Misrepresentation

Introduction

Reminder

To begin your answer, it is recommended to provide a clear and concise definition. The
definition does not need to be lengthy or all-encompassing; rather, it should be brief yet
precise. In most cases, you can find suitable definitions in textbooks or landmark
judgments. It is unnecessary to cite numerous cases to support your definition, as this
will not yield extra points.

An actionable misrepresentation occurs when a party (i.e. representor) to a contract makes

an unambiguous false statement of fact that induces the other party (i.e. representee) to
enter into the contract (Robert Merkin, 2016; Edgington v Fitzmaurice).

Issue 1 – Terms and Representation

Reminder

To thoroughly address the issues at hand, it is advisable to break them down into several
sub-issues. For instance, when evaluating a statement made by someone, it is essential
to determine whether it should be categorized as a term or a representation. If it is
deemed a representation, the next step would be to assess whether it qualifies as an
actionable misrepresentation.

Considering that the question must pertain to misrepresentation, the statement made as
a representation. If one arrives at a contrary conclusion, it is advisable to conduct a
careful review to ensure accuracy.

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A pre-contract statement can be classified as either a representation or a term. If it is
categorized as a term, the defendant may be liable for breach of contract, resulting in
contract-based damages. In such cases, the claimant would be entitled to compensation that
places them in a position as if the statement were true. However, if the pre-contract
statement is considered a representation, the damages would typically be tort-based under
the Misrepresentation Act 1967.

In assessing whether a statement is a representation or a term of a contract, the court will

consider the following factors:

Reminder

During the exam, it is not mandatory to provide a detailed discussion on all five factors.
Let's take an example: if it is evident that the question primarily focuses on the skill or
knowledge of the statement maker, you may choose to omit the irrelevant factors such
as time or importance. This could be particularly helpful if you find yourself running
short on time during the exam. Even if you do have ample time, it is sufficient to list out
the irrelevant factors without delving into a comprehensive analysis of each one.

1. Time: The court will examine the time elapsed between the making of the statement
and the conclusion of the agreement. If there is a long interval between these two
events, the statement could be regarded as a representation rather than a term of the
contract (Routledge v McKay [1954]).

2. Importance: The court will determine the importance of the statement in the minds of
the parties. A statement that is of significant importance to the parties is more likely
to be considered a term of the contract (Bannerman v White [1861]).

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3. Written Form: If the statement is made before a formal contract is executed and it is
not incorporated into the written contract, it may be considered a mere representation.
The prima facie assumption is that a written contract includes all the terms that the
parties intended to be binding between them (Inntrepreneur Pub Company v East
Crown [2000]).

4. Special Skill or Knowledge: If the maker of the statement has a particular skill or
knowledge and is in a better position to ascertain the accuracy of the statement, the
court is more likely to regard it as a term of the contract (Oscar Chess Ltd v Williams
[1957]).

5. Responsibility for the Truth or Advice for Verification: If the maker of the
statement accepts responsibility for its truth, it is likely to be considered a term.
Conversely, if the maker advises the other party to verify the statement, it is more
likely to be considered a representation (Schawel v Reade [1913]).

[ Insert your application here ]

Issue 2 – Actionable Misrepresentation

A misrepresentation, as defined earlier, is only actionable if it is both a false and

unambiguous statement of fact.

Issue 2.1 – False Statement

The falsity of a statement is a matter of degree. To determine this, the court applies a test
to see whether the statement is substantially correct. If the deviation between the
representation and the factual position would not have induced a reasonable person to enter
into the contract, the representation may not be considered false (Avon Insurance v Swire
Fraser [2000]).

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[ Insert your application here ]

Issue 2.2 – Unambiguous

A party making a representation that, upon reasonable interpretation, is true, will not be
held liable for misrepresentation simply because the representee has misconstrued it. In the
case of McInerny v Lloyds Bank plc [1992], the court upheld this principle. It is noteworthy
that if a statement is vague, it may be treated as mere puffery, which is not actionable in
law or in equity. For example, describing land as “fertile and improvable,” as in Dimmock
v Hallett [1866], is considered a mere puff and not a misrepresentation. Conversely, a clear
and specific pledge, such as the one in Carlill v Carbolic Smoke Ball Company [1893], is
not considered puffery but an actionable representation.

