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MisrepresentationMisrepresentation is based mainly in contract law, and has a relationship with other areas of contract that this module guide will explore, such as terms and mistake. There is also the negligent element of misrepresentation, which is based in tort. Therefore, an understanding of tor...

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Misrepresentation

Misrepresentation is based mainly in contract law, and has a relationship with other areas of contract that this module guide will explore, such as terms and mistake. There is also the negligent element of misrepresentation, which is based in tort. Therefore, an understanding of tortious principles will be helpful in understanding the law. This chapter will be split into four distinct sections which should allow for a full and comprehensive understanding of the law of misrepresentation. 1. 2. 3. 4. 1.

Defining a misrepresentation What makes a misrepresentation actionable? What type of misrepresentation has been made? The remedies for misrepresentation Defining a misrepresentation

A misrepresentation is a form of statement made prior to the contract being formed. There are two types of statement that can be made before a contract forms, these will either: 1. Form part of the contract 2. Not form part of the contract, therefore becoming a representation. Intention The courts will attempt to give effect to the parties’ intention insofar as this is possible. This will be an objectively applied standard. There are a number of presumptions related to when or how a statement is made which will help the courts when they are attempting to ascertain whether a statement is a term or a representation (Heilbut, Symons & Co v Buckleton [1913] AC 30). These factors were covered in detail in the chapter on terms, therefore this chapter will provide a simple overview of the factors. For more information on this you should refer to the chapter on terms. Statement is reduced to writing If a statement has been reduced to writing, there will be a strong presumption that this will form a term of the contract, as opposed to a representation. The presumption is even stronger if the document in which the statement is included has been signed (L’Estrange v F Graucob Ltd [1934] 2 KB 394.

If there is a statement reduced to writing, the parties may suggest there was an oral agreement which is contradictory to the statement made in writing. The courts are unreceptive to such claims, as per the ‘parole evidence’ rule. Therefore, when there is a statement which has not been reduced to writing, the presumption may be that it is a representation. Be careful, as oral statements can still form a term of the contract; you should still considers the other factors alongside this one. Specialist skill or knowledge If the statement is made by a party who has, or claims to have, specialist skill or knowledge, there will be a presumption that this statement is a term. The cases of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 and Oscar Chess v Williams [1957] 1 WLR 370 are good authorities for this. In Dick Bentley, the statement was held to be a term because it was made by a car dealer who would claim to have specialist skill or knowledge. However, in Oscar Chess, the statement was made by a private seller who had no real specialist skill or knowledge. Lapse of time As a general rule, if there is a longer lapse of time between the statement and the formation of the contract, the greater the presumption will be that the statement is a representation.

2. What makes a misrepresentation actionable? In order for a representation to become a misrepresentation, it must be first proven that it was an unambiguous, false statement of fact. In order to prove this misrepresentation is actionable, it must be shown that this representation induced the claimant to enter the contract. Unambiguous, false statement False and unambiguous Ascertaining whether a statement is false in the context of misrepresentation is not as straightforward as a question of whether the statement is true or false. The degree of falsity is a relevant consideration. The case of Avon Insurance plc v Swire Fraser Ltd [2000] 1 All ER (Comm) 573 ruled that the test to apply is whether or not the statement is “substantially correct”. This involves a consideration of the inducement of the individual to the contract. If a statement is made that was technically false, but most of the statement was true, the statement would held to be

