Misrepresentation
MISREPRESENTATION = false statement of fact (but also conduct or statement of law) made by a party before or at the time of contracting that:
▪ relates to an existing factor or past event
▪ induces the other party to enter into the contract
▪ Silence and opinions are generally not sufficient to establish misrepresentation, half-truths are!
▪ Types: fraudulent, negligent, innocent or statutory
Horsfall v Thomas
Mr H bought a gun from Mr T. Mr T patched
invisibly a crack in the barrel. The gun was
impossible to repair and should have been
destroyed.
Was Mr T’s conduct a case of misrepresentation?
No. Mr H had not been influenced by MrT’s
description of the gun and did not bother
inspecting it. No misrepresentation made.
Spice Girls Ltd v Aprilia World Services BV
Spice Girls entered into a contract with Aprilia
Motor Company, at a time they knew one of their members had the intention to leave the group.
This was announced after signing the contract.
Was the conduct of the parties a case of
misrepresentation?
Yes. The conduct from the Spice Girls was an
example of misrepresentation, and Aprilia was
allowed to rescind the contract.
Gordon v Sellico
Mr G bought a flat from S, which covered up with paint the dry rot rather than repairing it. When this was discovered, Mr G sued S alleging fraudulent misrepresentation
Was the conduct of the seller a case of
misrepresentation?
Yes. The deliberate concealment of dry rot
(action) designed to intentionally mislead the
buyer is a form of fraudulent misrepresentation
Bisset v Wilkinson
Mr B sold land in NZ to Mr W, saying that to the
best of his knowledge, the land could support
around 2,000 sheep. The statement was
inaccurate. Mr W sued Mr B for misrepresentation.
Was Mr B’s statement a misrepresentation of fact or was merely an opinion, which would not be actionable?
Opinion. Mr B was not a farming expert, and this was known to Mr W. If no party has superior knowledge or expertise, their statements cannot amount to statements of fact.
Esso Petroleum Co Ltd v Mardon
Esso rented out to M a petrol station, saying that it would sell approx. 200,000 gallons of petrol annually. The statement proved untrue and M fell in financial difficulties. M sued Esso for misrepr. Was Esso’s statement an opinion, a statement of future intention or a misrepresentation of fact?
Misrepresentation. Esso, as experts in the petrol station business, had a duty to ensure the accuracy of the forecasts they provided to prospective tenants.
Edginton v Fitzmaurice
Mr F (director) invited the public to invest in a
company to “expand its business”. In reality, they wanted to use the money to pay off debt. Mr E invested but lost his money.
Was Mr S’s statement a statement of future
intention or a misrepresentation of fact?
Misrepresentation. While in general statements
of future intention are not misrepresentations,
here the directors had no genuine intention to use the funds as advertised.
Silence
Silence: no general rule to disclose facts which, if known, could influence the other party’s decision to enter into a contract.
▪ Exceptions:
▪ half-truths;
▪ continuing representations despite a change in circumstances;
▪ contracts of utmost good faith
▪ fiduciary relationship
Keates v Earl of Cadogan
Mr K agreed to rent a house from the Earl, who
knew it was in a state of disrepair. The promised repairs were not carried out but was not fully transparent about the situation. K sued the Earl.
Was the Earl’s failure to communicate the real
conditions of the property a misrepresentation?
No. Informal assurances or representations not included in the formal contract are not sufficient to establish contractual obligations. Silence in general does not amount to misrepresentation.
Dimmock v Hallet
Mr D wanted to buy a property from Mr H, who
said that it was fully let and fertile. In reality, it was not as good as claimed, and the tenants issued a notice to quit.
Was the Mr H’s failure to communicate the real
conditions of the property a misrepresentation?
Yes. This is not a case of being “economical with the truth”. There was a deliberate attempt to mislead the buyer into making them believe that the situation was different.
With v O’Flanagan
Mr W wanted to buy a GP practice from Mr O’F.
Accurate financial statements were provided, but by the time of the sale, the situation has
worsened. Mr O’F did not mention it. Mr W sued for misrepresentation.
Is an omission to update an initial representation a misrepresentation of fact?
Yes. A party who makes a representation that
becomes misleading due to changed
circumstances has an obligation to correct or
update the information provided.
Inducement
Material Representation:
▪ statement to a person that is considering to enter into a contract, made to induce a reasonable person to enter into a contract
▪ effect of inducing the other party to enter into the contract.
▪ Objective test: The claimant must show that
misrepresentation relates to a matter that would influence the judgement of a reasonable man.
