MISREPRESENTATION
Özde Hancıoğlu
TERM II
LECTURE 8 – UNIT 8
“What do lawyers learn in law school?
They learn to win… What we’ve got to
start thinking about is how do we solve
problems.”
Benjamin Carson
Learning Outcomes
On completion of this unit students should be able to :
• Define the concept of misrepresentation in contract law
• Explain the elements of actionable misrepresentation
• Explain the different types of misrepresentation under the
common law and the Misrepresentation Act 1967
WHAT IS A MISREPRESENTATION?
• DEFINITION : It is an untrue statement of fact
made prior to the contract by one party of the
contract(misrepresentor)
to
the
other
(misrepresentee) which is false or misleading and
which induces the misrepresentee to enter into the
contract.
IN SHORT…
A false statement with the intention of inducing
another party to contract.
MISREPRESENTATION
• In an action for misrepresentation the plaintiff has
to establish that there is an “ACTIONABLE
MISREPRESENTATION”
• ACTIONABLE MISREPRESENTATION:
An unambiguous false statement of fact which induces
the other party to enter into the contract.
ACTIONABLE MISREPRESENTATION
• The plaintiff has to establish that there was an
“Actionable Misrepresentation” and must prove the
following four elements:
– A statement of a MATERIAL FACT which is
UNTRUE
– The statement was made by ONE contracting party
TO the OTHER
– BEFORE the contract
– The statement INDUCED the conclusion of the
contract
The First question we must ask is :
• WHAT IS A REPRESENTATION ?
Answer: It must be a statement of fact, NOT :
- opinion
- mere sales talk, puffs
- intention
If this statement turns out to be UNTRUE, it becomes
a MISREPRESENTATION.
“MERE SALES TALK”
• If reasonable people would think they were hearing mere sales
talk then they are not entitled to rely on it
• So mere sales talk cannot amount to a misrepresentation
• The law does not consider that “mere puff” or “sales talk” are
misrepresentations.
• For example, a second-hand car dealer claiming “this is the
fastest car ever”, or a washing detergent company advertising
that their product “will clean your clothes whiter than white” are
not considered misrepresentations, as a reasonable person would
be unlikely to take such claims seriously.
Statements of Opinion
• As a general rule, a statement of opinion is not a
statement of fact.
• If one side makes a mere statement of opinion the
other side should not treat it as a factual statement
and usually cannot reasonably pay it attention at all.
• For example; Bisset v Wilkinson(1927)
Bisset v Wilkinson(1927)
• The owner of land in New Zealand, which had not
previously been used as a sheep farm, told a prospective
purchaser that in his judgement the land could carry 2,000
sheep.
• However, this was obviously a mere statement of opinion
and so the buyer could not sue when the estimate was
proved over-optimistic
• HELD- The statement was no more than an honest
statement of opinion, made without particular expertise as to
the capacity of the farm. It was not a representation as to its
actual capacity.
Exception
• In Bisset the parties were farmers so they were expected to rely on their own
opinions, not those of other farmers
• However, a statement expressed as an opinion MAY amount to an
ACTIONABLE MISREPRESENTATION.
• It may be different if the opinion comes from someone very
knowledgeable so that it is reasonable for the other to rely heavily on the
opinion
• Therefore; an apparent expert giving their opinion may be making an
implied statement of fact to the effect “I have reasonable grounds for the
opinion I am giving”
• If the expert has no such reasonable grounds, then there is a
misrepresentation (READ; Smith v Land and House Property (1884) and
Esso Petroleum Ltd v Mardon (1976)
Misrepresentation by conduct
• English law does not require that the representation take the form of
words. The notion of “statement” can extend to mere conduct without
words.
• The conduct of a party - Particularly a party’s concealment of some
material fact from the other party will support a claim of
misrepresentation.
• A misrepresentation can be made by conduct. Information can be
conveyed as much by conduct as by words and the courts have
generally been willing to imply representations by conduct in ordinary
dealings
• Representations can be made by conduct is also demonstrated by the
Spice Girls Ltd v Aprilia World Service BV (2000)
Spice Girls Ltd v Aprilia World Service BV (2000)
Spice Girls Ltd v Aprilia World Service BV (2000)
• The claimants, Spice Girls, entered into a contract with the defendants,
Aprilia World Service, a manufacturer of motorcycles and scooters.
• Aprilia agreed to sponsor the Spice Girls’ concert tour in return for
promotional work carried out by the group.
• Spice Girls had made a misrepresentation by conduct when they participated
in a photo shoot to promote a contract with Aprilia.
• Because; at the time of entering the contract Aprilia believed that all the
Spice Girls would remain members of the group until the end of the
tour.
• However, at the time of entering the contract, the Spice Girls were aware
that Geri Halliwell, one of the members of the group, was going to leave the
group on 27 May 1998.
Spice Girls Ltd v Aprilia World Service BV (2000)
• Aprilia claimed that the Agreement had been induced by
misrepresentation
and
sought
damages
for
misrepresentation.
• HELD- According to the Court of Appeal, by participating
in a photo shoot and other promotional material, it was
suggested that there were five members of the Spice Girls.
Gerry Halliwell’s departure removed all commercial value
from the picture shoot. Failure to reveal the truth was
misleading and allowing her to take part amounted to a
misrepresentation
Statements of Law
• Formerly it was always considered that a statement of law could
not amount to a misrepresentation. The rule was thought to be
justifiable on the basis that the law is equally accessible to
everyone and if a person is not sure as to the state of the law,
they should seek the advice of their own legal adviser. The rule
revolved around the principle of ‘ignorance of the law is no
excuse’. In other words, everyone is presumed to know the law;
therefore, a misrepresentation of law could not amount to a
vitiating factor.
• This has changed and false statement of law will now amount
to an actionable misrepresention.
Statements of Intention as to the future
• A mere representation as to future conduct is not actionable
