Contract Law II Misrepresentation Cases

1. Attwood v Small (1838) 6 CI & Fin 232

The claimants purchased Corngreaves estate from the defendant for £600,000. Corngreaves
estate consisted of mining land, iron works and various properties including a mansion house.
Many of the properties were subject to leasehold and generated income. The mines were to be
worked by and profit to go to the claimant. A preliminary agreement was made between the
parties whereby the claimant agreed to purchase subject to being satisfied that the reports and
accounts given by the defendant were accurate. The claimant then had his accountants and
directors check out the accounts and reports who were satisfied they were accurate. The
claimant then proceeded with the purchase. It then transpired that the accounts had greatly
exaggerated the income generated by the estate and the claimant sought to rescind the
contract based on the misrepresentations contained in the reports and accounts.

Held:

The claimant was unsuccessful. By getting his own experts to check out the reports he had
not relied on the accounts but his own judgment.
2. Bisset v Wilkinson [1927] AC 177
A representation of fact may be inherent in a statement of opinion; in any case the existence
of the opinion in the person expressing it is a question of fact. When it is sought to rescind a
contract on the ground of the falseness of a statement of opinion by which it was induced, it
must be inquired what was the meaning of the statement made, and whether it was true.
Relevant to those inquiries are, the material facts of the transaction, the knowledge of the
parties, the words used, and the actual condition of the subject-matter.

In an action by a vendor of land in New Zealand to recover under the contract, the purchaser
claimed to rescind the contract on the ground of the falseness of a statement as to the carrying
capacity of the land for sheep:-

Held, on the evidence, applying the above considerations, that the statement was merely of an
opinion which the vendor honestly held; and accordingly that the defence failed.

Judgment of the Court of Appeal reversed.

Notes
Sheep-farming was the purpose for which the respondents purchased the lands of the
plaintiff. One of them had no experience of farming. The other had been before the war in
charge of sheep on an extensive sheep-farm carried on by his father, who had accompanied
and advised him in his negotiation with the appellant and had carefully inspected the lands at
Avondale. In the course of coming to his agreement with the respondents the appellant made
statements as to the property which, in their defence and counterclaim, the respondents
alleged to be misrepresentations.
At an early period after the respondents went into occupation and commenced their farming
operations they found themselves in difficulties. They sought and obtained extensions of time
for payment of the interest which fell due to the appellant. Sheep-farming became very
unprofitable and they changed their user of the land. One of them withdrew from the
partnership. The other made an assignment of the valuable part of his property to his wife,
and on being eventually pressed by the appellant for payments under the agreement disclosed
this assignment as an answer to the practical enforcement by the appellant of his demands.
The appellant brought his action for a half-year's interest on the unpaid purchase money and
the respondents set up their case of misrepresentation.
In Karberg's Case (1) Lindley L.J., in course of testing a representation which might have
been, as it was said to be by interested parties, one of opinion or belief, used this inquiry:
"Was the statement of expectation a statement of things not really expected?" The Court of
Appeal applied this test and rescinded the contract which was in question.
Whether the appellant honestly and in fact held the opinion which he stated remained to be
considered. This involved examination of the history and condition of the property. If a
reasonable man with the appellant's knowledge could not have come to the conclusion he
stated, the description of that conclusion as an opinion would not necessarily protect him
against rescission for misrepresentation. But what was actually the capacity in competent
hands of the land the respondents purchased had never been, and never was, practically
ascertained. The respondents, after two years' trial of sheep-farming, under difficulties caused
in part by their inexperience, found themselves confronted by a fall in the values of sheep and
wool which would have left them losers if they could have carried three thousand sheep. As
is said in the judgment of Ostler J.: "Owing to sheep becoming practically valueless, they
reduced their flock and went in for cropping and dairy-farming in order to make a living."
Questions of laches and of affirmance of the contract on the part of the respondents which
were argued at the hearing, are not material for further consideration, and in view of the
course of the proceedings and the finding of Sim J. as to the honesty of the appellant in the
statements he in fact made, it would be improper to accede to the application which was
made at the Board on behalf of the respondents for leave to proceed anew upon the charge of
fraudulent misrepresentation.

3. Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525

In the original action of Caldwell v. Motobella Co. Ltd. the plaintiff obtained judgment by
default, Paull J. ordering the return of a Jaguar car to the plaintiff or £975, its value, with
costs. After the Sheriff of of Hampshire had seized the car pursuant to a writ of delivery in
June, 1962, an interpleader summons was heard before Master Harwood on July 26, 1962,
and an issue was ordered to be tried between the claimants, Car & Universal Finance Co.
Ltd., as plaintiffs and the plaintiff (Caldwell) as defendant to determine who was the owner
of the Jaguar car.
The defendant was the owner of a Jaguar car. On January 12, 1960, he sold it for £975 to N.
who took the car away leaving a deposit of £10 and a cheque for £965. The cheque was
dishonoured when the defendant presented it at the bank at 10 a.m. on the following morning,
January 13, and the defendant immediately thereafter informed the police and the Automobile
Association of the fraudulent transaction. Subsequently, N. purported to sell the car to a firm
of dealers, M. Ltd., who it was agreed had notice of the defect in title. M. Ltd. then purported
to sell it to G. & C. Ltd., a finance house, for whom they were dealers, filling in a hire-
purchase agreement form with the name of one K. as hirer. Apart from looking in the register
to ascertain if there had been previous hire-purchase transactions with this car, G. & C. Ltd.
left all matters regarding the title to the car and the suitability of the hirer to M. Ltd. The car
was subsequently sold by G. & C. Ltd. to a dealer who in turn sold it to the plaintiffs who
bought in good faith and without notice of any defect in title. On the trial, in interpleader
proceedings, of the issues whether the defendant's conduct on January 13, 1960, amounted to
rescission of the contract with N., and whether any transaction between M. Ltd. and G. & C.
Ltd. amounted to a sale in which G. & C. Ltd. bought in good faith and without notice of any
defect in title, Lord Denning M.R., sitting as an additional judge of the Queen's Bench
Division, held (1) that where a seller of goods had a right to avoid a contract for fraud, he
sufficiently exercised his election if on discovering the fraud he immediately took all possible
steps to regain the goods even though he could not find the purchaser or communicate with
him and that, therefore, the contract of sale with N. was avoided by the defendant on January
13, the property in the car was revested in him and the purported sales to M. Ltd. and by M.
Ltd. to G. & C. Ltd. were ineffective to pass the property. (2) That alternatively M. Ltd. were
the agents of G. & C. Ltd. to investigate the title to the car and that, therefore, M. Ltd.'s
knowledge of the defect in title was fixed on G. & C. Ltd., who did not acquire a good title to
it.

