Misrepresentation

For a claim on misrepresentation to be succeed, an actionable misrepresentation must

be found. It is a false statement of fact which induces a party to enter into a contract.

1. Requirements for establishing “an actionable misrepresentation”

a. False
- Avon Insurance v : If the difference between what was
Swire Fraser Ltd represented and the correct position is
likely to induce a reasonable person enter
into a contract, it would be a false
statement.

- McInerny v : If the misrepresentation was due to the

Lloyds Bank Ltd representee’s unreasonable interpretation,
the representor would not be liable for it.

b. Statement
(1) Statement by conduct
- Curtis v Chemical : The existence of misstatement could be
Cleaning based on conduct without the need for
words.

(2) Silence or non-disclosure

- [General Rules]
Mere silence or non-disclosure will not give rise to a claim on
misrepresentation as it is not an actionable representation.(Principle
of caveat emptor)

[Exceptions to the above rule]

(A) Active steps to conceal
- Horsfall v Thomas : Unless the silence involves some active
steps to conceal a defect.

(B) Half-truths
- Dimmock v Hallett : Making a true but misleading statement by
not revealing all relevant facts could be
amounted to misrepresentation statement.
 (C) Change of circumstances
- With v O’ Flanagan : A true statement of fact was rendered
misleading subsequently by a change of
circumstances, the failure to correct/ inform
would constitute a misrepresentation.

(D) Fiduciary or confidential relationship

- A relationship of special confidence imposed particular duties of care
on those to whom confidence is entrusted, thus all material facts shall
be disclosed by such parties,

(E) Contracts of utmost good faith (e.g. insurance)

- Traditionally, the insured person shall provide all material facts to the
insurer to estimate the risk.
[Consumer context]
However, it is considered as impractical to impose such liability on
the consumer. Therefore, the Consumer Insurance Act 2012 only
requires the consumer to take reasonable care not to make a
misrepresentation during the pre-contractual negotiations.
[Non-consumer context]
The Insurance Act 2015: in the absence of enquiry, the insured is
not required to disclose a circumstance if it diminishes the risk, the
insurer knows it, the insurer ought to know it, the insurer is presumed
to know it, or it is something as to which the insurer waives
information,

c. Statement of fact
(1) Statement of opinion or belief – NOT a statement of fact.
[General] A statement of opinion or belief will not give rise to the claim
on misrepresentation if it is made in no better position.
- Bisset v Wilkinson : The statement maker was in no better
position to know the facts than the
purchaser – and the purchaser knew this.
Therefore, it held that the claimant’s
statement was merely a statement of fact.
- Smith v Land & : The Representor in a better position:
House Property If the statement was believed to be made by
 Corp the representor based on reasonable
grounds, it will amount to a
misrepresentation when the statement was
false.

If the statement made by an expert?

- Esso Petroleum : If the statement was made negligently, by
Co Ltd v Mardon an apparent “expert”, and with the intention
that it be relied upon.

(2) Statements of future conduct or intention

[General Rule]
- Wales v Wadham : It is not a representation of existing fact,
thus it is not actionable.

[Exceptional situation]
- Edgington v : If at the time of making such future
Fitzmaurice statement, the maker did not have such
intention, it would be considered as a
misrepresentation.
- Inclusive : If the intention is a continuing one, this case
Technology v suggested a duty to correct a change in
Williamson intention, and a failure to do so may give
rise to liability.

(3) Statements of law as applied to particular facts can be a statement of

fact
- Pankhania v : The statement of law related to the
Hackney London application of the law to certain facts and
Borough Council such statements have traditionally been
actionable.

d. Induces the other party to contract

Four conditions to be satisfied:
(1) Material representation:
It would influence a reasonable person to agree. It serves to exclude
trivial misstatements from actionability. (Poole)
(2) Known to the representee:
- Horsfall v Thomas : As the purchaser did not inspect the gun
before purchase, the misrepresentation
never came to his attention, and he could
not have been induced by the
representation. There is no actionable
representation.
[Cf. Gordon v Selico: 客戶檢查了，賣方
主動遮掩導致他沒有發現。]
- Pilmore v Hood : A representation made by one party to
another that induces a third party to enter a
contract is actionable by the third party,
provided that the first party knew or ought
to have been aware that the representation
would be likely to be communicated to the
third party.

(3) Intended to be acted upon

- Peek v Gurney : The claimant were unable to recover their
losses, since there had been no intention on
the part of those issuing the prospectus that
is should be relied upon by those dealing in
the shares subsequent to the original
allotment.

(4) Actually acted upon

- Peekay Intermark : The other party enter into the contract based
Ltd v Australia on the misrepresentation. If the representor
and New Zealand could prove that the representee was
Banking Group persuaded by some other factors instead in
Ltd deciding to enter the contract, the claim on
misrepresentation is likely to be
unsuccessful.
N.B.
- Misrepresentation does not have to be the sole inducement for the
representee to be able to rely on it.
Edgington v : Relied on the misrepresentations and partly
Fitzmaurice on his own mistake, the contract can be
 rescinded.

