UNIVERSITY OF LONDON

Contract Law
Topic: Misrepresentation

Prepared By
Sadman Sumit
Founder of The Future Barristers
Senior lecturer, Newcastle Law Academy
Former lecturer, Bhuiyan Academy & BAC International Study Centre
Contact number: 01302251412
Email: [email protected]
 Misrepresentation
A misrepresentation may be defined as an unambiguous, false statement of fact or law which is
addressed to the party misled and which induces the contract. So, in order to prove
misrepresentation, three conditions need to be satisfied:
1. The representation must be an unambiguous false statement of fact or law
2. It must be addressed to the party misled
3. It must induce the representee to enter into the contract.
The representation must be an unambiguous false statement of fact or law:
The first condition for proving misrepresentation is that the representation must be an
unambiguous false statement of existing fact. The statement can be made by words or by
conduct. However, three categories of statement will not be considered as statement of fact and
therefore there will be no misrepresentation:
1. Mere puff: Mere puff is a commendatory statement which is neither a promise nor a
statement of fact. In Dimmock v Hallett (1866), Turner LJ said that a representation that
the land was “fertile and improveable” would not be considered as misrepresentation
since it is a mere puff.
However, the more specific the statement, the less likely it is to be treated as a mere puff
(Carlill v Carbolic Smoke Ball Co.)

2. Statement of opinion or belief: A statement of opinion or belief which proves to be

wrong will not be considered as a false statement of fact. In Bisset v Wilkinson (1927), a
vendor of a farm represented to a prospective purchaser that the land could carry 2000
sheep. In fact, it was not true. But still the court held that the vendor’s statement was not
a false statement of fact, rather it was a statement of opinion. According to Lord Denning,
the land had never been used as a sheep farm and both parties were equally able to form
an opinion as to it’s carrying capacity.
However, Bisset v Wilkinson was distinguished in Esso Petroleum Ltd v Mardon (1976).
So, after Esso Petroleum, now it can be said that where the representor has greater
knowledge than the representee, the representation must be made with reasonable care and
skill.

3. Statement of intention: A statement of future intention is not a statement of fact. A

person who fails to carry out his stated intention does not make a misrepresentation
(Wales v Wadham). However, if a person misrepresents his present intention, then it
will constitute a false statement of fact because the state of his intention is a matter of fact
(Edgington v Fitzmaurice).
Half- truth: A misleading half-truth will amount to a misrepresentation. A misleading half-truth
is a true statement which is misleading due to all relevant information not being revealed
(Nottingham Patent Brick v Butler)
Change of circumstance: if a statement is made which is true at the time of making but
subsequently becomes untrue, there is a duty on the statement maker to inform it to the relevant
party (With v O’Flanagan)
The representation must be addressed to the party misled:
The representation must be addressed to the representee. This can be done in two ways:
1. Communication of representation to the representee by the representor.
2. Communication of representation to a third party by the representor
(Commercial Banking Co of Sydney v RH Brown and Co).

The representation must induce the representee to enter into the contract:
The representation must induce the claimant to enter into the contract. Whether a representation
induced a party to enter into a contract is a question of fact (Zurich Insurance Co v Hayward).
The claimant must prove that the representation played a real and substantial part in inducing
him to enter into the contract. But the representation need not be the only inducement.
However, there are three situations where the claimant will be unable to show that the
representation induced the contract:
(1) Where the claimant was unaware of the existence of the representation (Horsfall v
Thomas)
(2) Where the claimant knew that the representation was untrue
(3) Where the claimant did not allow the representation to affect his judgment.

