An Unambiguous False Statement of Existing Fact

An actionable misrepresentation is an unambiguous false statement of existing fact, made to the claimant, which is material and induced him to enter into the contract. This definition has given rise to a number of issues, especially about the nature of the statement: can statements of law, intention, or opinion amount to misrepresentation? Can silence amount to misrepresentation? It has been decided in several cases that such statements could actually amount to misrepresentation given the circumstances in which they have been made. The effect of an actionable misrepresentation is to make the contract voidable, giving the innocent party the right to rescind the contract and/or claim damages.

The first step to take to advise Anna is to find if any actionable misrepresentation has been made to her by Claudia.

The first statement made by Claudia seems to be one of opinion, and even though it can sometimes be actionable if the opinion is not honestly held as stated in Edgington v Fitzmaurice [1] , the state of mind is hard to prove, and the famous quotation of Bowen LJ in this case well demonstrates it: “the state of a man’s mind is as much a fact as the state of his digestion”. However, it can also be a statement of fact regarding the special knowledge Claudia has: she knows that a planning permission won’t be easy to get because she is aware of the fact that the house has been listed “Grade II building” so that it can’t be demolished, altered or extended without special permission by the local planning authority and that owners are often compelled to repair or maintain the building. In fact, an opinion which is neither not held or could not be held by a reasonable person with the speaker’s knowledge is a statement of fact, following the decision in Smith v Land and House Property Corp. [2] .

Secondly, Claudia tells Anna that “she had intended to carry out the plans if she had stayed”. She must have known that her house had been listed “Grade II building” so that it was not possible, or was totally reckless if she did not as owners are informed when their house is such listed, but we can reasonably assume that she sells her house because of this. Therefore, this statement of past intention, to be considered as one of “past existing facts” because Claudia affirms that this is what she intended to do and shows plans to prove it and as if to say that it is still possible to carry out the project, whose only aim is to induce Anna to enter into the contract, can amount to misrepresentation on the same ground as the first false statement. She does not bother to tell Anna that the circumstances have changed between the situation she describes and the making of the contract, and at the time she makes the statement, it is already false, and she knows it.

Thirdly, Claudia tells Anna that “planning permission for a similar project was granted two years ago to her friends at No 36″ to assure that it is possible to have the planning permission but, again, she does not tell her that the circumstances have changed since then.

The line between statements of fact and others is very tiny and it can sometimes be hard to know of what kind the statement is. The recognition of non-factual statements as misrepresentations is very helpful for that purpose, because the injured party does not always have to prove that a false statement that induced them into the contract is one of fact. This is the case here, where the several false statements made by Claudia do not qualify at first sight as statements of facts, but still amount to misrepresentation.

The next question that arises is the one of the duty of disclosure: did Claudia have to tell Anna that the house was listed Grade II building, this implying that it has to be brought up to habitable standards and that her plans were not able to be carried out? Although there is no duty of disclosure in English law, in some circumstances, silence can amount to misrepresentation. Where the statement is a half-truth, it can amount to misrepresentation (Nottingham Brick and Tile Co v Butler [3] ): here, Claudia tells that planning permission is very easy to obtain and shows plans, but she does not say that the plans cannot apply anymore to the house since it is listed grade II, that Anna will have charges related to this characteristic, and that the planning permission she promises is not the one Anna will get. Claudia is totally ineligible for escaping liability because she had reasonable grounds for not believing in the truth of her statements, and we can even say that she did not believe at all in what she was saying as she must have been totally aware of the situation. The fact that Anna did “her own conveyancing” doesn’t prevent her from bringing a claim for misrepresentation, contrary to Attwood v Small [4] (in which it was held that the claimants had been induced to enter the contract by what the experienced agents they engaged to verify the truth of the vendor’s statements said) because Claudia was in a better position to know the truth as she was the owner of the house, so she knew everything in relation to the property, whereas Anna didn’t have any “special knowledge”. However, it is very easy to check the list of listed buildings, a thing that Anna (or the solicitor she should have had) should have done by security, even though Claudia had a duty to mention it.

Statements made by Claudia are made fraudulently: i.e. as defined by Lord Herschell in Derry v Peek [5] : a false statement ‘made knowingly, or without belief in its truth, or recklessly, careless as to whether it be true or false’.

We have to consider whether Anna is entitled to rescind the contract or not. One of the bars to rescission is the affirmation of the contract by the injured party, as in Long v Lloyd [6] , where the plaintiff’s continued use of the defective lorry and agreeing to the defendant’s offer to share the cost of repairs amounted to affirmation of the contract. Here, Anna performed the contract even after learning that there had been a misrepresentation by making improvements to the house, but to lose her right to rescission in these circumstances she must be aware of its existence (as stated in Peyman v Lanjani [7] ), which we don’t know if she was. According to what was said in Whittington v Seale-Hayne [8] , indemnities can be obtained when rescission would result in enrichment to the defendant, which is the case here as Anna made improvements to the house, so that it is worth more than when she bought it from Claudia. In Whittington, the plaintiff was entitled to recover the benefits the defendant had made as a result of the plaintiff’s performance of his obligations under the lease. Applied to the case of Anna and Claudia, it seems that Claudia is liable to pay back the price of the house and the value of the improvements made as they were compulsory, i.e. as in Whittington, ordered by the local authority. That means that if Anna choses to exercise her right to rescission, Claudia would have to pay her back, in the form of indemnities, the price of the house as well as the value of the improvements Anna paid for. However, Anna can still have a claim for damages, even though this is not stated in Whittington because at this time damages could only be obtained if the statement was made fraudulently and the plaintiff was not able to prove it was.

Although fraud can be established and an action under the tort of deceit brought, it may be a better option for Anna to bring proceedings under section 2(1) of the Misrepresentation Act 1967, where the false statement is assumed to be fraudulent (“fiction of fraud”), as the burden of proof shifts from Anna to Claudia. Therefore, she would be awarded damages on the basis of what she would have gotten had the statements not been made, i.e. had Claudia not told her that a planning permission was obtainable easily, and had she told her that the house was listed Grade II Building. The price of the house without planning permission was £250,000 and Anna paid £500,000. Moreover, as there were compulsory improvements related to the situation of the house to be made, the price should have been even lower. Anna is entitled to recover, under the tort of deceit, all the losses, whether foreseeable or not, which means that she is entitled to recover all her expenses for the improvements made (or to make) to the house as well as the difference between the price without and with the planning permission: £400,000 for the improvements (minus the quotations obtained) and £250,000 for the price difference. The aim of damages in the tort of deceit is to put the representee in the position they would have been in if the deceit had not been perpetrated as stated in Smith Kline & French Laboratories Ltd v Long [9] , but it seems hard to do this here, so it might be a better option, as far as it is possible to do so, to try to rescind the contract and bring a claim for indemnities.

As stated above, Anna has a remedy under the law of misrepresentation, but the fact that the House is listed Grade II and that there is not an actual planning permission such as the one Claudia highlighted should have been terms of the contract, as they are so important that Anna wouldn’t have entered into the contract with and without them being made and that the price difference is enormous. In this way, the court might decide that the statement ‘planning permission is easily obtainable’ is an implied term of the contract, as the price shifts from £250,000 to £500,000 with it being made. Anna would then have had a claim for breach of contract rather than a mere right to rescission with a claim for indemnities and/or damages. Moreover, Anna shouldn’t have made “her own conveyancing” but dealt with a solicitor, who, at the time of exchange of contracts, would have had a duty to check all the characteristics related to the house, and would have seen that the house was listed Grade II Building even though Claudia did not inform them.