Misrepresentation

English law does not recognize the existence of a general duty to disclose information during the
process of contractual negotiation BUT a duty is imposed not to make any false statements of fact
or law to the other contracting party & induce him to enter the contract

Promise vs Representation
• Promise: a statement by which the maker of the statement accepts or appears to accept an
obligation to do or not to do something
• Representation: statement that asserts the truth of a given state of facts

Difference between a representation and a statement of promise:

Kleinwort Benson Ltd v Malaysia Mining Corp Berhad [1989] 1 WLR 379
o Claimants agreed to make available a subsidiary company of the defendants for a $10 million
credit facility
o Defendants refused to act as guarantors but they gave to the claimants a letter of comfort
that stating 'it is our policy to ensure that the business of [the subsidiary company] is at all
times in a position to meet its liabilities to you under the above arrangements.'
o Subsidiary company ceased to trade after collapse of market when its indebtness to
claimants was $10 million
o Defendants refused to honor undertaking in the letter of comfort so claimants took
proceedings against them - arguing D was in breach of contract in failing to pay
CoA held that the letter of comfort was NOT a contractual promise - simply a representation of fact
as to D's policy & D did not promise that they would not change their policy for the future
• A representation is a statement of fact that induces the other party to enter a contract or
otherwise act to their detriment; representor does not promise - simply asserts truth of his
statement and invites reliance upon statement
-> Appropriate remedy is to put the other party in the position he would be in had he not
acted upon the misrepresentation to his detriment
• A promise creates an expectation that the promise will be fulfilled and the promisor accepts
an obligation to carry out the promise
-> Law will call upon the promisor to fulfill the obligation and will seek, by remedy
granted, to protect the expectation so created

Difference between a representation and a term

Representation vs term
- Fact vs intention, statement vs promise (including warranty)
- Test: parties’ true intention deducible from such factors as ‘relative expertise’
Oscar Chess v Williams [1957] 1 WLR 370 (customer’s misstatement to dealer as to the car’s age)
• D sold car to C (motor traders) for 290 euros – D provided copy of the car’s first registration,
which said it was registered in 1948 –
• BUT C discovered it was registered in 1939 and thus worth 175 euros – D honestly believed it
was a 1948 model – C claimed for damages for breach of contract
Whether the statement given by D constituted a warranty as to the age of the car
HELD: D’s comments did not constitute a warranty
• Considerations to be made when assessing if a statement is a warranty
1. Where an assumption is fundamental to a contract – it doesn’t mean it is a contract
term
2. The term warranty = binding promise + subsidiary, non-essential, term of a contract
3. A warranty must be distinguished from an innocent misrepresentation
4. Whether a warranty is intended must be based on parties’ words & behavior
 5. Where one party makes a statement (should be within his own knowledge and not
the other) easy to infer a warranty // if the statement isn’t within their knowledge
and passed from another, warranty is less easily inferred
6. Oral representation repeated in writing suggests a warranty – but the issue is NOT
conclusive. Neither is the fact that it isn’t stated in writing

What is a misrepresentation?
A statement of (1) existing fact or law which is (2) unambiguous and false, addressed to the party
misled and which (3) induces the contract (4) - and possibly must be material

(1) Statement of existing fact or law

Both misrepresentation of law and existing fact lead to a cause of action
-> must be an unambiguous false statement of existing fact
-> failure to disclose information will not generally constitute a representation
-> "statement" can be made by conduct as well as words
-> statement must be of existing fact

NOT statements of existing fact and cannot amount to actionable misrepresentations:

