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Introduction

The problem that is posed is clearly a discussion relating to the law of


misrepresentation & non-disclosure and terms. The claimant, Aquafun, may
direct potential claims towards Waterplanet and the Private Inspector. With
regards to Waterplanet, there are two prominent issues that must be addressed
with regards to a claim of misrepresentation. The first issue that must be
addressed is whether Waterplanet is liable for misrepresentation for making an
assurance that the council had no plans for the adjoining property. The second
issue is whether Waterplanet is under a duty of care to disclose information
about the waterpipes. Moreover, it will then have to be established whether the
Private Inspector will be liable for breach of contract, arising from him not
performing his duties to a reasonable standard.

Liability of Waterplanet for Misrepresentation


A misrepresentation is a false statement of existing fact made by one party to
another, which, whilst not being a term of the contract, induces the other party
into entering the contract.1 As such, Waterplanet in inducing Aquafun to enter a
contract for the purchase of the property has made certain statements which
later turn out to be untrue and may be actionable on the grounds of
misrepresentation, even though they do not become terms of the contract per
se. Potentially, Aquafun may be able to rescind the contract with Waterplanet
and/or claim damages.

Is There an Actionable Misrepresentation?


To establish actionable misrepresentation, the first condition that must be
satisfied is that there is be a false statement of fact, not opinion 2 or future
intent3. However, if the maker of a statement knows that the opinion stated is
untrue or is in a better position that the other party to know the truth due to
specialist skill or knowledge, then that person will be liable for
misrepresentation.4 In the case of Smith v Land & House Property Corporation5
the landlord described the tenant as a most desirable tenant, whilst

1 William Reynell Sir Anson, Sir William Reynell Anson, and Anthony G.., Ansons
law of contract (30th edn, Oxford University Press 2016) 320

2 Bisset v Wilkinson [1927] AC 177

3 Esso Petroleum v Mardon [1976] QB 801


simultaneously knowing the tenant was in arrears which gave rise to an
actionable misrepresentation. Similarly, in this case, Waterplanet is in a position
to know the true plans of the Council and therefore will be liable. Although it may
be argued that Aquafun had the opportunity to verify the truth and could have
contacted the council themselves to verify the assurance, this will not protect
Waterplanet from an action in misrepresentation. 6 However, this failure to verify
Waterplanets assurance could be considered contributory negligence and may
result in a reduction in damages, and the representee could be held to be
partially at fault.7 The second facet of there being a false statement of fact is
that it must not be a false statement of future intent, and is also crucial to
address in this scenario. The authority for this part of the definition finds its
authority in the case of Esso Petroleum v Mardon8. Prima facie, the statement
made saying that the Council has no such plans may appear to be one of future
intent. However, this notion should be quickly dismissed as the Council is
confirmed to have plans after the statement is made. Therefore, it must be
deduced that there is a false statement of existing fact.

The second condition that Aquafun must also establish is that Waterplanets
misrepresentation induced the contract. However, it is important to note that it is
not necessary for the misrepresentation to be the sole inducement 9 for entering
the contract; only that the misrepresentation induced the party in some way 10.