[ Insert your application here ]

Issue 2.3 – Statement

Issue 2.3.1 – Conduct

Misrepresentation can be conveyed through conduct. In the case of Gordon v Selico Co

Ltd [1986], the defendants fraudulently concealed the presence of dry rot during an
inspection, which was deemed as misrepresentation.

[ Insert your application here ]

Issue 2.3.2 – Silence or Non-Disclosure

As a general rule, due to the principle of caveat emptor (let the buyer beware), mere silence
or non-disclosure does not constitute misrepresentation (Fletcher v Krell [1872]). However,
there are exceptions:

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1. Half Truth: If a statement is technically true but misleading because it omits
significant relevant facts, it can be considered a misrepresentation (Dimmock v Hallett
[1866]).

2. Change of Circumstance: If a truthful statement of fact becomes misleading due to a

change in circumstances, there is a duty to correct the false impression. This was
established in With v O'Flanagan [1936]. It's rare for failure to disclose a change to be
considered fraudulent misrepresentation (Thomas Witter Ltd v TBP Industries Ltd
[1996]). However, intentionally declining to disclose the change could be considered
fraudulent misrepresentation, as in Banks v Cox (No.2) [2002].

[ Insert your application here ]

Issue 2.4 – Statement of Fact

A misrepresentation must be a false statement of fact, not a statement of belief, opinion, or

future intention. However, if the statement is made fraudulently, it is likely to be treated as
a statement of fact (Edgington v Fitzmaurice [1885]).

Issue 2.4.1 – Statement of Opinion or Belief

Generally, a statement of opinion or belief is not considered a statement of fact, especially

when the individual making the statement does not have a superior knowledge of the facts
than the recipient, and the recipient is aware of this, as in Bisset v Wilkinson [1927].
However, if the person making the statement is in a better position to know the truth, it
would often be considered a statement of fact. This is because there is an implicit assertion
that they know of facts that justify their opinion, as established in Smith v Land & House
Property Corporation [1884].

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A person will be liable for misrepresentation if they express an opinion they do not
genuinely hold. For example, if they claim a picture is by a famous painter when they
believe it's a copy, as noted in Jendwine v Slade [1797].

Expert opinions can also form the basis for misrepresentation claims. The courts will
impose liability for misrepresentations negligently made by an expert with the intention
that the other party will rely upon it, as held in Esso Petroleum Co Ltd v Mardon [1976].

[ Insert your application here ]

Issue 3 – Inducement

For a claimant to successfully argue inducement into a contract, the following four
conditions must be met:

1. The representation must be material.

2. The representation must be known to the representee.
3. The representation must be intended to be acted upon.
4. The representation must be actually acted upon.

Reminder

To demonstrate inducement, it is necessary to satisfy all four conditions regarding the

representation. Therefore, during the exam, you should analyze and discuss each of the
four conditions individually. However, it's important to note that in many cases, only
one or two conditions may warrant a more detailed discussion. In such instances, you
still need to mention all four conditions but can place more emphasis on the one or two
conditions that are most relevant to the case at hand.

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Issue 3.1 – Material Representation

A material representation is one that would influence a reasonable person to enter a contract.
The representation does not need to be the sole reason for entering the contract. The
objective is to exclude trivial misstatements from being actionable and to enable the court
to infer actual inducement. This principle is established in Avon Insurance v Swire Fraser
[2000]. However, if no reasonable person would have been induced, then the burden is on
the representee to show that they were induced, as decided in Museprime Properties v
Adhill Properties [1998].

[ Insert your application here ]

Issue 3.2 – Known to the Representee

The representation must be communicated to the representee. For example, in Horsfall v

Thomas [1862], the defendant concealed a defect in a gun, but the claimant did not inspect
it, resulting in no actionable misrepresentation. But if a representation made by one party
to another induces a third party to contract, it is actionable if the first party knew or ought
to have known that the representation would likely be communicated to the third party
(Clef Aquitaine Sarl v Laporte Materials [2000]).