On appeal:-

Held, (1) that if a party to a contract by deliberately absconding put it out of the power of the
other party to communicate his intention to rescind, then he could not insist on his right to be
made aware of the election to determine the contract and the innocent party must be allowed
to exercise his right of rescission otherwise than by communication or repossessing; that in
such circumstances an innocent party might evince his intention to disaffirm the contract by
overt means falling short of communication or repossession; and that, therefore, the
defendant's actions were sufficient to avoid the contract (post, pp. 550-551, 555, 558-559).

(2) That there was insufficient evidence to establish a general or any agency involving a duty
on the dealers, M. Ltd., to make inquiries as to title on behalf of G. & C. Ltd.; and that,
therefore, the question whether or not their knowledge of the defect in title was fixed on G. &
C. Ltd. did not arise
Notes
LORD DENNING M.R. This case raises the familiar question which of two innocent persons
is to suffer for the fraud of a third? [His Lordship referred to the facts and continued:] The
principal question in this case is whether Caldwell did succeed in avoiding the sale by the
steps which he took of going to the bank, the police and the A.A., before the rogue sold the
car to Motobella. It is said by Mr. Tapp), for the plaintiffs, that a man from whom goods have
been obtained by false pretences cannot avoid the transaction unless he does an act which
unequivocally shows his election to avoid it; and, furthermore, communicates his election to
the other side, that is, to the other party to the contract. The avoidance does not, it is said, take
place until it is communicated. In this case, therefore, the avoidance did not take place on the
morning of January 13 when Caldwell went to the police. It would not take place until
Caldwell discovered Norris and Foster and communicated his election to them. Mr. Tapp
conceded, however, that it was avoided by January 29, 1960, on which date Motobella had
sold the car to G. & C. Finance who had acquired a good title.
In the case of an innocent misrepresentation, in circumstances which would permit the party
misled to rescind, the other party would not deliberately avoid communication (for that would
seem to negative innocence) and circumstances would be rare where communication could
not be readily made in one way or another. If communication were possible, it is difficult to
see how there could be rescission without communication, and the inference would be that
the contracting parties required communication of termination. Special circumstances may
arise and call for future consideration but I do not think the comparison made in argument on
behalf of the plaintiffs between innocent and fraudulent misrepresentation invalidates the
judgment of Lord Denning M.R. It has to be recognised that in transactions such as this
where fraud intervenes, some innocent party may have to suffer, and it may well be that
legislation is overdue to do justice between the victims of fraud and to apportion in some way
the loss. In the present case, however, I can see nothing unjust in the loss falling on G. & C.
Finance (against whom the plaintiffs can claim redress), who made the minimum inquiries,
who bought a car, which, apparently, they never saw and hired it out to a man, of whose
existence and identity they did not know, and who may well have been fictitious, rather than
that the loss should fall on the defendant, who acted immediately and did all in his power to
retract the transaction.

