Law of Contract

Misrepresentation Revision Notes

What is a Misrepresentation ?

Professor McKendrick defines misrepresentation as

‘A misrepresentation may be defined as an unambiguous, false statement of fact or law which is

addressed to the party misled, which is material and which induces the contract’

It can be also said to mean: a misleading or untrue statement of fact or law made by one party to
another that is not incorporated as term of contract which induces the other party to enter into the
contract.

A statement includes conduct

A representation can be made orally or written and also conduct.

The case of Walters v Morgan (1861) held that the law can now take into account body languages
such as

‘A nod or a wink, or a shake of the head or a smile from the purchaser intended to induce the vendor
to believe the existence of a non-existence fact’ (And this may amount to misrepresentation)

Statements

A statement of fact must be verified. Means a statement about something capable of being verified.

Three categories of statements have not been held to constitute statements of existing facts and do
not amount to an actionable misrepresentation

1) A mere puff is not a statement of fact – mere puff means mere sales talk or a statement so
vague that no reasonable person would rely on it. No liability Dimmock v Hallett (1866) –
‘Fertile and improvable’

Mere puffs - “talking up” the product - “It’s a great little bus; I’d stake my life on it!” “This washing
powder washes whiter than white”

2) Statement of opinions is not a false statement of fact if sincerely held. Bisset v Wilkinson
(1927) (If honestly held) – It does not give rise to an actionable misrepresentation.

3) A statement of future intention is not a statement of fact unless D had no such intention.
Edgington v Fitzmaurice 1885

Where a statement of opinion implies hidden facts then it is a misrepresentation – Smith v Land and
house property (1884) ‘A most desirable tenant’
The opinion of someone with specialist knowledge and skills indicates a statement of fact even if
it expressed as an opinion will amount to a misrepresentation – Esso v Mardon (1796)

Statement of law

A false statement of law is not a statement of fact and therefore cannot amount to misrepresentation.
However such statement can now amount to misrepresentation (but this was not always the case)

Kleinwort Benson ltd v Lincoln city council (1999) – Held misrepresentation of law should now
give a representee a cause of action on the same basis as if misrepresentation had been of an
existing fact.

Silence

Silence does not amount to a misrepresentation and the contracting party has no duty to disclose
materials know to that party but not to the other party. Turner v Green (1895) - Held F had no duty
to disclose and had not made any misleading reference to proceedings so no grounds to
refuse SP of the compromise-

Keates v Cadogan (1851) – Held failure to disclose information does not amount to
misrepresentation

However there are 5 exceptions where silence is not misrepresentation

1) Misrepresentation by conduct – Spice girls v Aprilia world service (2000) –

misrepresentation by conduct as participation of all 5 band members in commercial induced
other party into the contract

2) Partial revelation - (half truth) – Dimmock v Hallet (1866) – no duty to offer information but
if they do it should be whole information

3) Changes of circumstances before contract is concluded – Statements are true when

made but later become false by the time the contract has been formed. Maker has duty to
correct statement at the time he becomes aware it is no longer true. With v O’flanagan
(1936)

4) Contracts of utmost good faith (Uberrimae Fidei) Example insurance, sales of land and
shares contracts. There is a duty to disclose all materials facts whether or not these are
asked for.

5) A contract involving fiduciary relationships – one party of whom reposes trust and
confidence in the other, the law imposes duty to disclose. Example Solicitor and client, doctor
and patient, agent and principle.

Made by one party to another

A party can be a representative of whom the contract is made or the statement can is a
statement made on behalf of another party but the statements must be linked to the contract.

Inducement
The innocent party must have relied on the statement to make his decision. However the statement
does not need to be the sole reason but must be a reason for entering the contract – JEB fastenders
(1885)

No inducement if misrepresentation is not heard by the other party.

Material inducement – Edgington v Fitzmaurice. Not inducement if party relies on own judgement –
Attwood v Small (1836) and offering chance to discover the truth does not prevent claim Redgrave v
Hurd (1881)

Remedies

What is a remedy? - The means by which a right is enforced or by which the violation of a right is
prevented or compensated.

Types of Misrepresentation

Fraudulent Misrepresentation

 Fraudulent misrepresentation constitutes the tort of deceit.

