Misrepresentation

‘A false statement of fact that induces a party to contract.’

Nature and Effect

Definition

• A false statement of fact, made by one party that induces the other party to enter into the contract.

Effect

• A misrepresentation will render a contract voidable (not void).

Term or Representation

• There is a difference between a term of the contract and a representation.

• If the information given or promise made has become a term of the contract – appropriate remedy is a remedy for breach of contract.

• If the relevant statement has not become a term of the contract – remedy is an action for misrepresentation.

Terms and Representations

• In determining whether a pre-contractual statement is a term of the contract or a mere representation – the court will seek to give effect to the intention of the parties.

• The court will examine the intention of the maker of the statement – this will be assessed objectively.

• A number of presumption have been developed to assist courts in determining the intention of the maker of the statement.

Presumptions used to determine the intention of the maker of the statement

• Has the statement been reduced to writing? Estrange v F Graucob Ltd [1934] 2 K.B. 394 Where the relevant statement has been reduced to writing there is a greater presumption that it is intended to form a term of the contract. Where the document is signed – the parties will find great difficulty in arguing that they did not intend the statements contained within it to form terms of the contract. PAROL EVIDENCE RULE

Where clear evidence of the parties’ intentions exists (such as a signed written document) no further evidence in rebuttal of that document should be accepted. NB – the parol evidence rule does not mean that oral statements may not form a term of the contract – parties may enter into legally binding oral agreements. However, the fact that an agreement has been reduced to writing will be a guiding factor as to its terms and the effect of any other statements.

Presumptions – continued.

• Specialist skill or knowledge

Where one of the parties to the contract has specialist skill or knowledge, there will be a greater presumption that statements made by that party will be a term of the contract.

Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 W.L.R 623

Oscar Chess v Williams [1957] 1 W.L.R. 370

• Timing of the Statement

Lapse of time between the making of the statement and the contract being made provides an indication of the intention of the parties and the effect of the statement in the context of the contract.

Actionable Misrepresentation Requirements

Three Key Requirements

1. False statement

2. False statement as to fact.

3. False statement as to fact that induced the contract.

All of the above must be satisfied for an action for misrepresentation to be possible.

Has a false statement been made?

Statement – includes express words, conduct, silence. Spice Girls Ltd v Aprilia World Service BV [2000] EMLR 478

Spice Girls’ actions in conducting a number of photo shoots and promotional events with all members of the group as part of sponsorship deal, knowing that one member of the group intended to leave before the sponsorship was due to expire amounted to a representation that the group did not know and had no reasonable ground to believe that any of its members intended to leave before the expiry of the sponsorship deal. NB – The claimants in this case never made any express statements regarding the intentions of the various members of the band – the representation was merely based upon their conduct.

Has a false statement been made? silence – withholding of information

• Dimmock v Hallet (1866 -67) L.R. 2 Ch. App. 21 Misrepresentation found where vendor gave incomplete information. Vendor – farmer stated that farms were currently let. Failed to mention that the tenants had given notice to quit. With v O’Flannagan [1936] Ch. 575 During the course of negotiations for the sale of a medical practice – the vendor stated that the takings of the practice were £20,000 per annum. The situation had changed by the time the contract for sale was signed, some 5 months following the negotiations. Court held that an obligation was placed on the vendors to communicate the change of circumstances to the purchaser. Held that the representation as to the takings of the practice was a continuing representation and as such the vendor was under a duty to communicate the change in circumstances.

CAVEAT EMPTOR

• Principle of caveat emptor – key in English contract law • Very much limited in the context of contracts

UBERRIMAE FIDEI – CONTRACTS OF THE UTMOST GOOD FAITH

Such contracts create a duty to provide a full picture of all relevant information – whether this information is requested or not. This is typically the case in insurance contracts.

