Misrepresentation PDF

## Misrepresentation ### Key term: Misrepresentation A misrepresentation is an unambiguous, false statement of fact (or law) addressed to the representee that induces the representee to enter into the contract. ### The statement must be material A statement is material if it would affect the j...

## Misrepresentation ### Key term: Misrepresentation A misrepresentation is an unambiguous, false statement of fact (or law) addressed to the representee that induces the representee to enter into the contract. ### The statement must be material A statement is material if it would affect the judgment of a reasonable person in deciding whether or not to enter into the contract, or one that would induce him to enter into the contract without making such enquiries as he would otherwise make. For example, in a scenario in which a person is willing to sell a secret recipe to a person who is not a competitor, a statement from the purchaser that he is not a competitor is material. ### The representee must be aware of the statement A person needs to be aware of a misrepresentation before or at the time of contracting. In situations where a statement is made to the representee before the time of contracting, or a person inspects a damaged item that has been made to look perfect, it is easy to prove that the person was aware of the statement. But what about scenarios in which a person buys a damaged item that has been changed to look undamaged without inspecting it? If a person buys a damaged vase that has been made to look perfect without inspecting it, then the buyer cannot be aware of the representor's statement. This is an important point because it means that a person cannot rescind a contract on the grounds of misrepresentation if he discovers the misrepresentation after he has concluded the contract. ### The representor must intend the representee to act on the statement A person cannot bring a claim for misrepresentation unless he can show that the representor intended the person to act on the statement. For example, in a discussion between a seller of a car and a prospective buyer in a car showroom, a statement by the seller to the prospective buyer that the car is in good condition is not intended for a person who has just popped in from the street to use the toilet in the car showroom and hears the statement on his way back outside. ### The statement must induce the representee to enter into the contract Once you have satisfied the first three steps (described previously), you must prove that the statement induced the representee to enter into the contract . To prove this, the representee must satisfy the four conditions below: * The statement must be material. * The representee must be aware of the statement. * The representor must intend the representee to act on the statement. * The representee must act on the statement. ### The categories of misrepresentation and their remedies Once you determine that a statement is a misrepresentation, you need to identify its category of misrepresentation. This is important because the category of misrepresentation informs the damages that can be recovered. ### Fraudulent misrepresentation The representee must establish that the representor: * knew that the statement was false, * did not believe the statement was true, or * was reckless, not caring whether the statement was true or false. ### Remedies for fraudulent misrepresentation You are required to know the two remedies that are available to a claimant who successfully proves fraudulent misrepresentation, namely: * rescission, and * damages. ### Damages for fraudulent misrepresentation Damages for fraudulent misrepresentation cover all direct loss that flows from the transaction that was induced by the statement, regardless of whether it was foreseeable. The aim of damages for fraudulent misrepresentation is to put the representee in the position he would have been in if the contract had not been made. So if a person buys a vase on the basis of a fraudulent misrepresentation that it is Ming dynasty, whereas in reality, it is from IKEA, the representee can recover damages to reflect the difference between the amount he paid and the value of the vase he acquired. ### Negligent misrepresentation There are two categories of negligent misrepresentation, but in both cases, the representor is honest and believes his statement to be true. The misrepresentation arises because the representor has not exercised reasonable care and skill in making the statement. In other words, the representor has been careless. ### Remedies for negligent misrepresentation It is important to know that there are two different grounds on which to bring claims for negligent misrepresentation: * at common law in tort, and * under statute by the Misrepresentation Act 1967. ### Negligent misrepresentation at common law To bring a claim for negligent misrepresentation at common law, the representee must prove that there is a special relationship between the representor and the representee. This special relationship gives rise to a duty of care owed by the representor to the representee. This is important because it allows a representee to claim against a person who is not party to a contract with the representee, provided the representee can prove that the representor owed him a duty of care and that he breached the duty of care. ### Remedies for negligent misrepresentation at common law You are required to know the two remedies that are available to a claimant who successfully proves negligent misrepresentation, namely: * rescission, and * damages. ### Damages for negligent misrepresentation at common law Damages for negligent misrepresentation at common law are more limited than damages for fraudulent misrepresentation. Damages for negligent misrepresentation cover all direct loss that flows from the transaction that was induced by the statement, provided it was reasonably foreseeable. The aim of damages for negligent misrepresentation