(A) MERE PUFF
• commendatory statement may be so vague as to neither a promise which is incorporated
into the contract as a term, nor a statement of fact
o Dimmock v Halllett (1866) LR 2 Ch App 21,
o An 934-acre (3.78 km2) estate was about to be auctioned off to discharge a debt to
a mortgage.
o estate included three parcels of land
o advertisement for the auction described the Bull Hassocks Farm as having "fertile
and improvable land", and described in the particulars that each parcel was let out
to paying tenants (the first two to Mr R Hickson and Misson Springs to a Mr F
Wigglesworth).
o BUT, it was NOT mentioned that the tenants had, by the time of the auction, already
given notice to quit the property. The eventual buyer, Mr Dimmock, sought
rescission of the contract for misrepresentation (among a number of other grounds).
o HELD: the statement about the land being "fertile and improvable" was merely a
"flourishing description" and did not entitle the buyer to rescind, telling only a half
truth about the tenants constituted good grounds for unwinding the contracts
o Turner LJ: “Thus I think that a mere general statement that land is fertile and
improvable, whereas part of it has been abandoned as useless, cannot, except in
extreme cases—as, for instance, where a considerable part is covered with water, or
otherwise irreclaimable—be considered such a misrepresentation as to entitle a
purchaser to be discharged. In the present case, I think the statement is to be looked
at as a mere flourishing description by an auctioneer
-> but the more specific the statement, the less likely it is to be treated as a puff

(B) STATEMENT OF OPINION or belief which proves to be unfounded is not a false statement of fact
• Eg. Bisset v Wilkinson [1927] AC 177, vendor of a farm in NZ, which had not been used for
sheep farming before, represented to purchaser that the land could carry 2,000 - in reality it
couldn't and the purchaser sought to set aside the contract on the ground of vendor's
misrepresentation
o But was not a false statement of fact but a statement of opinion he honestly held
distinguished in Esso Petroleum Ltd v Mardon [1976] QB 901
• Esso represented to the D, a prospective tenant of a petrol filling station which was in the
process of construction that the throughput of petrol at the station was likely to reach
200,000 gallons per year
• But local authority refused planning permission for petrol pumps to front onto the main
street and had to be built back to front with forecourt at the back of station and only access
to petrol pumps from side street
• Esso, through experienced officials, ensured defendant that this change would not affect
projected throughput - but it did - only 78,000 per year
• Defendant incurred considerable losses and could not pay Esso for petrol
• D counterclaimed for damages for breach of contract and for negligent misstatement -- Esso
argued their statement was a statement of opinion and not actionable
• Lord Denning Distinguished Bisset that 'the land had never been used as a sheep farm and
both parties were equally able to form an opinion as to its carrying capacity.' but Esso had
special knowledge and skill in the forecasting of the throughput of petrol and they were held
to represent that they made the forecast with 'reasonable care and skill' - therefore, liable as
they had not exercised reasonable care and skill
Bowen LJ in Smith v Land and House Property Corp (1884) 28 Ch D 7 "where the facts are equally
known to both parties, what one says to the other is frequently nothing but an expression of
opinion …. But if the facts are not equally well known to both sides, then a statement of opinion by
one who knows the facts best involves very often a statement of material fact, for he impliedly states
that he knows facts which justify his opinion"
= where representor has greater knowledge than representee, courts will imply that the
representation must be made with reasonable care and skill (Esso) and that the representor knows
facts which justify his opinion (Smith)

(C) A STATEMENT OF INTENTION is not a statement of fact nor is a promise a statement of fact
- a person who fails to carry out his stated intention does not make a misrepresentation
• Wales v Wadham
o [P] had expressed not to marry but later on she married.
o The statement she made regarding her intention not to marry is not actionable as a
misrepresentation
But a person who misrepresents his present intention does make a false statement of fact because
the state of his intention is a matter of fact
• Edgington v Fitzmaurice (1885) 29 Ch D 459,
o directors of a company invited the public to subscribe for debentures on the basis
that the money so raised would be used to expand the business - in fact the real
purpose in raising the money was to pay off company debts
o Directors held guilty of misrepresentation because they misrepresented the ACTUAL
INTENTION

(2) Representation is FALSE

Misrepresentation by conduct is assessed objectively and an intention to mislead is not required
General rule: The statement of fact must have been reasonable for the representee to have attached
a meaning to the statement which makes the statement false
Green Park Properties Ltd v Dorku Ltd
The plaintiff was shown a property and was given the impression that there is a yard attached to the
property while the defendant did not tell the plaintiff the truth that the yard did not belong to the
property. It is held that there was a misrepresentation as to a material fact because the yard did not
form part of the property to be sold and that affected the overall size and value of the property
while the size of the property was an important factor to consider when buying the property
It was held that an objective test is to be applied to see whether or not having regard to the
conduct in question, there was a representation.

