7. Misrepresentation

Question 1

Doyle v Olby (Ironmongers) Ltd [1969]

Answer 1

In cases of fraudulent misrepresentation, the claimant can recover damages for all direct loss, regardless of foreseeability. This was affirmed by Lord Denning in this case, in which he said:

“The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent inducement … It does not lie in the mouth of a fraudulent person to say they could not have been reasonably foreseen”.

Question 2

Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978]

Answer 2

Area: Burden of proof in negligent misrepresentation claims.

The Court of Appeal held that, in accordance with s2(1) MA 1967, the onus was on the representor to prove their reasonable belief that the representation was true. The evidence did not establish that the owners had objectively reasonable evidence to justify disregarding the correct information found in some documents and preferring to use the incorrect information contained in other documents. the owners had not, therefore, discharged the onus placed on them by s2(1) MA 1967.

Bridge LJ stated that “the statute imposes an absolute obligation not to state facts which the representor cannot prove he had reasonable ground to believe”.

Question 3

Riyait v Dawett [2018]

Answer 3

In instances of fraudulent misrepresentation, for purposes of delay being a bar to rescission, the time only begins to run from when the fraud has been discovered, rather than from the representation being made.

Question 4

Bissett v Wilkinson [1927]

Answer 4

Area: A false statement of opinion is not a misrepresentation as to fact

Facts: The claimant purchased two pieces of land form the defendant for the purpose of sheep farming. During negotiations, the defendant said that he believed that it would be suitable for 2000 sheep. The claimant therefore bought the land in that belief. Both parties knew that the defendant had not carried out sheep farming on the land and in fact, it did not hold 2000 sheep.

Outcome/importance: The judge held that the claimant was not entitled to take such statements as “anything more than an expression of his opinion on the subject”.

A statement of opinion cannot give rise to an actionable misrepresentation.

*However, as per Smith v Land and House Property Corp [1884], if a party has some special skill or knowledge which might add weight to their opinion, then this may amount to an implied statement of fact and be capable of misrepresentation.

Question 5

What are the general requirements for a statement to constitute an actionable misrepresentation?

Answer 5

1. False; and
2. A statement (rather than silence); and
3. A statement of fact; and
4. The party must have relied on the statement and it induced the representee to enter into the contract.

Question 6

Why does s2(2) of the Misrepresentation Act 1967 only allow an award for damages in lieu of rescission, for negligent and innocent misrepresentation?

Answer 6

Prior to the introduction of the Misrepresentation Act 1967, the courts were reluctant to award rescission for innocent misrepresentation, despite this being the only remedy (at the time) for innocent misrepresentation. (Therefore leaving the innocent party with no remedy at all!).

This is because rescission could amount to a somewhat draconian measure where, for example, a misrepresentation could be said to be trivial and where damages would provide a perfectly adequate remedy. The s2(2) remedy is not available for fraudulent misrepresentation as such misrepresentation can never be regarded as trivial.

Question 7

When are damages available for the different types of misrepresentation?

Answer 7

Damages AND rescission are available at common law for fraudulent misrepresentation

S2(1) Misrepresentation Act 1967 provides that damages AND rescission are available for negligent misrepresentation.

Damages cannot be obtained for innocent misrepresentation, unless the court decides to exercise its discretion under s2(2) MA 1967 (i.e. damages in lieu of rescission). Such compensation is best seen as part of the remedy of rescission, rather than as an aspect of damages in their own right.

Question 8

Horsfall v Thomas [1862]

Answer 8

A representee will be held not have relied on the untrue statement (and therefore not induced into the contract) if the representee was unaware of the misrepresentation at the time of contracting.

Here, the buyer of a gun did not examine it prior to purchase. A defect in the gun had been concealed but the court held that this did not affect the claimant’s decision to purchase as, since he was unaware of the misrepresentation, he could not have been induced into the contract by it. His claim failed.

Question 9

Fox v Mackreth [1788]

Answer 9

Silence cannot usually amount to misrepresentation. This is for practical or moral reasons - people can make all sorts of assumptions before entering into contracts. These assumptions should not form the basis of a legal claim.

However, there are some established exceptions to the above rule!

Question 10

How are damages awarded for fraudulent misrepresentation?