Types of misrepresentation
There are four types of misrepresentation:
1. Fraudulent misrepresentation
2. Negligent misrepresentation at common law
3. Misrepresentation under s. 2(1) of Misrepresentation Act 1967
4. Innocent misrepresentation

Fraudulent misrepresentation:
Lord Herschell in Derry v Peek (1889) described what is necessary for fraudulent
misrepresentation: fraudulent misrepresentation occurs when the false representation has been
made (1) knowingly or (2) without belief in it’s truth or (3) recklessly, careless as to whether it
be true or false. In Thomas Witter Ltd v TBP Industries Ltd (1996), Jacob J considered that 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. In case of fraudulent
misrepresentation, the burden of proof is on the plaintiff.
Negligent misrepresentation at common law:
Hedley Byrne v Heller sat out the conditions for negligent misrepresentation at common law.
For negligent misrepresentation at common law, there must be a “special relationship” between
the parties. Whether there was any special relationship between the representor and representee
depends upon three factors:
1. The knowledge of the representor: The greater the knowledge the representor has of the
representee, the more likely it is that the representor will be liable.
2. The purpose of the statement: If the representor makes the statement with the intention
that the representee rely upon it, liability is likely to be imposed (Smith v Erich). But if
the statement is put into general public circulation with no particular person in mind as
the recipient, it is unlikely that liability will be imposed (Caparo Industries v Dickman)
3. The reasonableness of representee’s reliance: It must be reasonable for the representee to
rely upon the representor’s statement (Chaudhry v Prabhakar). Where the statement is
made in a commercial context, the court will infer that it was reasonable to rely upon the
statement (Smith v Erich). But if the statement is made on a social occasion, it is
unlikely that it would be reasonable for the representee to rely upon it

Misrepresentation under s. 2(1) of Misrepresentation Act 1967:

According to s.2(1) of Misrepresentation Act 1967, where a misrepresentation has been made,
the party making the misrepresentation will be liable unless he can prove that he had reasonable
grounds to believe and did believe up to the time that the contract was made that his statement
was true.
A party claiming misrepresentation under s.2(1) of MA 1967 has three advantages over claiming
under negligent misrepresentation at common law. Firstly, the representee need not prove any
special relationship with the representor (Gosling v Anderson). Secondly, the representor is
liable unless he proves that he had reasonable grounds to believe that his statement was true
(Howard Marine v Ogden), whereas, under negligent misrepresentation at common law, it is
the representee who needs to prove that the representor was negligent. Thirdly, the measure of
damages recoverable under s.2(1) is the measure of damages for the tort of deceit (Royscot
Trust Ltd v Rogerson). So, the claimant will be entitled to recover their actual loss directly
flowing from the misrepresentation, whether or not that loss was reasonably foreseeable.

Innocent misrepresentation:
An innocent misrepresentation is a misrepresentation which is neither fraudulent nor negligent.
Essentially, it is a misrepresentation made by someone who had reasonable grounds for believing
that his false statement was true.
Remedies:
There are three types of remedies for an actionable misrepresentation:
1. Rescission
2. Damages for misrepresentation and
3. Damages in lieu of rescission
Rescission:
Rescission is available for all types of misrepresentation. The aim of rescission is to put both the
parties back to their original position. Rescission is an equitable remedy and is awarded at the
discretion of the court. However, the injured party may lose the right to rescind the contract in
following circumstances:
1. Affirmation of the contract by the claimant after he discovered the truth (Long v Lloyd)
2. Lapse of time of such a length that it would be inequitable in all the circumstances to
grant rescission (Leaf v International galleries)
3. The intervention of innocent third party rights where the third party acted in good faith
and gave consideration (Phillips v Brooks).
Damages:
Fraudulent misrepresentation: The measure of damages for fraudulent misrepresentation is all
damages which directly resulted as a consequences of the aggrieved party having entered into the
contract (Doyle v Olby).
Negligent misrepresentation at common law: In case of negligent misrepresentation at
common law, the representor will be liable for all the losses which are a reasonably forseeable
consequence of the misrepresentation (The Wagon Mound No.1)
Misrepresentation under s. 2(1) of Misrepresentation Act 1967: In Royscot Trust v
Rogerson, it was established that the damages under s.2(1) of MA 1967 is assessed on the same
basis as fraudulent misrepresentation.
Innocent misrepresentation: The remedy for innocent misrepresentation was rescission.
However, s.2(2) of MA 1967 now gives the court a discretion to award damages in lieu of
(instead of) rescission.

