Misrepresentation

"First of all, let's start by defining misrepresentation. Misrepresentation refers to a false or misleading statement made by one party to another during the negotiation or formation of a contract. Essentially, it's when one party is deceived by another party's words or actions."

Misrepresentation is a false statement of fact made by one party to another party during the formation of a contract that has the effect of inducing that party into the contract. It is a type of fraud, and can be either innocent (made by mistake) or fraudulent (made with intent to deceive).

In Smith v. Land and House Property Corp: Court defined misrepresentation in the following terms -
"Misrepresentation is a false statement of fact made by one party to another party, which has the effect of inducing that party into the contract. For a misrepresentation to be actionable, it must be material to the contract and have induced the innocent party to enter into the contract."

Here is an example of misrepresentation:

A car dealership advertises a used car for sale at a price of $10,000, stating that it has only had one previous owner and has a clean title. A potential buyer, relying on this information, decides to purchase the car. After the sale, the buyer discovers that the car actually had three previous owners and had been in a serious accident, resulting in a salvage title. In this case, the car dealership made a misrepresentation by falsely stating that the car had only had one previous owner and a clean title, which induced the buyer into purchasing the car. This would be considered a fraudulent misrepresentation because it was made with the intent to deceive the buyer.

"Misrepresentation is a false statement of fact made by one party to another party, which, whilst not being technically a lie, is intended to mislead and which the maker knows or believes to be untrue or misleading."

This quote highlights that misrepresentation involves a false statement of fact that is intended to mislead and that the person making the statement knows or believes to be untrue.

Legal scholar Sir Frederick Pollock that describes the effect of misrepresentation on a contract:
"Misrepresentation is a species of fraud in which a false statement of fact is made and relied upon by the person to whom it is made, and which is intended to and does in fact deceive him."

This quote emphasizes that misrepresentation involves a false statement that is relied upon by the person to whom it is made, and that it has the effect of deceiving that person.

To further understand the concept of misrepresentation, let's take a look at some examples.

Example I, the plaintiff entered into a contract to purchase a car from the defendant, relying on the defendant's representation that the car was in good condition. However, the car was in fact not in good condition, and the plaintiff sued the defendant for misrepresentation. The court will find in favor of the plaintiff, because the defendant had made a false statement of fact that induced the plaintiff into entering into the contract.

Example II- the plaintiff entered into a contract to purchase hay from the defendant, relying on the defendant's representation that the hay was of good quality. However, the hay was in fact of poor quality, and the plaintiff sued the defendant for misrepresentation. The court will find in favor of the plaintiff, bacause the defendant had made a false statement of fact that induced the plaintiff into entering into the contract.

Example-III, the plaintiff purchased land from the defendant, relying on the defendant's representation that the land was suitable for building a house. However, the land was in fact not suitable for building a house, and the plaintiff sued the defendant for misrepresentation. The court will find in favor of the plaintiff bacause the defendant had made a false statement of fact that induced the plaintiff into purchasing the land.

Example-IV, the plaintiff purchased shares in a company from the defendant, relying on the defendant's statement that the company was profitable. However, the company was in fact not profitable, and the plaintiff sued the defendant for misrepresentation. The court will find in favor of the plaintiff, bacause the defendant had made a false statement of fact that induced the plaintiff into purchasing the shares.

"Now, we're going to focus on actionable misrepresentation."

• Actionable Misrepresentation
  "In order for a misrepresentation to be actionable, it must be a false statement of fact that was made by one party to another party during the formation of a contract. The false statement must have been unambiguous and not just an expression of opinion or a statement of law. In addition, the misrepresentation must have induced the claimant to enter into the contract. This means that the claimant must have relied on the false statement in deciding to enter into the contract. If these criteria are met, the misrepresentation may be considered actionable, which means that the claimant may be able to seek damages or rescind the contract."

First the claimant must prove the falsity of the statement

In the case of Avon Insurance v Swire Fraser, the court ruled that the test for determining whether a statement is false in the context of misrepresentation is whether or not the statement is "substantially correct." This means that a statement may be considered false if it is not completely accurate, but only if the false part of the statement played a significant role in inducing the claimant into the contract.

For example, if a party makes a false statement about the size of a land, but the true part of the statement about the location of the land is what induced the claimant to enter into the contract, the false statement may not be considered actionable. However, if the false part of the statement about the size of the land played a significant role in the claimant's decision to enter into the contract, the statement may be considered actionable.