Is it a false statement as to fact? • Distinction between Fact and Opinion

A statement of opinion will not form the basis of a claim for misrepresentation in contract. Bisset v Wilkinson [1927] A.C. 177 – seller of a plot of land represented that the land could 2,000 sheep. Held that this was an opinion. No actionable misrepresentation. Smith v Land & House Property Corp (1885) 28 Ch. D 7 - Vendors of a hotel represented that it was currently let to “ a most desirable tenant”. The tenant was in fact in arrears with the rent and the vendors were aware of this fact at the time they made the statement. Purchaser argued that would not have purchased the hotel but for the statement made regarding the tenant. Held that the description of the tenant amounted to a false statement of fact which amounted to a misrepresentation. Bowen L.J. - … if the facts are not equally known to both sides, 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.

FALSE STATEMENT AS TO FACT

Esso Petroleum Co Ltd v Mardon [1976] Q.B. 801 Employee of Esso stated that a proposed petrol station would have a “throughput” of 200,000 gallons. Mardon relied on this statement and entered into a lease for the petrol station. Following a decision by the local council to alter the planning permission for the station, the throughput was reduced to 78,000 gallons. M defaulted on the lease payments and Esso brought an action to repossess the station. M counterclaimed that Esso was liable for negligent misrepresentation and/or breach of contract. Hel – the statement as to throughput was both a statement of fact and a term of the contract.

Types of statement

• A false statement of law may also actually be an actionable misrepresentation.

• A statement of future intent will not give rise to an actionable

misrepresentation. Edgington v Fitzmaurice (1885) L.R. 29 Ch. D. 459 False statements were made in a company prospectus to the effect that money raised by the company would be used to improve the business by renovating the company’s buildings. Money was in fact used to pay off the company’s debts. Claimants were able to recover money spent on the basis that company directors had acted fraudulently and misrepresented their state of mind.

Did the statement induce the contract?

• Representation must be material to the decision to enter into the contract. • Representation must have actually been relied upon by the representee. • Representation need not be the only factor that induced the representee to enter

into the contract.

JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All E.R. 583 Plaintiffs sought to purchase a company in order to secure the services of two of its directors. Transpired that accounts that the plaintiffs had been shown for the company were inaccurate as the accountants had been negligent in preparing the accounts. Plaintiffs could not succeed in their action for misrepresentation as they had not been induced to enter into the contract by the inaccurate accounts. Museprime Properties Ltd v Adhill Properties Ltd (1991) 61 P. & C.R. 11 The fact that a reasonable person would not have relied on the representation is irrelevant provided that the Claimant can show that they actually relied upon the relevant representation. Claimant could show it was material to their decision.

Representation must actually have been relied upon by the representee

• If a false representation is made but is not actually relied upon by the representee – there can be no claim for misrepresentation.

Attwood v Small (1838) 6 CI. & Fin. 232 Statement made to respondents in relation to the capacity of mine. Respondents asked their own engineers to verify these statements and the engineers confirmed that the statements were accurate. Respondents purchased the mine. Later, the Respondents sought to rescind the contract on the basis that the statements had proven to be false. Court held that these false statements had not actually induced the contract as the Respondents had not actually relied on them but on the statements of their own engineers. • The fact that the representee had an opportunity to verify the relevant statement but did not do

so does not prevent him bringing an action for misrepresentation. Redgrave v Hurd (1881-82) L.R. 20 Ch. D. 1 Solicitor who purchased a practice without inspecting the accounts even though he was invited to do so could still bring an action for misrepresentation. Note if a representee acts unreasonably in not verifying the statements made, the representee may be deemed to have acted unreasonably.

Type of Misrepresentation

Essential to determine what type of misrepresentation is in issue as this will determine:

(i) What the Claimant must prove;

(ii) The standard of proof and;

(iii) The remedies available.

Three Types of Misrepresentation

• Fraudulent Misrepresentation • Negligent Misrepresentation • Innocent Misrepresentation These three different types of misrepresentation are governed by different areas of law. Common law 1. Fraudulent Misrepresentation 2. Negligent Misrepresentation

Misrepresentation Act 1967 1. Negligent Misrepresentation

Types of Misrepresentation

• Fraudulent Misrepresentation

To found an action for fraudulent misrepresentation – the representation must have been made:

i. Knowingly;

ii. Without belief in its truth; or