Past question and sample answer on misrepresentation

David is short of money and so decides to sell some of his antique furniture. He invites Rachel,
an antiques dealer, to his castle to look at a desk. He (correctly) tells Rachel that the desk was
made in the 1600s. Rachel explains that antique furniture is less valuable if it has been repaired
and David assures her that the desk has not been repaired. Rachel agrees to buy the desk for
£20,000 and says she will collect it the next day. Later that evening David is looking for a stamp
to post a letter to his brother William to tell him that he has decided to sell the furniture. He
thought the stamp might have fallen behind the desk and so pulls it away from the wall. When he
does so, for the first time he sees a very crude repair on the back of the desk. The next day
Rachel collects and pays for the desk as arranged. Rachel is unable to resell the desk as she had
planned and still has it in her shop six months later when she discovers the repair to the desk. A
repaired desk is only worth £2,000.
Advise Rachel as to any action for misrepresentation she may pursue against David
Sample answer: This is a problem question on misrepresentation. A misrepresentation is an
unambiguous, false statement of fact or law which is addressed to the party misled and which
induces the other party to enter into a contract.
In this case, David provided a true statement of fact by saying that the desk was made in 1600s
and thus antique. When Rachel specifically asked for history of repair, David again assured her
that there has not been any repair. Thus, Rachel agreed to buy the desk for £20,000 and wanted
to complete the transaction on the next day. In the meantime, David found out that the desk had a
crude repair. A repaired desk as such is only worth £2,000.
3 conditions must be satisfied for a misrepresentation: (1) the representation must be an
unambiguous false statement of fact or law, (2) it must be addressed to the party misled and (3) it
must induce the other party (representee) to enter into the contract.
Here, the statement that the desk is antique and without repair was true when David (representor)
made it to Rachel (representee). However, according to With v O’Flanagan, until the contract is
formed, the representor has a duty to inform any change of circumstances to the representee.
Here, before the contract was formed on the next day, David, found out that the desk actually had
a crude repair. Despite knowing the fact, he did not inform this new circumstance to Rachel.
Thus, his statement was eventually false before the contract took place. David himself made the
representation to Rachel satisfying the requirement of Commercial Banking Co. of Sydney v RH
Brown and Co. Whether a representation induced a party to enter into a contract is a question of
fact (Zurich Insurance Co v Hayward). Here, Rachel specifically wanted to know about the
repair history of the desk considering that repaired antique furniture is less valuable. This proves
that the history of repair of the desk was an important and substantial information to her which
induced her to enter into the contract. The desk being an antique can also be an inducement.
However, according to Edgington v Fitzmaurice and BV Nederlandse Industrie v Rembrandt
Enterprise, if the representation is substantial, it need not be the only inducement. Thus, the false
statement made to Rachel induced her to enter into a contract, making it a misrepresentation by
David.
Now, the type of misrepresentation needs to be determined. Misrepresentation can be either
fraudulent, negligent, under S.2(1) of Misrepresentation Act 1967 or innocent. Here, David made
the misrepresentation knowingly. According to Derry v Peek, fraudulent representation occurs if
the false representation has been made knowingly. Thus, in this case, the misrepresentation can
be considered as fraudulent. There is no Hedley Byrne ‘special relationship’ and thus it will not
be negligent misrepresentation. This will neither be an innocent misrepresentation as David had
no reasonable ground to believe the truth of his false statement. However, as per Howard
Marine, in fraudulent representation, the burden of proof is on the plaintiff, in this case on
Rachel. Thus, Rachel have to prove the misrepresentation. On the other hand, if Rachel brings
claim under S.2(1) of Misrepresentation Act 1967, she need not prove any ‘special relationship’
(Gosling v Anderson), secondly and most importantly, the burden of proof will shift to the
representor (Howard Marine v Ogden). Thus, in that case, David will have to prove that he had
reasonable ground to believe that his statement was true, which will likely be hard to prove as he
did have knowledge of the statement being false (change of circumstance), before the contract
was formed. Moreover, as per Royscot Trust v Rogerson, the measure of damages recoverable
will be the same as the measure of damages for the tort of deceit and Rachel will be entitled to
recover actual loss whether or not the loss was reasonably foreseeable. Thus, Rachel should
bring her claim under S.2(1) of Misrepresentation Act 1967.
As for remedies, rescission is available for all types of misrepresentation. Rescission is where
both parties go back to their original position. However, it is an equitable remedy awarded at the
discretion of the court. In this case, Rachel discovered the truth after “six months”. According to
Leaf v International Galleries, the party may lose the right to rescind, if there is lapse of time of
such a length that it would be inequitable in all the circumstances to grant rescission. David sold
the desk in the first place as he was short of money and after six months, the £20,000 he received
by selling it, likely does not exist anymore in full at least. Thus, under the court’s discretion,
there will likely not be any rescission. However, S.2(2) of Misrepresentation Act 1967 now gives
the court a discretion to award damages in lieu of rescission. Damages for misrepresentation
under S.2(1) of Misrepresentation Act 1967 is same as fraudulent misrepresentation (Royscot
Trust v Rogerson). According to Doyle v Olby, this will be all damages that directly resulted as a
consequence of the contract. With the contract value of £20,000 and the current value of £2,000,
Rachel is likely suffering damage equivalent to around £18,000. However, the final amount of
the damages will depend on the discretion of the court.

