CONTRACT LAW II

WORKSHEET II
Misrepresentation

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Objectives
By the end of this topic you should be able to:
(1) Discuss the nature of a misrepresentation;
(2) Identify the ingredients which must be present to establish a misrepresentation;
(3) Analyse the different types of misrepresentations and the remedies which are
available in the event that any type of misrepresentation occurs.
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A statement can include conduct:

Gordon v Selico Co Ltd (1986) 278 EG 53 (CA)

Implied representations as to a present intention:

Crystal Palace Football Club (2000) Ltd v Dowie [2007] EWHC 1392 (QB), [2007] IRLR
682

Promises v Representations
Kleinworth benson Ltd. v. Malaysia Mining Corporation Berhad [1989] 1 WLR 379.

Definition of Operative Misrepresentation

An operative misrepresentation is an unambiguous, untrue statement of fact or law which
is made by one contracting party referred to as the representor. This untrue statement of fact
or law is made to the other party to the contract who is referred to as the representee.
There must be:
1. An untrue statement of fact, and
2. Evidence that the untrue statement of fact induced one contracting party (the representee) to
enter into the contract.
The Untrue Statement of Fact (OR LAW)
Kleinwort Benson Ltd. v. Lincoln city Council [1999] AC 349
Brennan v. Bold Burden (a firm) [2004] EWCA Civ 1017; [2005] QB 303
Pankhania v. London Borough of Hackney [2002] EWCA 2441 (Ch).

The difficulty which often arises is that it is sometimes difficult to determine whether a
statement is really an untrue statement of fact as opposed to:
1. A mere puff,
2. A representation of opinion,
3. A representation of intention, or
4. A representation of law.

• Mere Puffs Versus Untrue Statements of Fact

Dimmock v. Hallet (1866) LR 2 Ch App 21
Carlisle v Carbolic Smoke Ball Co [1893] 1 QB 256
With v O’Flanagan [1936] Ch 575 (CA)

• Representations of Opinion Are Not Untrue Statements of Fact

Bisset v. Wilkinson [1927] AC 177( Privy Council)

Smith v. Land & House Property Corp. (1884) 28 Ch D 7
Esso Petroleum v. Mardon [1976] QB 801
• Representations of Intention are not Untrue Statements of Fact
Wales v Wadham [1977] 1 WLR 199
Edgington v. Fitzmaurice (1885) 29 Ch D 459

It must be addressed to the party induced

It must be shown that the representation was addressed to the party misled.
Commercial Banking Co of Sydney v RH Brown and Co [1972] 2 Lloyd’s Rep 360
 • Silence
Hands v. Simpson Fawcett [1928] 44 TLR 295

There are four exceptions to the rule that silence will not amount to a misrepresentation.
They relate to situations where:
a. Silence distorts a positive representation
b. A representation though true when made, subsequently becomes false to the representor’s
knowledge
c. There is a misrepresentation by conduct
d. The contract is uberrimae fidei

Where Silence distorts a positive representation

Dimmock v. Hallett (1866) 2 Ch App 21

Where a Representation Though True When Made, Subsequently Becomes False

to the Representor’s Knowledge
With v. O’Flanagan [1936] Ch 575

Where there is a Misrepresentation by Conduct

Horsefall v. Thomas [1862] 1 H&C 90

Where the Contract is Uberrimae Fidei

Bufe v. Turner (1815) 6 Taunt. 338

The untrue statement of fact induced one contracting party to enter into contractual
relations
To amount to an actionable misrepresentation, an untrue statement of fact must induce an
individual or a misrepresentee (a person to whom a misrepresentation is made) to enter into
contractual relations. The false statement of fact must therefore be said to have induced the
representee to enter into the contract. The requirements here are that
a) The misrepresentation must be material and
(b) It must have been relied on.

Materiality
Museprime Properties v. Adhill Properties [1990] 36 E.G. 114
Edgington v Fitzmaurice (1885)29 Ch D 459
JEB Fasteners v Marks, Bloom and Co [1983] 1 All E R583

Reliance
The second component to consider when looking at inducement relates to actual reliance. It
must be shown that the representee relied on the misrepresentation. This rule will therefore
not apply if:
i. the representee was unaware of the existence of the misrepresentation
ii. the representee knew that the representation was untrue
iii. the representee did not allow the representation to affect his judgment.