It's important to note that the degree of falsity is just one factor that is considered in determining whether a misrepresentation is actionable. The claimant must also show that they relied on the false statement in deciding to enter into the contract.

"In determining whether a false statement is actionable as a misrepresentation, it is important to consider whether the statement was unambiguous. This means that the statement must be clear and not open to multiple interpretations. If the claimant interprets the statement in a way that is not reasonable, and this interpretation leads to the statement being false, the statement may not be considered false. In such cases, the claim for misrepresentation may fail. For example, in the case of McInerny v Lloyds Bank, the court ruled that the claimant's unreasonable interpretation of a statement meant that the claim for misrepresentation failed."

Statement

"In the context of misrepresentation, the term 'statement' has been broadly interpreted to include not just verbal statements, but also conduct that can amount to a statement. For example, in the case of Gordon v Selico, the concealment of dry rot during an inspection of a property was held to be a statement that misrepresented the fact that the property was free of dry rot. It is important to note that silence or non-disclosure will not generally be considered a statement. Instead, there must be some positive conduct that constitutes a statement. For example, in Gordon v Selico, the conduct of concealing the dry rot went beyond simply remaining silent; there were active steps taken to conceal the fact. This conduct constituted a statement because it was a positive action taken by the party rather than simply remaining silent or not disclosing the information. In other words, the party actively took steps to hide the dry rot, which was considered a statement that misrepresented the condition of the property.

A misleading half-truth

A misleading half-truth, also known as a partial truth, is a statement that is technically true but misleading because it does not reveal all relevant information. In such cases, the statement may be considered a misrepresentation because it has the effect of misleading the other party.

For example, in the case of Nottingham Patent Brick & Tile Co v Butler, the solicitor's statement that he was not aware of any restrictive covenants related to the land was technically true at the time he made the statement. Restrictive covenants are legal agreements that restrict the use or development of a piece of land.
However, when he subsequently checked and discovered that there were indeed restrictive covenants, the statement became only half-true and therefore misleading. As a result, the court considered the statement to be a misrepresentation.

It's important to note that a misleading half-truth can be considered a misrepresentation even if the person making the statement did not intend to deceive or mislead the other party. It is the effect of the statement on the other party that is important in determining whether it is a misrepresentation.

Change of circumstances

"If a statement is made that is true at the time it is made, but subsequently becomes untrue due to a change in circumstances, the party who made the statement has a positive duty to inform the relevant party of this change. This means that the party has an obligation to take steps to ensure that the other party is aware of the new circumstances that have made the original statement untrue."

Here is an example to illustrate the concept of a change of circumstances in the context of Misrepresentation.

Imagine that a party, Andrew, sells a car to Bob, and Bob relies on Andrew's representation that the car has been well-maintained and is in good condition. At the time Andrew makes this representation, it is true. However, after the contract has been formed, Andrew discovers that the car has a defect that was not present at the time the representation was made. In this situation, Andrew has a positive duty to inform Bob of the defect, as the representation has become untrue due to a change in circumstances. If Andrew fails to disclose the defect and Bob suffers damages as a result, Andrew may be liable for Misrepresentation.

This example illustrates that if a statement is made that is true at the time it is made, but subsequently becomes untrue due to a change in circumstances, the party who made the statement has a duty to inform the other party of the change. If the party fails to do so and the other party relies on the original statement and suffers damages as a result, the party may be liable for misrepresentation.

"In the case of With v O'Flanagan, the defendant was selling his medical practice and was asked about the income of the practice.
The term "medical practice" refers to a business or profession in the field of medicine. In this case, the defendant was selling his medical practice, included the physical location of the practice, any equipment or supplies used in the practice, and any patients or clients of the practice.

At the time, business was excellent, so he truthfully disclosed this to the plaintiff. However, by the time the sale was completed a few months later, the business's income had dropped drastically.
The court held that due to this change in circumstances, the defendant had a positive duty to notify the plaintiff of the drop in income. The fact that the defendant did not do so was considered a false statement of fact, as the original statement about the income of the practice had become untrue due to the change in circumstances.
In cases where contracts are negotiated over a long period of time, it is important to be careful when making statements that may be considered "continuing statements," as the circumstances may change and the original statement may become untrue."

