UCL FACULTY OF LAWS

LAW OF CONTRACT 2009/10

VITIATING FACTORS II:

MISREPRESENTATION
− statement made by one party to other party to contract and as a result a contract is
formed
− difference between mistake and misrepresentation– recision- contract is voidable not
void (contract doesnt become void (wipes out all third party claims)- it is just voidable)
To successfully claim misrepresentation, a claimant must satisfy three requirements:
1. Prove that a misrepresentation has been made
2. Establish which type of misrepresentation has been made
3. Demonstrate an entitlement to the remedy sought

1. IS IT A MISREPRESENTATION OR SOMETHING ELSE?

- misrepresentation- false statement of fact made before time contract is made to other party
which is intended to induce or does, in fact, induce the other party into the contract
- 5 things to prove:
1. statement is unambigious
2. statement of existing fact
- must be statement of some kind – otherwise misrepresentation is not needed vitiaing factor-
what is a statement of fact..what characteristics?
- Distinction between overt and implied statements of fact
- overt: easy if oral statement
- conduct: more tricky- reticence and silence cannot constitute misrepresentation
- might be possible to imply from somebodies conduct that statement of fact and
misrepresentation have been made Walters v Morgan , Lord Campbell- “nod wink
- how does conduct amount to statement of fact? Gordon v Sellecoe
Possibilities?
(i) A contract term: a statement of fact which is intended to create a legal obligation
under the contract (see earlier terms lectures): i.e. a statement which is internal to the
contract
(ii) Representations: a statement of fact which induces the other party into the
contract: a statement which is external to the contract
(iii) Mere puffs: “refreshes the parts that other beers cannot reach”
Dimmock v Hallett (1866) 2 Ch App 21 (see below)

2. IS IT AN ACTIONABLE MISREPRESENTATION?
(a) Definition
A misrepresentation is a false statement of existing fact addressed to the other party which is
intended to induce and does induce the other party into making the contract.
(b) A statement of existing fact
(i) There must be some statement:
Walters v Morgan (1861) 3 De.G.F. & J 718 :
“a nod, or a wink, or a shake of the head, or a smile…intended to induce the vendor to
believe the existence of a non-existing fact…would be sufficient.” Per Lord Campbell in at 725

Gordon v Selico [1986] 1 EGLR 71 CA

P purchased a long lease in a block of flats of which D2, a firm of estate agents, acted as
managing agents. The building was already badly maintained at the date of the purchase,
and D1 and D2 subsequently made no attempt to operate the system of maintenance
provided in the lease. The building was eventually found to be badly affected by dry rot,
originating from the incursion of water. The local authority served a dangerous structure
notice and obtained a magistrates' court order. When this was not complied with, it instructed
builders to do the works. The judge held that D1 was liable to P in damages for deceit,
because there had been at the time of the purchase a fraudulent concealment of dry rot by A,
a building contractor, in the course of work ordered by D2 on D1's behalf.

− court said Selico is liable for misrepresentation therefore contract is voidable

− statement: flat didnt have dry rot, question for court: how do you get from conduct to
the assumption that there is a statement of fact in this case, line between
misrepresentation and non disclosure
− no duty in English law to reveal the truth about all aspects of the contract- where is
line between non disclosure and misrepresentation
− on misrepresentation side because by his conduct Selico- deliberately went out of
his way wanted to cover rot- got contractor in solely for this job- act of conduct
sufficient to amount to statement of fact

Spice Girls v Aprilia World Service [2002] EWCA Civ 15.

Participation of the Spice Girls in a series of commercial adverts and photographs for a
scooter was deemed to be a misrepresentation as no member of the group informed the
company that one of their number was leaving to pursue a solo career before the advert was
due to be shown.

