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Elements of an actionable misrepresentation  My Modules  Contract Elements of an actionable misrepresentation This element explains the elements of an actionable misrepresentation. Introduction Pre-contractual statements made during negotiations leading to a contract may qualify as 'representations'. A representation is a statement asserting the truth of a given state of facts. In some circumstances, false representations can give rise to an action for misrepresentation. The law relating to misrepresentation has developed alongside contract law, and encompasses elements of tort and statute. In this element, we will look at the necessary aspects of a successful claim for misrepresentation. Key word: 'Representation' A representation is a statement asserting the truth of a given state of facts Definitions In this element, we use the following terms: Representor: the party who allegedly made the representation Representee: the party who allegedly received the representation Definition of an actionable misrepresentation An actionable misrepresentation is: "An unambiguous false statement of fact made to the claimant and which induces the claimant to enter into the contract with the statement maker" Merkin, R & Saintier, S. Poole's Textbook on Contract Law (14th ed, Oxford University Press, 2019). All elements of this definition must be present for an action in misrepresentation to succeed. The effect of a misrepresentation is, subject to limitations, to make the contract voidable but not void. In order to avoid the contract, the wronged party must take action to rescind the contract. The remedies for misrepresentation are not considered in this element.

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Key word: '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 We will now look at each element in turn: unambiguous; false; statement of fact; addressed to the claimant; induces the claimant to enter into the contract with the statement maker. Unambiguous The representation must be clear and will only form the basis of a claim in misrepresentation if it unambiguously has the meaning put forward by the representee. The representor will not be liable if the representee has placed its own unreasonable construction on the representation: McInerny v Lloyd's Bank Ltd [1974] 1 Lloyd's Rep 246. False The statement must be false. It will not be false if it is substantially correct. "[A] representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts" per Rix J, Avon Insurance Plc v Swire Fraser Ltd [2000] 1 All ER (Comm) 573. Statement of fact To be actionable, a representation must be a statement of fact ie 'a representation is not an undertaking to do, or not to do something. It is a statement asserting a given state of affairs' Kleinwort Benson Ltd v Malaysia Mining Corp [1989] 1 WLR 379 Representations distinguished from mere 'puff' Mere advertising 'puff' will not qualify as a representation. The law allows a salesman a good deal of latitude in his choice of language eg the 'desirable residence' advertised by the estate agent may leave much to be desired, but there is no misrepresentation, because this is just 'advertising puff'. So in Dimmock v Hallett (1866) LR 2 Ch App 21, a description of land as 'fertile and improvable' did not amount to a representation but was viewed as mere puff.

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Statements are usually made by words, but statements can also be made by conduct ie conduct may be treated as a statement of fact. In Gordon v Selico (1986) 278 EG 53, the intentional concealment of dry rot was deemed to be a misrepresentation. Slade LJ commented: "The law must be careful not to run ahead of popular morality by stigmatising as fraudulent every trivial act designed to make buildings or goods more readily saleable, even if a highly scrupulous person might consider it dishonest. But it is to my mind quite a different matter for an intending vendor to hide so sinister and menacing a defect as active dry rot […] I believe it to be the law that conduct alone can constitute a fraudulent misrepresentation (See Horsfall v. Thomas 1 H. and C. 90, and Smith v. Hughes L.R. 6 Q.B. 597). In my judgment the concealment of dry rot by Mr. Azzam was a knowingly false representation that Flat C did not suffer from dry rot, which was intended to deceive purchasers, and did deceive the plaintiffs to their detriment" Statement of law The traditional rule was that a statement of law could not give rise to an actionable misrepresentation. However, the distinction between statements of fact and statements of law has now been abolished and it is clear that a statement of law can give rise to an actionable misrepresentation. An example of this is Pankhania v Hackney LBC [2002] NPC 123. In Pankhania, a buyer of a car park was told by Hackney LBC that the car park was let out to a tenant on a contractual licence. In fact, after the car park had been purchased, it transpired that it was occupied under a protected tenancy (pursuant to the Landlord and Tenant Act 1954 Part II). Such a tenancy was quite different to a licence. The legal status of the arrangement had been misrepresented. This was a misrepresentation of law because it was a matter of law that the arrangement was a tenancy, not a licence. A false statement as to the existence of an Act of Parliament is a misrepresentation of fact: West London Commercial Bank v Kitson (1884) LR 13 QBD 360. Statements that do not amount to statements of fact With some important exceptions (outside the scope of this element), statements of opinion, statements of future intention and instances of silence, are not, on the face of it, actionable. The exceptions to these general rules are discussed in detail in the element 'Statement of fact – further detail and case law'. In that element you will learn that the concept of statement of fact is at the heart of the law of misrepresentation. Addressed to the claimant 4