4 Esso Petroleum v Mardon [1976] QB 801

5 Smith v Land and House Property Corp (1884) 28 Ch D 7

6 Redgrave v Hurd (1881) 20 Ch D 1

7 Gran Gelato Ltd v Richclif (Group) Ltd [1992] Ch 560

8 Esso Petroleum v Mardon [1976] QB 801

9 Edgington v Fitzmaurice (1885) 29 Ch D 459

10 Ken Handley, 'Causation in Misrepresentation' (Westlaw UK, 2015)


<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fb96963ad0f007bd&docguid=I90117560C81111E4A0E9E7C
45C1190E1&hitguid=I90117560C81111E4A0E9E7C45C1190E1&rank=9&spos=9&epos=
9&td=45&crumb-action=append&context=28&resolvein=true> accessed 1 February
2017
As Jessel MR in Matthias v Yetts11 said: if a man has a material misstatement
made to him which may, from its nature, induce him to enter into the contract, it
is an inference that he is induced to enter into the contract by it. You need not
prove it affirmatively.12 These words coincide with the principle of caveat
venditor, which cautions that the seller is responsible for any problem that the
buyer might encounter with a service or product. The statement as to the plans
of the council would be a misrepresentation, as it would induce a reasonable
person to enter the contract, being that Aquafun would probably not want to
open a new business adjacent to a sewage treatment plant. The fact that
Aquafun had expressed anxiety at the thought of the Council having plans for the
adjoining land shows that this was an important factor that had induced them
into enter the contract. Aquafun would not be precluded from claiming
misrepresentation merely because they relied on other factors as well the false
statement.13 Indeed, Chen-Wishart states that the standard of causation
required is low and easily satisfied It need only be one of his or her reasons
for entering into the contract, it need not be the but for reason, let alone the,
the predominant, or the sole reason for his or her agreement. 14 It does not
matter then if Waterplanets statement was the sole inducement or not, as long
as it factored into the inducement, which seems apparent. Thus, there is an
action for misrepresentation.

What Type of Misrepresentation It Is?


Through careful examination of all the relevant facts related to the
misrepresentation made by Waterplanet, it becomes obvious that the type of
misrepresentation that Waterplanet is liable for under this statement is
fraudulent misrepresentation - not wholly innocent misrepresentation or
negligent. To illustrate how I came to this conclusion, I shall begin by explaining
why it is not innocent misrepresentation, then why it is not negligent

11 Matthias v Yetts (1882) 46 L.T. 497, CA, at 502

12 John Cartwright, Misrepresentation, mistake and non-disclosure (3rd edn,


Sweet & Maxwell 2006) 94

13 Edgington v Fitzmaurice (1885) 29 Ch D 459

14 Mindy Chen-Wishart, Contract Law (Oxford University Press 2015) 221


misrepresentation, and finally end by proving it is in fact fraudulent
misrepresentation.

Innocent misrepresentation can be effectively ruled out of this list. Section 2(1) 15
of the Misrepresentation Act 1967 states that a person shall be so liable
notwithstanding that the misrepresentation was not made fraudulently, unless he
proves that he had reasonable ground to believe and did believe up to the time
the contract was made the facts represented were true. The statutory definition
tells us that an innocent misrepresentation only exists where the representor can
demonstrate reasonable grounds for belief in the truth of the statement. Thus,
because it is expressly stated that Waterplanet knew at the time that the Council
did have plans for the adjoining property, innocent misrepresentation cannot be
utilised.

Moving on from innocent misrepresentation, for negligent misrepresentation to


be successful at common law it depends upon proof of a special relationship
existing between the parties. Such a duty can arise in a purely commercial
relationship where the representor has, or purports to have, some special skill or
knowledge and knows (or it is reasonable for him to assume) that the
representee will rely on the representation 16. For it to be negligent
misrepresentation under statute, it must comply with Section 2(1) of the
Misrepresentation Act 1967. Waterplanets misrepresentation would not fall under
either the common law or statutory negligence as there was no reasonable
grounds for the belief in the statement.

It is now clear then that the type of misrepresentation that Waterplanet would be
liable for in this case is fraudulent misrepresentation. Fraudulent
misrepresentation was defined by Lord Herschell in Derry v Peek17 as a false
statement that is "made (i) knowingly, or (ii) without belief in its truth, or (iii)
recklessly, careless as to whether it be true or false." When applying the
definition of fraudulent misrepresentation provided by Lord Herschell to the facts

15 Misrepresentation Act 1967, s.2 (1)

16 Esso Petroleum v Mardon [1976] & Williams v Natural Life Health Foods (1998)
TheTimes, May 1

17 Derry v Peek (1889) 14 App Cas 337.


of the case involving Waterplanet and Aquafun, it can be seen that this definition
fits perfectly with the facts. The first part of the definition, that it is made (i)
knowingly, is satisfied due to the fact that Waterplanet was fully aware of its
untruthfulness. The second part of the definition again coincides with the facts of
the case, as Waterplanet clearly had no belief in the statements truth and only
said it to induce Aquafun. Finally, through the conduct of Waterplanet it can be
said that they indeed acted recklessly. By recklessly it means that a person
acted carelessly as to whether it be true or false. Therefore, it can be concluded
that the type of misrepresentation that Waterplanet is liable under is fraudulent
misrepresentation.