− `aprillia agreed to sponsor world tour in exchange for promoting

− Geri decides to leave group, contract signed after she decides to leave
 − Aprilia find out told rest of girls she was leaving- but didnt believe her- induced into
contract but misrepresentation that there was 5 girls but there were 4
− court said; all 5 participated in photo shoot- by their conduct represented to A that 5
members of group and not 4- state of affairs that didnt exist
− fact that the other members didnt believe geri when she said she was leaving
irrelevant, meer knowledge

− misrepresentation- statement and distinguish between overt and conduct and implied
statement of fact
− not statement of fact in itself but something about it that leads the court ot raise it and
imply that there is a statement of fact:
− 4 types of implied statements of fact

(ii) Statements of opinion

Bissett v Wilkinson [1927] AC 177
The seller sold to the purchaser a farm in New Zealand. S told P that in his opinion, the farm
could support 2,000 sheep. The farm had not been used for sheep before and so S could
only state his opinion. P knew the farm had not been used for sheep before and S was only
venturing his opinion. The farm could not be used to support so many sheep and so P tried to
get the contract set aside for misrepresentation.

− same position in relation to knowledge

− court said: statement of opinion and not fact and so general rule: statement of opinion
are not statement of fact, however, there are exceptions:
− when person making statement (representor) is in a better position then
representee to know the truth of the statement Smith v Land
− seller of property said to purchaser that the sitting tenant in property was a
very “desirable tenant”- is that statement of opinion enough to amount to a
statement of fact?- turns out wasnt very desirable- didnt pay rent on time

Smith v Land & House Property Corporation (1884) 28 ChD 7.

Bowen LJ:
“It is material to observe that it is often fallaciously assumed that a statement of opinion
cannot involve a statement of fact. In a case where the facts are equally known to both
parties, what one of them says to the other is frequently nothing but an expression of
opinion…But of the facts are equally not known to both sides, then a statement of opinion
who knows the facts best involves very often a statement of fact, for he impliedly states that
he knows facts which justify his opinion.”
P was selling a hotel with a sitting tenant described as a “very desirable tenant.” D agreed to
buy the business but before the sale the tenant went into liquidation. D refused to complete
and P sued for specific performance. D counterclaimed alleging misrepresentation.
Kyle Bay Ltd v Underwriters Subscribing [2006] EWHC 607 (Comm)

Esso Petroleum v Mardon [1976] QB 801

An Esso employee with 40 years experience told a prospective tenant of one of the stations
still under construction that the station would sell around 200,000 gallons of petrol by the third
year of operation. T took the station but the actual sales only reached 78,000.

− mordon induced to buy petrol station due to statement made by esso employee
− significant discrpancy in wr said wd ield and what actually yielded
− statement of fact and not statement of opinion- although employee ad no knowledge
about particular petrol station had strong knowledge of petrol stations in general- this
was enough to raise the statement of opinion to a statement of fact- also
distinguishes Bissett v Wilkinson- land had never been used for sheep farming so
both parties were equally ignorant (zoned out a bit)
3 times when opinion will be statement of fact:
− if opinion is dishonest

(iii) Statements of intention

Edgington v Fitzmaurice (1885) 29 ChD 459
Per Bowen LJ: “…The state of a man’s mind is as much a fact as the state of his digestion.”

− company directors were isuuing a prospectus inviting subscritpions for shares- said
that that money (share capital) was going to be used to develop and expand the
business- intending to use it to pay off company's debts
− what is the status of that statement of intention?- question for court
− usually not st of intent not enough
− in this case, prepared to make an exception- only reason the claimant had
entered into contract is because of the fraudulent st made by directors
− even though, statement for future intention – anyone lending money should have
been very clear what it was for
− geenrally not enough , but this case exception- will be

(iv) Mere Puffs/Sales talk

Dimmock v Hallett (see above)
− whether a field was fertile or not
− said to be fertile and improvable- sales talk- not a statement of fact for
misrepresentatio
− exceptions:
 − Smith- if advertising jargon is a statament of opinion and more then that then that
will be enough to raise adv jargon to statement of fact
− specifictiy of advertising slogan may in fact be raised to a term of the contract-
Carlill
Smith v Land & House Property Corporation (see above)
Carlill v Carbolic Smoke Ball [1893] 1 QB 256 (see offer and acceptance notes)

(v) Silence
Keats v Codogan (1851) 10 CB 591
- silence cannot of itself amount to a statement of fact for a misrepresentation
Smith v Hughes (1870-1) LR 6 QB 597
“If the vendor was aware that the purchaser thought the article possessed that quality, and
would not have entered into the contract unless he has so thought, still the purchaser is
bound…a mere abstinence from disabusing the purchaser of that impression is not fraud or
deceit; for whatever may be the case in a court of morals, there is no legal obligation on the
vendor to inform the purchaser that he is under a mistake, not induced by the act of the
vendor.” Per Blackburn J.

