Definition of an Actionable Misrepresentation Is a False Statement of Fact

Therefore, if the representation did not have some kind of influence on the representee at all, there can be no claim of inducement. [1] For example, the case of Naughton v O’Callaghan [2] , where the claimant discovered that the racehorse he had purchased did not have the pedigree described on sale and that the horse performed badly. Naughton purchased the horse, solely reliant on the representations made by the defendant; hence he was able to claim inducement/misrepresentation.

Question Part b)

The standard definition of an actionable misrepresentation (as stated in part a), is a false statement of fact, made pre-contractually, which is intended to induce the representee to enter into a contract, and which has that effect. In order to determine whether Sam can claim misrepresentation, he must prove or show that there was a false statement made to him, which induced him into entering the contract.

The sales assistant made the following statements:

the X-13 is the best value for money in it’s class

requires minimal servicing

it possesses a superb accounts spreadsheet facility

The sales assistant then makes a reference to a publication in the “recent PC Which Guide.” Did the sales assistant really make any statements of fact, or were the above statements mere puffs and opinions? A puff is a statement, which is not intended to have any legal value, most commonly seen in advertisements. Statement 1 could be construed as a statement of fact presented by an expert, or a mere personal opinion. The sales assistant here could use the case of Bisset v Wilkinson [3] , where a purchaser of land from a New Zealand vendor “claimed to rescind the contract on the ground of the falseness of a statement as to the carrying capacity of the land for sheep. It was held that the statement was merely of an opinion which the vendor honestly held; and accordingly that the defence failed.” [4] Statement 2 is a very vague statement, as the word minimal does not denote a specific entity. The sales assistant has no idea how much time Sam uses his computer for and therefore cannot be liable for the falseness of this statement. If we are to consider the sales assistant as an expert, then Statement 3 is a statement of fact as the sales assistant would have in-depth knowledge about the software contained on the computer. This statement is later falsified, so Sam can show that there was a false statement of fact made to him. To support this point, is the case of Smith New Court Securities Ltd. V Citibank NA [5] , where SNC had bought shares in a public company, at an inflated price in reliance on false representations made by R, who had acted as broker. The reliance on this expert figure in this case is an almost identical portrayal of the scenario in Sam’s case.

To show whether Sam was induced by these statements, Sam has to claim that he had a great reliance on the information given to him by the sales assistant. Sam was clearly impressed by what the sales assistant had to say about the Bell X-13 computer, so much so that he returned later to buy it. However, to what extent did Sam rely on these representations? We are told that Sam entered the shop intending on buying the Bell X-13, therefore, it could be the case that the sales assistant’s misrepresentations had no bearing on Sam’s decision to buy the computer.

However, “the representee’s decision whether to enter into a contract, and on what terms, will be influenced not only by representations, but also by numerous other factors, such as outside information, and own personal priorities and attitudes.” [6] The sales assistant’s comment about the recent PC Which Guide would have influenced Sam’s decision to enter the contract, as this magazine/guide is a highly regarded PC guide.

Although, at this point, Sam could have bought the PC Which Guide and read the relevant review, he decided not to. Regardless, he can still claim inducement by the sales assistant, as he only had constructive knowledge. In the case of Redgrave v Hurd [7] , the claimant was offered the opportunity to review the accounts before buying into the partnership. The court held that by deciding not to take this opportunity and review the accounts, the representee could still claim reliance on the defendant’s representation. This scenario with the accounts appears almost identical to ours with the exception of the PC Which Guide review not being material.

Misrepresentation is not the only claim that Sam could possibly make. Sam could possibly make a breach of contract claim. Breach of contract occurs where “a party fails/refuses to perform a performance obligation imposed upon it under the terms of the contract (including defective performance).” [8] In this case, Sam can possibly claim that the sales assistant, working as a representative of the shop, was in breach of his contractual duty due to him relaying false information to Sam. Hence, Sam can argue that the shop was in breach of contract.

There are many types of misrepresentation, the ones which are relevant to this case are: negligent mistatement, negligent misrepresentation, and fraudulent misrepresentation. To claim negligent mistatement, Sam has to prove that he had a ‘special relationship’ with the sales assistant. This type of misrepresentation was first established in the case of Hedley Byrne v Heller [9] , where a bank negligently gave advice to its client, resulting in financial loss. The court held that the relationship between the two parties was a ‘special’ one and that the bank owed a duty of care to the representee. The facts in this case are very much alike to the facts in Sam’s case, and using the facts of Sam’s scenario, it can be seen that the sales representative and indeed the computer store owed Sam a duty of care.