IFE Fund SA v Goldman Sachs International [2006]

Express statement: The court has to understand what a reasonable person would have understood
from the words used in the context in which they were used
Implied statement: The court has to consider what a reasonable person would have inferred was
being implicitly represented by the representor’s words and conduct in their context.

What if statement was true at the time it was made, but was falsified by subsequent events?
With v O'Flanagan [1936] Ch 575
The claimant entered into negotiations with the defendant for the purchase of the defendant’s
medical practice. During the negotiations, the defendant represented to the claimant that the
practice took in around £2,000 per year. The defendant signed the contract for the purchase some
five months later, but by this date, the practice had declined significantly as a result of the ill health
of the defendant. When the claimant took possession of the practice, it was discovered that it was
now almost non-existent. The claimant sought to rescind the contract on the basis that the
representation as to the income had been a misrepresentation.
• It was held that the representation made by the defendant was intended to induce the
claimant to enter into the contract and therefore would be considered ongoing until the
contract was signed. This meant that at the time that the contract was signed, the
representation was untrue. The defendant ought to have told the claimant of the change of
circumstances.

Mere silence
• Generally not actionable (even if fraudulent) and more is required:
• Contracts uberrimae fidei (‘of utmost good faith’), eg insurance contracts
• Changed circumstances: With v O’Flanagan
• Half-truths/partial non-disclosure

Walters v Morgan
A nod, or a wink, or a shake of the head, or a smile…intended to induce a party to believe the
existence of a non-existing fact … would be sufficient (to be misrep)

False statement can be inferred from conduct:

Spice Girls Ltd v Aprilia World Service BV
Geri Halliwell's departure from British girl group the Spice Girls on 27 May 1998 was the subject of a
lawsuit by Aprilia World Service B.V. (AWS), a manufacturer of motorcycles and scooters. On 9
March 1998, Halliwell informed the other members of the Spice Girls of her intention to withdraw
from the group, yet the group signed an agreement with AWS on 24 March and again on 30 April,
and participated in a commercial photo shoot on 4 May in Milan, eventually concluding a contract
with AWS on 6 May 1998.
• The Court of Appeal of England and Wales held that their conduct constituted
a misrepresentation by giving the impression that Halliwell intended to remain part of the
group in the foreseeable future, allowing AWS to rescind their contract with the Spice Girls.
Half-Truths
If a party makes a statement which is true but misleading in the sense that it does not reveal all the
relevant facts, this will amount to a misrepresentation
Dimmock v Hallett [1866] (detailed above)
• [D] told [P] that the land was “fully let” albeit [D] did not reveal that the tenant had given
notice to terminate the tenancy. Even though what [D] said might be true, he will still be
liable for misrepresentation if he omits an important qualification which distorts [P]’s
assessment of what has said. The representor might be said to be misleading by omission by
effectively implying that the material facts omitted do not exist.

Gordon v Selico [1986]

[D] was found to have fraudulently concealed dry rot and this was held to constitute a
representation that the property did not suffer from dry rot

Shum Kong v Chui Ting Lin [2001]

By showing [P] the property without telling him that it comprised the house only, [D] made a
misrepresentation by conduct. It was reasonable for [P] to conclude that what was offered to him
and what he was paying for was all the areas and property [D] showed [P].