Answer 10

Perhaps unusually, damages are awarded on the tortious basis rather than the contract basis. This means that the aim is to put the claimant back in the position they would have been in had the misrepresentation not occurred. This principle comes from Smith & New Court Securities Ltd v Scrimgeour Vickers (Asset Management Ltd) [1996].

Question 11

First Tower Trustees v CDS (Superstores International) [2018]

Answer 11

A “no reliance clause” (AKA a clause which states that “no representations are made”) must be treated as an attempt to exclude liability for misrepresentation and is therefore subject to s3 MA 1967.

Such clauses clearly intend to exempt liability for misrepresentation and the protects offered under s3 MA 1967 are not to be circumvented simply by clever drafting which omits the word “misrepresentation”.

Question 12

s3 MA 1967

Answer 12

This section of the Misrepresentation Act provides strict rules limiting a parties ability to exempt themselves from liability arising from misrepresentation, by inserting an exemption clause.

Question 13

Sykes v Taylor-Rose [2004]

Answer 13

Area: General rule that silence does not typically give rise to misrepresentation.

Facts: A house seller did not volunteer information that there had been a brutal murder in the house.

Outcome/importance: The court held that it was not necessary for the seller to volunteer this information and therefore there was no misrepresentation. If the buyer thought that this was important, they should have asked!

Question 14

Provide a sentence definition of actionable misrepresentation

Answer 14

An actionable misrepresentation is a statement of material fact, made prior to the contract by one party to the contract to the other, that is false or misleading and that induced the other party to enter into the contract.

Question 15

When establishing an actionable misrepresentation, how is it determined if a statement made is false?

Answer 15

False simply means incorrect. Whether or not this was intentional is important when classifying the type of actionable misrepresentation.

In Avon Insurance PLC and Others v Swire Fraser Ltd and Another [2000], it was held that falsity was a matter of degree and that the court will consider whether the statement is “substantially correct” so that any difference between was represented and the correct position would not have been likely to induce a reasonable person to enter into the contract. (i.e. would the falsity have changed the position as to whether the parties entered into the contract?)

Question 16

Roscorla v Thomas [1842]

Answer 16

The misrepresentation must be made before the contract is formed.

A statement made after the formation of the contract cannot be actionable.

Question 17

Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006]

Answer 17

Area: Inducement/reliance when establishing actionable misrepresentation.

As long as the documents themselves have not been misrepresented, any contract signed by the claimant which contradicted previous representations but was factually correct, will not give rise to an actionable misrepresentation. This is because the claimant had looked at and signed these documents and so it was not then open to claim that he was induced to sign by an earlier misrepresentation.

Question 18

What statute introduced “negligent misrepresentation” and what is the definition?

Answer 18

S2(1) Misrepresentation Act 1967:
“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did not believe up to the time the contract was made that the facts represented were true”.

Question 19

What is the general effect of misrepresentation?

Answer 19

Misrepresentation renders the contract voidable. This means that the contract is valid, until the innocent party take steps to avoid (cancel) it. The innocent party may also be able to claim rescission and damages

Question 20

Can an “entire agreement” clause limit a party’s liability for misrepresentation?

Answer 20

An “entire agreement” clause will state that the written agreement contains all the obligations between the parties.

In Inntrepreneur Pub Co v East Crown Ltd [2000], it was confirmed that the s3 MA 1967 will still apply, if it can be shown that a false statement was made and relied on. “An entitle agreement provision does not preclude a claim in misrepresentation, for the denial of contractual force to a statement cannot affect the status of the statement as a misrepresentation”.

Question 21

Raiffeisen Zentralbank v RBS [2010]

Answer 21

Area: Test for inducement

“If it is clear that unless the representation had been made to him, the claimant would not have entered into the contract, it is irrelevant to ask what would have happened if he had been told the truth. It is not necessary for the representee to establish he would have acted differently had he known the truth.”

That not only applies to negligent misrepresentation as alleged in Raiffeisen, it also applies to deceit / fraudulent misrepresentation, as the Supreme Court held in Zurich Insurance v Hayward [2016] 3 WLR 637.

Question 22

What type of damages are available for fraudulent misrepresentation?