− state of a person's mind, geenrally not relavnt to contractual – only interested in

reasonabl person not tru intetions of parties
exceptions:
Walters v Morgan (1861) 3 De.G.F. & J 718 (see above)
- implication drawn from conduct of parties
With v O’Flanagan [1936] Ch 575: change of circumstances:
In January, 1934, negotiations were entered into for the sale of a medical practice;
the vendor represented to the purchasers that the takings of the practice were at the
rate of £2000 per annum. The contract was signed on May 1, 1934, but by that date
the circumstances had changed, as the practice had fallen off owing to the illness of
the vendor and the employment of several locums. The change of circumstances was
not disclosed to the purchasers, and when they took possession on that date they
found that the practice was almost non-existent. They thereupon commenced an
action for rescission of the contract.
- narrowly construed
− statement of fact has been made but something happens which makes the original
statement of fact untrue
− for purchase of a medical practice- subsequently flost proceeds because doctor lost
− statement of fact deemed to be continuing- once you make it carried on through lif
eof contracted
− if state of affairs ceases to exist- changes drastically in some way under duty to
disclose to other party
Lambert v Co-operative Insurance [1975] 2 Lloyd’s Rep 485: contracts of ‘utmost good faith’
– in particular involving fiduciaries, and insurance
In 1963 P signed a proposal form for an insurance policy with D Co. to cover her own and her
husband's jewellery. No questions were asked about previous convictions and P gave no
information although, to her knowledge, H had been convicted of a crime of dishonesty some
years earlier. The policy was issued, cl. 2 of which provided that it would be void if there
should be any omission to state any fact material for estimating the risk. The Marine
Insurance Act 1906and the Road Traffic Act 1934 defined "material" as being a circumstance
"which would influence... a prudent insurer in fixing the premium or determining whether he
will take the risk." The policy was renewed each year, the last application being in March
1972. In December 1971 H was imprisoned for an offence of dishonesty. This was not
disclosed to D when the policy was renewed. In April 1972 P made a claim for GBP 311 for
jewellery lost or stolen. D repudiated on the grounds that P had failed to disclose H's
convictions.
− see it under latin term (utmost good faith bit)
− wife took out insurance on behalf of husband and failed to disclose his previous
condition- convictions
− not asked about them so notetity of disclosure
− contract in insurance is a contract in uptmost good faith- so emphasis on person
entering contract to give full information/disclosure to insurer
− failure to disclose material fact leads to contract being voidable for misrepresentation

Pan Atlantic Insurance Co Ltd v Pine Top Insurance Co [1995] 1 AC 50

Gordon v Selico (1985) 275 EG 899 (CA) (see above): hidden defects
Dimmock v Hallett (1866) LR 2 HL 99: half-truths
− final exception to silence is not a statement of fact
− 2 ways:
− the statement might make the statement overall false
− told farmer that buildings were fully let but didnt tell him that tenants had all
given notice to quit- court said- in this situation the bit that he didnt tell the
buyer made the original statement completely untrue- non disclosure would
be a statement of fact
− second way
− information withheld means statement is misleading in someway Thomson
summary:
misrepresentations-
− unambigious
− statement of fact
− statement must be false *
− unambigious false statement of fact must be made to the party misled (either
addressed directly to person entering into contract, or made to third party with the
 intetion to be transferred to party entering into contract- surveyors reports for
houses) and
− must induce that party into the contract

Thomson v Christie’s Mason & Woods [2004] PNLR 42

The claimant (T) brought claims in negligence and misrepresentation against the defendant
auctioneers (C). The catalogue for one of C's auctions contained a lot described as a "pair of
Louis XV porphyry and gilt bronze two handled vases. T successfully bid GBP 1.75 million
for the urns. Subsequently, T became aware of rumours that the urns were of a later date
and worth only a fraction of the price she had paid. C conducted tests which suggested that
the urns were later but C withheld the results from T until after she had commenced
proceedings. However, the methodology of the tests was later found to have been invalid,
and C continued to maintain that the urns were Louis XV. T contended that C had breached
its duty of care in describing and dating the urns and in failing to inform her of any
doubts or queries of which they were aware. T argued that she was also entitled
to damages under s. 2 Misrepresentation Act 1967

IFE Fund SA v Goldman Sachs International [2006] EWHC 2887

Clinicare Ltd v Orchard Homes & Developments Ltd [2004] EWHC 1694
‘special law’ through statute, e.g. field of consumer credit (CC Act 1974).