The misrepresentation must be addressed by the representor to the claimant. Induces the claimant to enter into the contract with statement maker The representation must have caused the representee to enter into the contract in order to be an actionable misrepresentation. This requirement was not satisfied in the case of JEB Fasteners v Mark Bloom [1983] 1 All ER 583, where the Court of Appeal held that the defendants' representation did not play a 'real and substantial' part in inducing the claimants to act. When considering the issue of inducement, the first question for the court is whether the representation was material. The test for materiality is an objective one: did the statement relate to an issue that would have influenced a reasonable man (per Lord Mustill in Pan Atlantic Co Ltd v Pine Top Insurance Co Ltd [1995] 1 AC 501)? There are two possible outcomes to this inquiry. (a) If the statement is found to be material, then inducement will generally be inferred as a matter of fact: Smith v Chadwick (1884) 9 App Cas 187. The 'burden' then shifts to the defendant to rebut the inference that the claimant was induced. The defendant does this by proving that the claimant was not subjectively induced. (b) Alternatively, if the statement is not found to be material, then inducement of the claimant cannot be inferred as a matter of fact. In these circumstances, the claimant must prove that he was subjectively induced. If the claimant can prove this, then he will be held to have been induced by the misrepresentation: Museprime Properties Ltd v Adhill Properties Ltd (1990) 61 P. & C.R. 111. Inducement Inducement is established if: Either Representee shows that the statement would have influenced a reasonable man and Representor cannot show that the statement did not influence this particular representee Or Representee shows that it personally was induced by the statement (subjective test) As the representation must have induced the representee to enter the contract, there is no actionable misrepresentation where: 5

(a) the statement was not actually communicated to the representee; or (b) the statement did not affect the representee's decision to enter the contract; or (c) the statement was known to be untrue by the representee. The misrepresentation need not be the only reason the claimant entered the contract. In Edgington v Fitzmaurice (1885) 29 Ch D 459 the plaintiff was induced to lend money to the company by a misrepresentation contained in the company prospectus. However, he was also induced by his own mistaken belief that he would have a charge on the assets of the company in relation to the loan. Nevertheless, he was able successfully to claim for fraudulent misrepresentation even though he admitted that he would not have lent the money had he not held this mistaken belief. A representor may seek to argue that the representee was not induced where the representee chooses to test the validity of the representor's statement by making its own investigations (Attwood v Small (1838) 6 CL & F 232). In Attwood v Small (1838) 6 CL & F 232, the vendor of a mine made wildly exaggerated statements about its earning capacity. The purchaser did not believe the glowing reports made by the vendor and, therefore, sent his own agent to make an independent report. The agent produced a similarly glowing report to that of the vendor. The mine then turned out to be virtually worthless and the purchaser brought a claim maintaining that the prospects of the mine had been misrepresented to him. The claim was dismissed. The purchaser had not relied on the statement of the vendor but had been induced to purchase the mine on the strength of his own agent's report: a party cannot bring a claim in misrepresentation when it has relied not on the misrepresentation, but on its own investigations. Redgrave v Hurd (1881) 20 Ch D 1 clarified that the key point in Attwood is not that separate enquiries were made or could have been made – the crucial point is that the separate enquiries showed that the vendor's statements were not relied upon. In other cases, separate enquiries might not be such as to show that the purchaser did not also rely on the vendor's statements – the separate enquiries do not automatically prevent a claim for misrepresentation. Redgrave also established that there is no general duty to check the misrepresentor's statement. However, still on the topic of checking representations, if a representee does not check, where the court considers it reasonable for them to have done so, or carries out a negligent investigation, this would open up the possibility of a defence of contributory negligence being mounted against the representee for failing to investigate or for investigating negligently. Note that contributory negligence cannot be pleaded where the misrepresentation is fraudulent. It may well be that the more commercial the representee is (and therefore the more resources they have at their disposal to carry out an investigation), the more likely it is that the court 6

will consider it reasonable for the representee to have investigated (by analogy to Smith v Eric Bush [1990] 1 AC 831). That concludes our review of the main elements of actionable misrepresentation. We will now consider: - Representations distinguished from terms of a contract; and - Negligent misstatement at common law (tort of negligence). Representations distinguished from terms of a contract A representation may become a term of the contract if the court decides it is incorporated into the contract. The way in which terms are incorporated into a contract is not addressed in this element. If the court decides that a representation is a term, and it is false, this will give rise to an action for both breach of contract and potentially for misrepresentation (if the misrepresentation is actionable as set out above). If, on the other hand, a representation is not deemed to be incorporated into the contract then it will remain a representation. In this case, the only option is to pursue an action for misrepresentation, and to consider the factors set out in this element. Example Consider the statement: 'This car has been serviced in accordance with the recommended schedule', and assume the statement is false: - If this statement is important, is made close in time to the conclusion of a contract, and is made by a car dealer, it may become a term of the contract for the sale of the car (which has been breached) as well as amounting to a misrepresentation; - If it is not a term, then the only option is a claim for misrepresentation. Negligent misstatement at common law (tort of negligence) This element focuses on how the law of misrepresentation intervenes in relation to false statements which induce the representee to enter into a contract. There is another area of law which could intervene in relation to false statements. That is the law of negligent misstatement, which is part of the law of negligence. Very broadly, where there is a relationship of sufficient proximity between two parties, the court might find that one party owes a duty of care to the other to take reasonable care that statements made are accurate. This duty would extend to statements made during contractual negotiations, but it would not be limited to such statements – 7

