In this earlier case of William Sindall plc. v. Cambridge County Council, the same idea of awarding of damages being predicated on the ability to rescind was emphasized, and because there was no actionable misrepresentation and right to rescind, s.2 (2) could not be applied. In this case, the defendant had sold a piece of land the plaintiff, for ₤5 million, for the purposes of property development. During the pre-contractual phase, the plaintiffs had enquired as to whether or not the defendant was aware of any undisclosed easements which burdened the land. The defendant replied, using the words, “not as far as the vendor is aware.” It later surfaced that there were indeed easements burdening the land, albeit in the form of underground sewage pipes.
There was debate, however, as to the measure of damages, if s.2 (2) had indeed been applicable in this particular case. It was held that the damages should not have to take into account the decline in market value from the time that the contract had been established, thereby establishing that in the case of a claim of innocent misrepresentation, the measure of damages would be the difference between the actual value of the subject matter at the moment of contracting and the misrepresented value. This was a crucially important issue in this particular case, given that the value of the land had actually halved. This is to be contrasted with the damages that would be available under s.2 (1), where Evans LJ stated that, it “is established by the common law and it is the amount required to compensate the party to whom the misrepresentation was made for all the losses which he has sustained by reason of his acting upon it at the time when he did.” In this case, the party seeking to rely on s.2 (1) may be permitted to rescind the contract, as well as recover damages in respect to the loss suffered as a result of the reliance on the fraudulent misrepresentation. Having said that, it would seem that the party that is seeking a remedy from the courts, would perhaps, receive substantially less of a remedy, under s.2 (2) in the case of being awarded damages, as opposed to being granted the alternative remedy of rescinding the contract or even the possible remedies available under s.2 (1), because to receive any other remedy would be deemed inequitable. Therefore, in terms of the calculation of damages under s.2(2), it would seem that the courts in the name of achieving an equitable solution to the misrepresentation, would revise damages downwards, so as to achieve a balance between the conflicting interests of the affected parties, as seen in the William Sindall case. Not only was the court not willing to rescind the contract because it was viewed that the loss of upholding was relatively small in comparison to the entire financial endeavour, as seen in Hoffmann LJ’s statement, “If one looks at the matter when Sindall purported to rescind, the loss which would be caused if the contract were upheld was relatively small: the ₤18,000 it would have cost to divert the sewer, the loss of a plot and interest incurred on any consequent delay at the rate of ₤2,000 a day. If one looks at the matter at the date of trial, the loss would have been nil because the sewer had been diverted,” the courts were also unwilling to take into account, in the event that the misrepresentation had been actionable, the precipitous drop in the market value of the piece of land.
Q1(b) Z and Y are both dealers in antiques. Z has a wooden chest for sale and while Y is giving it careful inspection Z says, “It’s eighteenth century, I think – but then you know so much more about this sort of thing than I do.” Y buys the chest for £2,000. He then resells it to W for £3,000, saying nothing about the age of the chest, but knowing from previous dealings with W that W is interested only in eighteenth century furniture. Two weeks later, a knowledgeable friend points out to W that it is in fact a nineteenth century copy and worth about a quarter what W paid for it. Discuss.
Misrepresentation can be defined as a false statement of existing fact (Edington v. Fitzmaurice (1885)), not of opinion (Bisset v. Wilkinson (1926)), not as to the future, made in the precontractual phases by one party, the representor, with a view and the intention of inducing another party, the representee, to enter into the contract. The statement must have been intended by the representor to be acted and relied upon, and must have actually induced the other party to enter the contract (Horsfall v. Thomas (1862)).
Z and Y
Before we look at the remedies available through the invoking of the Misrepresentation Act 1967, the primary thing to address in the transaction between Z and Y is the issue of whether or not Z has made a false statement of fact, so as to properly ascertain if Y has a claim against Z in misrepresentation. The statement concerned the time period from which the wooden chest came from, “It’s eighteenth century, I think – but then you know so much more about this sort of thing than I do.” Given the fact that they are both dealers in antiques, there is no doubt that they would have more knowledge about such items than the average uninitiated person. But between two dealers, it is possible that they would actually possess different level of knowledge and expertise, especially considering the fact that it is possible that antique dealers are experts in specific areas, and thus might not have equal expertise in the same areas. It is for this reason that it is unsurprising that Z’s statement was undoubtedly phrased as an opinion, alluding to Y’s superior knowledge and that Y because of this superior knowledge should not rely on Z’s assessment. It has been established at common law, in the case of Bisset v. Wilkinson (1926), that an opinion is not a statement of fact and for that reason, does not constitute as an actionable misrepresentation. In this particular case, the vendor of a piece of land, which had not been previously used as a sheep farm, had told a prospective purchaser that in his judgement, the land “had a carrying capacity of 2000 sheep” but it was subsequently found that the piece of land was able to support far fewer than 2000. The New Zealand Court of Appeal held that the representation was an untrue statement of fact and set aside the agreement. However, this decision was overturned by the Privy Council who held that Bisset’s representation was a statement of opinion, which Bisset had honestly, but mistakenly, held. It was therefore, not actionable. In this case, the expertise of both parties were very clear cut and Lord Denning, for this reason, distinguished this case in Esso Petroleum Ltd v. Mardon (1976), on the grounds that “the land had never been used as a sheep farm and both parties were equally able to form an opinion as to its carrying capacity.” The vendor was clearly not in the possession of any special skill or expertise, with regards to sheep farming and hence, it would be unlikely that someone who possessed such skill would choose to depend on his uneducated opinion. But what about cases where the facts are equally unknown to both party, and both parties are of equal knowledge and expertise. Lord Merrivale in Bisset affirmed the principle established in Smith v. Land and House Property Corporation (1884) by Bowen LJ, “If the facts are not equally well known to both sides, then a statement of opinion by one who knows the facts best involves very often a statement of material fact, for he impliedly states that he knows facts which justify his opinion.” Even in light of this, where an opinion can in fact in limited circumstances constitute a representation, or for this matter, misrepresentation, it is highly unlikely that the courts would have found Z statement to exhibit his knowledge of any such facts. Consequently, it is highly unlikely that the courts would find Z’s statement to legitimately constitute a representation.
