of intention
§ Here, wife says she intends not to marry and changes her
mind before divorce proceedings concluded ~ no need to
inform husband of change of intention
• Exception: where representor does not intend to keep promise / carry
out claimed intention = misrepresentation of current intention/state of
mind (Edgington v Fitzmaurice)
o Claims that money would be used to improve company premises
known to be false at outset, as money was to be used to pay off
debts
• ≠ Silence (Keates v The Earl of Cadogan – knew C wanted for immediate
occupation and let the premises knowing they were uninhabitable = no
duty to disclose the state of the house)
o Question for courts in each case = define what the duty of
disclosure was on the facts (Sykes v Taylor-Rose)
§ Here, questionnaire filled out re: sale of house where
murder had occurred and D honestly believed that they did
not have to disclose this information, so question: is there
any other information which you think the buyers have a
right to know? = no.
© Liam Porritt 2020 3
• Exception I: Half truths – misrepresentation to make statement that is
technically true but misleading (Dimmock v Hallet)
o Dimmock: claim that property ‘fully let’ = true, but tenants have
given notice to quit, so misleading
• Exception II: Continuing representations – statement re: current fact
(not intention) is true, but becomes false prior to conclusion of contract =
obligation to inform (With v O’Flanagan)
o Change in income of medical practice prior to sale = continuing
representation that income as at beginning of negotiations +
misrepresentation in failure to disclose new income
o Distinguished from Wales v Wadham as representation of existing
fact rather than intention
• Exception III: Contracts uberrimae fidei (utmost good faith) – where one
party in particularly strong position to know material facts = duty to
disclose
i. Insurance = duty to disclose to insurer all material facts, i.e. all
facts that would affect judgment of prudent insurer in accepting
risk + premium; if not, insurer may avoid contract
§ Duty to disclose insured goods carried on deck not hold
(Hood v West End Motor Car Packing Co)
§ Duty to disclose that another insurance company had
refused proposal (Locker and Woolf v Western Australia
Insurance Co)
§ Duty to disclose when cargo insured at a value exceeding
the real value (Ionides v Pender)
ii. Sale of land – duty to disclose defects in title (not property)
iii. Family arrangements – protection or distribution of family
property ~ withholding material information = set aside
agreement (Gordon v Gordon; Greenwood v Greenwood)
iv. Confidential relationship (solicitor-client; doctor-patient; trusteebeneficiary) between parties (= equitable doctrine of constructive
fraud) (Tate v Williamson)
§ B advised A to sell land to pay off debt + offered to buy land
at half value (as facts material to value of land known to B
and not to A)
v. Surety (guarantee) + partnership contracts – no uberrimae fidei,
but good faith (i.e. disclosure of material facts) in dealings after
contract made
• Statement of fact by words or conduct (Gordon v Selico)
o Gordon – concealment of dry rot = misrepresentation
o Spice Girls Ltd v Aprilia World Service BV – all girls attended a
photo shoot as part of promotional deal, in spite of intention of
Geri to leave the group ~ conveyed to D impression that all
members of group committed to contract, with representation by
conduct that SGL did not know that any member had intention to
leave
© Liam Porritt 2020 4
o Horsfall v Thomas – misrepresentation in concealing fault with gun,
but failure to inspect gun means that this misrepresentation did
not induce him to enter into the contract
• Statement of law can give rise to actionable misrepresentation
(Pankhania v Hackney LBC – misrepresentation of legal status of tenancy
of car park, such that following purchase, it was discovered there was
protected tenancy rather than licence)
o False statement as to existence of Act of Parliament =
misrepresentation of fact (West London Commercial Bank v Kitson)
Addressed to the claimant by misrepresentor / third party
• Commercial Banking CO of Sydney v RH Brown & Co – can be made to C’s
agent (i.e. bank manager who is enquiring on their behalf) if known that it
is likely to be relied upon by C (i.e. statement that buyer financially sound
will be relied upon by seller, and wool delivered)
Induces C to enter into the contract (with the statement maker / another)
• Misrepresentation must be at least one of the reasons why C entered
into the contract, even if there are other factors without which C would
not have entered into the contract (Edgington v Fitzmaurice)
o Induced to lend money by misrepresentation in prospectus +
mistaken belief he would have a charge on the assets of the
company in relation to the load ~ would not have lent if either of
these had not been present
• No misrepresentation where:
o Statement not actually communicated
§ Horsfall v Thomas – concealment of defect on gun =
misrepresentation, but as no inspection of gun, the
concealment did not induce entering into contract (i.e.