I would dismiss the appeal on this issue and that is sufficient to decide the appeal in the
defendant's favour.
4. Carlill v Carbolic Smoke Ball Company [1893] 1 QB 256
The defendants, the proprietors of a certain medical preparation called "The Carbolic Smoke
Ball," issued an advertisement in which they promised to pay 100l. to any person who
contracted the influenza after having used one of their smoke balls, in a certain specified
manner and for a certain specified period. The plaintiff, upon the faith of the advertisement,
purchased one of the defendants' smoke balls, and used it in the manner and for the period
specified, but nevertheless contracted the influenza:-
Held, that the above facts established a contract by the defendants to pay the plaintiff 100l. in
the event which happened; that such contract was neither a contract by way of wagering
within 8 & 9 Vict. c. 109, nor a policy within 14 Geo. 3, c. 48, s. 2; and that the plantiff was
entitled to recover.
One itches to try to hold them to their words but under what grounds could one pursue them?
Supposedly one could go under misrepresentation but damages in such a case would be only
the cost of the preparation concerned. Given the law at the time, it would also be necessary to
prove actual fraud. It is hard to conceive of Mrs. Carlill going to this much trouble over ten
shillings. Indeed, it would be hard to picture Carbolic, faced with a lawsuit, refusing to give
her her money back. But because of the unusual phrasing of Carbolic' s ad, the argumel'\}
was not over ten shillings but £100-a sum which could seriously eat into a company's profits
and at the same time, make a lawsuit worth the effort. The £100 was important not only
because it represented a prize worth litigating over but because it was seen by the court as a
specific offer, an offer clear enough to constitute one half of the elements needed for the first
requirement of a contract: an agreement.
5. Chao San San & Another v Worldpart Industrial Ltd [2003] HKCA 252
In the Hong Kong case ofChao San San &Another v Worldpart Industrial Ltd11, the Court of
Appeal held that no misrepresentation waspresent in a case where a property developer had
stated that certain amenities would be providedas part of a new development. The statement
was held to have been a genuinely held belief at thetime that it was made. It did not amount
to a statement of existing fact.
6. Curtis v Chemical Cleaning and Dyeing Co [1951] 1 KB 805
When the plaintiff took a white satin dress to the defendants' shop to be cleaned she was
given a paper headed "Receipt" and was asked by a shop assistant to sign it. The plaintiff
inquired why her signature was required and the assistant replied, in effect, that the
defendants would not accept liability for certain specific risks, including the risk of damage
by or to the beads and sequins with which the dress was trimmed. In fact the "receipt"
contained a condition that the cleaners accepted no liability for any damage however arising.
When the dress was returned to the plaintiff it was found to be stained, and she was awarded
damages by the county court judge, who held that the defendants had been guilty of
negligence and were not protected by their exemption clause by reason of misrepresentation
as to its character. On appeal by the defendants:-

Held, that the defendants could not rely on the exemption clause because their assistant by an
innocent misrepresentation had created a false impression in the mind of the plaintiff as to the
extent of the exemption and thereby induced her to sign the receipt.

Per Denning, L.J. Any behaviour, by word or conduct, was sufficient to be a

misrepresentation if such as to mislead the other party about the existence or extent of the
exemption. If it conveyed a false impression that was enough. Such an impression might even
be conveyed by simply handing the document to the customer as if it were a receipt, or by
asking her to sign it without drawing attention to the condition.
 7. Derry v Peek (1889) LR 14 App Cas 337
To sustain an action for deceit there must be proof of fraud, and nothing short of that will
suffice. Fraud is proved when it is shown that a false representation has been made (i)
knowingly, or (ii) without belief in its truth, or (iii) recklessly, not hearing whether it be true
or false. To succeed in an action for deceit it is not sufficient to prove that the defendant had
no reasonable ground for believing the statement which he made, but, at the same time, when
a false statement has been made, a consideration of the ground's of belief is its truth is an
important aid in ascertaining whether the belies was really entertained and whether the author
of the statement really did believe in the truth of what he stated. If fraud is proved, the motive
of the person guilty of it is immaterial. An honest belief in the truth of the statement made
affords a defence to an action.

Per LORD HERSCHELL: I think it important that it should be borne in mind that the
common law action of deceit differs essentially born an action brought to obtain rescission of
a contract on the ground of misrepresentation of a material fact. Where rescission is claimed
it is only necessary to prove that there was misrepresentation. Then, however honestly it may
have been made, however free from blame the person who made it, the contract, having been
obtained by misrepresentation, cannot stand.
8. Dimmock v Hallett (1886) L.R. 2 Ch. App. 21
An estate being sold by the Court at the suit of a mortgagee, with liberty to all parties to bid,
the auctioneer stated in the sale-room that the sale was without reserve, but that the parties
were at liberty to bid. The Plaintiff bid at the sale, and ran the purchaser up from £14,000 to
£19,000, without any other bidder intervening:-

Held, that the purchaser was not entitled on this ground to be discharged.

The particulars of sale described a farm, forming about a third of the estate sold, as late in the
occupation of A. B., at the rent of £290. A. B. had occupied the farm, which contained a good
deal of grass land, as yearly tenant, at £290, but went in at Midsummer, paying only £1 for
the first quarter, and quitted at Michaelmas in the next year, thus paying, £291 for a year and
a quarter. Since this the Plaintiff had agreed to let the farm at £225; but the agreement had
been rescinded before taking possession, and the evidence shewed that the farm would not let
for nearly so much as £290:-

Held, reversing the order of Stuart, V.-C., that there was such substantial misrepresentation as
entitled the purchaser to be discharged.
9. East v Maurer [1990] EWCA Civ 6
The first defendant owned and managed two successful hair salons in the same town and built
up a considerable local reputation as a hair stylist. In 1979 the plaintiffs bought one of the
salon businesses for £20,000, being induced to do so in part by a representation made by the
first defendant that he had no intention of working in the other salon except in emergencies
and that he intended to open a salon abroad. In fact the first defendant continued to work full-
time at the other salon with such an adverse effect on the plaintiffs' business that it was never
profitable and they were forced to sell it in 1989 for £7,500. The plaintiffs brought an action
for damages against the first defendant and the company through which he traded alleging
breach of contract and fraudulent misrepresentation. The judge found that the representations
made by the first defendant were false and awarded the plaintiffs damages of £33,328
consisting of separate awards for the loss incurred on the sale of the business, fees and
expenses incurred in buying and selling the business and making improvements, trading
losses incurred by the plaintiffs, and disappointment and inconvenience, and an award of
£15,000 for loss of profits based on the profits which the first defendant would have made
from the salon if he had not sold it, less a 25% deduction for the plaintiffs' lesser experience.
The defendants appealed against the award for loss of profits, contending that damages for
loss of profits were not recoverable in an action for deceit because such damages were
confined to a breach of a contractual warranty of profits and even if they were recoverable the
judge had assessed the damages on the wrong basis.