If the statement was intended to bear a meaning that is true but is misinterpreted by the
representee in another way to make it untrue, the representor will not be liable.
McInerny v Lloyds Bank Ltd [1974]
The representor will not be liable where, although on a reasonable construction the statement is
true, the representee has put some unreasonable construction on what was said and such a
construction makes the statement untrue

Addressed to the party misled

Shown that the representation was addressed to the party misled
1. By direct communication of the misrepresentation to the claimant by the representor
2. Addressed by the representor to a third party with the intention it be passed onto the claimant
eg. Commercial Banking Co of Sydney v RH Brown and Co [1972] 2 Lloyd's Rep 360, the defendant
bank misrepresented to claimants' bank the financial standing of one of the claimant's customers -
the claimant's bank communicated the info to claimants who acted to their detriment - D liable to
claimants because they knew that the claimants' bank did not want their information for their own
purposes and that it would be passed onto a customer who was proposing to deal with a client of D's
bank

To be actionable, a misrepresentation must be intended to be acted upon.

Peek v Gurney [1873]
[P] couldn’t rely on the misrepresentation to rescind the share purchase agreement as there had
been no intention by those making the misstatements that they should be relied upon other than by
those persons purchasing shares as part of the original allotment.
(3) Inducement
To establish inducement, it will have to be shown that the representee actually acted upon the false
statement.
Representation must be an inducement to enter into the contract and possibly also be a material
misrepresentation
• Materiality - misrepresentation must have been such as would affect the judgement of a
reasonable man in deciding whether or not to enter into the contract on these terms - today
it is doubted & modern courts do not distinguish carefully between materiality and
inducement
• if the misrepresentation would have induced a reasonable person to enter into the contract
then the court will presume that that it did induce the representee to enter into the
contract, and the onus of proof is then placed on the representor to show that the
representee did not in fact rely on the representation
• Where the misrepresentation would not have induced a reasonable person to enter into the
contract, then the onus of proof is upon the representee to show that the
misrepresentation did in fact induce him to enter into the contract

If the representee would have acted in exactly the same way in the absence of the
misrepresentation, an attempt to bring a claim on basis of misrepresentation will fail (Versloot
Dredging BV v HDI Gerling Industrie Versicherung AG)
• Not sufficient for claimant to demonstrate that 'he was encouraged in reaching his decision
by misrepresentation in question (Raiffeisen Zentralbank Osterreich AG v Royal Bank of
Scotland) - the claimant must go further and establish that the representation played 'a real
and substantial' part in inducing him to enter into the contract - court will ask what the
claimant would have done if no representation had been made - claimant induced?
o “But-for” test is used to test whether [P] has relied on the misrepresentation when
entering into the contract— Had the representation not been made to the
representee, he would not have done so on the same terms

If the representee had the opportunity to discover the truth of the statement, there will still be an
actionable misrepresentation
Redgrave v Hurd
The plaintiff was a solicitor who constructed an advertisement titled ‘Law Partnership’ where he
sought a successor who he would take as a Partner on the basis that the individual purchased the
plaintiff’s property. The defendant responded and was interviewed at which point he was informed
the business was worth £300 per year. The defendant then wrote to the solicitor asking the amount
of business completed in the last three years. The plaintiff showed documentation showing almost
£200 per year and offered the defendant the opportunity to assess the accounts. The defendant
subsequently agreed to purchase the property but having placed a deposit on the property and
taking possession, he found the business was actually worthless and refused to complete the
remainder of the agreement. The plaintiff appealed for specific performance. The judge in the first
instance found in favour of the plaintiff and the decision was appealed.
• allowed the contract to be rescinded on the basis of innocent misrepresentation. It is
important to note that the court did not find fraudulent misrepresentation. The court found
that the defendant was not under a duty to inspect the papers and that his reliance on the
plaintiff’s misrepresentation was enough.
• [P] was still able to have the contract rescinded for the misrepresentation even though he
could have simply checked the bundle of papers to discover the truth of the statement.
3 situations where a claimant will be unable to show that representation induced the contract
1. Claimant was unaware of the existence of representation
2. Where claimant knew (NOT suspected) that the representation was untrue
3. Claimant did not allow representation to affect his judgement where he regards the
misrepresentation to be unimportant/ relies upon own judgement