would have entered without concealment)
o Statement did not affect other party’s decision
o Statement known to be untrue by other party
• Where no ‘real and substantial’ part in inducing C to act ≠ actionable
(JEB Fasteners v Mark Bloom) ~ i.e. must be ‘material’
• Material = did the statement relate to an issue that would have influenced
a reasonable man? (Pan Atlantic Co Ltd v Pine Top Insurance Co Ltd)
1. If yes (material) = inducement inferred as a matter of fact (Smith v
Chadwick) ~ rebuttable by D showing C not subjectively induced
(Museprime Properties Ltd v Adhill Properties Ltd)
Ø May be shown where C undertakes own investigations to
test the validity of statement + C relies entirely on own
investigations (see below – Attwood v Small)
2. If no (not material) = inducement not inferred as a matter of fact ~
rebuttable by C showing he was subjectively induced (Museprime
Properties Ltd v Adhill Properties Ltd)
© Liam Porritt 2020 5
• Historically, no duty to check statements (Redgrave v Hurd)
• Now, where misrepresentation ≠ fraudulent (S. Pearson & Son Ltd v
Dublin Corporation), D may argue contributory negligence (discuss this
at end when discussing possible negligent misrepresentation) where
deemed ‘reasonable’ for C to have checked validity of statement made OR
C carries out negligent investigation (Smith v Eric S. Bush)
o The more commercial C, the more it is likely to have been
reasonable to check (Smith)
• Where C undertakes own investigations to test the validity of statement
(Attwood v Small – erroneous investigations by agent into earning
potential of mine induce purchase, rather than initial false statements by
seller), D will not be liable where
o C must rely entirely on own investigations – partial reliance will
not be sufficient (Edgington v Fitzmaurice)
o D must not have made misrepresentation fraudulently (suggested
obiter in S. Pearson & Son Ltd v Dublin Corporation)
© Liam Porritt 2020 6
Categories of misrepresentation
I. Fraudulent (tort of deceit)
II. Negligent (statutory claim under s 2(1) Misrepresentation Act 1967)
III. Innocent misrepresentation (now also a statutory claim under s 2(1) MA
1967)
NB Common-law tort of negligent misstatement ≠ misrepresentation, but closely
related
Fraudulent misrepresentation
• BoP on C = difficult burden to discharge
Derry v Peek:
1. Proof of fraud
2. Fraud = false representation made:
a. Knowingly
b. Without belief in its truth
c. Recklessly, careless whether it be true or false
Ø Defined in Thomas Witter Ltd v TBP Industries Ltd: a
‘flagrant disregard for the truth’
Ø Where change of circumstances, failure to disclose = fraud if
deliberate or dishonest, not just due to inadvertence /
failure to realise requirement to disclose (= negligent)
(Lord Wright in With v O’Flanagan)
3. Motive of person guilty of fraud = immaterial
• Tramway operated by animal power had right to use mechanical power,
with the consent of the Board of Trade
• Company prospectus: company has right to use steam or mechanical
power instead of horses
• P bought shares on basis of this statement, and company wound up after
denial of use of mechanical power by Board of Trade
• HoL: false statement ≠ fraudulent
Negligent misrepresentation (MA 1967)
S 2(1) MA 1967:
• Liable for losses due to misrepresentation unless D proves (i.e. reverses
BoP):
o Reasonable grounds to believe AND
o Did believe up to the time the contract was made
… that the facts represented were true
© Liam Porritt 2020 7
• E.g. Howard Marine and Dredging Co v Ogden – C told D that barge’s
capacity was 1600 tonnes, when it was 1055 ~ true figures in ship’s
documents and claimants failed to show objectively reasonable ground
for disregarding this source and relying on the erroneous Lloyd’s Register
• Where representor liable for negligent misrepresentation, he will be
treated to all intents and purposes as if he had made a fraudulent
misrepresentation (Royscot Trust Ltd v Rogerson)
• S 2(1) MA 1967 = narrower than common law as it only applies where
misrepresentation has induced the misrepresentee to enter into a
contract with the misrepresentor
Innocent misrepresentation (MA 1967)
• = neither fraudulent or negligent
• S 2(1) MA 1967: statement made where representor proves that he
believed that what he was saying was true AND proves that he had
reasonable grounds for belief in the truth of the statement
Negligent misstatement at common law (tort of negligence)