- Representee conducted their own investigations  Contract cannot

be rescinded. This is not applicable in the case of fraudulent
misrepresentation.
Attwood v Smaill : The contract could not be rescinded, since
the claimants had relied on their own expert
and not on the word of the seller. The fact
that the expert had failed to discover the
truth did not make the seller liable.
[the claimant relied entirely on the
investigation result.]

- Fail to take advantage of an opportunity to discover the truth.

Redgrave v Hurd : As the contract was induced by the
misrepresentation, the contract could be
rescinded. The failure to discover the truth
would only considered as “contributory
negligence”, and the award of remedy will
be affected.

2. Remedies for misrepresentation

The remedies available for misrepresentation will be subjected to the type of the
misrepresentation. There are three types of misrepresentation:

Types of misrepresentation
a. Fraudulent Misrepresentation
Absence of an honest belief that the statement is true (Poole) [Deliberately]
– Derry v Peek: “made knowingly, or without belief in its truth, or
recklessly, careless whether it be true or false. ”
– Thomas Witter Ltd v TBP Industries Ltd: “a statement maker would be
reckless if they had no knowledge whether the statement was true or
false, but asserted that it was true and thereby took a risk.”

b. Negligent Misrepresentation
The statement maker honestly believe the statement to be true, but has been
 careless in reaching that conclusion (Poole). [Fail to act reasonably]

c. Innocent Misrepresentation
The statement maker honestly believe the statement to be true and have a
reasonable grounds for that belief. (Poole)

Recission:
It is available for all three types of misrepresentation. It is a claim to have the
contract set aside, restoring the parties to the position in which they were before
the contract was made. (Poole)

a. Requirements of recission:
(1) Actionable misrepresentation (explained above) and
(2) Notice given to the other party
Car and Universal Finance Co. Ltd v Caldwell: It could be waived if it
is impossible to trace the other party and all necessary steps have been
taken to recover the goods.

b. Loss of the right to rescind

(1) Affirmation
Long v Lloyd: the right to rescind is lost if the contract is affirmed by
the representee after discovering the true state of affair.
(the representee knows that he has the right to rescind + knows that
there is a misrepresentation.)

(2) Lapse of time

Leaf v International Galleries: the right to rescind is lost through lapse
of time.
For different types of misrepresentation, the ability to rescind is
different.
– Fraudulent misrepresentation: the fraud was/ ought to have been
reasonably discovered.
– Non-fraudulent misrepresentation: date of the contract
formation.

(3) Restitution Impossible

- Clarke v Dickson : If the nature of the subject matter is
changed or it has declined in value, the
 contract induced by a misrepresentation
cannot be rescinded. (In this case, the
misrepresentation induced the purchase of a
share in a company that was subsequently
wound up, so that it was no longer possible
to return the shares.)
- Erlanger v New : Minor imperfections in the restoration of
Sombrero the original position will not be a bar to
Phosphate Co. rescission.
- Armstrong v : A major depreciation in value of shares sold
Jackson under a misrepresentation did not bar
rescission, since it was possible to return
the shares.
- Spence v : The court is more willingly to overlook the
Crawford imperfections in the case of fraudulent
misrepresentation than in the case of
negligent misrepresentation or innocent
misrepresentation.

(4) Third Party Interests

The right to rescind will be lost if a third party intervenes.
Sales of Good Act s.23: “a person acquiring goods under such a contract
may pass good title at any time before rescission to an innocent third
party purchaser who has no notice of the misrepresentation as the
contract is voidable only.”

– Crystal Palace Football Club Ltd v Dowie

(5) No partial rescission

TSB Bank Plc v Camfield: rescission was total and that partial
rescission on terms was not possible.

Damages at Common Law:

a. Fraudulent misrepresentation – tort of deceit
It usually compensate the out-of-pocket loss/ the reliance loss
Derry v Peek: the representee is to be put into the position in which it would
have been had the representation not been made.
Several rules to be fulfilled before seeking damages based on the tort of
deceit:
(1) Remoteness
Doyle v Olby Ironmongers Ltd: It allows the misrepresentee to recover
for all loss incurred as a result of the transaction that was induced by the
fraudulent misrepresentation, regardless of foreseeability. (including
direct and consequential loss)

(2) Losses could be recovered

Smith New Court Securities Ltd v Scrimgeour Vickers (Asset
Management) Ltd: The sum payable as damages is usually calculated by
reference to the difference between the amount paid and the actual value
of the subject matter of the contract judged at the date of the contract.
The date of contract rule was flexible and could be disapplied where that
rule would not fully compensate the claimant.
 where the statement maker has been fraudulent, the statement maker
shall be responsible for all of the losses resulting from the other party
having made the contract.