it could relate to any statements that caused the recipient of the statement loss. This area of law is not set out in this element – if you study a tort module, you may study this area of law as part of that module. Where a claim in misrepresentation is available, it is rare that a party would need / want to pursue a claim in negligent misstatement instead. The latter type of claim is generally harder to establish and likely to lead to a less favourable calculation of damages. Summary • These are the elements: unambiguous; false; statement of fact; addressed to the claimant; induces the claimant to enter into the contract with the statement maker. • 'Unambiguous' means clear. • 'Statement of fact' means an assertion of a state of affairs. There are special rules for statements of law, opinion, future intention or silence. • 'Induced' means formed one of the reasons for entering into the contract. If the statement is material, inducement will be inferred. If not material, then inducement must be proved. Next

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Statements of fact - further detail and case law  My Modules  Contract Statements of fact – further detail and case law This element introduces further detail and case law concerning the identification of 'statements of fact'. At the heart of the law of misrepresentation is the concept of a false statement of fact. The key components of an actionable misrepresentation are listed opposite. You may be aware that statements of opinion, statements of future intention and silence will not normally 9

amount to statements of fact on which a claim for misrepresentation can be based. In this element, we will consider some of the exceptions to these general rules. Includes Statements of fact Some conduct Statements of law Does not include Statements of opinion Statements of intention Silence We will now consider some of the subtleties of these distinctions Statement of opinion A statement of opinion is not a statement of fact. Usually, it cannot form the basis of a claim in misrepresentation. For example, in Bisset v Wilkinson [1927] AC 1977 the claimant agreed to purchase land from the defendant for the purpose of sheep farming. The defendant made a statement that his 'idea was that [the land] would carry two thousand sheep'. The claimant was aware that neither the defendant nor anybody who had owned the land previously had used it for sheep farming. The court held that the statement was merely an opinion that the defendant honestly held and accordingly the claim for misrepresentation failed. However, when someone expresses an opinion, he also suggests two factual matters: Firstly, he impliedly states that he knows facts which justify his opinion. Where the same facts are known to each party, this implicit statement is unlikely to have much impact on the representee, as the representee can determine whether the facts justify the opinion himself. However, if the representor is considered to have greater knowledge over and above the representee, then the implied statement that there are facts which justify the opinion can significantly mislead the representee. As stated by Bowen LJ in Smith v Land and House Property Corporation (1885) LR 28 Ch D 7 (CA): "In a case where the facts are equally well known to both parties, what one of them says to the other is frequently nothing but an expression of opinion. … But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion." In Brown v Raphael [1958] 2 WLR 647 the court held that when faced with such a question: "The real question for the court is to say, on the basis of the facts and the context of this case, whether this is an instance in which the representation that the vendor has reasonable grounds for his belief ought to be imported" So where the representor is in a position of superior knowledge or experience, a statement of opinion by him may be held to involve a statement of fact that there are reasonable grounds for his opinion. If there are no reasonable grounds for that opinion (or, to put it another way, the opinion is one which someone with the knowledge of the representor, could not have reasonably held), then a false statement has been made. In Esso v Mardon [1976] QB 801 Mardon took a lease of a petrol station after being assured by an Esso representative that the annual throughput would be 200,000 gallons of petrol per year. This estimate was not accurate in the light of the planning permission situation at the time the contract was entered into. The estimated gallonage was never reached and, as a result, the petrol station was uneconomic. Mardon alleged misrepresentation. Esso argued that, as there had not 10

previously been a petrol station on that site, the estimated throughput was merely a statement of opinion. It was held by the Court of Appeal that the statement as to the maximum sales contained within it a statement that on a careful assessment Esso had estimated the throughput at 200,000 gallons per year. In fact, the assessment had not been carried out carefully. Esso had substantial skill and expertise in estimating the potential sales of a petrol station in a specific location. Esso could be distinguished from that of Bisset v Wilkinson (see earlier in this element), where the land had never been used as a sheep farm, and both parties were equally able to form an opinion as to its carrying capacity. The second factual matter that is involved in an expression of opinion is that the representor believes the opinion that he expresses. Such a representation will be a misrepresentation if in fact the opinion expressed is not one which the representor held. Statement of fact includes Statements of opinion which lack reasonable grounds from people with superior knowledge/experience. Opinions...