[ Insert your application here ]

Issue 3.3 – Intended to be Acted Upon

The representation must be intended to influence the representee's decision to enter into
the contract, as held in Peek v Gurney [1873].

[ Insert your application here ]

Issue 3.4 – Actually Acted Upon

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The claimant must have entered the contract because of the representation, not merely their
own assumptions, as in Peekay Intermark Ltd v Australia and New Zealand Banking Group
Ltd [2006]. The representation need not be the sole inducement, but must have played a
real and substantial part in inducing the representee to act (Edgington v Fitzmaurice [1885],
Dadourian Group International Ltd v Simms [2006]).

In cases of fraud, speculation about how the representee would have acted had the
representor told the truth is irrelevant (Downs v Chappell [1997]). If the false statement is
likely to influence a reasonable person's decision to contract, inducement will be presumed
(Barton v County NatWest [2003]).

[ Insert your application here ]

Issue 3.5 – Special Cases

What if the Representee Conducts Their Own Investigation? If the representee

conducts their own investigation, they may be deemed to have relied on their judgement
and not the misrepresentation (Attwood v Small [1838]). However, this does not apply in
cases of fraudulent misrepresentation (S. Pearson & Son Ltd v Dublin Corporation [1907]).

What if the Representee Fails to Take Advantage of an Opportunity to Discover the

Truth? Failure to take reasonable steps to verify the representation does not prevent
reliance on the misrepresentation (Redgrave v Hurd [1881]). However, Prof Treitel
suggests that for negligent and innocent misrepresentation, if the representee fails to take
reasonable steps to verify the truth, contributory negligence could apply.

[ Insert your application here ]

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 Reminder

When the scripts reference Prof Treitel, it is specifically referring to the renowned book
titled "Treitel on The Law of Contract." This book holds a significant position in the
field of contract law and is often considered as the authoritative guide. It serves as a
primary resource for students and scholars, providing a solid foundation for learning
contract law. Furthermore, it is frequently cited by courts in their legal judgments and
decisions.

If you have a genuine interest in contract law, exploring "Treitel on The Law of Contract"
can be highly beneficial. However, it's important to note that the book covers a wide
range of topics beyond the scope of the exam syllabus. Therefore, it may not be necessary
to read the entire book, even if you aim to achieve a high score in the exam. Focusing on
the relevant sections and topics outlined in your syllabus should be sufficient for exam
preparation.

Issue 4 – Type of Misrepresentation

Reminder

If a statement is determined to be a misrepresentation, it will fall into one specific

category and cannot simultaneously be classified as both an innocent misrepresentation
and a fraudulent misrepresentation. It is crucial to recognize and maintain the distinction
between these two categories. If, during analysis, a conclusion suggests that a statement
falls into both categories, it indicates an error that needs to be carefully reviewed and
corrected. Your attention is advised to double-check the categorization to ensure
accuracy.

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Issue 4.1 – Fraudulent Misrepresentation

Fraudulent misrepresentation occurs when a false statement is made knowingly, or without

belief in its truth, or recklessly, without caring whether it is true or false (Derry v Peek
[1889]).

In Banks v Cox (No.2) [2000], it was established that a deliberate failure to inform the
representee about a change in circumstances amounts to fraudulent misrepresentation.
However, if the representor is not dishonest but fails to realize the duty to disclose, it would
be considered merely negligent.

Allegations of fraudulent misrepresentation are serious, requiring stronger proof to

persuade the court (Ticket2final OU v Wigan Athletic AFC [2015]). However, remedies
for negligent misrepresentation under s2(1) of the Misrepresentation Act 1967 are often as
beneficial as those for fraud, and the burden of proof is reversed.

[ Insert your application here ]

Reminder

Providing practical and tactical advice in addition to legal advice is indeed valuable in
demonstrating a comprehensive understanding of the subject matter. By considering
practical implications and potential strategies, you showcase your ability to think
critically and offer well-rounded guidance.