If the representee makes his own investigations to determine the truth of the statement, he may be
held to rely on his own judgement in entering into the contract and unable to rescind the contract
for misrepresentation
Atwood v Small (1838)
• Atwood contract to sell his mine to Small but exaggerated earning capacity
• Small appointed agents to verify Atwood's representations and reported that statements
were true
• After contract was concluded, Small discovered the exaggerations and sought to rescind the
contract - was unable to do so because he relied upon agents' report rather than Atwood's
representation - rule DOES NOT apply to claimant who has the opportunity to discover truth
himself but does not take it - entitled to relief
• Not sufficient that person could have discovered true situation; must go further and prove
that he did discover it in order to show that misrepresentation did not induce entry

Correction of misrepresentation
If representor 'corrects' his misrepresentation prior to reliance upon it by the representee; the
representor must show that the correction was actually brought to the attention of the representee
prior to reliance upon it (Peekay Intermark Ltd v Australia and NZ Banking Group Ltd), where
'correction' was in the detailed contents of the contract sent to claimant: initial representations had
to be cast in rather vague terms that the claimant could reasonably be expected to examine the
terms of the contract which had been sent prior to signing terms

Types of Misrepresentation
• all entitle representee to rescind the contract but not all types of misrepresentation give rise
to an action for damages
o Fraudulent
o Negligent
o Innocent

FRAUDULENT - s3(2) not applicable

Fraudulent misrepresentation - ground on which a contract may be set aside, also constitutes the
tort of deceit
Derry v Peek (1889)
• Lord Herschell established the following 3 propositions
1. there must be proof of fraud and nothing short of that is sufficient
2. fraud must be proved when it is shown that a false representation has been made
(i) knowingly or
(ii) without belief in its truth or
(iii) recklessly, careless whether it be true or false
3. if fraud is proved, the motive of the person guilty of it is immaterial
eg. In Polhill v Walter (1892), the representor knew that his statement was false but his
motive in making the statement was to benefit his principal and not benefit himself, nor to
injure - not withstanding his good motives - he was held liable in tort of deceit
Thomas Witter Ltd v TBP Industries Ltd [1996]: A representor 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

If a change of circumstances renders a previously truthful statement to be false, the failure to

correct the impression given by that statement will be fraudulent if such failure was deliberate
With v O’Flanagan [1936]: It is important to consider whether the failure to disclose was deliberate
or dishonest, in which case it will amount to a fraudulent misrepresentation

NEGLIGENT
Negligent misrepresentation at common law
If a representor, who has specialized knowledge, truly believes the statement to be true, but has
been careless in reaching that conclusion, the statement made will be negligent misrepresentation

-> actionable only where there was a pre-existing contractual relationship between the parties or
where parties were in a 'fiduciary relationship' but expanded ambit in
Hedley Byrne v Heller [1964]
• Claimants were advertising agents who booked substantial advertising space on behalf of
their clients, Easipower Ltd, on the terms that they were personally liable if Easipower
defaulted
• The claimants became concerned about financial standing of Easipower and through their
bank, sought from D, who were Easipower's bankers, a reference on financial soundness of
Easipower
• D replied that Easipower were 'considered good for its ordinary business transactions' - in
reliance, claimants placed orders and resulted in loss of $17k
• Claimants alleged D were negligent in preparation of the ref and were liable to them in
damages
• The claim failed because the D provided the reference 'without responsibility'
House of Lords would have allowed claim to succeed had it not been for disclaimer

Lord Sumption in Playboy Club Lonton Ltd v Banca Nazionale del Lavoro: other key elements are
reasonable reliance by representee on a statement made by representor and for the reliance to be
reasonably foreseen by the representor

Misrepresentation Ordinance (Cap. 458) s. 3(1) - fraud and negligent

3. —(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.