Even if one were to assume that the whole statement constituted a false statement of fact, the argument would fail at the next hurdle, which is whether it was made with an intention of inducing Y to enter into the contract and, if so, whether Y relied upon it. In the most general of terms, inducement involves the application of a purely objective test, which is whether a reasonable man would have considered the statement to be a material factor? The answer is of course, yes. But given the qualification inherent in the statement, that since Y’s knowledge was superior that he should not rely on Z’s opinion, and the fact that he proceeded to give it a careful inspection, it is obvious that Y did not rely on Z’s statement, meaning to say that there was no reliance on the representation made by Z. And at common law, the onus is on the misrepresentee to show that he was induced by the statement (Museprime Properties v. Adhill Properties (1990)). As seen in cases such as Horsfall V. Thomas (1862), Smith v. Chdwick (1884) and more recently with J.E.B. Fasteners Ltd v. Marks Bloom & Co. (1983), in order for there to be actionable misrepresentation, the representee should have relied on the statement, in which case, Y did no such thing. In Horsfall v. Thomas (1862), the claimant had purchased a defective gun and after having fired six rounds, it was blown to pieces. It was not clear why this happened but it appeared that the defendant vendor had concealed the defect. The claimant purchaser had not examined the gun and later sought to claim that the contract had in fact been induced by misrepresentation. It was held by the Court of Appeal that since the attempt to conceal the defect had produced no effect upon his mind, the claimant could not succeed. Similarly, as seen in the dynamics between Z and Y, Z’s statement given its equivocal nature and Y’s subsequent careful examination of the item, clearly is evidence of the fact that Z’s representation, if you can ever establish it as such, had produced absolutely no effect upon Y’s mind. For all these reasons, Y’s claim, even if he was able to establish that a representation had been made, against Z should fail.
It is important to note that even had Y been successful in his claim against Z, he would, by virtue of the sale to W, have lost his right to rescind the contract which had been induced by an innocent misrepresentation, that is a false statement of fact that is made neither fraudulently nor negligently (Government of Zanzibar v. British Aerospace (Lancaster House) Ltd. (2001)), as established by Philips v. Brooks (1919). In this case, the plaintiff had sold the ring a fraudster, thinking that he was Sir George Bullough and the fraudster subsequently pawned the right to the defendant. The Court of Appeal held in this case the contract was voidable for fraud but not for mistake. The fact that an innocent third party had acquired the jewellery in good faith and provided valuable consideration, the contract between the plaintiff and the fraudster could not be rescinded. Similarly, in this case, even if the courts had held that there had been misrepresentation by fraud, the contract between Z and Y could not be rescinded because W had purchased the wooden chest in good faith, and had paid ₤3,000 for it, and in so doing, provided valuable consideration.
Y and W
In order for there to be misrepresentation in this case, given the omission of not mentioning the age of the wooden chest , coupled with prior dealings that pointed towards the fact that W had only been interested in acquiring eighteenth century furniture, the courts would first have to find that this lack of disclosure amounted to an act of misrepresentation. Generally speaking, English Law, as opposed to its continental counterparts, does not impose a general obligation of disclosure, which could be explained by the English contractual system which lacks a general overriding guiding principle requirement of good faith. However, if there is a slightest indication of representation, be it explicit or implicit, the courts could indeed base misrepresentation on that, as Bingham LJ stated in Interfoto Library v. Stiletto Ltd (1998), “…but a single word, or (I may add) a nod or a wink, or a shake of the head, or a smile from the purchase intended to induce the vendor to believe the existence of a non-existing fact, which might influence the price of the subject sold, would…” Therefore, even though nothing is actually said during the pre-contracting, the courts may interpret a party’s conduct as amounting to representation. Relating it back to this particular scenario, there is consequently a possibility that W and can bring a claim against Y for misrepresentation. Recession is available in all forms of misrepresentation. The contract is set aside prospectively and retrospectively, and the parties are restored so far as possible to their original position. The damages received, however, will be dependent of what form of misrepresentation it is, if it was done fraudulently, negligently or innocently.
