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Misrepresentation Lecture Notes...

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Misrepresentation – Contract Law -

Misrepresentation Example –  Nottingham Forest Football Club  Due To heavy indebtedness, the owners of Nottingham Forest football club decided to sell it. During negotiation with potential buyers, the owners presented a document showing the indebtedness to be £6.5 million. The contract of sale was made without any reference to the amount of liabilities, but later it was discovered that the actual indebtedness is over £10 million.  The contract for sale for the club never made any reference to the amount of liabilities.  So it’s understandable that the figure could have influenced the potential buyers as to whether to purchase the club or not.

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Misrepresentation –  A false statement of fact made by one party to the other which induces the contract  Misrepresentation is pre-contractual = occurs before the contract is made!  Effect: the contract is voidable

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Void vs. Voidable –  Void = automatically of no effect from the beginning.  The contract is treated as if it had never been made.  Voidable = may be set aside by one party.  The setting aside is not automatic but requires action. Once the contract is set aside, it is treated as if it had never been made.

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Misrepresentation – Structure –  (i) Distinguish a term of a contract from a representation  (ii) Identify an actionable misrepresentation  (iii) Distinguish between the different types of misrepresentation  (iv) Analyse the remedies for misrepresentation

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Representation / Term ? – 

representation or maybe it’s actually a contractual term.

So whenever there is a false statement made by one party, it can either be

Misrepresentation – Contract Law

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Indicators –  The Objective Test for misrepresentation can be found in the case of Heilbut, Symons & Co v Buckleton (1913)  What the court concluded was that when judges try to distinguish term from representation they will always seek to give effect to the intentions of the parties.  So essentially, the task of the court is to ascertain the intention of the maker of the statement.  Remember one relevant statement has to be reduced to writing – there will be greater presumption that it forms a term of contract  In writing: L’Estrange v F Graucob [1934]  Courts will look at timing of a statement. So generally, the greater the lapse of time between statements being made and the contract being entered into, the greater presumption that the statement will be a representation.  Lapse of time: Routledge v Mckay [1954]  Courts also pay attention to the importance of the statement for one of the parties. If one party specifically addresses this issue and specifies that the statement is really important the courts will take that into consideration  Importance of statement: Bannerman v White [1861]  Last presumption is whether one of the party’s has any specialist skills or knowledge. So if the party making a statement has any special skill or knowledge and the other party relies upon this factor then that is greater presumption that such statement will be a term of the contract.  Specialist skill/knowledge: compare Oscar Chess Ltd. v Williams [1957] with Dick Bentley Productions Ltd. v Harold Smith and Motors Ltd [1965]

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Actionable Misrepresentation –  A false statement of fact which induces the other party to enter into the contract.  Actionable misrepresentation consists of three elements:  a false statement  of Fact  which induces the contract

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A False Statement –  Representation by conduct (Spice Girls v Aprilia [2000])  Silence is generally not a basis for misrepresentation (cabeat emptor), except for:  Misleading Half-Truths (Nottingham Patent Brick & Tile v Butler [1886])  Change of Circumstances (With v O’Flanagan [1936])

Misrepresentation – Contract Law 

Contracts of Utmost Good Faith (Pan Atlantic Insurance v Pine Top Insurance [1995])

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A false statement of Fact –  Only a false statement of a FACT will form the basis of an actionable misrepresentation

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Statements of Opinion –  Bisset v Wilkinson [1927]  “2000 sheep”  Smith v Land and House Property Corporation [1884]  “a most desirable tenant”  1) Was the statement made honestly?  2) Does the party imply they have information on which to base their opinion?  3) Does the party have particular skill/knowledge? (see Esso Petroleum v Mardon [1976])

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Statement of Future Intention –  Edginton v Fitzmaurice (1885)  Bowen LJ: “the state of a man’s mind is as much a fact as the state of his digestion…if it can be ascertained it is as much a fact as anything else. A misrepresentation as to the state of a man’s mind is, therefore, a misstatement of fact”  Forms a basis only when statement of future intention is not genuinely held

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Statements of Law –  Solle v Butcher [1949]  Note recent approach:  Kleinwort v Lincoln City Council (1999)  Pankhania v Hackney London Borough Council (2002)

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That induced the Contract… –  1) Representation must have been material to the decision to enter the contract  Smith v Chadwick (1884)  Museprime Properties v Adhill Properties (1991)  2) Representation must have actually been relied upon by the representee  Attwood v Small (1838)  Redgrave v Hurd (1882)...