Damages and Misrepresentation (Essay)

In England, an actionable misrepresentation is most widely awarded by remedy i.e. rescission

and damages. A misrepresentation is an unambiguous false statement of existing fact or law,
which induces a contract. Basically, damages for actionable misrepresentation will available,
where a misrepresentation was fraudulent and can recover under the tortuous action for deceit-
Whittington v Seale-Hayne. To claim a damages for fraudulent misrepresentation the claimant
needs to prove that the false statement was made knowingly, which is untrue and there was no
genuine believe it was true or made recklessly.

More clearly, if a representee suffered loss as a result of having been induced to enter into the
contract by the misrepresentation, they may have a claim for damages in the following
circumstances- likely, as a fraudulent misrepresentation made by the representor, secondly,
where the misrepresentation was not fraudulent, but the representor is unable to show that they
had reasonable grounds to believe the facts stated were true, and finally, court awarded aggrieved
party damages in the lie of recession. Additionally, the claimant has a strict approach to get
damages under the Misrepresentation Act 1967 of s.2 (1), which awarded damages instead of
rescission, where it is equitable to do so.

The most applicability of damages for misrepresentation has came an immense effect, after the
incorporation of Misrepresentation act 1967, specially s.2 and s.3, whose deals with negligent
misrepresentation. S.2 (1) of the Act does not use this terminology, but provided that a statement
which would from the basis of an action of an deceit, if made fraudulently will also give raise to
the liability unless the person making it is able to prove that he/she had reasonable grounds to
believe and did believe up to the time that the contract was made that the facts represented were
true. On top of that the most important part of this section is that firstly, it relates with burden of
proof, and secondly, the measures of damages.

