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Misrepresentation Notes

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Not all statements made by one party in the negotiations for a contract, which is relied on by the other party in entering into the contract and which turns out to be false are actionable. Only a misrepresentation of fact will give rise to liability
?????Discount 'mere puffs': exaggerated sales hype or vague boasts about the subject matter of a contract are not intended to be relied upon. Such statements do not give rise to liability. But if, judging the matter objectively, the court thinks that the statement was intended to be taken seriously, it will not be dismissed as a mere puff even if it is extravagant. For example, in Carlill v Carbolic Smoke Ball, the advertisement that a PS100 reward will be paid by the manufacturers to anyone who contracts influenza after using the ball three times daily for two weeks according to the printed directions was held not to be a 'mere puff', because the deposit of PS1000 in the bank evidenced seriousness.
-Eg Esso v Marden [1976] where inaccurate estimate of the station's throughput, opinion, but held to not to be a puff due to RELATIVE EXPERTISE of the person making the statement Cf Dimmock v Hallett (1866) where "fertile and improvable land" held to be a mere puff

Misrepresentation sits alongside other 'vitiating factors' - which make the contract voidable (i.e. subject to the remedy of rescission). In addition, there may be the possibility of recovering damages

We are considering statements made by one of the contracting parties about the contractual subject matter, such as assurances that it possesses a certain quality or attribute. These are not statements in which one of the contracting parties promises what they will or will not do. Some of these statements are terms (I promise it is a Constable). Others are representations (it is a Constable).

(i) The remedy will be different if the statement turns out to be falseTo obtain damages on the expectation measure, the representee might contend that a pre-contractual misrepresentation has become a term within the main contract or a collateral warranty.


Only a collateral warrenty if Lightman J. in Inntrepreneur Pub v East Crown
[2000] endorsed at [23] in Business Environment Bow Lane v Deanwater Estates [2007] (No collateral warrenty arose, :

1. Parties must have intended it to be a collateral warranty. Intention is a question of fact to be decided by looking at the totality of the evidence

2. the test is the ordinary objective test for the formation of a contract: what is relevant is not the subjective thought of one party but what a reasonable outside observer would infer from all the circumstances;

3. in deciding the question of intention, one important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have a contractual effect because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them;

4. a further important factor will be the lapse of time between the statement and the making of the formal contract. The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal;

5. a representation of fact is much more likely intended to have contractual effect than a statement of future fact or future forecast."If it's a mere misrepresentation, damages are available under the 1967 Act, but calculated on the less favourable tort measure: to put C into the position he'd have been in if the representation had not been made and not if the representation was true. The claimant can only recover damages where the defendant was at fault.

(ii) Strict liability applies to contractual terms, but if it is a mere misrepresentation D does not have to pay damages if he had reasonable grounds to believe that the statement was true.

(C) HOW TO TELL THE DIFFERENCE: DEPENDS ON THE PARTIES' INTENTION, JUDGED OBJECTIVELY Statement can only be a term provided it appears on the evidence to be so intended. Intention is judged objectively and 'can only be deduced from the totality of the evidence" (Lord Moulton in Heilbut v Buckleton [1913] -ultimate test is INTENTION, OBJECTIVELY ASCERTAINED, also illustrated by Leggatt J in Yam Seng Pte Ltd v International Trade Corp (2013))

(D) FACTORS COMMONLY TAKEN INTO ACCOUNT Timing of the statement The lapse of time between the statement and the making of the formal contract will be significant. "The longer the interval, the greater the presumption must be that the parties did not intend the statement to have contractual effect in relation to a subsequent deal" (Lightman J stated in Inntrepreneur v East Crown
[2000]) A further important consideration will be whether the statement is followed by further negotiations and a written contract not containing any term corresponding to the statement. In such a case, it will be harder to infer that the statement was intended to have contractual effect, because the prima facie assumption will be that the written contract includes all the terms the parties wanted to be binding between them. Importance of statement The more important the statement is to contracting parties, the more likely it is to be considered a term (Bannerman v White [1861] where buyer asked if hops was treated with sulphur and said would not buy them if hops treated with sulphur as cannot make beer. Seller assured buyer hops not treated with sulphur. Held statement that hops not treated with sulphur was a TERM and not a MISREPRESENTATION as C had communicated the importance of the term and relied on the seller's statement) A really trivial representation might not influence the claimant's decision to enter the contract at all and thus will not trigger the remedies for misrepresentation, even if false. Relative expertise of parties Where an expert makes a statement to an amateur, the statement is more likely to be a term of the contract, whereas if an amateur makes a statement to an expert, the statement is more likely to be a mere representation. In Esso v Mardon [1976], Esso owned a petrol station and was negotiating with Mardon to grant him a tenancy. Esso gave Mardon an inaccurate estimate of the station's throughput. Mardon took the tenancy but lost money and gave up the business. Esso brought proceedings to repossess the petrol station and Mardon counterclaimed for damages, arguing that Esso was liable for breach of warranty and/or negligent misrepresentation. Esso's statement appeared to be a mere statement of opinion. But the CA held that, because of Esso's relative expertise compared with Mardon, they must be deemed to have warranted that the forecast was made with reasonable care and skill. Esso v Marden is an illustration of the objective version of intention at work. Such a warranty was not what Esso intended to give, judged subjectively, but is what it is taken to have intended.