true so long as the true part of the statement induced the claimant into the contract, as opposed to the false part. Whether or not the false statement is unambiguous refers to how the claimant interpreted the statement. If, on a reasonable construction, the statement was true, however, the claimant interpreted the statement in a different way which rendered the statement false, the statement would not be unambiguously false, and the claim would fail. The case of McInerny v Lloyds Bank Ltd [1974] 1 Lloyd’s Rep 246 is an example of this, where the unreasonable interpretation of the statement by the claimant meant the claim failed. Statement The word ‘statement’ has been broadly interpreted. ‘Statement’ does not just refer to a verbal statement; it has been held that conduct can amount to a statement for the purpose of misrepresentation. The case of Curtis v Chemical Cleaning & Dyeing co Ltd [1951] 1 KB 805 outlined this fact. An example of this can be found in Gordon v Selico(1986) 278 EG 53, where the concealment of some dry rot during an inspection of a property was held to be a statement which misrepresented the fact that the property was free of dry rot. Silence or non-disclosure will not amount to a statement, it is clear that there must be some kind of positive conduct to constitute a statement. Therefore, although in Gordon v Selico the party was silent as to the existence of dry rot, the conduct went beyond merely remaining silent; there were active steps to conceal this fact. Half-truths A misleading half-truth will amount to a misrepresentation. A misleading half-truth is a true statement which is misleading due to all relevant information not being revealed. Take the case of Nottingham Patent Brick & Tile Co v Butler(1885) LR 16 QBD, where a solicitor was asked whether any restrictive covenants burdened some land. The solicitor answered that he was not aware of any, which was technically true, as he had not yet checked. Of course, when he checked, there was some restrictive covenants. Therefore, the statement was technically true, but only half-true and misleading, meaning it would be construed as false. Change of circumstances If a statement is made which is true at the time of making, but subsequently becomes untrue, there is a positive duty on the statement maker to ensure to inform the relevant party of this. In With v O’Flanagan [1936] Ch 575, the defendant was contracting for the sale of his medical practice. A question was asked of the income of the practice. At the time, business was excellent, so he truthfully disclosed this. The sale was made a few

months later, in which time the business’ income had dropped drastically. Therefore, due to the change of circumstances, the defendant had a positive duty to notify the plaintiff of this. The fact he didn’t was held to be a false statement of fact. In contracts which are negotiated over a long period of time, any statements made of a volatile nature can be considered “continuing statements”, with which extreme care should be taken. Contracts of utmost good faith Certain types of contracts will impose a higher duty of disclosure than under normal circumstances. This is due to the nature of the relationships between the parties. The most common example of such a relationship is that between an insurer and the insured. It is the insured’s duty to disclose all material facts at the time of the formation of the contract for insurance and failure to do so will result in any form of claim under that insurance contract failing. This differs greatly from the usual duties of contracting parties, whereby there is no positive duty to disclose any facts (Keates v The Earl of Cadogan (1851) 10 CB 591). False statement of fact This section will be concerned with whether or not the statement was of fact. This is a key component of misrepresentation, as a claim for misrepresentation will not be actionable if the statement made was merely an opinion or a suggestion. Statements of opinion As mentioned above, the general rule is that a statement of opinion is not a fact. This is exemplified in the case of Bisset v Wilkinson [1927] AC 177. In this case, a farmer stated that “it was his opinion” that the land could hold 2,000 sheep. The plaintiff claimed for misrepresentation, but it was held not to be a statement of fact. This was due to two factors 1. He expressly stated it was only his opinion 2. He held himself out as having no expertise as to whether the land held that many sheep, he had never claimed to keep sheep on the land, it was merely a guess. The plaintiff was also aware of this fact. It is irrelevant whether the statement of opinion made is unreasonable, or whether the statement maker could subsequently check the validity of the opinion and update the other party as to whether the statement was true or not (Hummingbird Motors Ltd v Hobbs [1986] RTR 276).