Held – Loss of profits could be recovered in an action for deceit as being actual damage
directly flowing from the fraudulent representation. However, they were to be assessed on the
basis of compensating the plaintiff for all the loss he had suffered and not, as in breach of
contract, on the basis of putting the plaintiff in as good a position as if the statement had been
true. Accordingly, the damages for loss of profits were to be assessed on the basis that the
first defendant had represented that he would not continue to work as a hair stylist in the
immediate area rather than on the basis that he had warranted to the plaintiffs that all the
customers with whom he had a professional rapport would remain customers of the plaintiffs'
salon. The judge had therefore been right to award damages for loss of profits, but he had
assessed those damages on the wrong basis since the proper approach was to assess the profit
the plaintiffs might have made if the false representation had not been made, ie the profit they
might have expected to make in another hairdressing business bought for a similar sum. On
that basis the appropriate measure of damages for loss of profits was £10,000, not £15,000,
and to that extent the appeal would be allowed (see p 736 d, p 737 f, p 738 d to p 739 a e to g
and p 740 c d, post).

Doyle v Olby (Ironmongers) Ltd [1969] 2 All ER 119 and Toteff v Antonas (1952) 87 CLR
647 considered.
10. Edgington v. Fitzmaurice (1885) 29 Ch D 459
A misstatement of the intention of defendant in doing a particular act may be a misstatement
of fact, and if plaintiff was misled by it an action of deceit may be founded on it.
The directors of a company issued a prospectus inviting subscriptions for debentures and
stating that the objects of the issue of debentures were to complete alterations in the buildings
of the company, to purchase horses and vans and to develop the trade of the company. The
real object of the loan was to enable the directors to pay off pressing liabilities. Plaintiff
advanced money on some of the debentures under the erroneous belief that the prospectus
offered a charge upon the property of the company and stated in his evidence that he would
not have advanced his money but for such belief, but that he also relied upon the statements
contained in the prospectus: Held the misstatement of the objects for which the debentures
were issued was a material misstatement of fact influencing the conduct of plaintiff and
rendered the directors liable to an action for deceit, although plaintiff was also influenced by
his own mistake.

There must be a mis-statement of an existing fact; but the state of a man’s mind is as much a
fact as the state of his digestion (Bowen, LJ).

A misstatement of the intention of defendant in doing a particular act may be a misstatement

of fact, and if plaintiff was misled by it, an action of deceit may be founded on it.

(1) A mis-statement of the intention of defendant in doing a particular act may be a mis-
statement of fact and if plaintiff was misled by it an action of deceit may be founded on it.

(2) Plaintiff says: I had two inducements, one my own mistake, the other the false statement
of defendants. The two together induced me to advance the money. But in my opinion if the
false statement of fact actually influenced plaintiff, defendants are liable, even though
plaintiff may have been also influenced by other motives (Fry LJ).

There must be a mis-statement of an existing fact; but the state of a man’s mind is as much a
fact as the state of his digestion (Bowen LJ)
11. Esso Petroleum Co Ltd v Mardon [1976] QB 801
In 1961 the plaintiffs, a large oil company, found a site on a busy main street which they
considered suitable for a filling station as an outlet for their petrol sales. One of their servants
with some 40 years' experience of the trade calculated that the potential throughput was likely
to reach 200,000 gallons by the third year of operation. On the basis of that estimate they
bought the site and started to build the station; but the local planning authority refused
permission for the pumps to front on to the main street and the station had to be built back to
front. Despite that fundamental alteration in siting, the plaintiffs early in 1963 interviewed the
defendant, a prospective tenant, and the same experienced servant together with a local
colleague gave him the same estimated throughput of 200,000 gallons. The defendant
suggested that 100,000 to 150,000 was more likely, but his doubts, as the judge found, were
quelled by his trust in the greater experience and expertise of the plaintiffs' servants; and on
April 10, 1963, he entered into a written tenancy agreement for three years at a rent of £2,500
for the first two years and £3,000 for the third.

Despite his best endeavours the throughput in the first 15 months was only 78,000 gallons,
mainly because the pumps were screened from the main street passing public. In July 1964,
after he had sunk all his capital in the business - £6,270, provided by a private limited
company in which he and his wife held all the shares - and had incurred a large bank
overdraft he gave the plaintiffs notice. As they wanted to keep the station open and controlled
by a good tenant they offered him a new tenancy agreement at a yearly rent of £1,000 plus a
surcharge on petrol sold and he entered into it on September 1, 1964. But the losses
continued; the plaintiffs gave the defendant no real help, and when he could not pay cash for
the petrol supplied they cut off his supplies. In December 1966 they issued a writ claiming
possession of the premises, moneys owed, and mesne profits. The defendant gave up
,possession in March 1967; and he counterclaimed for damages for breach of the warranty as
to the potential throughput, and alternatively for negligent misrepresentation by virtue of
which he had been induced to enter into the contract of April 10, 1963, and the second
agreement of September 1, 1964.

Lawson J. held that the statement as to potential throughput was not a warranty such as to
give the defendant a cause of action in contract for breach of warranty, but that the plaintiffs
were liable for the negligent representation, albeit made during pre-contractual negotiations.
In a separate judgment on the assessment of damages on the counterclaim he held that the
causal effect of the negligent statement had become spent at September 1, 1964, when the
second tenancy agreement was made; and he awarded as damages the capital sum lost in the
business and the bank overdraft, rejecting the plaintiffs' contention that the lost capital having
been provided by a limited company was not the defendant's loss but he declined to award the
defendant any further damages for loss of a bargain or loss of profits or earnings.