Clico International General Insurance Limited V. Matheson Et Al Gd 2004 CA 15

Manas Ltd V. Trinidad Broadcasting Ltd. TT 2009 HC 175

Hosein And Bache V. Gulf Insurance Limited TT 2005 CA 47
Insurance Company Of The West Indies V. Elkhalili JM 2008 CA 107
Joseph v Clico International General Insurance Co Ltd (2006) 71 WIR 31
S & S Building Supplies Limited V. Caribbean Home Insurance Company Limited TT
2008 CA 37

The Representee Never Knew of the Misrepresentation

Re Northumberland & Durham District Banking Co., ex. P. Biggs (1858) 28 L. J.
Ch 50

The Representee Knew That the Representation Was Untrue

Central Railway Co. of Venezuela v. Kisch (1867) L.R. 2 H.L. 99
 The Representee Did Not Rely on the Misrepresentation
Smith v Chadwick (1884) 9 App Cas 187
Attwood v. Small (1838) 3 Y&C Ex 105
Redgrave v Hurd (1881) 20 Ch D 1
Smith v Eric S Bush [1990] 1 AC 831
Peekay Intermark Ltd. v. Australia and New Zealand Banking Group Ltd. [2006]
EWCA Civ 386; [2006] 2 Lloyd’s Rep 511

Types of Misrepresentation
Having examined the ingredients which must exist before a court can make a finding of
misrepresentation, we now turn our attention to three types of misrepresentation. They are:
1. Negligent misrepresentation
2. Fraudulent misrepresentation and
3. Innocent Misrepresentation

Negligent Misrepresentation (at common law)

Le Lievre v Gould [1893] 1 QB 491
Nocton v Lord Ashburton [1914] AC
Candler v Crane, Christmas and Co [1951] 2 KB 164 (contrast the dissent of Denning LJ).

Common Law
Hedley Byrne v. Heller [1964] AC 465
Caparo Industries Plc v Dickman [1990] 2 AC 605, 637
White v Jones [1995] 2 AC 207, 283-287
Guardian Asset Management Limited V David Deslauriers Leonora Deslauries CV2009-
04381

1ST Knowledge of the representor.

Caparo Industries plc v Dickman and Smith Eric S Bush [1990] 1 AC 831
Esso Petroleum v Mardon [1976] QB 801
2ND The Purpose for which the Statement was made.
Smith v Eric S Bush [1990] 1 AC 831
Caparo v Dickman (supra)

3RD It must be reasonable for the representee to rely upon the representor’s statement.
Where the statement is made in a commercial context the courts will be generally be much
readier to infer that it was reasonable to rely upon the statement.

NEGLIGENT MISREPRESENTATION AT COMMON LAW MUST BE DISTINGUISHED

FROM THE LIABILITY WHICH MAY ARISE UNDER SECTION 2(1) OF THE
MISREPRESENTATION ACT 1967.

THIS COULD BE CATEGORISED AS ANOTHER TYPE OF MISREPRESENTATION.

(McKendrick)

Statute
Trinidad and Tobago and many other Caribbean Islands have misrepresentation acts which are
based on England’s Misrepresentation Act 1967. In this regard we will focus on the English
statute.
Remedies for a negligent misrepresentation can be found in Section 2. Section 2(1) of the
Misrepresentation Act 1967 states that:
“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
believe up to the time the contract was made that the facts represented were
true”.

Fraudulent Misrepresentation
Derry v. Peek (1889) LR 14 App Cas 337
Bevad Limited V. Oman Limited JM 2008 CA 54

(1) There must be proof of fraud and nothing short that is sufficient;
(2) The fraud is proved when it is shown that a false representation has been made:

a. Without honestly believing it to be true,

b. Knowing it was untrue so it was a deliberate lie, or
c. Recklessly or careless whether it be true or false.

Angus v Clifford [1889]2 Ch 449).

(3) If fraud is proved the motive of the person guilty of it is immaterial.

Pothill v Walter (1832) 3 B & Ad 114

Innocent Misrepresentation
This is a false statement which the person makes honestly believing it to be true. The remedy
is based in common law or statute. So a wronged party can either opt for:
1. Rescission with an indemnity in common law, or
2. Damages in lieu of rescission under the courts discretion under statute: section 2(2) of the
Misrepresentation Act 1967 of England or the equivalent provision in your jurisdiction.
Section 2(2) states:
“Where a person has entered into a contract after a misrepresentation has been
made to him otherwise than fraudulently, and he would be entitled, by reason of
the misrepresentation, to rescind the contract, then, if it is claimed, in any
proceedings arising out of the contract, that the contract ought to be or has been
rescinded the court or arbitrator may declare the contract subsisting and award
damages in lieu of rescission, if of opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be
caused by it if the contract were upheld, as well as to the loss that rescission
would cause to the other party”.
REMEDIES

Rescission
Leaf v international Galleries [1950] 2 KB 86
McKenzie v Royal Bank of Canada [1934] AC 468;
Halpern v Halpern (No. 2) [2007] EWCA Civ 291; [2007] 3 All ER 478.
Jackson V. Raymer TT 2002 HC 79

Damages
The Wagon Mound No. 1 [1961] AC 388
Heilbut Symons and Co. v. Buckleton [1913] AC 30.

Lapse of time
Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573
Zanzibar v British Aerospace ltd [2000] 1 WLR 2333
 SEMINAR QUESTIONS

(1) Explain the relationship between silence and the law of contractual misrepresentation.

(2) With the use of case law, identify and explain the types of misrepresentation.

(3) Distinguish between statutory misrepresentation and common law misrepresentation.