Answer 22

For fraudulent misrepresentation, the measure of damages is based on action in the tort of deceit. Therefore, compensation is available for ALL direct damages and not just the damages that were foreseeable. (Doyle v Olby (Ironmongers) Ltd [1969])

Question 23

SK Shipping Europe Ltd v Capital VLCC 3 Corp and another company (THE C CHALLENGER) [2022]

Answer 23

When considering the appropriateness of s2(2) MA 1967 (and whether damages in lieu of rescission are still available if recission itself is not possible), the Court of Appeal judge said:
“These are difficult issues. I would leave them to be wrestled with in another case where they will be critical to the outcome.”

Question 24

In brief, what are the two requirements to establish inducement, for misrepresentation?

Answer 24

1. The claimant must have known of the existence of the statement; and
2. The statement must have materially affected the claimant’s judgment such that the claimant was by it OR acted in reliance upon it.

Question 25

Spice Girls v Aprilia World Service BV [2002]

Answer 25

Area: Inducement for misrepresentation can be made by conduct Facts: The Spice Girls entered into a contact with the motorcycle manufacturer, Aprilia, to advertise a new range of scooters. The contract was formed in March 1998, for an advertising campaign which was due to run through the summer with pictures of all 5 Spice Girls with the scooters. In April 1998, Geri Halliwell left the Spice Girls, meaning the marketing campaign could not go ahead. Aprilia refused to pay, and the Spice Girls sued them. Outcome/importance: The court held that in allowing the photographs to be taken using all 5 members, knowing that one of them was going to leave 4 weeks later, constituted a misrepresentation that all 5 members would be in the band for the duration of the advertising campaign in the summer. If the impression given is false, this may amount to misrepresentation by conduct

Question 26

Thomas Witter Ltd v T B P Industries Ltd [1996]

Answer 26

An exemption clause which did not distinguish between fraudulent, negligent or innocent misrepresentation failed as there are no circumstances to exclude liability for fraudulent misrepresentation. This means that is important to draft such a clause to remove its potential to apply to fraudulent misrepresentation because it will not be possible to sever objectionable parts.

Question 27

Can damages be awarded for innocent misrepresentation?

Answer 27

Damages cannot be obtained for innocent misrepresentation, unless the court decides to exercise its discretion under s2(2) MA 1967 (i.e. damages in lieu of rescission). Such compensation is best seen as part of the remedy of rescission, rather than as an aspect of damages in their own right.

Question 28

What is the leading case for fraudulent misrepresentation?

Answer 28

Derry v Peek [1889] - The statement must have been knowingly false OR made with no belief in its truth OR made with reckless carelessness as to whether or not it was true. (AKA the statement must have been made dishonestly).

Question 29

Leaf v International Galleries [1950]

Answer 29

Delay is a bar to rescission. A painting was sold after having been falsely represented as being painted by Constable. Five years later, the truth was discovered and the purchaser sought to rescind the contract. His action failed because of the elapse of time between the contract of sale and the discovery of truth. In light of the above, in cases of non-fraudulent misrepresentation, the time runs from the date of the contract itself and not the date of discovery. *NOTE - The judges in Salt v Stratsone Specialist Ltd [2015] doubted whether "Leaf" is still good law, with Longmore LJ saying "it does not seem to me that lapse of time on its own can be a bar to rescission".

Question 30

What is the definition of innocent misrepresentation?

Answer 30

An innocent misrepresentation is one which is neither fraudulent nor negligent. In view of the reversed burden of proof in s2(1) MA 1967, an innocent misrepresentation will occur where a representor believed that the facts represented were true AND that they can prove that they had reasonable grounds for believing those statements. The absence of the second part will mean that negligent misrepresentation will be established.

Question 31

Royscot Trust Ltd v Rogerson [1991]

Answer 31

The Court of Appeal held that damages under s2(1) MA 1967 (i.e. for negligent misrepresentation) are assessed on the same basis as fraudulent misrepresentation (i.e. the claimant will be entitled to all direct damage which flows from the defendant's fraud, even if the loss could not have been foreseen). *Note that in Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996], the House of Lords commented that the above has been subject to much academic debate and was open to challenge. If a case was to be brought, it is possible that the measure of damages would be equated to those available for the tort of negligence (foreseeable only) rather than the tort of deceit (all direct damages).*

Question 32

What is rescission and for what types of misrepresentation is rescission an available remedy?