On the defendant's appeal and the plaintiffs' cross-appeal: -

Held, allowing the appeal and dismissing the cross-appeal, (1) that the statement as to
potential throughput was a contractual warranty for it was a factual statement on a crucial
matter made by a party who had, or professed to have, special knowledge and skill with the
intention of inducing the other party to enter into the contract of tenancy; that it did induce
the defendant to enter into the contract and therefore the plaintiffs were in breach of the
warranty and liable in damages for the breach.

(2) That in any event the statement was a negligent representation made by a party holding
himself out as having special expertise in circumstances which gave rise to the duty to take
reasonable care to see that the representation was correct; that that duty of care existed during
the precontractual negotiations and survived the making of the written contract which was the
outcome of the negotiations; and that therefore the plaintiffs were also liable for damages for
the tort of negligence.

(3) That on the facts the effect of the negligent statement was not spent by September 1,
1964, when the defendant entered into the second tenancy agreement, for by that act he was
acting reasonably in an effort to mitigate the loss to himself and to the plaintiffs, and
accordingly the loss sustained after that date was attributable to the original misstatement and
was recoverable as damages from the plaintiffs.

(4) That the measure of the damages for breach of the warranty and for the negligent
statement was the same whether the action was founded in contract or in tort; that the
damages recoverable were what the defendant had lost by being induced to enter into the
contract; and (per Lord Denning M.R.) should be asessed on the same lines as damages for
personal injuries to include estimated loss of earnings.

(5) That in the circumstances of the case the court should disregard the fact that the capital
sum lost was provided by a private limited company, for to treat the company as a separate
legal entity whose loss was not the personal loss of the defendant would be a denial of justice.
12. Gordon v Selico (1986) 18 H.L.R. 219
Managing agents of a block of flats instructed a building contractor to do such work as
necessary to bring one of the flats, later sold to the purchaser, ‘up to a very good standard for
the purpose of selling’. The contractor in refurbishing the flat had covered up the dry rot
without eradicating it and subsequently the purchaser found extensive and active dry rot.
Prior to the purchaser completing the transaction his surveyor informed him that there was
dry rot on the front elevation between his flat and the one above, and that the building was in
poor condition. The purchaser was nevertheless advised to complete the transaction. Further
the maintenance scheme for the block contained in the lease had not been implemented. On
appeal by the managing agents and owner of the building against an award of damages for
deceit in fraudulently concealing the presence of dry rot and breach of repairing covenants:
Held (i) the contractor’s action in covering up the dry rot amounted to a knowingly false
representation that the flat did not suffer from dry rot, which had been intended to deceive the
purchaser and had done so to his detriment. (ii) The court was able to draw the inference that
the managing agents were aware of the deception and were therefore liable for the fraudulent
misrepresentation. Such misrepresentation was within the actual or ostensible authority
conferred on them by the owner and therefore the owner was vicariously liable for the deceit.
(iii) The lease contained a comprehensive system of covenants and trusts providing for repair
and maintenance, and the court was satisfied that all parties had intended the scheme to
provide such a comprehensive repair and maintenance code. Both the managing agents and
the owner were in breach of the repairing covenants. However, damages were not a sufficient
remedy in this case; an order for the enforcement of breaches of trust under the lease was
required. The appeal would be dismissed but with variations of the award made to the
purchasers.
 12. Hedley Byrne & Co Ltd v Heller & Partner Ltd [1963] 2 All ER 575
The appellants were advertising agents, who had placed substantial forward advertising
orders for a company on terms by which they, the appellants, were personally liable for the
cost of the orders. They asked their bankers to inquire into the company's financial stability
and their bankers made inquiries of the respondents, who were the company's bankers. The
respondents gave favourable references but stipulated that these were "without
responsibility." In reliance on these references the appellants placed orders which resulted in
a loss of £17,000. They brought an action against the respondents for damages for
negligence:-

Held, that a negligent, though honest, misrepresentation, spoken or written, may give rise to
an action for damages for financial loss caused thereby, apart from any contract or fiduciary
relationship, since the law will imply a duty of care when a party seeking information from a
party possessed of a special skill trusts him to exercise due care, and that party knew or ought
to have known that reliance was being placed on his skill and judgment (post, pp. 486, 502,
514). However, since here there was an express disclaimer of responsibility, no such duty
was, in any event, implied.

Nocton. v. Lord Ashburton [1914] A.C. 932; 30 T.L.R. 602, H.L. applied.

Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164; [1951] 1 T.L.R. 371; [1951] 1 All
E.R. 426, C.A., overruled. Le Lievre v. Gould [1893] 1 Q.B. 491; 9 T.L.R. 243, C.A.
explained and not followed (post, pp. 488, 502, 519, 532, 535).

Per Lord Morris of Borth-y-Gest and Lord Hodson. Semble, if a banker gives a reference in
the form of a brief expression of opinion in regard to credit-worthiness, he does not accept,
and there is not expected of him, any higher duty than that of giving an honest answer (post,
pp. 504, 513).

Per Lord Devlin. The duty of care arises where the responsibility is voluntarily accepted or
undertaken either generally, where a general relationship is created, or specifically in relation
to a particular transaction (post, p. 529).

