What a Misrepresentation is:
Misrepresentation: an unambiguous, false (misleading) statement of fact or law that is addressed to the innocent party and is possibly material, and that induces them to enter into the contract.
Conditions:
False statement of fact or law.
Addressed to innocent party.
Possibly material (would likely / did affect judgement).
Induces the innocent party to enter the contract.
Misrepresentation occurs when one of the parties agreed to the contract because (or mainly because) of a false or misleading statement. A party cannot induce another to enter into contract under misleading terms.
Once a representation has been made, it must be truthful.
Each party ‘is entitled to pursue his (or her) own interest, so long as he avoids making misrepresentations’. [1]
Misrepresentation is not confined to words exchanged. [2] EG: nod / gestures, labels etc.
‘The concept of a duty to carry on negotiations in good faith is inherently repugnant to the adversarial position of the parties when involved in negotiations. Each party is entitled to pursue his interests, so long as he avoids making misrepresentations’ [3]
Exceptions (What isn’t a Misrepresentation):
Sales Talk:
Like other non-binding representations, ‘mere puffs’ or ‘sale talk’ cannot be considered a form of misrepresentation. However, the more specific the statement, the less likely it is to be considered as a ‘mere puff’.
A buyer is expected to be prudent and ask the necessary questions before the transaction occurs, so they can make an informed decision.
Opinions and Beliefs:
Opinions and honestly held beliefs are not misrepresentations.
In Bisset v Wilkinson, during a land sale B said that the land could accommodate 2000 sheep and could be managed by one team. W is seeking to rescind from the contract for misrepresentation as the land cannot, in fact, hold 2000 sheep. B says it was merely an opinion honestly held. The Court of Appeal in New Zealand conclude that the statement was an untrue statement of fact, so the contract should be set aside. On appeal, the Privy Council state that B’s opinion is not actionable, so W has no claim.
Legally binding representations are not necessarily misrepresentations unless they contain a fundamental mistake.
Promises:
A statement of intention (a promise) is not a statement of fact, so cannot be misrepresentations.
Silence:
Silence does not amount to misrepresentation. Parties do not owe a duty to each other to disclose information in pre-contractual negotiations. However, there is a fine line between legitimate silence and illegitimate representations.
Parties do not owe a duty in most cases because this would impede on freedom of contract / negotiation without regulation.
Exceptions where a Duty is Owed:
Contracts of the ‘upmost good faith’ (Contracts uberrimae fidei). [4]
Land Contracts
Undue Influence
When a true statement becomes untrue. The representor must be aware of the change and omit to notify the other party to be misrepresentation.
When a literally true statement suggests something that is false.
In With v O’Flanagan, O annually earns £2000 from his medical practice and wants to sell practice. O becomes ill and his practice revenue decreases when he loses patients, so his statement becomes untrue. On appeal, the court invalidates contract for misrepresentation.
In Patent Brick and Tile Co v Butler, a purchaser of land asked the vendor’s solicitor whether there were any restrictive covenants on the land. The solicitor said he didn’t think so but failed to mention that he had not checked either. The court held this to be a misrepresentation.
When Contracts are Not Induced:
When the representee knew from the start that the representation was untrue.
The representee did not allow the representation to affect their judgment – they would’ve entered into the agreement anyway.
Representee did not know, but ought to have known about the untruth.
In Peekay Intermark…, Bank (B) informed P of opportunity to invest in bonds. B sent all the relevant information but did not notify P of their reservations about the opportunity. P did not read information in full (other information was on an email attachment). Therefore, P did not act upon the information supplied. The Court of Appeal held that B did not induce P. Equally, they concluded that it is not a good defence to say that P could have found the truth.
Types of Misrepresentation:
Fraudulent Misrepresentation:
When a statement is made knowingly, without belief in its truth or recklessly / carelessly as to whether it is true or not. [5]
In Edgington v Fitzmaurice, a company invites its shareholders to subscribe to bonds. The company goes bust and its assets cannot cover the repayment of bonds. E sues for fraudulent misrepresentation. Court decides that E is entitled to recover the money.
In Dimmock v Hallett, a half-truth was deemed to be misrepresentation.
Innocent Misrepresentation:
Until 1963, all misrepresentations were classified as innocent unless they were fraudulently made. The Law of Equity would often intervene to protect the rights of those who might not get any remedies from innocent misrepresentation. This was done because it is unfair for the other party to benefit from giving an untrue statement. Misrepresentation is morally wrong, even if innocent.
In Redgrave v Hurd, R (solicitor) told new partner that firm made £300 annually. R produced papers which would have revealed this to be incorrect. H did not read these. The court held that is is no defence for R to argue that H was negligent in not reading the papers. H is entitled to set aside contract for R’s innocent misrepresentation, but there was no fraud.
After the enactment of the Misrepresentation Act 1967, innocent misrepresentation can only be used when the statement was made entirely without fault. Otherwise, it is fraudulent or negligent misrepresentation.
In William Sindall v CCC, W agreed to buy land from CCC. W was told that CCC was aware of no easements, but a private sewer was found after completion of the sale. After the market crashed, W sued for rescission for misrepresentation. Held that there was no misrepresentation and that it would be disproportionate to allow rescission in this case as it would allow W to escape a bad bargain.
Negligent Misrepresentation:
In 1964, a tort liability for negligent misstatements causing financial loss was created. [6]
In Esso Petroleum v Mardon, E purchased land to build petrol station. E was forced to build on a different road by the council. E provided outdated estimates of throughput (as based on other location) to M (tenant). M suffers losses and stops paying for the petrol that is being supplied. The court hold E liable for negligent misrepresentation.