Presumption of inducement: In cases of fraudulent misrepresentation, inducement is presumed. The court assumes the claimant relied on the statement, and the burden shifts to the defendant to prove it had no effect on the decision to contract, which is very difficult to do.
Peek v Gurney
P bought shares in G based on a prospectus
inviting people to subscribe their shares. The
prospectus contained inaccurate statements, but was never meant for the general public. P sued the company for misrepresentation.
Are the inaccurate statements in the prospectus a misrepresentation of fact?
No. While the prospectus was inaccurate, it was never meant for circulation. There was no
willingness to induce a TP to buy the company’s shares.
Reliance
Representee must have relied on the statement, which induced them to enter into the contract
“but for” test:
▪ Had the representation not been made to the
representee, would the representee not have
entered into the contract? Or would the
representee have done so on different terms?
Attwood v Small
A bought a coal mine from S. To assess the
profitability of the mine, A relied on his own
experts as well as S’s (false) statements. A sued S when they realised that the mine was
unprofitable.
Have the false statements made by S been relied on by A?
No. While the inaccurate financial statements
were a material misrepresentation, the buyer did not rely on them (but on the opinion of their own experts)
Redgrave v Hurd
R, a partner in H’s firm, bought it from him based on inaccurate statements regarding its
profitability. R could have checked the
documents, which showed that the practice had minimal income.
Is H reliable for a misrepresentation of facts
against R?
Yes. While the books were available, H falsely
stated the financial situation of the firm, and R
relied on such statements.
Fraudulent Misrepresentation
claimant needs to establish that the defendant
knew that (a) they were making a statement; (b) that statement was not true; and (c) purpose of inducement/reliance to conclude a contract.
Negligent Misrepresentation
Negligent Misrepresentation:
▪ claimant needs to establish that the defendant (a) made a statement they believed was true (honest statement); (b) that statement was not true, and the defendant was careless; and (c) purpose of inducement/reliance to conclude a contract;
▪ To prove that a statement was “careless”, the
claimant needs to prove that: (a) the defendant
owed them a duty of care; (b) the defendant
breached that duty; and (c) the damage is the
consequence of that breach;
▪ two sub-types: common law and
Misrepresentation Act 1967.
Innocent Misrepresentation
the defendant (a) makes a statement they believed was true (honest statement); (b) that statement was not true, but they had reasonable grounds to believe it was; and (c) purpose of inducement/reliance to conclude a contract.
Derry v Peek
P invested in a tram company believing their
prospectus, which stated that they had the right to use steam-powered trams. However,
government approval was still pending. When the right was denied, the company’s share value fell.
Is this a case of fraudulent misrepresentation if the directors honestly believed the truth of the
statement?
No. For a claim of deceit to succeed, there must be evidence of actual fraud—meaning a false representation made knowingly, without belief in its truth, or recklessly, without caring whether it was true or false.
Hedley Byrne & Co v Heller & Partners Ltd
HB wanted to give a loan to a TP. They asked their bankers, HP, if they were financially sound. HP stated they were, but they added a disclaimer that the information was provided “without responsibility”. The TP was liquidated.
Is this a case of negligent misrepresentation?
Yes and No. A duty of care can arise when a party relies on the skill and judgment of another. However, HP were not responsible due to the disclaimer.
Negligent Misrepresentation - Test
Claimant must show that Defendant:
✓ owed them a duty of care
➢ duty of care only arises where representor had assumed a responsibility for the representation towards the representee as regards the reliability and accuracy of advice/information
➢ i.e. there must be a ‘special relationship’ between the parties that gives rise to a special duty of care in making the statement
✓ representation
✓ inducement/reliance. It must be reasonable for the representee to rely on the advice; the relationship does not exist unless the
representor ought to have known that his advice would be relied on by a particular person for the purposes of a particular transaction
Howard Marine and Dredging Co Ltd v Ogden and Sons
O wanted to hire some barges from HM. HM
misrepresented the barges’ carrying capacity –
they relied on figures from Lloyd’s Register, but
they had the right figures in their docs. O
experienced delays.
Is this a case of statutory (negligent)
misrepresentation under s. 2(1) MA 1967?
Yes. HM failed to demonstrate they had
reasonable grounds to believe that the Lloyd’s
Register figure was the correct one.
Misrepresentation Act 1967
The Misrepresentation Act 1967 shifts the burden of proof to the defendant, allows damages without proof of negligence, and restricts exclusion clauses, making it more claimant-friendly than the common law.