If it could be established that Y had known the wooden chest was actually a nineteenth century reproduction and had omitted to inform W about its actual age, W could sue Y for damages for tort of deceit. As established in Derry v. Peek (1889), a fraudulent misrepresentation is a statement made either knowingly, or without belief in its truth, or recklessly, not caring if it is true or false. In addition, the equitable remedy of recession is also available, unless of course rescission has been barred by certain triggering events, such as by the affirmation of the contract by the plaintiff even after he had discovered the truth (Long v. Lloyd (1958), where a third party’s rights, who has acted in good faith and provided consideration, would be affected in the sense that he has acquired rights to the subject matter prior to the claimant’s avoidance of the contract (Phillips v. Brooks (1919), where there has been a lapse of time between the making of the contract and the decision to rescind (Leaf v. International Galleries (1950), and finally, where the parties are not able to be restored to their original position (Clarke v. Dickson (1858). It must be noted that in practice, fraudulent misrepresentation is rarely alleged because it is very difficult to prove. Lord Herschell in Derry v. Peek established that in order for there to be actionable fraudulent misrepresentation, there must be proof of fraud and nothing short of that is sufficient. Unreasonableness of belief does not constitute fraud, and as established by Angus v. Clifford (1891), it merely provides evidence of dishonesty on the part of the representor. Given the enactment of the Misrepresentation Act 1967, where damages have been available for negligent misrepresentation, there has been an even greater reluctance to pursue such a legal claim.
As established by Howard Marine & Dredging Co. Ltd v. A. Ogden & Sons (Excavations) Ltd (1978), a negligent misrepresentation is a statement made without reasonable grounds for believing it to be true. With regards to negligent misrepresentation, damages are not only available at common law, but they are also available under the Misrepresentation Act (1967), under s. 2(1). As mentioned before, suing under the tort of deceit is needlessly burdensome for the representee given the need to prove that the fraudulent misrepresentation was made, but suing at common law in negligence, for negligent misrepresentation under the principles of Hedley Byrne & Co. Ltd v. Heller and Partners Ltd (1964), is no better, because one would have first to establish that there was a special relationship between the parties that gave rise to a duty of care owed (Gosling v. Anderson (1972)). It would have been far easier for W to bring a claim against Y under s. 2(1) of the Misrepresentation Act 1967 because in effect, s. 2(1) imposes liability for negligent misrepresentations and reverses the normal burden of proof; once the representee proves that there has been a misrepresentation, the burden then immediately shifts to the representor to show that he had “reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.” And as exhibited by Howard Marine & Dredging Co. Ltd v. A. Ogden & Sons, it is extremely difficult for the representor to discharge this burden. The reason is that not only is honest belief insufficient, the representor must establish and be able to show to the court reasonable grounds for his belief. Another advantage of invoking s. 2(1) for the representee is that the measure of damages recoverable under s. 2(1) is the measure of damages for the tort of deceit (Royscott Trust Ltd v. Rogerson (1991)). The Court of Appeal in this case had held that the damages under s. 2(1) were to be assessed as if the defendants were fraudulent. What this meant was that the claimants were entitled to recover their loss, resulting from the misrepresentation, regardless of whether or not it was foreseeable. The remoteness rule applied was not that of the tort of negligence but that from the tort of deceit. As seen in Roscott and other cases, recent case law have time and again affirmed the fact that damages will be assessed in the tort of deceit, with all its concomitant advantages, meaning that the representee will not only be entitled to reclaim all damages directly flowing from the reliance upon the misrepresentation, but he might be able to claim subsequent losses resulting from the reliance (Doyle v. Olby (Ironmongers) Ltd (1969)), or even lost opportunity cost (East v. Maurer (1991)). Therefore, if W were to bring a claim against Y under s. 2(1), Y would have to establish and give reasons to the court as to why he thought the wooden chest to be a product of the eighteenth century, thus making it easier for W to achieve damages .
If it could be established that the misrepresentation was innocent, and that W did believed it to be an eighteenth century piece, the court would have the discretion to award damages in place of rescission, based on 2(2) of the Misrepresentation Act 1967. As established in Government of Zanzibar v. British Aerospace (Lancaster House) Ltd (2001), the court has the power under s. 2(2) of the Misrepresentation Act 1967 to award damages where it would be equitable to do so, where the contract is subsisting and the right to rescind has not been lost. If there was indeed innocent misrepresentation on the part of Y, it would therefore, be up to the courts to decide what would be the most equitable remedy, if it would be fair to rescind the contract or just award damages in lieu of the rescission.