Duty to disclose
"In some cases, certain types of contracts, such as insurance contracts, will impose a higher duty of disclosure on the parties involved due to the nature of their relationship. This means that the parties have an obligation to provide each other with all relevant information that may affect their decision to enter into the contract or their performance under the contract.

For example, in a contract for insurance, the insured party has a duty to disclose all material facts to the insurer at the time the contract is formed. Material facts are those that are relevant to the insurer's decision to provide coverage. If the insured party fails to disclose material facts and the insurer relies on this information in deciding to provide coverage, the insurer may be able to deny any claims made under the insurance contract."

"uberrima fides," which means "utmost good faith."

This phrase is often used in the context of insurance contracts, as it refers to the duty of the insured party to disclose all material facts to the insurer at the time the insurance contract is formed. The insurer is also expected to act with utmost good faith in the performance of the contract, including in the handling of any claims made under the contract. This duty of utmost good faith is intended to promote honesty and transparency between the parties and to ensure that the insurer has all relevant information needed to assess the risk and provide appropriate coverage.

In Keates v The Earl of Cadogan (1851) 10 CB 591) it was decided that the contracting parties do not have a positive duty to disclose all facts to one another when entering into a contract. This means that each party is not required to actively disclose or reveal all information that may be relevant to the other party's decision to enter into the contract or their performance under the contract. Instead, each party is generally expected to rely on their own knowledge and judgment in deciding whether to enter into the contract and in performing their obligations under the contract.

Statements of opinion

"Statements of opinion are generally not considered to be statements of fact. This is illustrated in the case of Bisset v Wilkinson, where the farmer stated that it was his opinion that a piece of land could hold 2,000 sheep. The plaintiff claimed for misrepresentation, but the court ruled that this was not a statement of fact. This was because the farmer explicitly stated that it was only his opinion and he had no expertise in determining whether the land could hold that many sheep. In fact, he had never claimed to keep sheep on the land and the plaintiff was aware of this. Therefore, the court ruled that the statement was not a false statement of fact and the claim for misrepresentation was not successful."

"It is generally not relevant whether a statement of opinion is unreasonable or whether the person who made the statement could subsequently check the validity of the opinion and update the other party.

This is illustrated in the case of Hummingbird Motors Ltd v Hobbs, where an insurance company contracted with the insured's son to inquire about the value of their contents. The son incorrectly stated the value of the contents, but the court ruled that this was not a representation because he was in no better position than the insurance company to know the value of his parents' contents.

Therefore, in determining whether a statement is an opinion or a false statement of fact, the key question to consider is whether the person who made the statement was in a better position to know the truth than the plaintiff. If the plaintiff was aware that the person making the statement was not in a better position to know the truth, the statement is more likely to be classified as an opinion.

"The case of Smith v Land & House Property Corporation demonstrates that a statement of opinion may be considered a false statement of fact if the person making the statement is in the best position to know the true facts.
In this case, the landlord sold a property and described the tenant (who was residing on the land, as a "most desirable tenant," which was not true. Although this statement may have been expressed as an opinion, the fact that the defendant was in the best position to know the true facts about the tenant meant that the statement was considered a false statement of fact for the purpose of a claim for misrepresentation."

Inducement of claimant

To prove that a false statement of fact induced the claimant to enter into a contract, it must be shown that the following three requirements are met:
a. The representation made must be material: This means that the representation must be significant or relevant to the decision to enter into the contract.
b. The representation must be known to the representee: The claimant must have actually been aware of the representation at the time they entered into the contract.
c. The representation must be acted upon: The claimant must have relied on the representation in deciding to enter into the contract.

If all of these requirements are satisfied, it may be possible to prove that the false statement of fact induced the claimant to enter into the contract, which would be necessary to succeed in a claim for misrepresentation.

a. The representation must be related to material facts

"For a claim of misrepresentation to be successful, the false statement of fact that was made must be important or relevant to the decision to enter into the contract. This means that the statement must not be insignificant or unrelated to the contract. It must be something that would have influenced a reasonable person to enter into the contract. In the case of Smith v Chadwick, it was easy to prove that the false statement was material and would have influenced a reasonable person to enter into the contract."