S.2 - misrepresentation becoming a term

Where a person has entered into a contract after a misrepresentation has been made to him, and—
(a)the misrepresentation has become a term of the contract; or (b)the contract has been performed,
or both, then, if otherwise he would be entitled to rescind the contract without alleging fraud, he
shall be so entitled, subject to the provisions of this Ordinance, notwithstanding the matters
mentioned in paragraphs (a) and (b).
-> described as a statutory tort
• Contract with mis-representor required; not applicable where misrep by 3rd party
• Defence of contributory negligence available (Gran Gelato v Richcliff)
• Inapplicable where misstatement contained in contract (‘term’) since the contract was not
entered into ‘after’ it
• Inapplicable to misrep by silence since it must be ‘made’ (Banque Keyser v Skandia)
• Only losses ‘as a result’ of the person having entered into a contract with the representor
are recoverable (Taberna v Selskabet)

Under this claim, representor is liable unless he proves that he had reasonable grounds to believe
and did believe that the facts represented were true - whereas at common law it is for representee
to show representor was negligent
• No easy task for representor to discharge the onus of proof as seen in Howard Marine v
Ogden
o Defendants wished to hire barges from the claimants and during negotiations, the
claimants' manager represented that the deadweight capacity of each barge was
1,600 tonnes when it was only 1,055 tonnes
o D used barge for 6 troublesome months, when they found out, they stopped paying
hire
o Claimants sued for hire charges and defendants counterclaimed, inter alia, for
damages under misrepresentation act
o Claimants did not discharge the burden of proof upon them of showing they had
reasonable grounds to believe the statement was true - accurate figures were in
ships' documents and claimants failed to show 'objectively reasonable ground' for
disregarding the figure in these documents and preferring figure in Lloyd's register
(inaccurate)
• Measure of damages recoverable is the measure of damages for the tort of deceit as seen in
Royscot v Rogerson [1991]
o Claimant finance company was induced to enter into a hire-purchase transaction
with Mr Rogerson as a result of a misrepresentation by the defendant car dealers
o D knew it was claimant's policy to not enter into a hire-purchase transaction unless
20% of purchase price of a car was paid to the dealer by customer
o Rodgerson agreed with D to put down 1.2k on a car, total price 7.6k
o That was only a 16% deposit price - so defendants falsely stated car's price was 8k
and Mr Rodgerson had paid a deposit of 1.6k, thus producing 20%
o Claimants agreed to enter into transaction but Mr Rodgerson in breach of contract,
sold the car and ceased to pay hire-purchase
o CoA held that damages under ordinance were to be assessed as if the defendants
had been fraudulant, so claimants were entitled to recover actual loss directly
flowing from misrepresentation - whether or not foreseeable
Remoteness rule applicable to deceit: no reasonable foreseeability required (Doyle v
Olby; Smith New Court v Scrimgeour Vikers)

INNOCENT MISREPRESENTATION
If the statement-maker honestly believes that the statement is true and has reasonable grounds for
that belief, the statement will be innocent misrepresentation.
REMEDIES
1. Rescission (all 3)
• Recission by misrepresentation: Setting aside of the contract induced by the
misrepresentation, set aside for all purposes, both retrospectively and prospectively -> aim
to restore both parties to the position they were in before they entered into the contract
and to ensure the claimant is not unjustly enriched at D's expense
• Recission for breach: where one contracting party terminates performance of the contract
because of the breach by the other party - release the party from their obligations to
perform in the future but the contract is not treated as if it never existed - does not operate
retrospectively
Misrepresentation renders contract voidable - representee can rescind or affirm the contract
- if he choses to rescind -> must bring to notice of the representor
eg. By seeking a declaration that the contract is invalid, by restoring what he has obtained under the
contract or by relying upon the misrepresentation as a defence to an action on the contract
- Islington LBC v UCKAC - Dyson LJ stated that a voidable contract continues to exist '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'

