Chapter 9 – Misrepresentation

Essay question

Critically discuss the operation of the Misrepresentation Act 1967, s.2(1).

Essay question answer guidance

Damages may be available in respect of misrepresentations although the precise operation of damages in this area depends on the type of misrepresentation (fraudulent, negligent etc.).  Damages for fraudulent misrepresentation are awarded in the tort of deceit and adopt a quite expansive measure of damages (Doyle v Olby (Ironmongers) Ltd (1969)).  Damages for negligent misrepresentation were at one time generally not available.  However, such damages may now be available at common law under the line of authority emanating from Hedley Byrne & Co. Ltd v Heller & Partners Ltd (1964).  Damages for common law negligence adopt a less expansive form which can, perhaps, be justified on the ground that the policy to deter fraud does not apply here.  In addition, the Misrepresentation Act 1967, s.2(1) provides a statutory remedy of damages for what might broadly be labelled negligent misrepresentation.  Controversially it has been held that s.2(1) generally adopts the wider tortious measure of damages used in cases of deceit (Royscot Trust Ltd v Rogerson (1991)) although there may be differences in relation to limitation periods: see Rizwan Hussain v Saleem Mukhtar (2016).  You should discuss whether or not this is satisfactory.

Problem question

Peggy decides to sell her café. Jim is interested in purchasing Peggy’s café and enters into negotiations with Peggy. During negotiations Peggy states:

1. the café has a net profit of £30,000 per year (when in fact it has a gross profit of £30,000 per year). Jim was provided with the accounts for the café but did not bother to look at them;
2. the café is ‘the most trendy in town’;
3. there would be no need for planning permission if Jim wished to extend the café (which was incorrect).

Jim agreed to buy the café for £200,000 and the written contract, which contained an entire agreement clause, made no mention of the above statements. The purchase has been a disaster and Jim wishes to know whether or not he has any claim against Peggy in misrepresentation.

Problem question answer guidance

Peggy has made a number of statements during negotiations with Jim, at least two of which are incorrect (statements (i) and (iii)). These statements might amount to contractual undertakings although this is, perhaps, unlikely given the fact that the written contract does not mention them and the written contract also includes an entire agreement clause. Has Peggy made any actionable representations? It would be helpful to define an actionable misrepresentation at this point. In relation to statement (i) there seems to be a false statement of fact which arguably induced Jim into the contract (and arguably would have induced a reasonable person into the contract: see Sharland v Sharland (2015)). The fact that Jim could have checked the accounts would not prevent an actionable misrepresentation (Redgrave v Hurd (1881)). Statement (ii) appears to be a statement of opinion and such statements are generally not actionable (Bisset v Wilkinson (1927)). Statement (iii) might be regarded as a statement of law which is now actionable (Pankhania v Hackney London Borough Council (2002)) although it is unclear whether or not this statement would have influenced Jim. If an actionable misrepresentation has been made, you should consider remedies. All types of misrepresentation can give rise to the right of rescission although there are various bars on this right including that restitution is impossible (which might be the case in relation to a business where employee rights etc. have been affected: see Thomas Witter Ltd v TBP Industries Ltd (1996)). Damages are also available for some forms of misrepresentation although the precise operation of damages is linked to the type of misrepresentation (fraudulent, negligent, etc.). It would be useful to discuss damages in a little detail.