Per Lord Pearce. To import such a duty the representation must normally concern a business
or professional transaction whose nature makes clear the gravity of the inquiry and the
importance and influence attached to the answer (post, p. 539).
Decision of the Court of Appeal [1962] 1 Q.B. 396; [1961] 3 W.L.R. 1225; [1961] 3 All E.R.
891, C.A. affirmed on different grounds.
14. Insurance Company of the West Indies Ltd v Graham JM 2010 SC 92
15. Kleinwort Benson v Lincoln County Council [1999] 2 AC 349
On various dates between 1982 and 1985 the plaintiff bank entered into interest rate swap
agreements with each of four local authorities. Each transaction was fully performed by both
parties according to its terms and resulted in the bank paying to the authorities sums totalling
£811,208. Following a decision of the House of Lords in 1991 holding that such interest rate
swap contracts were outside the statutory powers of local authorities the bank commenced
proceedings in the Commercial Court against the four local authorities claiming restitution of
the sums it had paid to them. Amounts totalling £388,114, representing sums which had been
paid less than six years before the respective writs had been issued, were recovered by the
bank pursuant to summary judgment or voluntary repayment. With regard to the outstanding
payments totalling £423,094 which had been made outside the six-year limitation period, the
judge made orders for the trial of a preliminary issue as to whether the bank's claim that such
payments had been made by it in the mistaken belief that they were being made pursuant to a
binding contract disclosed a cause of action in mistake and, if so, whether the mistake was
one in respect of which the bank could rely on section 32(1)(c) of the Limitation Act 19801
so that the period of limitation had not begun to run until the bank "had discovered the …
mistake … or could with reasonable diligence have discovered it." The judge held in each
case that he was bound by authority to hold that money paid under a mistake of law was not
recoverable in restitution and accordingly declined to answer the question whether the bank
could rely on section 32(1)(c). Having granted a certificate that a point of law of general
public importance was involved in his decision in respect of which he was bound by
decisions of the Court of Appeal, leave was given for consolidated appeals direct to the
House of Lords.

On appeal by the bank: -

Held, allowing the appeals (Lord Browne-Wilkinson and Lord Lloyd of Berwick dissenting),
that on an application of the principle of unjust enrichment the rule precluding recovery of
money paid under a mistake of law could no longer be maintained and recognition should be
given to a general right to recover money paid under a mistake, whether of fact or law,
subject to the defences available in the law of restitution; that money paid under a mistake of
law was recoverable even where the payment had been made under a settled understanding of
the law which was subsequently departed from by judicial decision or where the payment had
been received by the recipient under an honest belief of an entitlement to retain the money;
that there was no principle in English law that money paid under a void contract was
irrecoverable on the ground of mistake of law where the contract had been fully performed
according to its terms; and that, accordingly, since the relevant limitation period applicable to
such claims was that laid down by section 32(1)(c) of the Act of 1980, namely six years from
the date on which the mistake was or could with reasonable diligence have been discovered,
the facts pleaded by the bank disclosed a cause of action in mistake which was not time-
barred.
16. Leaf v International Galleries [1950] 2 KB 86
In 1944 the defendants sold to the plaintiff for 85l. a picture which they represented to have
been painted by J. Constable. In 1949 the plaintiff tried to sell it at Christies and was then
informed that it had not been painted by Constable. He thereupon took it back to the
defendants who retained it for investigation. As they still maintained that it was painted by
Constable, the plaintiff brought an action in which he claimed rescission of the contract and
repayment of the 85l. The county court judge found that the defendants had made an innocent
misrepresentation and that the picture had not been painted by Constable, but he gave
judgment for the defendants on the ground that the remedy of rescission was not available
where a contract had been executed.

Held, assuming the equitable remedy of rescission for an innocent misrepresentation to be

open to a buyer of goods, that it was not open to the buyer in this case as it had not been
exercised within a reasonable time.

Per Evershed M.R. If a man elects to buy a chattel, especially a work of art, upon the faith of
some representation which has no contractually binding effect, and delivery of the chattel is
accepted, there is much to be said for the view that on acceptance there is an end of that
particular transaction.

Per Evershed M.R. and Jenkins L.J. Where a statement by the seller amounts to a warranty, in
which case the law gives an adequate remedy in damages if the warranty be broken, it is
doubtful whether the equitable remedy of rescission for innocent misrepresentation ought to
be granted at all.

Per Denning L.J. Assuming that the statement that the picture was painted by Constable was
a condition of the contract, the buyer had lost his right to reject on the ground of breach of
condition and was relegated to his right to claim damages for that breach; and if a claim to
reject on the ground of breach of condition is barred a claim to rescission on the ground of
innocent misrepresentation is a fortiori barred.