Remedies
The immediate advantages of relying on fraudulent misrepresentation are that
Aquafun can recover all the directly flowing losses and it is also impossible to
exclude or limit liability; however, the burden of proof rests with the claimant,
thus making it more difficult to prove. The remedies for fraudulent
misrepresentation are rescission and damages in the tort of deceit 18. Rescission
may be defined as being the unmaking of a contract between the parties, which
aims to put them in a position as if the contract had never been made in the first
place and effectively sets aside the contract. It is possible for rescission to be
void if it is not possible to restore both parties to their original, pre-contractual
positions; or if such a step would upset the rights acquired by a third-party under
the contract. However, the right to exercise rescission is completely available to
Aquafun in this case.

The tort of deceit provides a civil remedy for an individual who has relied on a
false representation to their detriment. For there to be relief provided by the tort
of deceit it is important for the individual knows it to be false or was reckless as
to the truth of the statement, there is an intention to deceive and it is acted upon
and loss is suffered consequently. Since all these requirements are satisfied in
this case, Aquafun will likely be able to claim damages.
18 Jill Poole and James Devenney, 'Reforming Damages for Misrepresentation: The Case
for Coherent Aims and Principles' (Westlaw UK, 2007)
<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fb96963ad0f007bd&docguid=I42561390DF1B11DB929F9C
45DFCF9B17&hitguid=I42561390DF1B11DB929F9C45DFCF9B17&rank=5&spos=5&epos
=5&td=45&crumb-action=append&context=28&resolvein=true> accessed 1 February
2017
Liability of Waterplanet for the Rusted Waterpipes
The second issue which needs to be investigated in this question is the rusted
waterpipes. The main questions that arise from this issue include whether
Waterplanet was under a duty to inform Aquafun about the rusted waterpipes.

Was Waterplanet Under a Duty to Inform Aquafun about the Rusted Waterpipes?
The general rule is that silence cannot constitute a misrepresentation. 19 The
effect of the maxim caveat emptor is that it is the buyer alone that is responsible
for checking the quality and suitability of goods before a purchase is made, and
thus the seller is normally not under any duty to disclose any other information
to the buyer. The only exceptions to the general rules are statements of half-
truths, statements which become false and contracts uberrimea fidei, which
translates to mean contracts of the utmost good faith. However, none of these
exceptions apply to this case. The general rule of silence not constituting a
misrepresentation is established in the case of Smiths v Hughes 20, in which the
defendant was aware that there was a mistake with an order for old oats but said
nothing. Similarly, Waterplanet cannot be liable for silence by virtue of Smith v
Hughes21 as the principle laid down by this case was that you cannot have
silence as a misrepresentation; and since Waterplanet never mentioned anything
in regards to the quality of the property, there is no misrepresentation regarding
this issue.

Liability of the Private Inspector (PI)


The final issue that needs to be addressed is whether the Private Inspector is
liable for anything. This is because he failed to inform Aquafun of the problems
with the rusted waterpipes. To do this, it is necessary to distinguish as to whether
the Private Inspector is liable for misrepresentation or breach of contract.

Is the Private Inspector Liable for Misrepresentation?


