MISREPRESENTATION

Misrepresentation is a false statement made by one party that

induces another party to enter into a contract. This falsehood can
lead to the affected party seeking remedies like rescission
(cancellation of the contract) or damages (compensation).

●​ Fraudulent Misrepresentation: This occurs when a false

statement is made knowingly or without belief in its truth.
The person making the statement intends to deceive the
other party.​

●​ Negligent Misrepresentation: This happens when a false

statement is made without reasonable grounds for believing
it to be true. The speaker may not intend to deceive but
fails to take necessary care.​

●​ Innocent Misrepresentation: This involves a false

statement made by someone who genuinely believes it to
be true. The misrepresenting party has not acted negligently
or fraudulently.

misrepresentation is primarily governed by the

Misrepresentation Act 1967. This Act allows the misled party
to claim damages or rescind the contract. The key elements that
must be established are:
●​ A representation was made.
 ●​ The representation was false.
●​ The party relied on that representation when entering the
contract.

Oscar Chess Ltd v Williams (1957): In this case, a seller

misrepresented the age of a car, claiming it was a 1948 model
when it was actually a 1947 model. The court found that the
seller was liable for misrepresentation because the buyer relied
on the seller's expertise.
Bisset v Wilkinson (1927): Here, a seller stated that land could
support a certain number of sheep. The court ruled that this was
merely an opinion and not a statement of fact, hence it was not
considered misrepresentation.
​
Smith v Land and House Property Corp (1884): This case
involved a seller who described a property as "let to a desirable
tenant." The court found that this represented a misleading
statement of fact, leading to misrepresentation since the seller
knew the tenant was in arrears.

CONTRACTUAL TERMS
Contractual terms are the specific provisions or clauses within
a contract that outline the rights and obligations of the parties
involved. There are two main types of terms:
1.​Conditions: Major terms that, if breached, allow the other
party to terminate the contract and claim damages.
2.​Warranties: Minor terms that, if breached, allow the
injured party to claim damages but do not terminate the
contract.

UNAMBIGUOUS EXISTING STATEMENT OF FACT OR

LAW
An unambiguous false statement of existing fact or law refers
to a clear and definite statement that is not true and relates to a
current fact or legal situation. When such a statement is made, it
can induce another party to enter into a contract, leading to
potential claims of misrepresentation.

●​ Unambiguous: The statement must be clear and

straightforward, leaving no room for misunderstanding.​

●​ False Statement: The statement must not be true. If it is

true, it cannot constitute misrepresentation.​
 ●​ Existing Fact or Law: The statement must relate to a fact
or legal situation that exists at the time it is made. Opinions
or future predictions do not qualify.​

●​ Inducement: The false statement must have influenced the

other party's decision to enter into the contract.

Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)

●​ Summary: A bank provided a misleading reference about a
client’s creditworthiness, which led to financial loss for the
claimant.
●​ Significance: The court established that a duty of care
could arise in situations where a party relies on another's
advice or information, leading to negligent
misrepresentation.

5. Spice Girls Ltd v Aprilia World Service BV (2000)

●​ Summary: The Spice Girls misrepresented their
commitment to a project by signing a contract while
planning to leave the group.
●​ Significance: The court held that the group’s conduct
constituted a misrepresentation, as their actions suggested
they were committed, which induced the contract.

6. Clark v Clark (1865)

 ●​ Summary: A party misrepresented the value of shares in a
company, leading another party to invest based on that
misrepresentation.
●​ Significance: The court ruled that the misrepresentation
was actionable, reinforcing the importance of truthfulness
in financial statements.

CATEGORIES OF MISREPRESENTATION

1. Fraudulent Misrepresentation
Definition: This occurs when one party makes a false statement
knowing it is untrue, or they are reckless as to whether it is true
or false. The intention here is to deceive the other party.
Example: If a seller knows that a car has a serious defect but
lies about it to sell the car, this is fraudulent misrepresentation.
Case Law:​
Derry v Peek (1889): The court ruled that a statement made
with the intent to deceive constitutes fraudulent
misrepresentation. In this case, the defendant made a false
statement about the company’s ability to use trams, which led to
losses for the plaintiff.