Bars to rescission
• Affirmation: an unequivocal manifestation of an intention to continue with the contract and
not to bring it to an end (eg use of goods knowing the right to reject them).
o If an innocent party affirms the contract after becoming aware of the falsity of the
representation the right to rescind is lost
o Long v Lloyd [1958]: The purchaser couldn’t rescind the contract. It was held that the
first journey could be view as a mere “test drive”, the second journey constituted an
affirmation of the contract because by then [P] knew that the lorry was not in “first
class” condition, i.e. he knew that the original representation was untrue.
o Kennard v Ashman [1894] It was held that if a person is induced into a lease
agreement by a misrepresentation, he cannot rescind the contract if he stays on and
continues to pay rent after discovering the truth
• Third Parties
o If a third party in good faith has acquired rights under the contract for value
o Car and Universal Finance Co Ltd v Caldwell
• Inequity resulting from lapse of a reasonable time
o Salt v Stratstone ‘brand new’ 2005 car sold on 29 Sept 2007, claim brought 16 Sept
2008 not inequitable
o Leaf v International Galleries [P] discovered the painting sold by [D] was not
Constable five years after the formation of contract. Rescission was barred for lapse
of time as the time began to run from the date of contract formation
• Restitutio in integrum impossible
o Restitution will not be possible where the nature of the subject matter has been
changed so that it cannot be returned in its original form
o the party seeking rescission cannot restore to the other party the benefits obtained
under the contract (Erlanger v New Sombrero, ‘practically just’, return possession of
used mine with profits accounted and any deterioration compensated)
-> eg. Claimant who wishes to recover the value of a benefit he has conferred upon
the defendant must be prepared to make restitution to the defendant for any
benefit which he has received at D's expense - cannot both get back what he has
parted with and keep what he has received
 o If the deterioration or decline in value of the subject matter is due to some external
cause which is not related to the misrepresentation, the representee will not lose
the right to rescind
• Armstrong v Jackson [1917] The shares could be returned despite a major
fall in value
• Damages in lieu of rescission under Misrep. Ord. sec. 3(2) (William Sindall v Cambridgeshire
CC)
• Contractual damages cannot be claimed because contract has been set aside for all purposes
so there is no basis for any claim on the contract

DAMAGES
• Contractual claim for damages does not lie for misrepresentation unless the
misrepresentation has been subsequently incorporated into the contract as a term, in which
case damages can be claimed for breach of contract
-> may be recoverable in tort where misrepresentation was made fraudulently or negligently

FRAUDULENT - common law tort

• Damages may be recovered in the tort of deceit - put claimant in position he had been in
had the tort not been committed; protect reliance interest
o Derry v Peek – fraud requires proof of misrep. made knowingly, without belief in its
truth or recklessly, careless whether it be true or false. Mere carelessness, or
absence of a reasonable basis for the erroneous belief, does not suffice.
• D is also liable for all the damage directly flowing from the fraudulent inducement which
was not rendered too remote by the claimant's own conduct, whether or not the D could
have foreseen such consequential loss
o Doyle v Olby Ironmongers Ltd [1969] [P] who had been fraudulently induced to buy
a business and was entitled to recover as damages not only the price paid for the
business, but also subsequent investments, subject only to giving credits for the
benefits that he received from the business…It does not lie in the mouth of
fraudulent person to say that they could not reasonably have been foreseen
• Calculation of damage: The damage is usually calculated by reference to the difference
between the amount paid and the actual value of the subject matter of the contract judged
at the date of the contract
o Smith New Court Securities Ltd v Citibank NA [1997] The amount of damages
recoverable will usually be the difference in value between the price paid (as the
result of the misrepresentation) and the actual value of the subject matter, judged
at the date of contract formation

NEGLIGENT
• put claimant in position he had been in had the tort not been committed; representor
liable for all losses that are a reasonably foreseeable consequence of misrep.
Hedley Byrne v Heller – DOC is need to be established, HB principle and Caparo test will be applied
here
1. [D] supplied information with special knowledge and skills
2. [P] suffered PEL because of the reliance of information supplied by [D]
3. [P]’s reliance was reasonable in the circumstance
4. [D] ought to have known [P]’s reliance

Damages are assessed at the date of transaction induced by the negligent misrepresentation. The
subsequent loss would not be recovered
South Australia Asset Management Corp v York Montague Ltd [1997] Damages for a negligent
property survey were assessed as the difference between the price paid and the actual value of the
property on the date of purchase; the surveyor was not responsible for a subsequent decline in the
property value.