is to put the representee in the position he would have been in if the contract had not been made. ### Negligent misrepresentation under the Misrepresentation Act 1967 A key distinction between a claim for negligent misrepresentation under the Misrepresentation Act 1967 and at common law is that the claim under statute does not require a special relationship and duty of care. Once the statement is shown to be false, the representor must prove that he had reasonable grounds to make the statement and that he believed that the statement was true up to the time the contract was concluded. ### Remedies for negligent misrepresentation under the Misrepresentation Act 1967 You are required to know the two remedies that are available to a claimant who successfully proves negligent misrepresentation, namely: * rescission, and * damages. ### Damages under the Misrepresentation Act 1967 for misrepresentation Damages under the Misrepresentation Act 1967 for misrepresentation cover all direct loss that flows from the transaction that was induced by the statement. ### Innocent misrepresentation A representee may be able to claim for a misrepresentation for a statement that was not made fraudulently or negligently. This is an important ground because a representor can be liable for a statement that he had reasonable grounds to make. In other words, a representor can be liable for a statement where he has not been careless. ### Remedies for innocent misrepresentation You are required to know the remedies that are available to a claimant who successfully proves innocent misrepresentation, namely: * rescission. ### Key term: Rescission Setting the contract aside with the aim of putting the parties back in the position they were in before the contract was made. * There is no automatic right for damages, but the court may exercise its discretion under section 2(2) of the Misrepresentation Act 1967 to award damages instead of rescission. The court will exercise this discretion if it considers it to be equitable having regard to the circumstances as a whole. In contrast to the other types of damages referred to previously, the representee of an innocent misrepresentation can only have one remedy. ### Revision tip Remember that the different types of misrepresentation start with the most serious (fraudulent misrepresentation). The remedies for the representee reflect this scale of seriousness, with the most limited remedy available for an innocent misrepresentation. Now work through Practice example 7.8 to check your understanding of the circumstances in which a court will exercise its discretion to award damages in lieu of rescission as a remedy for innocent misrepresentation. ## The different types of misrepresentation are shown in Figure 7.2. | Category | |---|---| | At Common Law | Fraudulent Misrepresentation | Negligent Misrepresentation | Innocent Misrepresentation | | Under the Misrepresentation Act 1967 | Fraudulent Misrepresentation | Negligent Misrepresentation | Innocent Misrepresentation | _Figure 7.2: The categories of misrepresentation_ We will consider each category of misrepresentation and its remedies in turn. ### Key point checklist This chapter has covered the following key knowledge points. You can use these to structure your revision around, making sure to recall the key details for each point, as covered in this chapter. * Misrepresentation is an unambiguous, false statement of fact (or law) addressed to the representee that induces the representee to enter into the contract. * Remember that the statement must be a false statement. Note that a statement that is true when it is made can become a misrepresentation if it becomes false before the contract is concluded. * A statement can be conveyed by words or conduct. * Remember that if the representor fails to tell the whole story, this may amount to a misrepresentation. * The general rule is that a statement of opinion or intention cannot be a misrepresentation, but note the exceptions. * Remember that the misrepresentation must induce the representee to form the contract. Note that four tests must be satisfied to prove inducement. * It is essential to know the different categories of misrepresentation and what must be shown to prove each category. * It is essential to know the different remedies for each category of misrepresentation. ### Revision tip It will help your revision to understand that the driver behind this condition is to narrow the number of persons who can bring a claim for misrepresentation. So, for example, if an SQE1 assessment question tells you that Party A makes a representation to Party B in respect of a sale, and that Party Y (who is hiding in a cupboard) overhears the statement by chance, acts on it and seeks to claim for misrepresentation, Party Y's claim will fail because Party A (being unaware of Party Y's presence) could not have intended Party Y to act on his statement. The law quite rightly limits the ability of persons who can bring a claim to those for whom the statement was intended. ### The representee must act on the statement in question There must be a link between the statement and the action of the representee. The starting point is to ask whether the representee would have acted as he did if the statement had not been made. If it is clear that the representee would not have acted as he did, but for the statement, then the test is satisfied. ### Did the statement materially contribute to the act? It is essential to note that even if the statement was not the sole reason for the representee's act, he may still be able to bring a claim for misrepresentation. To do this, the representee needs to prove that the statement made a material contribution to (or played a real and substantial part in) the representee's decision. ### Causation is presumed if the statement is fraudulent and material If the misrepresentation is fraudulent and material, the burden of proof lies with the representor. So to avoid liability for