• Where claim can be brought under s 2(1) MA 1967 (i.e. where
inducement between misrepresentor and misrepresentee) = unlikely
negligence at common law will be utilised, due to:
o BoP
o Need for ‘special relationship’ between parties
o Lower damages, as only available for negligence (assessed by
‘reasonable foreseeability – The Wagon Mound No 1)
• Where misrepresentor ≠ party to contract = sue under common-law
negligence (Hedley Byrne)
• Special relationship:
o Reasonably foreseeable reliance
o Sufficient proximity
o FJR to impose duty (Caparo)
© Liam Porritt 2020 8
Remedies
• Rescission
• Damages
• Indemnity
Note also:
• Misrepresentee may refuse further performance of the contract, pleading
other party’s misrepresentation as a defence in the vent of his being sued
for breach of contract by the other party
Rescission
• Misrepresentation renders contract voidable, NOT void
• Rescission available for all types of misrepresentation
o Inc. innocent misrepresentation that becomes term of a contract (s
1 MA 1967) ~ MA 1967 preserves right to rescission in cases
where false statement first made as mere representation but
subsequently became a term of the contract
o Available even after performance of a contract (s 1 MA 1967,
abolishing rule in Seddon v N.E. Salt Co)
• Representee must
1. Where representor continues to exist and is identifiable:
§ Communicate intention to rescind to representor; or
§ Initiate proceedings for rescission ~ equitable remedy, so
discretionary rather than of right
2. Where representor has disappeared without a trace, record an
intention to rescind by way of some overt act deemed to be
reasonable in the circumstances (i.e. no need for
communication) (Car & Universal Finance Co v Caldwell)
Ø Caldwell sold car to rogue on basis of fraudulent misrep by
rogue; rogue sold it to Car & Universal and disappeared
Ø Caldwell deemed to own car, because he had taken
reasonable steps to rescind the contract (altering police +
other actions) before his contract with Car & Universal
3. Where representee seizes or otherwise repossesses goods from
out of the possession of the representor, there is no need for
communication
• For 2 + 3, no need for legal action, but may be necessary in some
circumstances (e.g. when seeking repayment of sum of money)
• Generally, only awarded where parties can be restored to original
position by returning all property transferred between the parties under
the contract
© Liam Porritt 2020 9
Bars to rescission
NB for fraud, time runs from the time when the fraud ought reasonably to be
discovered (accepted, although not entirely clear from Leaf)
1. Representee affirms – declaration of intention to proceed with contract
/ act from which such intention reasonably inferred ~ once election
unequivocally made, it cannot be revived (Long v Lloyd)
Ø Misrepresentation re: state of lorry (dynamo failed after 2
uses, lower fuel economy, crack in wheels); Lloyd offered to
pay half for new dynamo + Long accepted = affirmation of
contract, so could not claim misrepresentation when lorry
subsequently broke down irrevocably
2. Lapse of time – misrep action must be brought promptly as delay
defeats equities (Leaf v International Galleries) ~ delay ≠ affirmation, but
evidence of such an intention
Ø Claim for innocent misrepresentation against seller of
painting by Constable ~ no rescission possible when
discovers painting not by Constable 5 years later, as cannot
have rescission after buyer has taken possession or at least
within a reasonable time thereafter
Ø Does not apply to fraudulent misrepresentation, as time here
runs from the date fraud is discovered / ought reasonably to
have been discovered
Ø Decision seems tough on buyer: strange that breach of
contract was not pleaded (as goods did not correspond with
description applied by seller)
3. Restitution impossible – restitution in integrum not possible ~ parties
cannot be restored to previous position (i.e. nature of subject matter has
changed / declined in value) (Clarke v Dickson)
Ø Shares in partnership became shares in Ltd company ~ could
not have rescission as wholly different nature of existing
shares from those originally received
Ø Court will not allow minor imperfections in restoration to
prevent remedy, so may impose terms (e.g. to account for
deterioration) to achieve ‘what is practically just’ (Erlanger v
New Sombrero Phospate Co)