In Hummingbird, an insurance company contracted the insured’s son to enquire about the value of their contents. He incorrectly stated the value of the contents. This was held to not be a representation, as he was in no better position than the insurance company to know the value of his parent’s contents. Therefore, the question to ask is whether the statement maker is in a better position to know the truth than the plaintiff? If not, and the plaintiff is aware of this, it will likely be classified as an opinion. Exam consideration: Do you think a statement that amounts to an opinion would still be held to be an opinion if the statement maker than went on to check the truth of the opinion, and realise it was incorrect? If the statement maker is in fact in a superior position to know the true fact, the position is different. If the statement is made with a reasonable belief and they have reasonable grounds to make this statement, it will amount to a statement of fact. Correspondingly, if the statement maker holds themselves out to have reasonably grounds to make a statement, when in fact this is not true, it will amount to a statement of fact for the purposes of proving misrepresentation. The case of Smith v Land & House Property Corporation(1884) 28 Ch D 7 is an example of an opinion amounting to a fact. The landlord sold a property and described the tenant as ‘a most desirable tenant’, and this was not true. Although this may have been expressed as an opinion, the fact the defendant was in the best position to know the true facts means this statement was held to be a statement of fact. Statements of intention A misrepresentation as to future intention is usually not actionable for misrepresentation, as it will not amount to a statement of fact. The statement of future intent will not be held to be a fact even if the defendant intentionally changes their mind as to their intentions (Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch)). A statement of future intention made with absolutely no intention at the time of the statement, however, will amount to a misrepresentation, as seen in Edgington v Fitzmaurice(1885) 24 Ch D 459. Statements of law A statement of law which is incorrect will amount to a false statement of fact for the purpose of misrepresentation. Pankhania v Hackney London Borough [2002] NPC 123 concerned the purchase of a property to be used as a car park. There was a statement that the occupier of the car park could be evicted within three months under law. This was incorrect, and therefore classified as a false statement of fact.

Inducement of the claimant Once it has been proven that a false statement of fact has been made, the next step is to prove that this statement of fact induced the claimant to enter the contract. There are three requirements of inducement: 1. The representation made must be material 2. The representation must be known to the representee 3. The representation must be acted upon The representation must be material The representation must not be an inconsequential statement which is of irrelevance to the plaintiff. In order to be actionable, the representation must be material so that it would positively influence a reasonable person to enter the contract. This is a relatively easy requirement to prove, as seen in Smith v Chadwick(1884) 9 App Cas 187. The test for whether or not a representation is an objective one. In JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583 Party A was contracting with Party B to purchase a company. Party B made a misrepresentation as to the accounts. This misrepresentation was held to be unactionable as it had not induced the contract; Party A only wished to secure the services of some of the directors, he was not induced by the accounts. There is a slightly alternate approach of the courts where a representee relies on a statement that a reasonable person would not have considered a relevant factor in entering the contract. In such a case, the representee will have the burden of proving that this representation was material to their decision to contract (Museprime Properties Ltd v Adhill Properties Ltd(1991) 61 P & CR 111). The representation must be known to the representee A representation will not be actionable and will not have induced the representee unless the representee was aware of the representation. Horsfall v Thomas(1862) 1 H & C 90 is an excellent example of this. The defendant hid a serious defect in a product, and when the representee discovered this defect, he claimed this was misrepresented to him. It was held it could not amount to a representation as the representee never inspected the product and was therefore never aware of the misrepresentation. A representation made to one party which then induces a third party may be amount to a misrepresentation under the following circumstances:

If party A makes a misrepresentation to Party B, and Party B relays this information to a third party, who is inducted into the contract on that basis, it will be a misrepresentation if Party A knew or ought to have known the representation would be likely to be communicated to the third party. The authority for this principle comes from Yianni v Edwin Evans and Sons [1981] 3 All ER 593. In Yianna v Edwin Evans and Sons, a misrepresentation was made by some valuers to a building society. The building society passed this information on to the representative. The valuers knew or ought to have known this information would be passed on to the representee (the third party), therefore, this representation was actionable. The representation must be acted upon The final requirement of proving inducement is that the representation was actually acted upon. The representor may attempt to prove the representee was induced by another factor, and not the misrepresentation. Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 outlines this requirement. In this case, it was questioned whether the representee was induced to sign a contract by relying on information and incorrect information given to him over the telephone. It was held that as an experienced investor, he would not have been induced by a loose description over the telephone, therefore, he did not act upon this misrepresentation. It should be noted that the misrepresentation does not have to be the sole inducement for the formation of the contract, as long as it formed part of the inducement this will suffice - Edgington v Fitzmaurice(1885) 24 Ch D 459 If the statement is made fraudulently and is material, there is a strong presumption that this statement has been relied upon - Barton v County Natwest Ltd [1999] Lloyd’s Rep Bank 408 If the representee chooses to validate the truth of the representor’s statement, unless the representation was made fraudulently, the statement will not act as a misrepresentation. In S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 it was held that this mean the representee have relied upon their own judgment rather than the statement of the representor. If the representee has an option to validate the truth of the representor’s statement, but refuses to do so, this will not prevent the statement as being held to be a misrepresentation, as the representee has relied upon this statement, thus being induced by it - Redgrave v Hurd(1881) 20 Ch D 1. 3. What type of misrepresentation has been made?

Categorizing the type of misrepresentation made is one of the most complex parts of the law of misrepresentation, as there are four different types: 1. 2. 3. 4.

Fraudulent Misrepresentation - Common Law Tort of Deceit Negligent Misstatement - Common Law via Hedley Byrne v Heller Negligent Misrepresentation - Statutory under the Misrepresentation Act 1967 Innocent Misrepresentation - Statutory under the Misrepresentation Act 1967

The importance of these distinctions will become clear when each one is assessed, as they have different burdens of proof and remedies. The distinctions are based upon the intention of the statement maker when the misrepresentation is made. Types 2 and 3 will be dealt with under the one heading of “Negligent misrepresentation”, the common law and statutory differentiation affect the remedies available. Fraudulent misrepresentation The significance of a misrepresentation being classified as a fraudulent one is that the measure of damages may be greater under certain circumstances. There are two remedies available for fraudulent misrepresentation: recession and damages. Representees should attempt a claim for fraudulent misrepresentation with caution, as the courts impose a much higher standard of proof due to serious allegations. There may also be penalties in the event the claim is not made out. Exam consideration: Why exactly do you think the courts may penalize parties who attempt to make out a claim for fraudulent misrepresentation and fail to do so? A fraudulent misrepresentation was defined in Derry v Peek(1889) 14 App Cas 337 as a false statement which is ‘made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. In order to assess whether a statement has been made fraudulently, you should consider whether: 1. The statement maker knows that the statement he has made is false 2. The statement maker has reasonable grounds to believe his statement is true even if it is false In the case of a, there will clearly be a fraudulent statement. In the case of b, if the statement maker has made a false statement, but has reasonable grounds to believe his statement, it will not amount to a fraudulent statement, as it has not been made recklessly or carelessly. A statement made recklessly or carelessly needs to be a statement made which the statement maker has no belief in the truth of (but does not know for sure that it is true or false).

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 clarified that where a statement is made where the statement maker has no idea whether or not it is true or false, this statement would be fraudulent due to the recklessness asserting it is true when it may not be. True statements which become false As we have discussed earlier in this section, some statements made may be true at the time of the statement, but later become false. In those situations, it was established that there is a duty for the statement maker to make the representee aware of this change. However, for the purposes of ascertaining the type of misrepresentation, would a failure to update the representee be classed as a fraudulent misrepresentation? In With v O’Flanagan [1936] Ch 575 it was suggested that misrepresentation as a result of a change of circumstances might result in either a fraudulent misrepresentation or a negligent one. Here are the circumstances in which this can happen: Fraudulent: The statement maker is aware there is a duty to notify the representee of a change in circumstances (Banks v Cox (No 2) unreported) Negligent: The statement maker is not aware there is a duty to notify the representee of a change in circumstances. Negligent misrepresentation Negligent misrepresentation is made out where the statement maker has belief in his stat...