misrepresentation, the representor must prove that the representee would have acted as he did but for the statement. ### What if the representee makes his own investigations? In practice, parties often conduct their own due diligence before entering into a contract. If a representee makes investigations to verify the statement, this can undermine the argument that he acted on the statement. For example, in Attwood v Small 7 ER 684, a mine owner made false statements to a prospective buyer about the capabilities of a mine that he was selling. The prospective buyer hired agents to verify ### Practice example 7.7 Ezinne offers shares in her company to the public, stating that the company intends to raise money to grow its business. In actual fact, Ezinne's business has liquidity problems and Ezinne intends to use the funds raised from the share sale to pay off existing liabilities. Is Ezinne's statement of intention a misrepresentation? The answer is yes. This is based on the case of Edgington v Fitzmaurice (1885) LR 29 Ch D 459 CA. In scenarios where a person states that he has an intention that in fact he does not have, the law treats such false statements of present intention as a misrepresentation. ### Exam warning Look carefully for words in statements that indicate the representor's belief or intention. These words lead you to the assumption that the statement is an opinion or belief, which, as a general rule, is not a misrepresentation. The next step is to test your assumption by checking whether the scenario indicates that the representor is in a better position to know the underlying facts than the representee or is falsely stating an intention that he does not have. The superior knowledge of the representor, or the false statement of intention, will displace the assumption that the statement of opinion or belief is not a misrepresentation. ### The statement must induce the representee to enter into the contract Once you have satisfied the first three steps (described previously), you must prove that the statement induced the representee to enter into the contract. To prove this, the representee must satisfy the four conditions below: * The statement must be material, * The representee must be aware of the statement, * The representor must intend the representee to act on the statement, and * The representee must act on the statement. ### Practice example 7.4 Benazir decides to sell her property portfolio. Benazir's sales documentation refers to an office block as 'let to the Prudential Insurance Company for £800,000 per annum'. Eskander buys Benazir's property portfolio and is shocked to find that Benazir had been notified that the Prudential Insurance Company had given notice to end its rental of the office block before she prepared the sales documentation. Has Benazir made a misrepresentation? The answer is yes. This scenario is based on Dimmock v Hallett (1866-67) LR 2 Ch App 21. The court held that the seller's statement led the purchaser to believe that he was buying a property with a continuing tenancy. Whereas, in reality, the purchaser had to find new tenants soon after completing his purchase. It was this failure to present the full picture to the representee that amounted to a misrepresentation. ### Exam warning Watch out for scenarios where one party to a contract knows more than the other, but fails to disclose the full story, or behaves in a way that does not disclose the full story. ### Statements of fact or law The general position is that a misrepresentation must be a statement of fact or law, and not of opinion, belief or intention. ### Statements of opinion or belief Remember the general rule that a misrepresentation must be a statement of fact or law. This means that false statements of opinion or belief are not misrepresentations, provided the representor is not in a better position to know the facts than the representee. ### Practice example 7.5 Jacqui decides to sell a piece of agricultural land. She is in discussions with Shaun, a prospective buyer. Shaun is interested in buying the land to farm sheep on it so he asks Jacqui how many sheep the land could support. Shaun is aware that the land has never been used to farm sheep. Jacqui tells Shaun that if she worked the land, she thought it could support 2,000 sheep. Shaun buys the land, but then discovers that it cannot support 2,000 sheep. Can Shaun claim against Jacqui for misrepresentation? The answer is no. This scenario is based on Bisset v Wilkinson [1927] AC 177 PC (NZ). The court held that such a statement was not a misrepresentation. This was because the buyer was aware that the land had not been used as a sheep farm, so the representor was not in a better position to know the facts than the representee (the buyer). This meant that the representor's statement could only be a statement of opinion. ### Statements of opinion or belief where the representor knows the facts There is an exception to the general rule that a statement of opinion is not a misrepresentation. This exception applies to a statement of opinion by a representor who is in a better position to know the facts than the representee. This is because such opinions imply that the representor knows the facts that justify his opinion. Let us explore how this might arise by working through Practice example 7.6. ### Practice example 7.6 A hotel chain wishes to sell one of its hotels. In its sales documentation it describes a long-term tenant in the hotel as a 'most desirable tenant'. Hamid reads the sales documentation and buys the hotel. Hamid soon finds out that the tenant was behind with her rent when the sales documentation was written. Can Hamid claim against the hotel chain for misrepresentation? The answer is yes. This scenario is based on Smith v Land & House Property Corporation (1884) LR 28 Ch D 7 CA. The court held that in cases where the representor knows the facts best, his statement of opinion involves a material statement of fact. ### Statements of intention