Per the definition of misrepresentation, to be considered misrepresentation the
false statement must occur before the contract is made, not afterwards. Thus,

19 Smith v Hughes (1871) LR 6 QB 597

20 Smith v Hughes (1871) LR 6 QB 597

21 Smith v Hughes (1871) LR 6 QB 597


although prima facie it seems as if the inspector would be liable for
misrepresentation, this is not the case as he tells Aquafun that there are no
problems with the property after the contract has been made, and therefore the
Private Inspector would be liable for breach of contract, not misrepresentation. 22
A breach of contract may occur when a party does not perform an obligation it
may happen when the party does not perform on time, does not perform in
accordance with the terms of the contract or does not perform whatsoever.
Although it does not expressly say when the contract between Aquafun and the
Private Inspector has been made, since the inspector had performed his duties it
can be reasonably assumed that the contract had been created between the two
parties at the time in which he declares that there is nothing wrong with the
property. Moreover, due to the commercial relationship between both parties, the
courts would reasonably assume that there was an intention to create legal
relations23, due to the conduct of the inspector, in performing his duties, and the
purely business relationship. Therefore, misrepresentation is not relevant
because the statement was made after the contract was entered and therefore
there was no inducing factor.

Is the Private Inspector Liable for Breach of Contract?


A breach of contract is defined as when a party without lawful excuse fails or
refuses to perform what is due from him under the contract, or performs
defectively or incapacitates himself from performing. 24 On the assumption that
the contract is written, which employment contracts usually are, it is relatively
ambiguous whether the contract between Aquafun and the Private Inspector
stipulates that the Private Inspector must take reasonable care and skill when
carrying out his duties to inspect, but this can be implied. Where parties have
failed to provide for specific events, as the Private Inspector has done here, there

22 Ed Weidman, 'Can a Contract Term be Actionable as a Pre-Contractual


Misrepresentation?' (Westlaw UK, 2015)
<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fba881989e656da1&docguid=I2C35EAB0102A11E5
AD4AE24CFD3BB17D&hitguid=I2C35EAB0102A11E5AD4AE24CFD3BB17D&rank
=13&spos=13&epos=13&td=35&crumb-
action=append&context=32&resolvein=true> accessed 1 February 2017

23 Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR, Edwards


v Skyways Ltd [1964] 1 WLR 349

24 G.H. Treitel, The Law of Contract (14th edn, Sweet & Maxwell, 2015)
are two tests of necessity that can be applied to determine whether there is an
implied term in the contract: the officious bystander test 25 or the business
efficacy test26. The business efficacy test was established in The Moorcock.27 The
principle provides that without the implied term, the contract would not be
workable. Moreover, the courts may also apply the officious bystander test,
which was established in Shirlaw v Southern Foundaries28, and is applied by
asking whether the implied term was so obvious a stipulation in the contract that
it goes without saying, as said by Lord Right in in the case of Luxor29. This can
be applied to the given scenario as it goes without saying that it is necessary
for the Private Inspector to carefully inspect the property. Applying the officious
bystander test, a bystander would say that it is necessary for the PI to thoroughly
check the property to make the contract workable. When evaluating the
property, an officious bystander would believe this requirement be obvious. It
can be deduced from the facts of the case that the Private Inspector did not use
the necessary reasonable care and skill that is the sole purpose of his
occupation, that being for him to find what the average person would not.

In order to determine what remedies are available to Aquafun, it must first be


found what category of term this would be. In this case, there is a clear breach of
condition rather than a breach of warranty. A condition is a major term of the
contract that goes to the very root of the purpose of the contract. 30 Here, the
thorough inspection would clearly constitute a major term as this is the reason
Aquafun employed the PI in the first place, and thus is not simply a warranty.
Clearly, there is a breach of the implied condition as this condition has not been
fulfilled and rusted waterpipes have only been found once the City Building
Inspector arrives. The fact that the City Building Inspector found the pipes, whilst

25 Shirlaw v Southern Foundries [1939] 2 KB 206

26 The Moorcock (1889) 14 PD 64

27 The Moorcock (1889) 14 PD 64

28 Shirlaw v Southern Foundries [1939] 2 KB 206

29 Luxor (Eastbourne) v Cooper [1941] A.C. 10

30 Poussard v Spiers (1876) 1 QBD 410


the PI did not may strengthen Aquafuns case because it suggests the PI acted
negligently, rather than a simple accident.