either as a breach of contract or as a misrepresentation since
such statements do not amount to statements of fact. This is
because at the time the statements were made they can not
be categorised as either true or false.
• NOTE- A statement of intention that induces a person to
enter into a contract is, however, actionable as a
misrepresentation of fact where it can be shown that the
maker knew that his promise would not be carried out.
{See; Eddington v Fitzmorice (1885)}
Silence as a misrepresentation of fact
• As a general rule, silence cannot amount to a
misrepresentation since there is no duty to disclose facts
which may influence a person not to enter into a contract.
(Keates v The Earl of Cadogan)
• The rule reflects the attitude of classical contract law that
the parties must look after their own interests in making
contracts.
• Lord Atkin : “The Failure to disclose a material fact which
might affect the mind of a prudent contractor does not give
the right to avoid the contract.”
Exceptions to this rule
When can silence become a Misrepresentation?
If the law imposes a duty to reveal certain facts or matters then a failure
to speak amounts to a misrepresentation.
1. Half truth : It is a misrepresentation to make statements which are
true but misleading because they do not reveal all the relevant facts.
2. Change in circumstances : Where a truthful statement of fact is made
but is subsequently rendered misleading by a change of
circumstances, there is a DUTY to correct what has become a false
impression. Where a representor knows that the subsequent events or
circumstances have changed, he is under a duty to disclose the
change of circumstances. {With v O’Flanagan (1936)}
Exceptions to this rule
3. Contracts of “UTMOST GOOD FAITH”
Three types of Contracts:
• Contracts of insurance: Those seeking insurance have a general
duty to disclose all material facts. A material fact is one which
would influence a prudent insurer in deciding:
» whether to accept the insurance, or
» in setting the premium to be paid
• Contracts for the sale of land: The duties of the seller of property
certainly include obligations to reveal defects in title, and
covenants binding the land
• Therefore; silence on these points amounts to a misrepresentation
• Contracts for the sale of shares
Exceptions to this rule
4. Fiduciary or Confidential Relationship:
A fiduciary relationship is a relationship of special confidence between
certain classes of people, imposing particular duties of care on those to
whom confidence is entrusted. It involves one party acting for the benefit
of another.
For this reason, when entering into a contract, it is important for a
fiduciary to disclose all facts which could be considered material even if
not expressly asked about.
Such relationships exist between: solicitor – client
agent – principal
doctor – his patient
partners in a partnership
TO BE CONTINUED…
INDUCEMENT
• Once it has been established that a false statement has been
made it is then necessary for the representee to demonstrate that
the false statement induced them to enter the contract.
• The false statement must have induced the representee to enter
into the contract.
• The party misled must prove :
– He knew of the existence of the representation
– He allowed it to affect his judgment
– He was unaware of its truth
– He acted upon it (relied on it)
INDUCEMENT
• Was it known to the representee (plaintiff)?
There can be no inducement or reliance if the representee was unaware
of the false statement. The false statement of fact must have been
intended to cause and have in fact caused the representee to enter the
contract : Horsfall v Thomas (1962) ~ The representation
must be known the to claimant
• B purchased a gun with a defect.
• After being fired six rounds, the gun was blown to pieces.
• It was not clear why this happened. It appears that S, the seller, had
concealed the defect in the gun (misrepresentation by conduct).
• B had not examined the gun.
• B claimed that the contract induced by S’s fraud and
misrepresentation.
Horsfall v Thomas (1862)
• Held : His action for misrepresentation failed as he hadn't
inspected the gun before purchasing it. Therefore the
misrepresentation did not induce him to enter the contract as he
was unaware of it.
• Discussion : In this case, a defect in a gun was concealed, but
it was held that there was no ACTIONABLE
MISREPRESENTATION. However, this was because the defect
in the gun was discoverable on inspection but no inspection had
taken place. Therefore, the plaintiff could not argue that he had
relied upon (and been induced by) by the Misrepresentation.
• Important : Compare this case with Gordon v Selico (1986)
INDUCEMENT
• Verifying a statement made
If the representee or their agent checks out the validity of the
statement, they have not relied on the statement. Therefore,
there will be no reliance if the representee does not rely on
the misrepresentation but on his own judgment or
investigations.
• See: Attwood v Small (1838)
Attwood v Small (1838)
• No inducement will be found where C made his own
investigations.
• A buyer appointed an agent to check the statement made by
the seller as to the reserves in a mine. The buyer wanted
verification of the statement made by the seller and
appointed experienced agents who reported that the
statements were accurate.
• HELD- NOT ACTIONABLE MISREPRESENTATION.
The buyer had relied on his own agent’s statements, not the
seller’s.
INDUCEMENT
• Is there a duty to verify?
There will be reliance even if the misrepresentee is given an
opportunity to discover the truth but does not take the offer up.
The misrepresentation will still be considered as an
inducement. If the representee is given the opportunity to
check out the statement but does not in fact check it out, they
are still able to demonstrate reliance.
See; Redgrave v Hurd (1881) : the fact that the representee
did not take advantage of an opportunity to check the
statement is no bar to an action for misrepresentation.
Types of Misrepresentation
• The remedies available for misrepresentation depend upon
the type of misrepresentation
• Once misrepresentation has been established, it is necessary
to consider what type of misrepresentation has been made.
• There are three types of misrepresentation: fraudulent,
negligent and wholly innocent. The importance of the
distinction lies in the remedies available for each type.
Fraudulent Misrepresentation
Fraudulent Misrepresentation at COMMON LAW