For instance, when discussing remedies for negligent misrepresentation under s2(1) of
the Misrepresentation Act 1967, it can be beneficial to highlight the reversed burden of
proof. This reversal shifts the burden from the aggrieved party to the party making the
misrepresentation, making it easier for the aggrieved party to prove their case. In light
of this, a practical recommendation could be to carefully assess the available evidence
and consider pursuing a claim under this provision if the burden of proof can be

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 effectively met. This demonstrates an understanding of the practical advantages and
potential tactical considerations in selecting the most appropriate legal approach.

By incorporating practical and tactical advice alongside legal analysis, you not only
showcase your knowledge but also demonstrate your ability to apply that knowledge
effectively in real-world scenarios. This can leave a positive impression on markers and
show your potential as a capable legal practitioner.

Issue 4.2 – Negligent Misrepresentation

Negligent misrepresentation occurs when the statement maker honestly believes the
statement is true, but breaches a duty of reasonable skill and care in making the statement.
Actions can be pursued both under the Misrepresentation Act 1967 and common law under
Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964].

Issue 4.2.1 – Common Law

Under Hedley Byrne, the claimant must prove the existence of a special relationship and a
breach of duty of care. This is not required under the Act. A duty of care exists when the
criteria from Caparo Industries plc v Dickman [1990] are met:

1. The advice is required for a purpose.

2. The adviser knows that the advice will be communicated to the advisee and used.
3. The adviser knows that the advice will be relied upon without independent inquiry.
4. The advice is acted upon by the advisee to their detriment.

[ Insert your application here ]

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Issue 4.2.2 – s2(1) MA 1967

The Act provides an easier alternative as the burden of proof is reversed. The representor
must disprove negligence and prove they had reasonable grounds for their belief (Howard
Marine & Dredging Co Ltd v A. Ogden & Sons Ltd [1978]).

However, negligent misrepresentation under the Act may not apply to misrepresentation
by silence, as such misrepresentation is not “made” within the terms of s2(1) (Starglade
Properties Ltd v Nash [2010]).

[ Insert your application here ]

Issue 4.3 – Innocent Misrepresentation

In innocent misrepresentation, the statement maker honestly believes the statement is true
and has reasonable grounds for that belief. The victim is entitled to rescission of the
contract and to obtain an indemnity to restore the pre-contract position. There's no right to
damages, although the court has discretion under s2(2) MA 1967to award damages in lieu
of rescission. Damages can only be granted when the right to rescission is not lost
(Government of Zanzibar v British Aerospace (Lancaster House) Ltd [2000]).

[ Insert your application here ]

Issue 5 – Remedies

Issue 5.1 – Rescission

Rescission is a remedy available for all types of misrepresentation as it makes a contract

voidable. In order to set aside the contract, a notice should be served. The requirement of
notification can be waived if it's not possible to reach the representor and the representee
took reasonable steps (Car and Universal Finance Co Ltd v Caldwell [1965]).

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Rescission can cause hardship to a third party who has innocently acquired the goods, if
it's found that the rescission occurred before the third party acquired them.

The right to rescind can be lost under the following conditions:

Affirmation: The right to rescind is lost if the contract is affirmed by the representee after
discovering the true state of affairs (Long v Lloyd [1958]). However, the representee needs
to know their right to rescind before the contract is affirmed (Penman v Lanjani [2009]).

Lapse of Time: In cases of fraudulent misrepresentation, the time period for rescission
runs from when the fraud was, or with reasonable diligence could have been discovered.
In cases of non-fraudulent misrepresentation, the time period runs from the date of the
contract (Leaf v International Galleries [1950]).

Restitution in Integrum: The right to rescind is lost if it's no longer possible to restore the
parties to their pre-contractual positions (Clarke v Dickson [1858]). However, the court
might not allow minor imperfections in restoration to obstruct the remedy, such as
depreciation in the value of shares (Armstrong v Jackson [1917]). In cases of fraudulent
misrepresentation, the court is more likely to overlook imperfections (Spence v Crawford
[1979]).