Answer 32

Rescission is available for any category of misrepresentation. The effect of rescission is to terminate the contract ab initio (from the beginning). It follows that the object of rescission is to put the contracting parties into the position they would have been in had the contract never existed at all.

Question 33

White v Garden [1851]

Answer 33

Rights of third parties is a bar to rescission. When third parties have in good faith, and for value, rights in property, they become the owners of that property, both in law and in equity. Once this has happened, there can be no rescission of the original contract, as the goods cannot be recovered from the third party.

Question 34

What type of remedy is a rescission?

Answer 34

Rescission is an equitable remedy and so it is in the discretion of the court. However, the bars to rescission will create instances when the right will always be lost.

Question 35

With v O'Flanagan [1936]

Answer 35

An exception to the general rule that silence is insufficient for consideration is when there has been a change of circumstances before the contract is formed. In this case, the statement was correct when it was initially made but became false by time the contract was formed. Lord Wright MR stated: "if a statement has been made which is true at the time, but which during the course of negotiations becomes untrue, then the person who knows that it has become untrue is under an obligation to disclose to the other the change of circumstances".

Question 36

Long v Lloyd [1958]

Answer 36

Affirmation is a bar to rescission. In this case, the claimant purchased a lorry which had been falsely represented to be in good condition. The claimant became that this was not true when the vehicle broke down and he agreed to split the costs of repair with the seller. On the second journey, the lorry broke down again, revealing even more serious defects. It was held that the buyer was not able to rescind as undertaking the second journey had amounted to affirmation of the contract.

Question 37

Redgrave v Hurd [1881]

Answer 37

In terms of inducement, it is generally no defence to argue that the representee was given an opportunity to verify the truth of the statement, but chose not to do so.

Question 38

What are the five 5 "bars" to rescission?

Answer 38

1. Affirmation 2. Delay 3. Impossible to restore parties to original positions 4. Third party rights 5. s(2) MA 1967 - (court decides to award damages in lieu of rescission)

Question 39

Salt v Stratsone Specialist Ltd [2015]

Answer 39

The court considered where the remedy of damages in lieu of rescission (under s2(2) MA 1967) would still be available if rescission was not available for another reason (i.e. delay or restitutio in integrum is impossible). The court appeared to adopt the view that the s2(2) remedy is only available in instances where rescission is available. The introduction of s(2) was to mitigate the effect of rescission on a vendor in situations where it could be an overly-harsh remedy. The purpose of s2(2) is not to provide a remedy when there was none. S2(2) is not an additional means of claiming damages, but is an additional restriction on the availability of rescission. Rescission is the standard remedy for misrepresentation, and it should be awarded wherever possible.

Question 40

Briefly, what was the historical options for misrepresentations?

Answer 40

Historically, all misrepresentations were either fraudulent or non-fraudulent (namely innocent). There was no negligent misrepresentation. Historically, prior to negligent misrepresentation, the remedies available for non-fraudulent misrepresentation were quite limited.

Question 41

Smith v Land and House Property Corp [1884]

Answer 41

Normally, a false statement of opinion cannot give rise to an actionable misrepresentation (as per **Bissett v Wilkinson [1927]**). However, as per this case, if a party has some special skill or knowledge which might add weight to their opinion, then this may amount to an implied statement of fact and be capable of misrepresentation.

Question 42

In what case did Bridge LJ describe the following about negligent misrepresentation and its burden of proof: "the statute imposes an absolute obligation not to state facts which the representor cannot prove he had reasonable ground to believe".

Answer 42

Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978]

Question 43

What are the established exceptions to silence not being sufficient to give rise to misrepresentation?

Answer 43

1. Contracts of utmost good faith 2. Where there has been a change in circumstances 3. Half-truths 4. Where there is a fiduciary relationship

Question 44

Walters v Morgan [1861]

Answer 44

With regards to misrepresentation, the statement of fact or law does not need to be made orally or in writing. In this case, the judge said that: “a nod, or a wink, or a shake of the head or a smile will suffice”. Therefore, anything that gives the impression that a fact or law exists is sufficient to establish a statement for the purposes of misrepresentation.

Question 45

When can a statement of opinion amount to an actionable misrepresentation?

Answer 45

An expression or opinion, which is honestly held, cannot give rise to an actionable misrepresentation. (Bisset v Wilkinson [1927]) However, if the statement maker has some special knowledge or skill that give weight to their opinion, then their opinion may be treated as being an implied representation of fact and therefore capable of being misrepresentation (Smith v Land House Property Corporation [1884]).