Conditions for Success:
Success depends on whether it can be proved that there was a special relationship between the parties.
The party making the representation must have some special skill or knowledge and must know (or ought to have known) that the other party would rely on their statement.
Sources of Regulation:
Contract Law
Tort Law
Law of Restitution
Statutory Offences
Other Legislation on Misleading Statements
Misrepresentation Act 1967:
The Act created statutory liability for negligent misrepresentation and made innocent misrepresentation only relevant if the statement was made entirely without fault.
It placed the burden of proof on the person who made the statement. They must prove that they had reasonable grounds to believe the statement.
Remedies for Misrepresentations:
Relief can be awarded for misrepresentation on grounds of wrongful inducement when the mistake cannot simply be fixed.
Unfair Contract Terms Act (1977) s8 (for business contracts only) prevents terms which exclude or restrict liability for misrepresentation or their remedies, unless it is reasonable to do so.
Contracts that are made on the basis of a misrepresentation are voidable. The innocent party can simply choose to not perform.
Rescission (Setting Aside the Contract):
Rescission is acting as though the contract had never existed.
The parties put themselves back in the position they would have been if the contract had never been made. If this is not possible, then rescission is not possible.
A claimant has to be prepared to pay restitution to a defendant when a contract has been rescinded to ensure they have not been ‘unduly enriched’ by setting the contract aside. A ‘claimant cannot both get back what he has parted with and keep what he has received in return.’ [7]
Under the Misrepresentation Act s2, rescission may be allowed even if the contract has been wholly executed.
Restrictions to Rescission:
Affirmations:
The innocent affected party can choose to allow the contract to carry on, either explicitly or by their conduct.
Inability to Return:
Parties may not be able to return to an earlier position.
In Clark v Dickson, C claimed that D induced him to buy shares in mining company. C realised that D’s representations of dividend payments were fraudulent. The contract could not be rescinded as the shares were worthless before the contract was even agreed. C had to seek remedy by special action for deceit.
Third Parties:
Third parties may have acquired rights under the contract without knowledge of the misrepresentation, so the contract cannot be set aside.
In Philips v Brooks, B purchased ring from P. B used another person’s name and address, of whom P knew. He gave the ring before he cashed the cheque. Since P knew that B was not the person who he said he was, P could not claim for rescission and B was still considered the legal owner of the ring.
Time:
A significant lapse of time.
Fraudulent Misrepresentation:
The lapse of time is determined from the date where the misrepresentation is discovered or could have been reasonably discovered.
Other Misrepresentations:
The lapse of time is determined from the date of the original contract was agreed.
In Leaf v International Galleries, it was determined that L could not being a claim against IG for their innocent misrepresentation after 5 years.
Indemnity:
Not covered.
Damages:
s2(1) of the Misrepresentation Act (1967) allows for damages to be claimed when it was reasonable to believe the statement and the claimant did believe it, causing a loss.
It is at the discretion of the court to award damages for misrepresentations.
Measure of Damages:
Tort (of Deceit):
Parties are put back to the position they would have been if the misrepresentation and contract had never been made.
Contract:
Parties are put in the position they would have been if the misrepresentation had been true, and their expectations were fulfilled.
Statutory Intervention / Regulatory Offences for Misrepresentation:
There is debate between whether misrepresentation should be a criminal offence when directed to consumers to ensure market efficiency and protect individuals from harm.
Trade Description Act (1968) prohibits businesses from providing false claims for services, accommodation and facilities or providing a mis-description of goods.
Consumer Protection Act (1987) s20 prohibits misleading price indications. It may be a criminal offence if there is a difference between the agreed price and final bill.
Consumer Protection (Amendment) Regulations (2014) allows consumer to bring a civil claim against a business for misleading actions or aggressive practices that cause harm. This does not apply to omissions and consumer needs to prove the misrepresentation was a significant factor in their decision. The consumer has the right to unwind the contract or to a discount (further conditions apply).
Resources:
References:
[1] Walford v Miles [1992] 2 AC 128, 138 (Ackner LJ)
[2] Walters v Morgan (1861) 3 D F & J 718 (Campbell LC)
[3] Walford v Miles [1992] 1 All ER 453 (Ackner LJ)
[4] EG: Consumer Rights Act (2015) s62(4)
[5] Derry v Peek (1889) 14 App Cas 337 (Herscell LJ)
[6] Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964) AC 465 (HL)
[7] Ewan McKendrick, Contract Law (14th edn, April 2021, Macmillan Education UK) 273
Cases Mentioned:
Bisset v Wilkinson [1927] AC 117 (PC)
With v O’Flanagan [1936] Ch 575
Patent Brick and Tile Co v Butler (1866) 16 QBD 778
Peekay Intermark v Australian & New Zealand Banking Group [2006] 1 CLC 582 EWCA Civ 386
Edgington v Fitzmaurice (1885) 29 ChD 495
Dimmock v Hallett (1866) LR 2 Ch App 21
Redgrave v Hurd (1881) 20 ChD 1 (CA)
William Sindall Plc v Cambridgeshire County Council [1994] 1 WLR 1016 (CA)
Esso Petroleum v Mardon [1976] QB 801
Clark v Dickson (1858) 120 E.R. 463
Phillips v Brooks Ltd [1919] 2 KB 243
Leaf v International Galleries [1950] 2 KB 86
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