Reviewing Misrepresentation

I hope that the course is going well and that you are feeling prepared for revision. As with earlier blogs I am going to focus on one area of the syllabus; misrepresentation. This is an area of tort law that is an essential element of most contract courses. This is because on finding a misrepresentation, a contract may be rescinded, so has a serious impact on contractual relationship.

A misrepresentation is an unambiguous false statement of fact, which induces a person to enter into a contract. The first thing to do in an exam question is to identify that there is an actionable misrepresentation. Some students begin by arguing it is a fraudulent misrepresentation or negligent misrepresentation. This is not the correct approach.

First you need to identify that there is an actionable misrepresentation. I usually begin by defining the term and then the effect this will have on the contract. I then highlight each potential statement and decide if this is an actionable misrepresentation. Two approaches can be taken to this:

• Find that the first statement is a misrepresentation is actionable, then decide on its nature and the relevant remedy.
• Or consider each statement to see if it is actionable, then move on to consider which of them are fraudulent etc. and the relevant remedy.

The important point is to make sure the statement is actionable first before considering its nature.

Unambiguous – you will know that a contractual term must be certain but to bring a claim in misrepresentation you must also be able to prove that it is false. If the term is ambiguous then this may be difficult. So in Dimmock v Hallett the land was described as ‘fertile and improvable’. These statements were, said the Court, ‘mere flourishing description’ by the auctioneer. In other words, they were ‘mere puff’ and objectively could not be considered as the basis for a legal claim.

False – obviously a statement of fact which is clearly false is within this. But also, for misrepresentations, a ‘half-truth’ may be actionable. It is like your friend who has a new haircut, which you hate and they ask if you like it…’I love the colour’ you may say. This is true but it also masks the fact you do not like the haircut. So in Dimmock v Hallett (having failed on their first argument they had another claim to make) a statement that the farms ‘were let’, whilst literally true when made, did not go onto say that two of the tenants had given notice to quit. This was a truth which actually hid the true status of the land when it was to be purchased.

This will also include a statement that was true when made but has become untrue before the contract has been completed, as in With v O’Flanagan. There is a duty on the statement maker (misrepresentor) to inform the misrepresentee of the changed circumstances.

There is no requirement to verify the truth of the statement, Redgrave v Hurd. Although it was said, obiter, in Smith v Eric Bush that in some situations, such as commercial or high value contracts, a reasonable person would make their own enquiries. However, the general principle usually applies.

Statement – generally there is no need to volunteer information during negotiations, Keates v Earl of Cadogen. But sometimes actions can be deceptive, as in the popular case Spice Girls v Aprilia. The girls carried on with their campaign shooting knowing that Gerry was leaving before the new vehicles would be released on the market.

Fact – this does not include statements of opinion, Bisset v Wilkinson. In this situation both parties were inexperienced in the particular area. However, the situation is different if the person making the statement has special knowledge, as in Esso v Marden where statements could be relied upon by the inexperienced misrepresentee as they were made by the experienced misrepresentor.

Also it is not a statement of intention, unless at the time you make that statement you have no real intention to carry it out, Edgington v Fitzmaurice.

Inducement – it must be an inducement. If all the other factors are present, but it did not alter the potential misrepresentee to enter into the contract, then this is not an actionable misrepresentation. If you ask a third party to confirm the truth of a statement, then it may be that it was their statement that has induced the contract and not that of the potential misprepresentor (Attwood v Small. However, the mispresentee will argue that the statement has to be an inducement and not the inducement (Edgington v Fitzmaurice).

If a reasonable person would be induced then the courts will presume that the misrepresentee was induced (Museprime v Adhill) and the misrepresentor would need to prove it did not in fact induce them. See JEB Fastners v Bloom for this. If it would not induce the reasonable person then the misrepresentee can prove that it did in fact induce them. This will consider the material nature of the statement to the contract eventually formed.

If you can prove all of this then you have an actionable misrepresentation. At this point you can then decide the nature of the misrepresentation.

Originally this was a fraud (Derry v Peek) where after the misrepresentee has proved an actionable misrepresentation they then have to prove that the statement was fraudulent. This is a heavy burden.

More logical is a claim under the Misrepresentation Act 1967. Here the burden of proof is moved to the misrepresentor to prove that they had reasonable grounds to believe, and did believe, that their statement was true. This is a very heavy burden as is evidenced by Howard Marine v Ogden. The reason that they are preferable is not only the shift in the burden of proof, and the high burden of proof, but that the damages are (arguably) exactly the same as for fraud (Royscot v Rogerson).

For fraud, under the Act damages are recoverable when they are caused by the misrepresentation, Doyle v Olby. There is no need to prove foresight.

If the misrepresentor can prove that they had reasonable grounds to believe in their statement then they have made an innocent misrepresentation, with the limited remedies available here.

An alternative claim is in negligence, Hedley Byrne v Heller. The drawbacks from this are that there has to be a duty of care and that the damages are limited to those which are foreseeable.

In addition to damages the equitable remedy of rescission is also available, which will end the contract and take both parties (if possible) back to their pre-contractual position. This will be awarded unless there is a bar to rescission or the court awards damages in lieu of rescission (Misrepresentation Act 1967).

Hopefully this summary of the issues on this topic has helped focus your studies and revision.

Anne Street

March 2015