Tort of deceit – Burden of proof on plaintiff

Defined in Derry v Peek (1889) as :
“A statement made with the knowledge that it is untrue or
without believing it to be true, or reckless, or careless
whether it be true or false.”
Therefore, if someone makes a statement which he honestly
believes is true then it cannot be fraudulent.
See : Derry v Peek (1889)
Fraudulent Misrepresentation
• REMEDIES available :
– Rescission
– Damages
• Rescission – setting the contract aside; it is an equitable
remedy and awarded at the discretion of the court
• Aim of rescission – To put the parties back in their
original position, as though the contract had not been
made. The injured party may rescind the contract by
giving notice to the representor.
Fraudulent Misrepresentation
• Damages- The injured party may claim damages for fraudulent
misrepresentation in the tort of deceit. The purpose of damages
is to restore the victim to the position he occupied before the
representation had been made.
• The injured party may recover for all the direct loss incurred as a
result of the fraudulent misrepresentation, regardless of
foreseeability
• Moreover, damages may include claim for “opportunity costs”
(=loss of profit).
Negligent Misrepresentation
• A statement made in the belief that it is true but without reasonable grounds
for that belief. There are two possible ways to claim: either under common
law or statute.
• Negligent Misrepresentation AT COMMON LAW
Tort of Negligence : Burden of proof on plaintiff
 This is really an action in negligence, so does NOT need a contract to exist
to be used. Tort of negligent misstatement available whether or not
contractual relationship exists.
 It was established in the case of Hedley Byrne v Heller (1964).
 At common law, it needs to be established whether a duty of care arises.
That duty exists when there is a ‘special relationship’ between the parties.
Negligent Misrepresentation AT COMMON LAW
• The remedies are rescission and damages in the tort of
negligence. Damages recoverable only for reasonably
foreseeable loss. (SPECIAL RELATIONSHIP REQUIRED)
• Negligent Misrepresentation under the Misrepresentation
Act 1967
If there is a contract between the parties, then it is
usual to use s.2(1) Misrepresentation
under the
Misrepresentation Act 1967.
Negligent Misrepresentation under the Misrepresentation
Act 1967 - s.2(1) Misrepresentation Act
• Burden of proof on defendant
• This provision does not require the representee to establish a duty of
care and reverses the burden of proof. Once a party has proved that
there has been a misrepresentation which induced him to enter into the
contract, the person making the misrepresentation will be liable in
damages unless he proves he had reasonable grounds to believe and
did believe that the facts represented were true.
• S.2(1) Misrepresentation Act 1967 states that the same remedies are
available where the statement was made negligently as if it were
made fraudulently.
(all direct loss resulting from the
misrepresention)
Wholly Innocent Misrepresentation
• A statement made in the belief that is true and with reasonable
grounds for that belief.
• The remedy is either:
(i) rescission with an indemnity, or
(ii) damages in lieu of rescission under the courts discretion in
s2(2) Misrepresentation Act 1967
The victim of an innocent misrepresentation is entitled to rescission of
the contract and to an indemnity intended to help restore the parties to
the position before the contract was made.
Damages are not generally available for innocent misrepresentation since
rescission is the main remedy. However, the court has a discretion under
s.2(2) of the Act to award damages in lieu of (instead of) rescission.
Checklist

The definition of misrepresentation and how it is applicable

The differences between fraudulent, negligent and innocent
misrepresentation

Remedies available
That’s all on
Misrepresentation
- END-