Whereas, s.3 of the act deals with trader and a consumer under the justification of fairness test
subjected to the Consumer Rights Act 2015. So, it states that by the implication of the Act more
extensive remedies in damages available for misrepresentation. Furthermore, the CA in Royscot
Trust v Rogerson, stated that damages under s.2 of the Act should be calculated in the same way,
if the statement has been made by fraudulently or negligently- Smith v New Securities.
The more promising concept is application of law of tort to identify economic loss having
actionable for negligent misstatement, as confirmed by the court in Hadley Byrne v Heller. But
the action for negligent misstatement and negligent opinions are same under Hedley Byrne.
Usually in tort the liability for strict liability and negligence especially in breach of duty, are not
same but here we can see a less duty liability imposes same as the bigger one, which is still
criticised in contract law for a decades by many Jurists and academics. Temporarily, where a
contractual breach in three party situations, if breach occurs, it stills damages are not available
under the Act, was confirmed in a year of 2016 by the Court of Appeal in Taberna Europe CDO
v Selskabet. So, in the bottom line of this theory, we therefore, may argue that damages for
misrepresentation has been greatly expanded in the last decades in common law and by the
preservation of Statutory law, but still remains incompetent in certain situations specially in
tortious claims that directly contradict with the equitable jurisprudential norms. Notwithstanding,
we may also expect that certain complex and inequitable area will soon be resolved by the
implication of legal and equitable norms.

On the other part of the question seeks the discussion of general damages, and if any breach
occurs what kind of damages will be provided by the court. Because, by the huge explosions of
modernisation, commercial contract have been greatly emerged with the failure of various
contractual destruction, which causes a big compensation as a result from contractual breach or
failure between the parties.
The main purposes of an award of damages are to compensate the injured party, but not to punish
a party who is in breach. In regards with the hoarding of restitutionary damages for breach, the
principle has been weakening assured by the SC decisions in Bunge SA v Nidera. Unfortunately,
punitive damages are also not available in English law. By pointing, the legal theory and
equitable theory of UK in few matters may satisfied with theory, but in practice it lacks its
justifiability.
 As an example, in theory the English law does not award punitive damages as a result of
any contractual losses, which underpins the component of contractual breaches. On
contrary, it opposes with its early decisions in Robinson, as, the aim of damages is to
compensate the injured parties. Now, not awarding damages for breaches in certain
situations questioned my understanding about the proper justification of awarding and
compensating the damages? Specially, the jurisdictional justifiability of UK Courts in
terms with the implication of equity, hence, judges are also applying their jurisdictional
discretionary power through the equity as again reminded me the second one i.e. not to
punish a party who is already in a breach. So, some times, it is complicated to quantify
who will be sued or who will sue, and, when and how?

Modestly, the court in Johnson v Agnew,s tated that damages are normally measured at the time
of the breach. In addition, in exceptional situations, damages would be reduced where it was
proven that between the date of breach and the time of trial, certain events occurred which would
have inevitable the damages the claimant could have recovered his losses, as stated in-
Bacciottini v Gotelee (2016).

Most promisingly, in the case of Victoria v Newman, The Heron-2, and H Parson v Uttley, the
question of probabilities in case of any occurrence would be foreseen. Although, above cases
raises the exposition of remoteness and also have struggled to define the exact figure of
reasonable contemplation between the parties.
Not finished yet, in regards to award damage for a breach of contract claim may establish, but it
is very important for the claimant to prove the proximity of the breach was not too remote.
Means what will determine which damages arise in the usual course of things, as a probable
result of breach, will depend on degree of knowledge the parties are presumed to possess the
contractual duty. Secondly, when it comes with exceptional situations, if breach occurred then
the consequences of breach would be particularly severe- (South Australia v York Montague,
and Jackson v Royal Bank of Sct).

when a party failed to perform a contractual obligation under an existing duty, he certainly held
liable by compensated for the breach. As an example, in an actionable misrepresentation parties
were becoming liable for they’re fraudulent and negligent representations, in the same manner,
likewise, it opposes it’s own purposes in a narrow way (indicating Hedley Byrne v Hiller). But it
is not deniable; UK’s law of contract has great impacts in the history of the modernization of
these doctrines as like the estoppel, waiver, specific performance of a contract, dozens of
damages for pecuniary and non-pecuniary losses and so on. Which holds a comparative standard
in contractual breaches by awarding damages, similarly by compensating vies a versa.