2. Negligent Misrepresentation
Definition: This type happens when a party makes a false
statement without taking reasonable care to ensure it is true. The
person may not intend to deceive but fails to check the facts.
Example: If a real estate agent claims that a house has no
structural issues based on a quick inspection, without proper
checks, and it turns out to be false, this is negligent
misrepresentation.
Case Law:​
Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964): The
court ruled that a party could be liable for negligent
misrepresentation if they provide information without exercising
reasonable care, leading another party to suffer a loss.

3. Innocent Misrepresentation
Definition: This occurs when a false statement is made by
someone who genuinely believes it to be true. There is no
intention to deceive.
Example: If a seller honestly believes a painting is an original
when it is actually a reproduction, this is innocent
misrepresentation.
Case Law:​
Oscar Chess Ltd v Williams (1957): The court found that the
seller genuinely believed the car's age was accurate, but it was
misrepresented. This was deemed innocent misrepresentation.
Remedies for Misrepresentation
When a party has been misled by a false statement in a contract,
they may seek various remedies under UK law. The main
remedies for misrepresentation include:

1. Rescission
Definition: Rescission is the cancellation of the contract,
restoring both parties to their original positions as if the contract
had never been made.
How it Works:
●​ The affected party can void the contract if they were misled
by a false statement.
●​ Rescission must be sought promptly, and the affected party
should not have acted on the contract in a way that would
make rescission impossible.
Example: If a buyer discovers a car was misrepresented and
chooses to rescind the purchase, they can return the car and
receive a refund.

2. Damages
Definition: Damages are monetary compensation awarded for
losses suffered due to reliance on misrepresentation.
Types of Damages:
●​ Consequential Damages: Compensation for losses directly
resulting from the misrepresentation.
●​ Reliance Damages: Compensation for expenses incurred
due to relying on the false statement.
Example: If a buyer spent money on repairs for a car they
bought based on a false statement about its condition, they may
be entitled to recover those repair costs.

3. Affirmation of the Contract

Definition: Sometimes, the affected party may choose to affirm
(continue with) the contract despite the misrepresentation.
How it Works:
●​ By affirming the contract, the party acknowledges the
misrepresentation but decides to keep the contract in force.
●​ This may happen if the party believes the contract still has
value despite the misrepresentation.

Case Laws
1.​Oscar Chess Ltd v Williams (1957): The court ruled in
favor of rescission because the seller had made a false
 statement about the car's age, leading to misrepresentation.​

2.​Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964):

The court awarded damages for negligent
misrepresentation, holding the party liable for losses
incurred due to reliance on the false information.​

3.​Smith v Land and House Property Corp (1884): The

buyer was entitled to rescind the contract due to the seller's
misleading statement about the tenant's desirability.

Exclusion of Liability

Exclusion of liability refers to clauses in contracts that limit or

eliminate one party's responsibility for certain types of losses or
damages that may arise from the contract. These clauses aim to
protect a party from legal claims or liability under specific
circumstances.

Key Points
1.​Purpose: Exclusion clauses are often used to manage risk
and define the extent of liability in commercial
relationships. They help parties understand the limits of
their obligations.​
 2.​Types of Exclusions:​

○​ Complete Exclusion: This eliminates all liability for

certain events or damages.
○​ Limitation of Liability: This restricts the amount of
damages that can be claimed, even if liability is
accepted.
3.​Common Areas of Exclusion:​

○​ Negligence
○​ Breach of contract
○​ Loss of profit or consequential damages

Legal Framework in the UK

Under UK law, particularly the Unfair Contract Terms Act
1977, exclusion clauses must meet certain criteria to be
enforceable:
●​ Reasonableness Test: The clause must be reasonable,
considering factors like the bargaining power of the parties
and whether the party relying on the clause took steps to
bring it to the other party's attention.
●​ Not for Consumer Contracts: Exclusion clauses that
attempt to limit liability for death or personal injury caused
by negligence are generally void.

Case Laws
1.​Photo Production Ltd v Securicor Transport Ltd (1980):
The House of Lords upheld an exclusion clause that limited
liability for negligence, ruling that it was reasonable under
the circumstances of the contract.​

2.​Unfair Contract Terms Act 1977: This legislation sets out

the legal framework for assessing the validity of exclusion
clauses and ensures that they are not unfair to consumers.​

3.​Canada Steamship Lines Ltd v The King (1952): The

court ruled that an exclusion clause must explicitly mention
negligence to be enforceable against claims arising from
negligent acts.