What about loss of profits?

East v Maurer: It could be recoverable as long as it is not calculated on
an expectation basis, i.e. only the profit that might have been made had
the representation not been made at all is recoverable.
Therefore, an actual alternative is required to be shown. (Contrasting
with the decision of 4 Eng Ltd v Harper: as no specific alternative is
identified.)

Downs v Chappell: If the profit was not as higher as the representation

induced, the loss of profit is not recoverable.

Clef Aquitaine Sarl v Laporte Materials Ltd: If the representee would

have entered into a different contract in the absence of
misrepresentation: the loss of a better opportunity could be recovered.

(3) Causation
Whether the alleged loss was caused by the misrepresentation.

(4) Mitigation
 Smith New Court Securities Ltd v Scrimgeour Vickers / Downs v
Chappell : the misrepresentee had a duty to mitigate its loss once it
discovered the fraud.

b. Negligent Misrepresentation – Tort of negligent misstatement

Hedley Byrne v Heller: “if someone possessed of special skill undertakes,
quite irrespective of contract, to apply that skill for the assistance of
another person who relies upon such skill, a duty of care will arise” It gives
rise to a special relationship that equivalent to contract.

(1) A special relationship should be established.

Caparo Industries plc v Dickman:
- The advice is required for a purpose which is made known to
the adviser when the advice is given;
- The adviser knows that his advice will be communicated the
advisee in order to be used for that purpose;
- The advice so communicated is likely to be acted on by the
advisee without independent inquiry;
- It is so acted on by the advisee to his detriment.
– In one sentence: The adviser knows that his advice will be
relied upon by the advisee for achieving that purpose without
further independent inquiry.

(2) Assumption of responsibility

Customs and Excise Commissioners v Barclays Bank plc: the
representor is assumed to be responsible to what he said to the
representee.

(3) Special knowledge or skill

Esso Petroleum Co Ltd v Mardon: The experts who had special
knowledge or skills knows that the other party would rely on his advice
to enter into a contract with the third party, thus he would be liable as it
is induced by his misstatement.

(4) Burden of proof will be borne by the representee.

(5) Remoteness test shall be applied.

Wagon Mound (No.1): The loss recoverable under the claim in negligent
 misrepresentation shall be reasonably foreseeable.

c. Innocent Misrepresentation
Redgrave v Hurd: No common law right to damages

Damages under Statute (Misrepresentation Act 1967)

a. S.2.(1) – negligent misrepresentation
– There is no requirement of a “special relationship” to be established.
– It is only applicable to where the representee was induced to contract
with the representor. (***third party contract will not be applied)
– The burden of proof is on the representor (reversed).
– Remoteness: “fiction of fraud”.
Royscot Trust Ltd v Rogerson: the damages under s.2(1) are to be
assessed in the same way as damages for fraudulent
misrepresentation, even though the misrepresentation is not
fraudulent.
 The remoteness test could be neglected under statute for negligent
misrepresentation.
– Mitigation is applied under statute.
Pankhania v Hackney London Borough Council(Damages)

b. S.2(2) Damages in lieu of rescission – non-fraudulent misrepresentation

If the misrepresentation is trivial, the court has the discretion to award
damages as an replacement of subsisting the contract.

William Sindall Plc v Cambridgeshire CC: The court shall consider the
followings in exercising the discretion:
(1) The seriousness of the misrepresentation
(2) Whether the representee will suffer greatly if not allowed to
rescind; and
(3) Whether the representor would suffer unduly if the rescission
were allowed

The Court will lose its discretion to award damages in lieu of rescission if
the remedy of rescission is lost.

Measures of damages under s.2(2)

 William Sindall plc v Cambridgeshire County Council: The inference from
s.2(3) of the 1967 Act is that it is anticipated that damages under s.2(2) will
be lower than damages under s.2(1).

Approach suggested in Sindall case: tortious measure of damages, i.e. the

difference between the contract price paid (which cannot now be recovered)
and the actual value of the thing. Consequential loss will not be awarded
under s.2(2)

Indemnity
As no general right to damages for a wholly innocent misrepresentation. Instead,
where rescission is available, it may be possible to recover an indemnity.

Newbigging v Adam: An indemnity provides compensation for expenditure

occurring as a result of “obligations which have been created by the contract” into
which the representee has been induced to enter,

Whittington v Seale- Hayne: the representee is able to recover compensation for

rent, rates and renewing the drains as it is obligations created by the fact of taking
the lease. But he can’t recover the fee for medical care, outbuildings, and other
business expenses as they were resulting from operating a poultry farm which is
not an obligation created by the contract.

Contributory Negligence
Alliance and Leicester Building Society v Edgestop Ltd: contributory negligence
is not applicable in the situation of fraudulent misrepresentation.

S.1(1) Law Reform (Contributory Negligence) Act 1945 suggested that

contributory negligence shall be taken into account in assessing the amount of
damages.