(c) Which is false/untrue

(d) ‘Addressed to the other party which is intended to induce the other party to
enter into the contract’
• Induces: was this fact A reason not THE reason for entering into the contract.
Edgington v Fitzmaurice (1885) 29 ChD 459
− if more then one reason for entering into contract can you still be said to be induced
to enter into contracted
− LJ Bowne- misrepresentation need be only one reason for entering into contract, not
the reason
− burden of proof rests on party misled to show that they were In fact induced into the
contract- question of fact (either were or weren't)
− it also doesn't seem to matter that the innocent party had an oppurtunity to verify the
facts of the statement but didn't
No inducement if contract entered for independent reasons
JEB Fasteners v Marks Bloom & Co [1983] 1 All ER 583
Atwood v Small (1838) 6 Cl & F 232
Museprime Properties Ltd v Adhill Properties (1990) 36 EG 114)
Three adjacent properties (Nos.940, 942 and 944) consisted of commercial premises on
the ground floor and residential accommodation above. In each case the commercial
 premises were subject to a rent review after five years. In the case of 942 and 944 the
review clause provided that, if T had not served a counter-notice within a month of receipt
of L's "trigger" notice, the revised rent would be that specified in L's notice; however, in
the lease of no.940 there was no provision to that effect. In due course T were served
with "trigger" notices proposing rent rises from GBP 1,700 to GBP 4,000 in the case of
No.940, GBP 1,500 to GBP 3,500 for No.942, and GBP 1,600 to GBP 3,750 for No.944.
In the case of No.940 objection was made by letter, whereas for Nos.942 and 944 no
written objection was made, although comments were made over the telephone.
In due course D sold all three properties at auction to P, the sale particulars
(revised orally by the auctioneer) stating that in each case T had made an
offer which had been rejected by the freeholder, and thus implying that the
revised rents were all still up for negotiation. On discovering that, in the case
of Nos.942 and 944, the revised rents were likely to be deemed to be those
specified in the "trigger" notices, which they considered too low, P refused to
complete the sale on grounds of misrepresentation.

• Materially: would a reasonable person be influenced by this fact?

o This requirement does not apply to fraud cases
Redgrave v Hurd (1881) 20 ChD 1
The Plaintiff, a solicitor, published in the Law Times an advertisement headed "Law
Partnership," stating that the advertiser, an elderly solicitor of moderate practice, with
extensive connections, shortly retiring, and having no successor, would first take as
partner an efficient lawyer who would not object to purchase the advertiser's suburban
residence, value £1600. The Defendant answered the advertisement, and had an
interview with the Plaintiff, at which the latter stated that his business brought in about
£300 a year. The Defendant wrote saying that he should like to have some idea of the
amount of business done for the last three years, and asking an interview for the
purpose. At this interview the Plaintiff produced three summaries showing a business of
not quite £200 a year. The Defendant asked how the difference was made up, and the
Plaintiff showed him a number of papers which he said related to other business not
included in the summaries. These papers, which the Defendant did not examine, showed
only a most trifling amount of business, and the gross returns of the business were in fact
only about £200 a year. The Defendant shortly afterwards signed an agreement to
purchase the house for £1600, and paid a deposit, the Plaintiff refusing to have any
reference to the business inserted in the agreement. The Defendant took possession, but
finding, as he alleged, that the business was worthless, refused to complete. The Plaintiff
brought his action for specific performance. The Defendant put in a defence, in which he
disputed the right to specific performance on the ground of misrepresentations as to the
business, and by counter-claim claimed on the same ground to have the contract
rescinded, and to have damages on the ground of the expenses he had been put to and
the loss incurred by giving up his own practice.
 − sale of solicitors practice
− is there a statement of fact which induces the innocent party into the contracted
− didn't matter if defendant checked the doc or not- important that seller shouldn't be able to
accuse the purchaser when the seller made the misrepresentation themselves
− can't hide misrepresentation behind buyer's lack of checking
− statement must be made to innocent party and a reason for them to enter the contracted
− 4 exceptions (JEB & Atwood):
− if claimant is unaware of representation
− if complainant knows that representation is false
− is complainant is unaffected by the statement (Atwood, don't need to know facts)-
claimant relies on other information and then enter into contract (tricky because of
making of statement and inducing of party entering into contract)
− complainant is aware of the statement but sees it as unimportant (tricky because of
making of statement and inducing of party entering into contract)
− misrepresentation only has to be A reason not THE reason- how much reliance must one put
on the statement in order for it to induce one into the contract?
− Museprime:
1. burden of proof on claimant to show induced into contract because of statement (only enough
evidence to show prima facie case)