Seddon v. North Eastern Salt Co., Ld. [1905] 1 Ch. 326; Angel v. Jay [1911] 1 K. B. 666, the
observations of Warrington and Scrutton [Link]. in T. & J. Harrison v. Knowles and Foster
[1918] 1 K. B. 608, 609, 610; and of Lord Atkin in Bell v. Lever Bros. Ld. [1932] A. C. 161,
224, and Solle v. Butcher [1950] 1 K. B. 671, considered.
17. Long v Lloyd [1958] 1 WLR 753
The defendant, a haulage contractor, advertised for sale at £850 a 1947 motor lorry which he
described as in “exceptional condition”. The plaintiff, also a haulage contractor, saw the lorry
at the defendant's premises on a Saturday; the defendant said that it was capable of a speed of
forty miles per hour. During a trial run on the following Monday, the plaintiff found that the
speedometer was not working, that the spring was missing from the accelerator pedal, and
that he had difficulty with the top gear. The defendant said that the lorry did eleven miles to
the gallon and assured the plaintiff that he had told him all that was wrong with the vehicle.
The plaintiff thereupon purchased the lorry for £750, paying £375 and agreeing to pay the
balance at a later date. On the following Wednesday the plaintiff drove from Sevenoaks to
Rochester to pick up a load. During the journey the dynamo ceased to function, and the
plaintiff also noticed that an oil seal was leaking, that there was a crack in a wheel and that he
had used eight gallons of petrol on the journey of about forty miles. That evening the plaintiff
told the defendant of these defects and the defendant offered to pay half the cost of a
reconstructed dynamo but denied any knowledge of a broken oil seal. The plaintiff accepted
the offer. He had a dynamo fitted and on the next day, Thursday, the lorry was driven by the
plaintiff's brother on a journey to Middlesbrough. On Friday night the plaintiff, having heard
that the lorry had broken down on its journey, wrote to the defendant pointing out the various
defects in the lorry and asking for the return of his money. The lorry was subsequently
examined by an expert who was of the opinion that the lorry was not in a roadworthy
condition. The lorry had in fact the defects alleged but the defendant's representations
concerning it, though untrue, were honestly made. In an action for rescission of the contract
on the ground of the defendant's innocent misrepresentations,

Held – Any right of rescission that a purchaser of goods might have after delivery of the
goods to him would be barred by his final acceptance of the goods, and, though in the present
case the plaintiff might be regarded, in view of the defendant's representations (e.g., that the
lorry would run eleven miles to the gallon), as not having accepted the lorry until the plaintiff
had tested it, yet on the facts he had finally accepted the lorry before he purported to rescind
the contract; therefore the plaintiff was not entitled to rescission of the contract.

Seddon v North Eastern Salt Co Ltd ([1905] 1 Ch 326), and Solle v Butcher ([1949] 2 All ER
1107) considered.

Dictum of Denning LJ in Leaf v International Galleries ([1950] 1 All ER at p 695, letter d)

applied.

Per Curiam: apart from special circumstances the place of delivery [of goods sold] is the
proper place for examination and for acceptance (see p 407, letter g, post).

Appeal dismissed.
18. Pankhania v Hackney LBC [2002] EWHC 2441
In 1999, the claimant property developers acquired, at auction, a car park and a factory from
the two defendants for a total price of £3.925m. They had intended to redevelop the
properties. Prior to the auction, the defendants, through their agents, represented that National
Car Parks Ltd (NCP) occupied the car park under a contractual licence, terminable on three
months' notice. Following the acquisition, the claimants realised that NCP's tenancy was not a
licence but was protected by Part II of the Landlord and Tenant Act 1954; they eventually
obtained possession of the car park in June 2001, upon payments to NCP totalling
£78,931.25. The claimants brought proceedings for negligent misrepresentation under section
2(1) of the Misrepresentation Act 1967. Mr Rex Tedd QC, sitting as a deputy judge of the
division, determined liability by holding that the representation was false, in that NCP had a
tenancy protected by Part II of the 1954 Act, and that it had been made deliberately by the
defendants' agents in the knowledge that it was inaccurate. He also held that the claimants
had relied upon the misrepresentations and that the defendants were liable for damages.

On the hearing for the assessment for damages, the claimants contended that the normal rule
applied and that they were entitled to the difference in value of the properties between the
price paid and the true value as at the date of the purchase, namely £750,000 (the transaction
date rule). They also contended that, once they had decided to retain the properties, that
decision broke the chain of causation, so that what occurred following the acquisition, in
terms of dealing with NCP, did not form part of a continuous transaction of which the
negligent misrepresentation was the inception; the later events in dealing with NCP were
irrelevant. The defendants contended that the claimants owed a duty to mitigate their losses
and that, acting reasonably, NCP's claim to protection could have been bought off for
£45,000. In the alternative, the damages were the sums actually paid to NCP.

Held: Damages of £500,000 were awarded. The measure of damages for negligent
misrepresentation, under section 2(1) of the Misrepresentation Act 1967, was the same as that
for fraudulent misrepresentation: see Royscot Trust v Rogerson [1991] 2 QB 297. The normal
measure of damages (the transaction date rule) is subject to the overriding compensatory
principle that a claimant is entitled to reparation for all the actual damage he has sustained
that directly flows from the transaction: see Smith New Court Securities v Citibank NA
[1997] AC 254. In considering whether the normal measure applies, the court has to consider,
in a general way, what damages would be awarded, in accordance with the overriding
compensatory principle, if the normal measure were not applied. If the normal measure were
not applied, the claimants would have been entitled to the amount actually paid to NCP, the
additional finance (holding) costs, and the additional construction costs caused by NCP's
presence. The claimants had not acted unreasonably in the steps they had taken to obtain
possession and develop the properties; if the normal measure were not applied, the court
would be faced with an exceedingly complex task of assessment, and the losses would be of
the same order or even greater. The normal measure applied because it properly reflected the
overriding compensatory principle. In applying the normal measure to find the value of the
properties in their actual state, subject to NCP's protected tenancy, the residual valuation
method was appropriate. In applying that method, the claimants' valuer had been correct in
the marriage value that a developer might have to pay NCP, and the defendants' valuer was
incorrect in considering only the valuation consequences of the actual post-acquisition events.
A fair worst-case valuation of the properties was £3m, but, applying a 50/50 split of the
difference (the marriage value) between that value and the value of £3.925m, the true value
of the properties at the transaction date was £3.425m, and the measure of loss was £500,000.
19. Re Northumberland District Banking Co, ex parte Bigge
A transferee of shares in a joint-stock bank, the directors of which have made fraudulent
representations, is not therefore to be removed from the list of contributories, when he has not
been induced to accept the transfer by the fraudulent representations.