Under s. 3(1) of MO, [P] can claim for damages without showing “special relationship”. [P] has to
prove there is an inducement to enter into the contract

Misrep. Ord. sec. 3(2)

Where a person has entered into a contract after a misrepresentation has been made to him
otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to
rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the
contract ought to be or has been rescinded the court or arbitrator may declare the contract
subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be caused by it if the
contract were upheld, as well as to the loss that rescission would cause to the other party.
• Damages in lieu not to be awarded where rescission is barred (Zanzibar v British Aerospace)
or damages could not adequately restore to the mis-representee that which s/he contracted
for (Green Park: exclusive control over access and security; Balchita v Kam Yuck: ground floor
at street level)
• Note sec. 3(3) suggests that damages under sec. 3(2) are measured differently from, and
possibly lower than, damages under sec. 3(1).
• Measure of damages is ‘damage caused by the property not being what it was represented
to be’ (William Sindall v Cambridgeshire CC, per Evans LJ)2/1/20

No damages for innocent misrepresentation

S.3(2) Where a person has entered into a contract after a misrepresentation has been made to him
otherwise than fraudulently, and he would be entitled, by reason of the misrepresentation, to
rescind the contract, then, if it is claimed, in any proceedings arising out of the contract, that the
contract ought to be or has been rescinded the court or arbitrator may declare the contract
subsisting and award damages in lieu of rescission, if of opinion that it would be equitable to do so,
having regard to the nature of the misrepresentation and the loss that would be caused by it if the
contract were upheld, as well as to the loss that rescission would cause to the other party.

William Sindall plc v Cambridgeshire County Council [1994] The court must weigh…
1. Seriousness of the misrepresentation
2. Whether the representee will suffer greatly if not allowed to rescind; and
3. Whether the representor would suffer unduly if rescission were allowed.

Indemnity [For innocent misrepresentation]

General rule: The expenditure which occurred in accordance with the terms of the contract which is
known as indemnity should be recovered (e.g. payments made by [P] to TP)
Whittington v Seale-Hayne [1900]
• Since the premise had fallen into disrepair, the local council (TP) ordered [P] to pay for the
repair (pursuant to covenant in the lease agreement) and tax. When the lease agreement
was rescinded, [P] was able to recover both of these payments from [D] on the basis of
indemnity: The obligation to make such payments, to the TP local council, were created by
the lease agreement.
Exclusion of liability
The exemption clause must be specific enough to indicate that the parties are not relying on the
representation when entering into a contract.
Misrep. Ord. sec. 4
If a contract contains a term which would exclude or restrict—
(a) any liability to which a party to a contract may be subject by reason of any
misrepresentation made by him before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a
misrepresentation,
that term shall be of no effect except in so far as it satisfies the requirement of reasonableness
as stated in section 3(1) of the Control of Exemption Clauses Ordinance (Cap. 71); and it is for
the person claiming that the term satisfies that requirement to show that it does.
• The reasonableness test applies to clauses ‘preventing liability from arising’ as well as
clauses ‘excluding liability’, such as ‘no representation’ or ‘no reliance’ clauses (First Tower v
CDS)
• Exclusion of liability for ‘any representation or warranty’
o Unreasonable since it comprises fraudulent misrep (Thomas Witter v TBP)
o Should be read down to ‘any representation or warranty other than one made
fraudulently’ (Zanzibar)

Overbrooke Estates v Glencombe Properties [1974]

• D bid for P’s property - Condition: ‘The vendors do not make or give and neither the
Auctioneers nor any person in the employment of the Auctioneers has any authority to
make or give any representation or warranty in relation to these premises.’
• Brightman J: Overbrooke Estates Ltd = not responsible and could get specific performance.
• Condition 4(b) was effective - not to exclude liability, but to define their duty so that
responsibility for the auctioneer's negligent statements was never assumed. The condition
meant that no ostensible authority had been given to the auctioneers as agents to make
representations on Overbrooke's behalf. Therefore, s.3 MA 1967 did not apply.