Lecture 14 misrepresentations

 In last week’s lecture we looked at…….
 The different types of contracts: bilateral and unilateral contracts
 Consideration and intention to create legal relationships in contract law
 What is consideration?
 ……something of value that is exchanged , which makes the contract
enforceable
 5 rules on consideration
 Third parties and the doctrine of privity (+ the statutory exception)
 Intention to create legal relations: business and social/domestic
presumptions

 We will be examining statements (representations)
made by a party to another, which induces
(persuades) the other party to enter into a contract
but the statement then turns out to be false (a
misrepresentation), which results in the innocent
party suffering some form of damages/loss

 Explain what is a misrepresentation and the nature of
representations;
 Understand the extension of the tort of negligence to cover
words and not simply actions;
 Outline and explain the different types of
misrepresentations;
 Outline the remedies that are available for
misrepresentation under the Misrepresentation Act 1967; and
 Show knowledge and understanding of the Hedley Bryne v
Heller & Partners (1963) case and explain the exception to
claims for pure economic loss in negligence.

Consider this scenario.............
Tom, who is selling his BMW 320 Coupe to Jerry, tells
Jerry that the car is very fuel efficient and can do
40 miles per gallon (MPG).Jerry relies on this
statement and buys Tom’s car but later discovers
that in fact it only does 30 MPG!

 Misrepresentations are false statements of fact, which induced the
innocent party into entering into a contract
 This usually results in the innocent party suffering some form of loss or
damage
 Therefore, in the example given earlier, Jerry, having relied on the
statement made by Tom (with respect to the car’s fuel efficiency) has
picked up a bad buy which will now cost him a lot to run!!!!

 Representor……..The person making the statement
 Representee…….. The person to whom the
statement is being made to

 Esso Petroleum Co.Ltd v Marden (1976): when
Esso sued for rent arrears, Marden was able to
counterclaim for the financial loss because of
the statement made about the amount of petrol
that the station was likely to sell
 Spice Girls Ltd v Aprilia World (2000):a
misleading statement can also be made by
conduct (actions)

 The statement or representation must be about a
material fact and must not simply be a mere opinion or
an advertising “puff”
 For example, a seller describes her handbag as being “a
very lovely and stylish limited edition Louis Vitton
handbag”
 “very lovely and stylish”-mere “puff”
 “Limited edition Louis Vitton handbag”-
representation

 There are three types of misrepresentations
1. False/Fraudulent misrepresentation
2. Negligent misrepresentation
3. Innocent misrepresentation

 A fraudulent statement, as defined in the case of Derry v Peek
(1889), is a false statement that is made:
 Knowingly;
 Without belief in its truth; or
 Recklessly, careless whether it is true or false
 Essentially, false misrepresentation is a statement made
dishonestly with the intention to fraud
 Example: a seller of a Chanel handbag knows that it is fake but
nonetheless tells the buyer that it is genuine. The statement made
by the seller is dishonest and therefore, it’s a false
misrepresentation of the handbag

 This is whereby the maker of the statement is
careless (negligent/reckless) about the facts
 The maker of the statement must have specialist
knowledge upon which the claimant has relied
 The leading case on negligent misrepresentation is
the case of Hedley Byrne & Co Ltd v Heller &
Partners Ltd (1963)

 Facts………………
 Heller & Partners’ reply to the request…..
“Without responsibility on part of this bank, Easipower is
considered good for its ordinary business engagements”
 Easipower collapsed as a company and as a result Hedley Byrne lost
£17,000 as they were not paid
 Hedley Byrne sued Heller & Partners in negligence
 Their argument was that Heller & Partners owed them a duty of care
and breached that duty by stating something about Easipower that
was misleading
 The damage suffered however, was pure economical (PEL)

 The court held that a duty of care existed-proximity
was present and it was reasonably foreseeable that the
actions of the Defendant (Heller & Partners) would
affect the decision of the Claimant (Hedley Byrne)
 However, the courts inserted that for a duty of care to
exist between the two parties; there must be a special
relationship
 This special relationship was based on the exchange of
words between the parties and the element of reliance
of the claimant on the defendant’s words

 The principle of neighbourhood (from the case of Donoghue v
Stevenson) was not used in this area of law and instead, the
“special relationship” test was adapted
 The disclaimer (“without responsibility on part of this bank”) was
sufficient to waive the bank of any responsibility; however, it was
held that:
 “if in a sphere in which a person is so placed that others could
reasonably rely upon his judgment or his skill or upon his ability
to make careful inquiry, a person takes it upon himself to give
information or advice to, or allows his information or advice to
be passed on to, another person who, as he knows or should know,
will place reliance upon it, then a duty of care will arise”

 The advice is needed for a specific or general purpose
 This purpose is made known, either expressly or implicitly,
to the adviser at the time when the advice is given
 The adviser knows that the advice will be used for that
purpose by the advisee
 The adviser knows that the advice is likely to be acted upon
without further independent inquiry; and
 The advisee does in fact act on the advice and subsequently
suffers financial damage.

 These conditions were recognised in the case of Caparo
v Dickman (1990), which stated that damages for a
negligent misstatement could be claimed, where
financial loss occurred as a result of the defendant’s
breach of the “special relationship”
 Mutual Life v Evatt (1971) - the adviser must also have
a special skill, upon which the claimant had relied
 Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963)
created an exception to the PEL rule in negligence,
whereby provided that you can establish the existence
of a special relationship, a claim for economic loss can
be made in the tort of negligence

 This is simply whereby the maker of the statement
honestly believes that the statement is true

 Under the Misrepresentation Act 1967, an innocent party may be able to
claim remedies for the misrepresentation
 In the case of fraudulent/false misrepresentation, the innocent party may
terminate the contract and the goods or money exchanged can be ordered
to be returned. This is known as rescission and is an equitable remedy,
granted at the discretion of the court. Furthermore, the innocent party
may also bring a claim for damages (for the tort of deceit)
 However, an innocent party cannot make a claim for rescission if:
 The innocent party was aware of the misrepresentation;
 The goods that had been exchanged have been disposed;
 Another party has acquired an interest in the goods; or
 The innocent party waited too long before claiming this remedy (the
Limitation Rules will apply).

Remedies
False/fraudulent
misrepresentation
Rescission of the contract
+ damages
Negligent
misrepresentation
Rescission of the contract
+ damages
Innocent
misrepresentation
Court decides whether
rescission is appropriate
or whether to award
damages instead.

 Hand out:
 Reading List
 Jacqueline Martin, “GCSE Law” 5th edition, Chapter 31,
pages 252-254
 List of Cases
 Preparatory Questions
 Additional Tasks
 Quiz 3- Law of Torts

Lecture 14 misrepresentations

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Lecture 14 misrepresentations