Question 46

Naughton v O'Callaghan [1990]

Answer 46

Damages in misrepresentation are tortious and are not the same as damages for breach of contract. The aim of damages in misrepresentation is to put the claimant in the position they would have been in, had the misrepresentation never happened - AKA if the contract never happened.

Question 47

Car & Universal Finance Co Ltd v Caldwell [1916]

Answer 47

The election to treat the contract as rescinded must be communicated to the other party. If it is impossible to trace the other party, the requirement of notice may be waived, provided that the innocent party takes appropriate steps to indicate their intention of rescinding the contract. Note that in this case, the claimant notifying the police and the AA (to assist with recovery of his vehicle) was sufficient to demonstrate his intention of rescinding the contract. This case also shows that, whilst rescission is exercisable without a court order, it is better to have one in practice - especially in circumstances where the intention is to recover goods from a third party.

Question 48

With regards to misrepresentation, what is a "no reliance clause"?

Answer 48

A "no reliance clause" is a clause which states "no representations are made" and will be used as an attempt by a party to try and limit their liability for misrepresentation. These will still be subject to the protections offered by s3 MA 1967, as confirmed in First Tower Trustees v CDS (Superstores International) [2018].

Question 49

Why is pursuing fraudulent misrepresentation less attractive to a claimant, compared to negligent misrepresentation?

Answer 49

As per Royscot Trust Ltd v Rogerson [1991], the measure of compensation for negligent misrepresentation is to be the same as fraudulent misrepresentation (i.e. based on the tort of deceit rather than the tort of negligence). The tort of deceit allows compensation to be awarded for ALL direct damages, not just foreseeable damages. Whilst a fraudulent misrepresentation claim has reduced requirements in respect of inducement, in all other respects a fraud claim is more difficult to bring and the action under s2(1) (a negligent misrepresentation claim) is more advantageous to the claimant, in that the burden of proof that there was no negligence lies with the defendant, rather than the claimant having to prove deceit and the measure of damages will be just as extensive as it is under deceit.

Question 50

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1996]

Answer 50

The House of Lords affirmed the decision in Doyle v Olby (Ironmongers) Ltd [1969] in that in cases of fraudulent misrepresentation, the victim of fraud was entitled to compensation for all actual loss, including consequential loss, which flowed directly from the transaction irrespective of whether it was a foreseeable loss. Lord Browne Wilkinson set out the following principles: 1. The defendant is bound to make reparation for all the damage directly caused by the transaction, irrespective of whether such damage was foreseeable; 2. In assessing such damage, the claimant is entitled to recover by way of damages the full price paid by them, but they must give credit for any benefits which they have received as a result of the transaction; 3. In addition, the claimant is entitled to recover consequential losses caused by the transaction; 4. The claimant must take all reasonable steps to mitigate their loss once they have discovered the fraud.

Question 51

Vigers v Pike [1842]

Answer 51

Whilst rescission requires parties to be placed in the pre-contractual positions, it follows that this cannot be available as a remedy where it is impossible to do so. However, as seen in this case, there is some discretion available to the court in that precise restoration is not required as long as substantial restoration is possible. The court can account for this offset (normally deterioration of the goods being used) by awarding rescission together with an order for compensation.

Question 52

Where does the burden of proof lie with claims of negligent misrepresentation?

Answer 52

The burden of proof is on the representor to show that they were not careless in making the statement (AKA the representor had a continuing honest belief in his statement). (as confirmed in s2(1) Misrepresentation Act 1967).

Question 53

Attwood v Small [1838]

Answer 53

Area: The representee must actually rely on the representation to satisfy the “inducement” requirement of misrepresentation. Facts: The purchasers of a mine were told exaggerated statements as to its earning capacity by the vendors. The purchasers had these statements checked by their own expert agents, who erroneously reported them as being correct. 6 months after the sale was complete, the purchasers discovered that the defendants’ statement had been false and sought to rescind the contract. Outcome/importance: There was no misrepresentation since the purchasers did not rely on the representation made by the vendor. (they had relied on the verification by their agents!) It also follows that if the claimant knows that the representation is false, then there is no claim in misrepresentation.