Esso v Marden also illustrates a representation of fact is much more likely to have contractual effect than a statement of future fact or future forecast. External verification If the defendant encouraged the claimant to rely on his assurance without seeking external verification of its accuracy, this will readily persuade the court that the statement was a term of the contract. Where, on the other hand, the defendant encourages external verification, this will suggest that, judged objectively, the parties intended the opposite. In Ecay v Godfrey [1947], E bought a boat from G for PS750. The boat was in an appalling condition, and E resold her for only PS45. E claimed damages, alleging that G had warranted that she was in good condition. G was a boat expert, while E was an amateur. The judge held that G's statements were mere representations, first since on the facts he doubted that G had actually given the unequivocal assurances alleged and second, even if he had, he had also asked E whether he was planning to have a survey. The judge reasoned it would have been inconsistent for G to recommend a survey if he was intending to warrant that the boat was in good condition.

ELEMENTS OF AN ACTIONABLE MISREPRESENTATION A material false representation of fact (or law), addressed to the party misled, which he relies on (which induces him) to enter into the contract.

STATEMENT OF FACT Fact v. opinion: A statement of opinion which turns out to have been unjustified will not give rise to liability for misrepresentation. In Bisset v. Wilkinson [1927], W purchased land from B to be used for sheep farming. During negotiations, B estimated it would 'carry two thousand sheep'. Its true capacity turned out to be somewhat less. As W knew that the land had never before been used for sheep farming +
vendor not an expert (LACK OF EXPERIENCE), PC held that W was not justified in regarding anything said by the plaintiff as to the carrying capacity as being anything more than an opinion. Thus W had no right to rescind the contract.Also in this case the price of land dropped, there might have been a suspicion that purchaser tried this as a way out

However the distinction between fact and opinion is not a clear-cut one. In Bisset the forecast was treated as a statement of opinion principally because B was in no better position than W to predict the sheep capacity of the land. If the maker of the statement has special knowledge or expertise relative to the other party, the courts tend to treat what appears to be an opinion as nonetheless actionable as a misrepresentation, as the statement of opinion implies that the expert has reasonable grounds for taking that view. This mirrors

the approach taken in cases like Esso v Mardon in deciding whether a statement is a term of the contract.Eg Smith v Land and House Property Co (1884) - vendor sold freehold with a "most desirable tenant" though vendor knew that tenant had been slow to pay rent - held that an OPINION in this case would be viewed as a MATERIAL FACT as the facts are "not equally known to both sides" and the "statement of opinion" "impliedly states that he knows facts which justify his opinion" Bowen LJ
? Ie if one party has more INFORMATION than other party, an opinion can be viewed as a fact

What do the courts make of statements of fact which are expressly qualified by reference to the maker's belief or opinion? If I sell you a painting, stating merely 'I believe this is by Constable' rather than, 'This is by Constable', have I managed to turn a representation of fact into one of opinion?
If I do not believe that the painting is by Constable, I have misrepresented not the provenance of the painting, but what my opinion is. And even where my opinion is honestly held the court may treat me as having made a representation that I had reasonable grounds for holding that opinion. So, for example, where I am in a better position than the other party to check the facts to back up my opinion, but did not do so, I am liable for misrepresentation (Brown v Raphael [1958] solicitor made opinion on trust fund held honestly on a fact "believed to have no aggregable estate" to vendor though no reasonable grounds for believing so. Relied upon, held as representation due to solicitor being in a stronger position) Also can have misrep for intentions - Eg Edington v Fitzmaurice (1885) where promoter said investments used to expand business but actually just wanted to pay off existing debts, held to be a misrep. Per Bowen LJ " a misrepresentation as to the state of a man's mind is, therefore, a misstatement of fact") Fact v. future intentions: A statement of a party's future intention is not a statement of fact and is of no effect as a misrepresentation. However, if the maker of the statement promises that he will act upon or otherwise honour that future intention, it will be enforceable as a term of the contract. A statement of future intention, or expectation, as to the future, can implicitly contain a statement of fact with regard to the present or to the knowledge of the representor (Spice Girls v Aprilia [2002] where C, the Spice Girls sued D a motorbike company which had agreed to sponsor C for advertisement. But one member had expressed intention to leave the group prior to the signing. D claimed it was induced to enter into the contract by misrep. Held misrep by conduct as the Spice Girls had gotten all 5 members for the commercial photoshoot + supply of logos images and designs contained all 5 members)