"In the case of JEB Fasteners Ltd v Marks Bloom & Co, the court applied the test of whether a representation is an objective one in determining whether a misrepresentation was actionable. In this case, Party B made a false statement of fact about the accounts of a company that Party A was purchasing. However, the court ruled that this misrepresentation was not actionable because it was not a material fact of the contract. Party A was only interested in securing the services of some of the directors of the company and was not influenced by the representation about the accounts in deciding to enter into the contract."

Redgrave v Hurd (1881): In this case, the defendant made a false representation about the rent that would be charged for a property that the plaintiff was leasing. The court ruled that this representation was material because the rent was an important factor in the plaintiff's decision to enter into the contract and the plaintiff would not have entered into the contract without the false representation.

The representation must be known to the representee

"For a claim of misrepresentation to be successful, the representee (the person receiving the representation) must have been aware of the representation at the time they entered into the contract. If the representee was not aware of the representation, it cannot be said to have induced the contract.

An example of this can be seen in the case of Horsfall v Thomas, where the defendant made a false statement about the quality of some hay that the plaintiff was purchasing. The court ruled that this representation was not actionable because the plaintiff was not aware of the defect in the hay and therefore could not have been induced by the false representation to enter into the contract."

A representation made to one party which then induces a third party may be amount to misrepresentation under certain circumstances

"In some cases, a representation made to one party that then influences a third party to enter into a contract may be considered a misrepresentation. This can happen when the third party relies on the representation and is induced by it to enter into the contract. It is important to note that the representation must have been made with the intention of influencing the third party, and the third party must have been aware of the representation and relied on it in deciding to enter into the contract."

If Party A makes a false statement to Party B, and Party B then passes this information on to a third party, who is induced into a contract based on this information, Party A may be liable for misrepresentation if they knew or should have known that the representation would be likely to be communicated to the third party.
This principle was established in the case of Yianni v Edwin Evans and Sons. In this case, the court ruled that if Party A knew or should have known that their representation would be passed on to the third party and influence their decision to enter into the contract, they would be responsible for any resulting misrepresentation."

The representation must be acted upon

The final requirement for proving inducement is that the representation must have actually been acted upon by the representee.
For example, let's say that a company called ABC Inc. is selling a product called the "Miracle Cure." They make representations about the product, saying that it will cure any and all ailments, and that it has been extensively tested and proven to be effective.

A potential customer, John, sees the advertisements for the Miracle Cure and decides to purchase it. He believes the representations made by ABC Inc. and trusts that the product will work as advertised.

However, after using the product, John finds that it does not actually cure any of his ailments. In this situation, John could bring a claim of misrepresentation against ABC Inc. because he relied on the representations made by the company and acted upon them by purchasing the product.
In order to prove misrepresentation, John would need to show that ABC Inc. made false or misleading statements about the product and that he relied on those statements when making the decision to purchase it.

In Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006], the court considered whether the representee (the person receiving the representation) was induced to sign a contract based on the information and incorrect information given to him over the telephone. Inducement refers to the act of influencing someone to do something, in this case, signing the contract. To prove inducement, it must be shown that the representation (the information given over the telephone) was actually relied upon and acted upon by the representee.

In this case, it was determined that the representee, an experienced investor, would not have been influenced by a casual or loose description given over the telephone. Therefore, it was concluded that he did not act upon this misrepresentation and was not induced to sign the contract based on it. This shows the importance of the requirement that the representation must be acted upon in order to prove inducement.
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It is important to note that the misrepresentation does not have to be the only factor that influenced the formation of the contract. As long as it played a role in the decision-making process and influenced the representee's decision to enter into the contract, it can be considered part of the inducement.

This is demonstrated in the case of Edgington v Fitzmaurice(1885), where it was held that the misrepresentation formed part of the inducement, even though it was not the sole factor. This is an important consideration when proving inducement, as it allows for the possibility that other factors may have also influenced the representee's decision.

In Barton v County Natwest Ltd, the court held that if a statement is made fraudulently and is material (meaning that it is likely to have influenced the decision of the person relying on it), there is a strong presumption that the statement has been relied upon. In other words, it is assumed that the person relying on the statement did so because they believed it to be true. This presumption can be rebutted if the person making the statement can show that the statement was not relied upon. However, this can be difficult to do, as it requires the person making the statement to prove that the person relying on it did not actually rely on it when making their decision.