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Published: Fri, 02 Feb 2018

Misrepresentation of contract

£250,000, believing Claudia, the owner, who told her that after demolishing and replacing it with a larger one, it’s value would be £500,000. Anna agreed, and the contract was signed but she soon discovered that the house is on the « Grade II buildings » list, which means two things. Firstly, it is not very likely that she will get a planning permission to demolish the house; and secondly, that she will need to use original materials, which are very expensive. In the meantime, she lost her job; which means she could not afford the extra costs anymore.

Can Anna pretend to remedies and damages in the law of misrepresentation?

A representation is a statement made by one party (the representor) to another party (the represented) which relates, by way of affirmation, denial, description or opinion. If untrue, it is a misrepresentation. More specifically, a misrepresentation is an

«Unambiguous, false statement of fact or law which is addressed to the third party misled, and which induces the contract. » [1] 

In the English contract law, there is no duty of disclosure of information during the process of negotiation. Instead has been created a duty ‘to not make any false statement of fact in the view of making the other party enter into the contract’ [2] . Which is why Claudia, during the conveyance period nor after the closure of the contract did not warn Anna that the house had been on the « Grade II buildings » list for the past six months. However, Lord Wright MR in With v O’Flanagan [3] concluded that there is a « duty to point out when there are changes of circumstances or when [they let] the representation continue till the point where the contract was signed. In Smith v Land and House Property Corp [4] , Bowen LJ said that

«  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 opinions » [5] 

If they have entered into negotiations prior to the listing of the building and Claudia had already stated that « in her opinion it would be easy to get planning permission to demolish the house and replace it » supporting her argument with the fact that two years ago a similar permission was granted, then she ought to have corrected her statement. Not doing so created an opening for the use of S. (2) (1) of the Misrepresentation Act 1962 by Anna, and nondisclosure of material or important facts results in liability for the representor.

If the misrepresentation is made carelessly, then it falls under the tort of negligent misrepresentation, otherwise, if made fraudulently it goes to the tort of deceit.

A lawsuit for fraudulent misrepresentation, actionable in the law of tort, is hard to achieve, there must serious proofs of the representor’s intention to deceive. There is an onus on the claimant to prove that it fulfils three strict requirements. [6] First, there must be proof of fraud. Secondly, the fraud is proven when it is shown that the representation has been made knowingly or without belief in it’s truth or recklessly or either carelessly without regards to its veracity. As a matter of fact, he reasonableness of belief does not in itself constitute fraud, it only proves dishonesty [7] . Thirdly, the motive is immaterial. ( [8] )

After study of the criteria, we see that Claudia’s misrepresentation falls under the negligent misrepresentation scope, which opens the possibility for Anna to sue her for damages.

Misrepresentation can create civil liability if it results in a pecuniary loss for the claimant. To decide whether the representor is liable for the client’s loss, there are four conditions that must be completed. [9] 

Firstly, to create liability the misrepresentation must be relied on by the listener. This condition tries to measure the importance of the statement. Did the statement affect the decision to enter into an agreement? This factor had been used in Couchman v Hill [10] .

Secondly, the speaker must know that the listener relies on the correctness of the statement and nonetheless makes that misstatement. Here it is question of whether the seller gave the client a precise reference or warranty; and whether the representor encouraged the representee to rely on his assurance.

Thirdly, the listener’s reliance on the representor’s statement must be reasonable and justifiable. This condition deals with the reasonableness of a statement, whether it is of opinion, of fact, or of law. [11] 

Finally, the client’s reliance on the representor’s statement must result in pecuniary loss for the listener. That will enable the client to sue for damages under the section 2 of the Misrepresentation Act 1962.

In our client’s case, the first condition is fulfilled as Anna relied on her statement that the obtaining of the planning permission would be easy and will double the value of the house. This is why she entered the contract. Had it not been for that, she would not have done it.

The second condition is fulfilled as well. When Claudia showed her the plans for the new building that she said Anna could build in place of the actual house, produced an estimation of the new building’s value, and told her about the neighbours that got the planning permission for a similar project she knew that Anna relied on the correctness of the statements made. By using an estimation of the new value and the easiness of obtaining the planning permission, she knew that Claudia would rely on the correctness of her statements. By providing so many guidance sand assurances, she encouraged Anna to rely on her statements

The third condition is filled as well. The fact that she had everything planned, supposes that she went to see an architect, architect who then told her the possible value of the new house. As it is something official, Anna could not rely on the statements. Moreover, the fact that No 36 got a planning permission for a similar project makes it even more reasonable to believe in. The estimated figure is a reasonable one given the fact that she is considering building a new house.

The condition concerning the results of the misrepresentation is filled as well. The fact that she did not know it was a listed building and the fact that she relied on the assurances of Claudia and entered the contract resulted in her having to use original materials that are expensive. There is a discrepancy between the two costs. The cost for a modern rebuilt is of£450,000 and the cost of a « Grade II listed building » that is £600,000. The difference between them is of £200,000 clearly qualifies as a pecuniary loss. All the conditions are there to create a civil liability in misrepresentation.

To conclude, I would say that a contractual claim for damages does not lie in misrepresentation unless the misrepresentation is a term of the contract. For fraudulent and negligent misrepresentations, we may look at tort to seek damages. Section 2(1) and 2(2) make some provisions for the recovery of damages.

Negligent misrepresentation is said at common law because it a tort has been committed and so damages can be sought. The rule to the damages a claimant can receive is the reliance rule, which means that the judges are seeing to put the claimant in the position he would have been in had the tort not been committed.

In the case of Anna, she could claim under Section 2(1) of the 1962 Misrepresentation Act for recovery of damages, and assuming the reliance interest is used, she could receive the difference between the cost of a modern rebuilt and the one of a « Grade II listed building » which would amount to £200,000.

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