Introduction
Misrepresentation is a key doctrine in contract law that deals with pre-contractual statements which induce a party to enter into a contract, but which later turn out to be false. The definition provided in the question accurately summarises the core elements of an actionable misrepresentation. For a claim to succeed, the claimant must establish that they were induced to enter a contract by an untrue statement of fact made by the other party. If proven, the contract is rendered voidable, giving the innocent party the option to seek remedies. This essay will discuss the elements of this definition, explore the exceptional circumstances where silence can constitute a misrepresentation, and outline the remedies available at common law and in equity.
Untrue Statement of Fact
The central element of misrepresentation is that the statement must be one of fact, rather than an opinion, a "mere puff", or a statement of future intention. A simple statement of opinion, which proves to be unfounded, is generally not actionable. The case of Bisset v Wilkinson (1927) illustrates this principle. The seller of a farm, which had never been used for sheep farming, stated that he believed it could support 2,000 sheep. This was held to be a statement of opinion, not fact, as the buyer was aware that the seller had no special knowledge on which to base the statement. Therefore, when the land could not support that many sheep, there was no misrepresentation.
However, a statement of opinion may be treated as a statement of fact if the person making it has special knowledge or skill regarding the matter. In such cases, the statement implies that there are reasonable grounds for holding that opinion. In Esso Petroleum Co Ltd v Mardon (1976), an expert from Esso estimated that a new petrol station would sell 200,000 gallons of petrol a year. This estimate was based on flawed information. The court held that Esso had a duty to take reasonable care in providing the forecast due to their expertise, and their statement was treated as a representation of fact that the forecast was made with skill and care. As it was not, they were liable for negligent misrepresentation.
Exceptional Rules: When Silence is Misrepresentation
The general rule is that silence does not amount to a misrepresentation; there is no general duty to disclose facts to the other contracting party. However, there are important exceptions to this rule.
First, a statement which is technically true but creates a misleading impression by omitting other relevant facts can amount to a misrepresentation. These are often called 'half-truths'. In Dimmock v Hallett (1866), a seller of land stated that the farms on the land were fully let. While this was true at the time of the statement, the seller did not disclose that the tenants had already given notice to quit. The court held that failing to mention this crucial fact made the original statement a misrepresentation.
Second, a duty to disclose arises if a statement was true when made but becomes false due to a change in circumstances before the contract is concluded. The person who made the original statement has a duty to correct it. In With v O'Flanagan (1936), a doctor selling his medical practice stated that it had a certain income. Between the time of the statement and the signing of the contract, the doctor fell ill and the practice became virtually worthless. His failure to disclose this change of circumstances was held to be a misrepresentation.
Remedies for Misrepresentation
When an actionable misrepresentation is found, the primary remedy is rescission, which is an equitable remedy. Rescission aims to set the contract aside and restore the parties to their pre-contractual positions, a process known as restitutio in integrum. Because it is equitable, the right to rescind can be lost through bars such as affirmation of the contract, lapse of time, the intervention of third-party rights, or if restitution is impossible.
In addition to rescission, damages may be available. The availability and measure of damages depend on the type of misrepresentation:
- Fraudulent Misrepresentation: This occurs where a statement is made knowingly, without belief in its truth, or recklessly. The common law remedy is damages under the tort of deceit. The aim is to restore the claimant to the position they would have been in had the misrepresentation not been made, and all direct losses are recoverable.
- Negligent Misrepresentation: Under section 2(1) of the Misrepresentation Act 1967, a claimant can receive damages if a statement is made without the representor having reasonable grounds to believe it was true. This is a powerful remedy as the damages are calculated on the same basis as fraudulent misrepresentation.
- Innocent Misrepresentation: Where a representor had reasonable grounds to believe their statement was true, the misrepresentation is innocent. Before 1967, only rescission was available. Now, under section 2(2) of the Misrepresentation Act 1967, the court has discretion to award damages in lieu of rescission if it considers it equitable to do so.
In conclusion, the law of misrepresentation provides protection to parties who are induced into contracts by false statements. While the core definition focuses on positive statements of fact, the law has developed exceptions to deal with misleading silences. A range of remedies, both equitable and at common law, are available to ensure that the innocent party can either escape the contract or be compensated for their loss.
References
- Bisset v Wilkinson [1927] AC 177 (PC)
- Dimmock v Hallett (1866) LR 2 Ch App 21
- Esso Petroleum Co Ltd v Mardon [1976] QB 801 (CA)
- With v O'Flanagan [1936] Ch 575 (CA)
- Misrepresentation Act 1967