Fact v. statement of law A misrepresentation of law is actionable (Pankhania v Hackney) [2004] The claimants purchased property induced by a representation that the current occupiers of the property were contractual licensees, whose occupation could be terminated on giving 3 months notice. In fact the current occupant was in fact a tenant protected under the Landlord and Tenant Act 1954. This was a misrepresentation as to law which had previously been assumed not to be an actionable misrepresentation through analogy with case law based on restitutionary claims for mistake of law. The rule barring recovery for mistake of law was abolished by the House of Lords in Kleinwort Benson v Lincoln County council. The High court held that actions based on misrepresentation of law could now be actionable based upon that change of law. The claimant's action was therefore successful)Ie In this case, C entered contract believing the licensee could be terminated only on giving 3 months' notice when actually not. Held this mistake of law counted as a misrep.

The test is to ask what the representee would have done had the representation not been made. Where the misrepresentation made no difference at all to the representee, in that he would have acted in precisely the same way and contracted on precisely the same terms even if the misrepresentation had not been made, there is no possibility either of rescission or damages.-

JEB Fasteners v Marks Bloom [1983] - need "but for causation" that the misrep induced C to enter into the contract
? Supported by Chitty on Contract on review of the authorities Cf Reynell v Spyre (1852) - where for fraud, false representation, whole contract viewed fraudulently, any contribution can be a misrep

The misrepresentation need not be the claimant's sole or main inducement to enter into the contract, provided it formed a reason why he did so.Eg Edgington v Fitzmaurice (1885) CA that C induced by mistaken beliefs of his own + D misrep, held C can still claim. No need that misrep be the sole/main inducement so long it provided a reason why he did so
? Approved by Lord Hoffman in Standard Chartered Bank v Pakistan Corporation (Nos. 2 and 4) [2003]

What if the representee has, or could have, found the truth of the matter?
Can a representee who had an opportunity to discover the truth, but did not take it, be said to have relied on the representation?
The traditional rule is that the representee who neglects such an opportunity can nonetheless rescind (Redgrave v. Hurd [1881] Solicitor purchased partnership

into firm, offered but didn't check account, turns out profit less. Allowed to rescind as held failure to check account REINFORCED rather than negated that reliance) Where the representor is better informed than the representee and thus better placed to provide accurate information, it is appropriate that the risk that the representee would take the representor at his word and not check the accuracy of the information should fall on the representor. Thus, in Redgrave v Hurd, H relied on R's misrepresentations about the turnover of his business, even though he could have discovered the true position by reading documents provided by R. H was allowed to rescind the purchase agreement for R's business after discovering that it was practically worthless.
- Ie because representor in this case was better informed than the representee Where the representor was wholly innocent and the representee was better placed to acquire accurate information or confirmation, but failed to take reasonable steps to do so, the court might well conclude that the representee did not rely on the initial representation but took the risk of its accuracy. Peekay v. ANZ [2006] (NON-FRAUDULENT) suggests that the traditional rule may not apply where the opportunity to discover the truth lies in the contract, which the representee signed but did not read. P, an investor, bought bonds from a bank, having been misled by the bank's misrepresentations. The contract document described the bonds accurately, but P signed and returned the contract without reading it.-

CA held that the misrepresentations provided P with a 'rough and ready' description of the bonds only. P may not have been expecting the document to contain any nasty surprises, but only by reading the accurate description could he satisfy himself that the product was what he had been led to expect. Accordingly, P was induced to enter into the contract not by the bank's misrepresentations, but by his own assumption that the investment product to which the contract related corresponded to the description he had previously been given. Cf Gordon v Selico (1986) (FRAUDULENT) - cover up dry rot. Held even possibility of inspection, still a misrep

Though contributory negligence was not pleaded, a reduced award of damages to P might have been a more appropriate solution that the 'all or nothing' stances of the judge and the CA. The statement must be objectively 'material' (i.e. capable of affecting a reasonable person's decision whether to contract (or on what terms) The immateriality (i.e. unimportance of the matter stated) of the misrepresentation will not defeat a claim if the representor was fraudulent (Smith v Kay [1859]) or knows or ought to know that his statement will influence the claimant.

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