Howard Marine v Ogden [1978] QB 574

KEY POINTS

• A pre-contractual statement was made regarding the deadweight capacity in a contract for the hire of barges. However, this statement was later determined to be an innocent misrepresentation.

• According to the Misrepresentation Act of 1967 (c. 7), section 2(1), the burden of proof lies on the representor to demonstrate that they had reasonable grounds for their belief in the accuracy of the statement up to the time the contract was made.

• The same contract stipulated that the charterers' acceptance of the vessel would be conclusive evidence that the vessel was fit for its intended use. This clause aimed to determine the vessel's fitness as per the charterer’s acceptance.

• The fairness and reasonableness of the exception clause, which deems the charterers' acceptance as conclusive evidence, were assessed under the Misrepresentation Act of 1967, section 3.

FACTS

• Civil engineering contractors negotiated the hire of two German sea-going barges for transporting heavy clay to sea. In July 1974, the barge owners' marine manager incorrectly estimated the capacity at 850 cubic meters (equivalent to 1,600 tonnes of weight). The accurate capacity was later found to be 1,055 tonnes from ship documents. Despite doubts, the contractors proceeded under a charter party with an exception clause.

• In 1975, the contractors, uncertain about the capacity, paid £20,000 but refused further payments. The owners sued for £93,183 in outstanding hire charges. The contractors counterclaimed, citing breaches of collateral warranties, a duty of care breach due to a special relationship, and liability under the Misrepresentation Act 1967.

• Bristow J. ruled for the owners, awarding the sum claimed with interest. Contractors appealed, and owners issued a cross notice, taking the case to the appellate court.

JUDGEMENT

• The contractors, A. Ogden and Sons (Excavations) Ltd. cannot establish a contract claim since there was no element in the pre-contract negotiations amounting to a collateral warranty.

• The plaintiff owners, Howard Marine and Dredging Co. Ltd., are liable in tort for damages under the Misrepresentation Act 1967 [section 2(1)]. The marine manager's pivotal misrepresentation about the barges' deadweight capacity could have led to liability if fraudulent. The owners failed to demonstrate reasonable grounds for the manager's belief in the misrepresented facts, validating the contractors' appeal.

• The owners cannot escape liability using the exception clause. This clause, aimed at limiting liability under the Misrepresentation Act 1967 [section 3], must be disregarded unless deemed "fair and reasonable" by the court, which it wasn't in this case, resulting in the dismissal of the owners' cross-appeal.

• The contractors also have a common law negligence claim. Given the significance of the carrying capacity answer in the business transaction, the owners had a duty to exercise care in providing information within their specialized knowledge.

• The trial judge's determination that the misrepresentation wasn't negligent confirmed that the representor met the burden of proof under section 2(1) of the Misrepresentation Act 1967, warranting no change to that decision.

COMMENTARY

• Civil engineering contractors seeking to hire sea-going barges for heavy clay transport faced legal challenges due to a critical misrepresentation about carrying capacity.

• Providing accurate information in negotiations is crucial, especially when it profoundly impacts contract terms and expectations. The Misrepresentation Act 1967 holds parties accountable for misrepresentations. Failure to demonstrate reasonable grounds for misrepresented beliefs can lead to legal consequences.

• Clauses attempting to limit liability may be invalidated if not deemed "fair and reasonable" by the court.

• Besides statutory remedies, common law principles can apply, emphasizing the duty to offer accurate information, particularly with specialized knowledge.

• The need for transparency and precision in pre-contractual dealings and highlights the legal implications of misrepresentations.

ORIGINAL ANALYSIS

• Howard Marine (H) made a false representation to Ogden (O) that a boat could hold a certain capacity, based on the details of the boat in an official register, but which were entered incorrectly. O leased the boat under a contract with an exclusion clause.

• After several months O realised the inaccuracy of the representation as to capacity of the boat and refused to pay the full amount agreed for the lease.

• H sued O for the outstanding money, while O counterclaimed for damages.

• CA (majority) held that H’s misrepresentation fell within s.2(1) of the 1967 Act while the exclusion clause was unreasonable under the Unfair Contract Terms Act. 

Bridge LJ (Majority)

• Under s.2(1), it is obvious that damages would have been forthcoming had the misrepresentation been fraudulent, since it aimed to induce O to sign the agreement and did induce O to act on it.

• Therefore unless H can show that its grounds for making the representation were reasonable, H will be liable for damages. On the facts there were no reasonable grounds. 

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McKendrick: Despite the fact that Defendants relied on a fairly reliable source of evidence, they failed to show reasonableness because they had the correct facts in their possession in documents for a fair amount of time.

This shows the difficulty of overcoming the evidentiary burden placed on the misrepresentor. Therefore a claimant is better of using s.2(1) than negligence, as well as the fact that the former has a reduced remoteness restriction, and no proof of duty of care or breach is needed. The only problem is that it can only be invoked between contracting parties, unlike negligent misrepresentation claims.

However a tort of negligence, aside from its application stretching beyond contract, is also not susceptible to contributory negligence defences i.e. it still has advantages. NB CW: The 1967 act, like the torts for negligence and fraud, uses the reliance measure for assessing damages