Remedies for Breach of Contract


The remedies available for breach of condition are the right to terminate the
contract and a claim for damages. Clearly, the contract has ended here because
the contract has been fulfilled - albeit not to the required standard - but the
contract has officially ended at this point. Therefore, the only option available to
Aquafun is to claim for damages.

Conclusion
To summarise, the claimant, Aquafun, may wish to pursue two different actions
against the two different parties. Firstly, Aquafun will be able to bring a
successful claim against Waterplanet for fraudulent misrepresentation and the
remedies available to Aquafun will allow them to claim damages and rescind the
contract; although they would not be able to bring an action against them for not
informing Aquafun of the issues with the water pipes, as silence in this case does
not constitute a misrepresentation. Secondly, they will be able to bring an action
against the Private Inspector for breach of condition, even though the remedies
are limited, in that it would be pointless to ask for specific performance or
rescission, due to the fact the contract has ended.
Bibliography
Table of Cases
Bisset v Wilkinson [1927] AC 177
Derry v Peek (1889) 14 App Cas 337
Edgington v Fitzmaurice (1885) 29 Ch D 459
Edwards v Skyways Ltd [1964] 1 WLR 349
Esso Petroleum v Commissioners of Customs & Excise [1976] 1 WLR
Esso Petroleum v Mardon [1976] QB 801
Gran Gelato Ltd v Richclif (Group) Ltd [1992] Ch 560
Luxor (Eastbourne) v Cooper [1941] A.C. 10
Matthias v Yetts (1882) 46 L.T. 497, CA, at 502
Poussard v Spiers (1876) 1 QBD 410
Redgrave v Hurd (1881) 20 Ch D 1
Shirlaw v Southern Foundries [1939] 2 KB 206
Smith v Land and House Property Corp (1884) 28 Ch D 7
The Moorcock (1889) 14 PD 64
Walters v Morgan (1861) 3 DF & J 718

Table of Legislation
Misrepresentation Act 1967, s.2 (1), s.2(2)

Table of Journal Articles


Handley K, 'Causation in Misrepresentation' (Westlaw UK, 2015)
<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fb96963ad0f007bd&docguid=I90117560C81111E4
A0E9E7C45C1190E1&hitguid=I90117560C81111E4A0E9E7C45C1190E1&rank=9
&spos=9&epos=9&td=45&crumb-action=append&context=28&resolvein=true>
accessed 1 February 2017

Poole J and Devenney J, 'Reforming Damages for Misrepresentation: The Case for
Coherent Aims and Principles' (Westlaw UK, 2007)
<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fb96963ad0f007bd&docguid=I42561390DF1B11DB
929F9C45DFCF9B17&hitguid=I42561390DF1B11DB929F9C45DFCF9B17&rank=5
&spos=5&epos=5&td=45&crumb-action=append&context=28&resolvein=true>
accessed 1 February 2017

Weidman E, 'Can a Contract Term be Actionable as a Pre-Contractual


Misrepresentation?' (Westlaw UK, 2015)
<http://login.westlaw.co.uk/maf/wluk/app/document?
&srguid=i0ad832f100000159fba881989e656da1&docguid=I2C35EAB0102A11E5
AD4AE24CFD3BB17D&hitguid=I2C35EAB0102A11E5AD4AE24CFD3BB17D&rank
=13&spos=13&epos=13&td=35&crumb-
action=append&context=32&resolvein=true> accessed 1 February 2017

Table of Textbooks
Anson WRS, Anson SWR, and G.. A, Ansons law of contract (30th edn, Oxford
University Press 2016)
Cartwright J, Misrepresentation, mistake and non-disclosure (3rd edn, Sweet &
Maxwell 2006)
Chen-Wishart M, Contract Law (Oxford University Press 2015)
Poole J, Textbook on Contract Law (13th edn, Oxford University Press 2016)
Treitel G.H., The Law of Contract (14th edn, Sweet & Maxwell, 2015)