An executor, for a nominal consideration, transferred shares in a joint-stock bank to one of

the cestuis que trust under the will, in order to enable him to become a director: Held the
transfer was good, and the transferee liable to be a contributory.
20. Redgrave v Hurd (1880) 20 Ch D 1
 Misrepresentation - Specific Performance - Rescinding Contract - Damages.
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 shewing a business of not quite £200 a year. The Defendant asked
how the difference was made up, and the Plaintiff shewed 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, shewed 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. He did not in his counter-claim specifically state what
representations had been made, nor allege that they were false to the Plaintiff's knowledge:-
Held, by Fry, J., that the Defendant having had opportunity afforded him of ascertaining the
truth of the representations made to him as to the amount of the business, and having to some
extent, though carelessly and inefficiently, inquired into it, must be taken not to have relied
on the representations, and that the Plaintiff was entitled to specific performance.
Held, on appeal, that where one person induces another to enter into an agreement with him
by a material representation which is untrue, it is no defence to an action to rescind the
contract that the person to whom the representation was made had the means of discovering,
and might, with reasonable diligence, have discovered, that it was untrue:
Held, further, that it is no defence in such an action that the Defendant made a cursory and
incomplete inquiry into the facts, for that if a material representation is made to him he must
be taken to have entered into the contract on the faith of it, and in order to take away his right
to have the contract rescinded if it is untrue, it must be shewn either that he had knowledge of
facts which shewed it to be untrue, or that he stated in terms, or shewed clearly by his
conduct, that he did not rely on the representation:
Held, therefore, that the Defendant was entitled to have the contract rescinded and the deposit
returned, but that as he had not pleaded knowledge on the part of the Plaintiff that the
statements as to the business were untrue, and had not specifically alleged the statements in
his counter-claim, he could not recover damages.
Attwood v. Small (1) considered and explained.

21. Simons et al v Magnolia Properties Ltd BM 2007 SC 20

22. Smith v Land & House Property Corporation (1884) LR 28 Ch D 7
Whether a statement is one of opinion of a representation

Facts

The claimant put up a hotel for sale with the particulars stating that it was currently leased to
a most desirable tenant. The defendant sent its representative to view the property and the
report stated that the tenant could hardly pay the rent and that the town was largely
dilapidated. On the basis of the report, the defendant instructed its representative to pay no
more than £5,000 for the hotel and the sale was eventually agreed at £4,700. Before the sale
was complete the tenant went into liquidation and the defendant refused to continue. The
claimant sought specific performance. The defendant counterclaimed on the basis that the
claimant had misrepresented the nature of the tenant.
Issue
The issue in this circumstance was whether the claimant’s statement as to the quality of the
tenant was a statement of opinion or a representation which induced the defendant to enter
into the contract and, if so, whether it was a misrepresentation which allowed the contract to
be rescinded.

Held
It was held that the statement was not one of opinion. The claimant had sufficient knowledge
of the tenant and its business practices to be able to state, as a matter of fact, whether it was a
desirable tenant. The claimant also knew that large amounts of rent were owing from the
tenant and therefore, the statement as to the tenant’s quality was false. The statement
constituted a misrepresentation and the contract could be rescinded.
23. Spice Girls Ltd v Aprillia World Service BV [2002] EWCA Civ 15
The claimant, a company, which managed a group of singers called the Spice Girls, entered
into a contract with the defendant company to endorse a range of scooters in return for
sponsorship of their tour. The claimant sued the defendant for monies owed pursuant to the
contract and the defendant counter-claimed that there was a breach of contract or
misrepresentation. The defendant's counter-claim succeeded [2000] ALL ER (D) 241, the
claimant was subsequently ordered to pay the defendant damages [2000] ALL ER (D) 788.
The claimant applied to the trial judge for permission to appeal on the grounds that the
findings of fact made by her in her judgment on the question of damages were contrary to a
concession which had been made by the defendant.
Leave to appeal would be refused.
(1) The court had jurisdiction to correct an error of a material fact in a judgment before the
order was drawn. That jurisdiction should be exercised cautiously and sparingly, and the
question of a review should be raised as soon as possible. However, where errors in the
judgment could be corrected by the trial court an appeal was not the appropriate course, since
the trial judge was in a strong position as she had been able to consider the effect of the error
on the entire case, and the appeal process involved delay, uncertainty and costs. In the instant
case, there was no doubt that the defendant intended to make the concession so that it would
not be just to not review the existing finding of fact and make the necessary substitution.
(2) However, in the instant case, the amendment made to the findings of fact in the previous
judgment would make no difference to the result. Accordingly, permission to appeal would
be refused.

24. With v O’Flanagan [1936] Ch 57

Whether representations are ongoing
Facts
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. At first
instance, it was held that the representation was, at the time it was made, accurate and
therefore, because this meant that the claimant could not demonstrate that the representation
was untrue, the claim must fail. The defendant appealed.
Issue
The issue in this circumstance was whether there remained an obligation to inform a party to
a contract when the circumstances material to a representation, which induced them to enter
into the contract, had changed.
Held
The Court of Appeal reversed the decision at first instance. 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.