© Liam Porritt 2020 10
4. Third-party rights accrue – right lost if third party rights accrue, i.e.
goods acquired under a contract pass to an innocent party without notice
of the misrepresentation prior to rescission (Phillips v Brooks)
Ø Resale governed by s23 SGA 1979 ~ purchaser of goods from
seller with voidable title acquires good title if: good faith +
without notice of the seller’s defect in title
Ø Good faith buyer had no reason to suspect that the seller had
obtained the goods by fraud
5. Damages in lieu of rescission – where negligent / innocent
misrepresentation, court may exercise discretion to award damages in
lieu of rescission (s 2(2) MA 1967)
Indemnity
• As part of rescission, could have indemnity for expenses for obligations
assumed due to contract (e.g. induced into buying leasehold, indemnity
for council tax, service charge etc.) (Whittington v Seale-Hayne)
o Here, misrep re: sanitary state of farm ~ claim to rent paid + cost
of repair due to legal obligations under the lease, but not to
damages for death of poultry
• Generally indemnities not awarded where action for misrepresentation
giving right to damages (i.e. action for fraudulent / negligent misrep)
• Damages as of right not available for innocent misrepresentation, so
indemnity more likely
Damages
• Damages for fraudulent misrep greatest
• S 2(1) MA 1967 – negligent misrep damages often match those that would
be available for fraudulent misrep
• S 2(2) – Damages in lieu of rescission available for negligent / innocent
misrep action
o This is the only way damages can be awarded for innocent misrep
• Damages available for negligent misstatement, but limited by
requirement of reasonable foreseeability (The Wagon Mound)
Damages for fraudulent misrepresentation
• Party deceived by a fraudulent misrepresentation may sue in tort
(fraudulent misstatement)
• Tortious damages = place injured party in position he would have been in
had the tortious act not been committed (better)
• Contractual damages = place injured party in position he would have been
in had the contract been properly performed (worse)
© Liam Porritt 2020 11
Tortious claim for damages (Tort of deceit)
• ‘All the damage directly flowing from the tortious act of fraudulent
inducement which was not rendered too remote by the plaintiff’s own
conduct, whether or not the defendant could have foreseen the loss’
(Doyle v Olby (Ironmongers) Ltd)
• Additional principles set out by Lord Browne-Wilkinson in Smith New
Court v Scrimgeour Vickers:
o C must mitigate as soon as fraud is discovered
o Damages awarded to C will be reduced by value of any benefit C
has acquired as a result of the contract (e.g. difference between
overinflated share purchase price and actual value at time of
acquisition)
• Not to be applied rigidly: in Smith New Court use the difference between
purchase price and market value at time of court action
• Where a business sustains a loss of profit as a result of fraudulent
misrepresentation, C may not claim profits of business as represented,
but may claim hypothetical profits in which C would have engaged but for
the deceit (East v Maurer)
o Here, damages awarded = covered their loss + money they would
have made if the contract had never happened and they had
opened a similar salon in a similar town (without the representor
competing against them)
• Contributory negligence not available as a defence to a claim for
fraudulent misrepresentation (Standard Chartered Bank v Pakistan
National Shipping Corporation (No. 2))
© Liam Porritt 2020 12
Damages for negligent misrepresentation (s 2(1) MA 1967)
• S 2(1) damages = compensate C for loss directly flowing from misrep
• S 2(2) = compensate C where court decides not to award rescission
• S 2(3) = where s 2(2) damages, s 2(1) damages reduced to reflect those
under s 2(2)
• Damages based on the tort of deceit, not negligence (Royscot Trust v
Rogerson)
o Car dealer induces finance company to enter hire-purchase
agreement by misrepresenting amount of deposit paid by
customer
o Customer defaults + sells to third party
o Dealer liable to finance company under s 2(1)
o D liable for all losses regardless of foreseeability
• This means there is little distinction between fraudulent misrepresentor
and negligent misrepresentor = ‘fiction of fraud’ ~ deemed unacceptable
(Smith New Court)
• However, continues to be good law + is applied (Yam Seng Pte Limited v
International Trade Corporation Limited)
• Contributory negligence defence (s 1 Law Reform (Contributory
Negligence) Act 1945) available where loss in part the fault of the
representee (Gran Gelato Ltd v Richcliff)
• S 2(2) – if contract ought to be or has been rescinded, court may declare
contract subsisting and award damages in lieu of rescission if equitable to
do so, having regard to (UCB Corporate Services v Thomason):
o Nature and seriousness of misrepresentation
o Loss that would be caused if contract upheld
o Loss that rescission would cause to the other party
• Rescission unlikely where misrep trivial / rescission would have serious
consequences for representor (William Sindall plc v Cambridgeshire CC)
Damages for innocent misrepresentation
• Entitled to:
o Rescission
o Indemnity for cost of legal obligations under contract (Whittington
v Seale-Hayne)
o Damages in lieu of rescission (s 2(2))
Damages for negligent misstatement at common law
• Measure of damages used in tort of negligence = assessed on basis for all
losses reasonably foreseeable and not too remove (The Wagon Mound)
© Liam Porritt 2020 13
Misrepresentation and exemption clauses
• If contract contains clause exempting / restricting remedies, clause will
not be of effect except in so far as it satisfies the requirement of
reasonableness (s 3 MA 1967, as substituted by s 8 Unfair Contract Terms
Act 1977)
o S 11(1) UCTA 1977 for requirements of reasonableness
o Burden on those relying on exemption clause
• Clauses which purport to render information given (e.g. about size of
property) merely ‘for the convenience of the purchaser’, thus claiming
that they are not representations = unlikely to succeed, and statements
will be treated as representations, needing to satisfy ‘reasonableness’
(Cremdean v Nash)
• S3 does not qualify the right of a principal publicly to limit the otherwise
ostensible authority of his agent, and thus to exclude liability for
misrepresentations by an agent (Overbrooke Estates Ltd v Glencombe
Properties Ltd)

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