 The maker of the statement here either knows 1) the statement is untrue 2) has no belief that
its true and 3) is reckless as to whether or not it is true.
 This type recovers all losses from misrepresentation and it doesn’t matter whether it was
foreseeable or not.
 Key element – Dishonesty. The standard of proof is high. (Difficult to prove D knows its
untrue)
 Derry v Peek (1889) – Lord Herschell established 3 propositions
1) There must be proof of fraud and nothing short of that is sufficient
2) Fraud is proved when shown a false representation has been made, knowingly, or without
belief in its truth or reckless or careless whether it be true or false.
3) if fraud is proved the motive of the person guilty of it is immaterial.

The burden of proof is on the plaintiff he who asserts fraud must prove it. Difficult to prove
fraud in lord Herschell requirements.

Fraudulent misrepresentation - as well as being a ground for setting aside K is also tort of deceit.
Effectively person who makes fraudulent statement is strictly liable for any loss which follows and
tests of causation do not apply - need not show that loss is directly caused by statement, merely that
statement induced person to enter K [cf Slough Estates v WHDC].

Negligent Misrepresentation (at common law)

 Also tort of negligent misstatement

 Damages may be recoverable for negligent misstatement which causes financial losses
  Damages was only available at common law for fraudulent misrepresentation, however case
of Hedley Bryne v Heller (1964) has allowed damages to be recoverable for negligent
misrepresentation and then under the misrepresentation act 1967
 Hedley Bryne – HOL held could be liability for negligent misrepresentation provided
conditions have been fulfilled. One of which was that there is a special relationship between
the parties

Innocent Misrepresentation

 The maker of the statement made the statement in good faith

• Issue is contractual fairness but really this is tort and equity not contract!!!!

• Law disapproves of persons inducing others to enter contracts by deception, whether

knowingly or unknowingly.

• Representation is not a promise (or it would be contractual term) but merely an assertion of a
statement of fact which invites reliance -

• Kleinwort Benson v Malaysia Mining Corp [1989] 1WLR 379 - D refused to guarantee
repayment of loan made by P to D’s subsidiary but gave P a letter of comfort saying it was
D’s policy to ensure that subsidiary business was in position to meet its liabilities to P under
the loan arrangement. Held - not a contractual promise but representation of fact as to D’s
policy at the time but no undertaking that this would not change in future. Not a
misrepresentation as true statement of policy when it was made. BUT

• Edgington v Fitzmaurice (1885) statement of opinion as to future intention is a

misrepresentation where it is not true at the time: viz. Directors guilty of misrepresentation
where in prospectus they stated intention to use proceeds to expand business but actually
intended to use it to pay debts.

• Different consequences follow according to whether statement is contractual or non-

contractual:

• contractual statements are terms of contract and breach of them gives rise to action for
breach of contract

• non-contractual statements are misrepresentations which may allow a party to claim

rescission (make contract voidable)

Lecture structure:

i) Define misrepresentation

ii) Consider different types of misrepresentation: fraudulent, negligent and innocent.

Representation must be addressed to party misled or to a third party with the intention that it be
passed on to the representee

Commercial Banking Co of Sydney v RH Brown and Co [1972] Lloyds Rep 360 - D bank
misrepresented to plaintiff’s bank financial standing of one of P’s customers. Plaintiff’s bank told P
who acted on information to its detriment. Held that D liable to P because they knew information was
wanted not by the plaintiff’s bank for its own purposes, but to pass on a customer (P) who was
proposing to deal with a client of the D bank.

Is representation one which would affect judgment of reasonable man in deciding whether or not to
enter contract? (But if representor has been fraudulent then he cannot be heard to argue that
representation was immaterial).
Must be a reason for entering K but need not be sole one - see Edgington - P induced to subscribe for
shares in part by prospectus but also in reliance on his mistaken belief that he would have a charge
on the company’s assets. Still this was sufficient. Contrast JEB Fasteners v Marks [1983] P failed to
recover against D who negligently prepared accounts for a company which P acquired. P had seen
accounts but had reservations about them but decided to proceed with take-over as they wanted to
obtain services of two directors of the company. Take-over not a success and P sued D alleging they
had been negligent in preparing accounts. P failed as Court of Appeal held representation did not play
a “real and substantial” part in inducing P to proceed. P took over company because of the two
directors and not due to the accounts.