However, achieving this in business is complex, since the business might have changed
significantly by the time the question of rescission comes before the court (Thomas Witter
Ltd v TBP Industries Ltd [1988]). In these cases, damages would account for any fall in
the value of the business down to the date of judgement.

Third Party Interest: Rescission is a personal remedy, so the right to rescind will be lost
if third-party rights intervene. Since the contract is voidable but not void, a person
acquiring goods under such a contract can pass good title to an innocent third party before
rescission (Crystal Palace Football Club (2000) Ltd v Dowie [2007]).

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[ Insert your application here ]

Issue 5.2 – Damages

Reminder

In the interest of time during the exam, it is not necessary to delve into detailed
explanations of all possible damages associated with different types of
misrepresentation. Instead, focus on providing a concise and relevant discussion specific
to the type of misrepresentation identified in the scenario.

For instance, if you have determined that the misrepresentation falls under the category
of innocent misrepresentation, it would be prudent to allocate your time and attention to
explaining the damages applicable to innocent misrepresentation. There is no need to
spend unnecessary time discussing damages related to fraudulent misrepresentation or
negligent misrepresentation if they are not relevant to the case at hand.

Issue 5.2.1 – Fraudulent misrepresentation

For fraudulent misrepresentation, damages are typically claimed under the tort of deceit.
The measure of damages is the usual tortious measure of out-of-pocket loss, not the
contractual measure of expectation loss. Thus, the aim is to put the representee in the
position they would have been in, had the representation not been made (Derry v Peek
[1889]).

Remoteness: The representee can recover all direct loss incurred as a result of the
transaction induced by the fraudulent misrepresentation, regardless of foreseeability
(Doyle v Olby (Ironmongers) Ltd [1969]).

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Damages: Damages are usually calculated by reference to the difference between the
amount paid and the actual value of the subject matter of the contract at the date of the
contract (Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd
[1997]). Loss of profit is also recoverable, even if hypothetical (East v Maurer [1991]).
Lost profit that could have been made from an alternative investment is also recoverable
(Parabola Investments Ltd v Browallia Cal Ltd [2010]). If the financials of the alternative
transaction are uncertain, the court will make reasonable assumptions in the representee’s
favor (Yam Seng Pte Ltd v International Trade Corporation Ltd [2013]).

Mitigation: The representee has a duty to take reasonable steps to mitigate their loss. If
they fail, it could be argued that they've broken the chain of causation, and damages would
be reduced (Downs v Chappell [1962]).

[ Insert your application here ]

Issue 5.2.2 – Negligent Misrepresentation

Common Law: Under the principle of Hedley Byrne & Co Ltd v Heller & Partners Ltd
[1964], claims under tort are allowed for negligent misrepresentation, and the representor
will be responsible for foreseeable consequences, as in Overseas Tankship (UK) Ltd v
Morts Dock and Engineering Co Ltd (The Wagon Mound) [1961].

s2(1) MA 1967: The representor will be liable unless they can prove that they genuinely
and reasonably believed in the truth of their statement until the contract was made (Howard
Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978]).

Damage under s2(1) is the same as for deceit. The negligent representor is treated in the
same way as the fraudulent one and would be liable for the direct consequences of their
misrepresentation (Cheneau v Interhome AG [1979]). This is a literal interpretation of the
Act (Royscot Trust Ltd v Rogerson [1991]).

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[ Insert your application here ]

Issue 5.2.3 – Innocent Misrepresentation

The remedy under s2(2) MA 1967 is only applicable for innocent misrepresentation. There
is no right to damages, but the court may at its discretion grant damages in lieu of rescission
if it finds it equitable to do so (UCB Corporate Services Ltd v Williams [2002]). However,
the right to damages under this clause would be barred if the right to rescission did not exist
(Pankhania v Hackney London Borough Council [2002]).

Where rescission is available, indemnity may be recoverable, which restores the parties'
positions before entering the contract. Indemnities cover costs incurred from the
obligations created under the contract (Newbigging v Adam [1886]).

[ Insert your application here ]

Conclusion

[ Insert your conclusion here ]

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