2. there will be an assumption that burden of proof is discharged if it can be objectively shown that a
reasonable person would have been induced in the contracts a result of the statement (materiality of
the statement)

3. if it can't be shown that a reasonable person would have entered contract, then innocent party must
show that they were misled and induced into contract (subjective test)- stage 3 have to show a lot
more evidence then criteria

3. THE FOUR CATEGORIES OF MISREPRESENTATION

(a) Fraudulent misrepresentation
− creature of common law, based on tort law- tort of deceit, civil action for lying

− very high burden of proof

Derry v Peek (1889) 14 App Cas 337

Lord Herschell:
Fraudulent misrepresentation is proved when it is shown that “a false representation has
been made (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it
be true or false ... if fraud be proved the motive of the person guilty of it is immaterial.”

− incorrect statement in company prospectus

− criteria 3- covers even if you make a statement with the best intention

GE Commercial Finance Ltd v Gee [2005] EWHC 2056

(b) Negligent misrepresentation at common law

− 2 types:
 − at common law
− under statute
Hedley Byrne v Heller [1964] AC 465 (VERY IMPORTANT!- READ)
− courts invented new category of misrepresentation
− negligent misstatement at common law
− verbal assurance given by 3rd party about financial soundness of one of the parties to
the contract
− as a consequence of the 3rd party's statement- innocent party enters into contract
− statement turns out to be wrong- wants to claim misrepresentation and a remedy
against 3rd party, can they?
− No, because there was an exclusion clause
− court says about negligent misstatement:
− it should be possible to claim misrepresentation as a consequence of a 3rd
party's statement
− what one has to prove is that the statement was made carelessly- drops the
level of what one has to prove down (easier to prove then fraudulent
misrepresentation)
− carelessly- would be proven if certain criteria would be met:
− if person making statement has special knowledge- more likely to be
misrepresentation (make reference to Esso Petroleum v)
− if statement is regarded as a considered statement of opinion rather then
an 'off the cuff' remark
− 5 crriteria to show for Hedley Byrne to work
− person making the statement must know that the party relying on it
will just rely on it without further enquiry
− the person making the statement is aware of the purpose for which
the statement is required
− reasonable for innocent party to act on statement without further
enquiry
− statement acted on to the innocent party's detriment
− statement that is made is one that a reasonable person in that
situation would not have made

(c) Negligent Misrepresentation under s.2(1) Misrepresentation Act 1967

The test of liability is set out in section 2 (1):
“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.”
− there are 4 things you need to prove: (transfer to statute book)
− misrepresentation has to be made to the other party to the contract (if 3rd party
makes statement cannot rely on fact but have to use Hedley-Byrne)
− there must be loss as a consequence of the misrepresentation
− innocent party will get a remedy for misrepresentation as if the statement was
made fraudulently when, in fact, it isn't (fiction of fraud)
− unless the person making the statement can prove that he had reasonable
grounds to believe that the statement they were making was true (in practice,
difficult to prove if maker of statement- reason Howard Marine & Dredging)
Advantages of using the Act over common law

1. No need for Hedley Byrne-type special relationship

2. Burden of proving reasonableness of belief lying on representor

The burden will usually be heavy, e.g.:

Howard Marine & Dredging v Ogden [1978] QB 574

A Ltd, civil engineering contractors, entered negotiations with H Ltd for the hire of two sea-
going barges, owned by H Ltd, for carrying quantities of clay out to sea. At a meeting on July
11, 1974, the owners' marine manager orally represented to A Ltd that the capacity of the
barges was 1,600 tonnes deadweight. He based that figure on his recollection of an entry in
Lloyd's Register which gave the capacities as 1,800 tonnes. The Register was incorrect, and
the correct deadweight capacity was 1,055 tonnes, which could have been ascertained from
the ship's document in possession of H Ltd A Ltd continued negotiations without obtaining
any other figure for the vital matter of deadweight capacity.

3. Measure of damages according to tort of deceit

− false statament made of carrying capacity of barges- hired by Ogden

− important: when made statement, relied on figures given in Lloyd's shipping register
(bible of shipping capacity etc...) these figures were wrong, original shipping
documents of makers of barges- but in German- didn't speak German
− statute imposed an absolute obligation on the maker of the statement- not to say
things that they had reasonable grounds for believing weren't true
− even though relied on Lloyd's (normally would be enough) because he had seen the
original shipping documents- decided maker of statement did not have reasonable
grounds for believing the truth of the statement even though had absolutely no way of
reading documents
 − if have cite of documentation that challenges statement made, that is enough to
stop one relying on criteria 4

Royscott v Rogerson [1991] 2 QB 297

D, a car dealer, agreed to sell a car on hire-purchase to a customer, C, for GBP
7,600, of which GBP 1,200 was paid as a deposit. D, in its proposal to the
finance company P, mis-stated these figures as GBP 8,000 and GBP 1,600
respectively. On the basis of these figures P (who required a minimum deposit of
20 per cent of the purchase price) purchased the car from the dealer for GBP
6,400 and entered into a hire-purchase agreement with C. In August 1987, C
dishonestly sold the car and paid no further instalments.

4. But common law is nevertheless advantageous where representation not

from one party to a contract to another, nor where contract void.

(c) Innocent Misrepresentation – sweep up

If it can be proved that a misrepresentation has been made, but the
misrepresentation is not fraudulent, negligent at common law or negligent under s
2(1) Misrepresentation Act 1967 then the misrepresentation will be an “innocent
misrepresentation”

4. REMEDIES FOR MISREPRESENTATION

(a) General considerations
A contract is voidable for misrepresentation. An innocent party can therefore claim
two remedies:
(i). Rescission
(ii). Damages

(b) What is rescission?

The effect of misrepresentation is to render the contract voidable but not void and thus the
contract is still valid and subsisting until the representee decides to set it aside (rescind the
contract). Rescission operates to SET ASIDE the contract conditional on mutual restoration
of any benefits received under it. Therefore the aim is to restore the parties to pre-contract
position

Islington LBC v UCKAC [2006] EWCA civ 340 = a voidable contract exists ‘until and unless it
is set aside by an order of rescission made by the court at the instance of a party seeking to
terminate it or bring it to an end’

− available to all vitiating factors and equally relevant, only available for vitiating factors
− contract said to be recinded- set aside, parties return to pre contractual condition
(any money been paid out- paid back, no money needs to be paid out on contract
if not already paid out)
− contract can get rescised is voidable
 − if want rescission must communicate it to other party to contract- Car Uni (how
quickly and how to communicate
− possible to lose one's right to rescission

(i) Availability?
Car Universal Finance v Caldwell [1965] 1 QB 525
court said:
− innocent party needs to take all reasonable steps to notify other party that they
want contract to be rescinded