Negligent misrepresentation is defined in section 2(1) of the Misrepresentation Act 1967 [10] as, “Where a person has entered into a contract after a misrepresentation has been made to him … then, if the [representor] would be liable to damages in respect thereof had the representation had been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves he had reasonable ground to believe … that the facts represented were true”. [11] This type of misrepresentation states that the sales assistant/ computer store shall be liable for damages, regardless of whether the representations were made fraudulently or not. The test for this type of misrepresentation was established in the case of Howard Marine et al v Ogden & Sons [12] . This case showed that it was not necessary to prove that the representor had a duty of care to the representee in order to show liability.

The final type of misrepresentation that Sam could claim is fraudulent misrepresentation. Fraudulent misrepresentation occurs when one party knowingly conveys false information to the other. To demonstrate this is the case of Smith New Court Securities v Scrimgeour Vickers [13] , where the advice on buying company shares was fraudulent. Was the shop assistant knowingly relaying false information to Sam? If Sam made it clear to the sales assistant that he was in accountancy and would be using this computer for business, it is possible that the sales assistant fraudulently misrepresented how good the accounts spreadsheet facility was in order to induce Sam into entering a contract.

In respect of potential remedies, the principal remedy for misrepresentation is rescission. The laws regarding remedies for misrepresentation are set out in section 2 of the Misrepresentation Act 1967 [14] .

“A person is entitled to damages where a person has entered into a contract after a misrepresentation has been made to him and, as a result, 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…”

or

“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 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…”

The Act also states that: “Damages may also be awarded against a person, where he is so liable. The said subsection (2) shall be taken into account in assessing his liability under the said subsection (1).”

If there is a breach of contract and fraudulent misrepresentation found, “damages for deceit should compensate the plaintiff for all losses suffered, including loss of profits that could reasonably have been anticipated.” as per Mustill LJ in the case of East and Another v Maurer and Another [15] .

As is documented in the case, Sam’s use of the computer over a period of three months persuades him that he cannot rely on the spreadsheet facility and errors in the system have meant that some of his clients have left him because of accounting inaccuracies. In order to claim any damages owed to him, Sam must rescind the current contract. An actionable misrepresentation only renders the contract voidable, not void (as per Millet LJ in Bristol v West Building Society v Mothew [16] ). This means that the contract is still valid until the aggrieved party rescinds the contract. Rescission is a remedy that allows both parties to return to how they were before the contract had been entered into.

As rescission is a ‘backward looking’ remedy, only events that have already happened can be claimed for. Loss of future profit as a result of clients leaving, for example, cannot be claimed via rescission. If the contract is not rescinded, and Sam continues to use the PC, then the contract could become ‘affirmed’ and not as much money can be claimed. However, if Sam is able to successfully argue that a breach of contract has taken place, then he would be entitled to sue for foreseeable losses. Also, if the courts decide that enough time has lapsed, and the contract cannot be rescinded, Sam can, if he wishes to, terminate his contract due to a repudiatory breach and still claim damages. A repudiatory breach will occur in the following cases:

(i) Refusal to perform the contract by one party, OR

(ii) Incapacitation (where the guilty party’s actions prevent the claimant from performing his contractual obligations), OR

The term broken is either a condition / or an innominate term where the effect of the breach of that innominate term is serious. [17]

In conclusion, Sam should be advised that complete rescission of the contract is not possible, as it is very doubtful that his clients will return to him. He can claim damages for an actionable misrepresentation and a breach of contract, but he must do so quickly. If he fails to act now, he will be in danger of affirming the contract. Sam should be able to recover “all the loss suffered, both capital and income, up to the date when he discovered the misrepresentation and had an opportunity to avoid further loss” as per Butler-Sloss LJ in the case of Downs v Chappell [18] . It is also worth noting though, that “although an executed contract of sale may, in a proper case, be rescinded for innocent misrepresentation, nevertheless, once the buyer has accepted, or is deemed to have accepted, the goods, the claim is barred.” as per Evershed, M.R. in the case of Leaf v International Galleries [19] .

Word Count: 1972