(ii) Bars to rescission

• Affirmation- innocent party decide want to carry out with contract
(can be expressed or implied from conduct of parties- cannot affirm if
do not know about misrepresentation, not affirmation if checking the
truth of the statement)
• Lapse of Time- know about misrepresentation but do nothing about it
• Third Party Rights- when 3rd party rights are involved in contractual
relations (once goods passed onto 3rd party)
• Restitution is Impossible- have to be able to restore original subject
matter of the contract- if can't, lose right to rescind (destruction of
object or commercial destruction)
• section 2 subsection 2 of Misrepresentation Act- court has discretion
whether to award damages in lieu of rescission

damages: second remedy which one will always get

amount differs dependent on type of misrepresentation
Crystal Palace FC (2000) Ltd v Iain Dowie [2007] EWHC 1392
(c) Specific considerations
(i)Fraudulent misrepresentation:
- what is the appropriate measure of damages
- innocent party put back into pre contractual position and can clam all loses flowing from
misrepresentation
o not interested in foreseeable loses, only actual losses
o the rules on remoteness of damage are not relevant (told more about this at
end of course)
− different to contract measure (putting party forward into post contractual position-
only claim for what one would have got had contract gone ahead- limited claims) of
damages
− measures for fraudulent misrepresentation are high
• Rescission of the Contract
• Damages – these will be calculated according to the tort of deceit. All losses directly
flowing from the misrepresentation will be recoverable: Doyle v Olby [1969] 2 QB
 158 approved in Smith New Court Securities v Citibank NA (on appeal from Smith
New Court Securities v Scrimgeour Vickers (Asset Management) [1997] AC 254.
- what is the appropriate measure of damages- tortious measure of damages
• Contributory negligence?

(ii) Negligent misrepresentation at common law

• Rescission of the Contract
• Damages –calculated according to the tort of negligence. All losses that are
reasonably foreseeable as a consequence of the misrepresentation will be
recoverable: The Wagon Mound (No 1) [1961] AC 388.

− Hedley Byrne
− appropriate measure associated with tort of negligence
− party making the statement must objectively have been able to forsee the loss
− amount one gets will be reduced if the claimant themselves were responsible in any
way for the loss- contributory negligence
− only type of remedy available if statement is made by a 3rd party
(iii) Negligent misrepresentation under s.2(1) Misrepresentation Act 1967:
• Rescission of the Contract
• Damages –calculated according to the tort of deceit. All losses directly flowing from
the misrepresentation will be recoverable: Royscott v Rogerson [1991] 2 QB 297; no
remoteness limit
• Fiction of fraud: Smith New Court Securities v Citibank(on appeal from Smith New
Court Securities v Scrimgeour Vickers (Asset Management) [1997] AC 254 (above)
• Contributory negligence?
Gran Gelato Ltd v Richliff (Group) Ltd [1992] CH 560

− damages under section 2(1) of the Misrepresentation Act- what is the measure of
damages?
− Firstly, this is negligent misrepresentation seem to indicate measure of damages
should be the tort of negligence- but the appropriate measure of damages is the tort of
deceit- which means will be able to claim all losses flowing from misrepresentation

− if possible want to prove 2(1) because more money and easier to prove

(iv) Innocent misrepresentation

• Rescission of the contract or
• Damages: awarded in the discretion of the court in lieu of recession where ‘equitable’
(i.e. ‘fair’) (section 2(2) Misrepresentation Act 1967).
Leaf v International Galleries [1950] 2 KB 86
William Sindall v Cambridgeshire County Council [1994] 1 WLR 1016
 Floods of Queensferry Ltd v Shand Construction Ltd [2002] EWCA Civ 918
Government of Zanzibar v British Aerospace [2000] 1 WLR 2333

- rescission only unless court decides to exercise discretion under 2(2) and award
damages in
− amount one gets is an indemnity- literally reimbursing the expenses (no
punitive/compensatory element like with the rest)
− restrictions on availability of remedy- section 2(2) only available if have right to
rescission- if lost right to rescission, lose right to remedy under 2(2)
− not an independent route to damages- claimant seeks rescission- remedy asked for,
up to court whether to award one damages by exercising jurisdiction
− can be possible to exclude liability for misrepresentation- if such a clause- governed
by section 3 of Act

5. EXCLUSION OF LIABILITY FOR MISREPRESENTATION

(a) General remarks on exclusion clauses
Common law controls
Unfair Contract Terms Act 1977
Unfair Terms in Consumer Contracts Regulations 1999 (see lectures on terms and UCTA)
(b) Misrepresentation Act 1967 s.3 amended by the Unfair Contract Terms Act 1977
HIH Casualty & General Insurance v Chase Manhattan Bank [2003] 2 Lloyds Rep 61

Fiona Smith
December 2009
LLB Intermediate 2009/10