As with statements of opinion, statements of intention do not generally amount to misrepresentations. But beware that if a person fraudulently claims to have an intention that he does not have, the law interprets this as a false statement of fact and therefore a misrepresentation. ### Practice example 7.2 Kwasi wants to sell his medical practice and talks to Matt who is interested in buying it. Kwasi tells Matt that the medical practice generates income of around £50,000 per annum. This statement is true at the time Kwasi makes it. But after Kwasi makes the statement, he loses interest in his practice and the income of the medical practice falls. By the time Matt buys Kwasi's business a few months after their discussions, the annual income of Kwasi's medical practice has fallen to £20,000 per annum. Is Kwasi's statement to Matt that the medical practice generated £50,000 per annum a misrepresentation? The answer is yes. This example is based on the scenario in With v O'Flanagan [1936] Ch 575 CA. The court held that the representee was entitled to believe the statement about the income of the medical practice until he bought it. Clearly, the seller's statement was correct when he made it. But the statement became incorrect before the sale. The court held that the seller was under a duty to correct the statement that had become untrue before the sale took place. The seller's failure to correct the statement that had become incorrect meant that it was a misrepresentation. ### Statement The requirement for a statement covers words communicated to the representee. But a misrepresentation can also be made by: * a person's conduct or behaviour, or * by a person's statement that fails to disclose all the relevant facts. ### Conduct A statement can be conduct that conveys a false impression. Practice example 7.3 provides a useful example of conduct conveying a false impression. ### Practice example 7.3 Elizabeth is planning to sell her flat, but she is worried about the fact that it will be difficult to sell as one of the walls shows signs of dry rot. So Elizabeth paints over the wall to hide the dry rot. Eryl, a prospective buyer, visits the flat and decides to buy it. After a few months, Eryl discovers that the flat has dry rot. Does Eryl have a remedy against Elizabeth? The answer is yes. This scenario is based on the case of Gordon v Selico (1986) 18 HLR 219. The court held that painting to hide the dry rot was a misrepresentation that there was no dry rot. ### Failure to disclose all the relevant facts Generally, there is no rule of disclosure under English law. This means that where two parties are planning to enter into a contract, neither party is under an obligation to disclose to the other all relevant facts that he knows. But note that this rule is subject to exceptions, including: * change of circumstances (see Practice example 7.2), and * not the whole truth. ### Not the whole truth A statement that is misleading because it fails to disclose all the material facts can be a misrepresentation. Such statements might describe what appears to be factually true at the time they are made, but because they do not include all of the relevant facts, they communicate a false message to the representee. For example, imagine a client instructs a solicitor to act for him in the purchase of a land plot. When the client asks the solicitor to confirm if there are any restrictions on the land plot, the solicitor, who has not read the legal documents, responds that he is not aware of any restrictions. The solicitor's statement is a misrepresentation. Although it is technically true for the solicitor to say that he is not aware of any restrictions, his statement is misleading. This is because he has left out the important information that he is not aware of any restrictions because he has not read the relevant documents. ### Practice example 7.4 Kwasi wants to sell his medical practice and talks to Matt who is interested in buying it. Kwasi tells Matt that the medical practice generates income of around £50,000 per annum. This statement is true at the time Kwasi makes it. But after Kwasi makes the statement, he loses interest in his practice and the income of the medical practice falls. By the time Matt buys Kwasi's business a few months after their discussions, the annual income of Kwasi's medical practice has fallen to £20,000 per annum. Is Kwasi's statement to Matt that the medical practice generated £50,000 per annum a misrepresentation? The answer is yes. This example is based on the scenario in With v O'Flanagan [1936] Ch 575 CA. The court held that the representee was entitled to believe the statement about the income of the medical practice until he bought it. Clearly, the seller's statement was correct when he made it. But the statement became incorrect before the sale. The court held that the seller was under a duty to correct the statement that had become untrue before the sale took place. The seller's failure to correct the statement that had become incorrect meant that it was a misrepresentation. ### Revision tip It will help your revision to understand that the driver behind this condition is to narrow the number of persons who can bring a claim for misrepresentation. So, for example, if an SQE1 assessment question tells you that Party A makes a representation to Party B in respect of a sale, and that Party Y (who is hiding in a cupboard) overhears the statement by chance, acts on it and seeks to claim for misrepresentation, Party Y's claim will fail because Party A (being unaware of Party Y's presence) could not have intended Party Y to act on his statement. The law quite rightly limits the ability of persons who can bring a claim to those for whom the statement was intended. ### Revision tip It will help your revision to understand that the driver behind this condition is to narrow the number of persons who can bring a claim for misrepresentation. So, for example, if an SQE1 assessment question tells you that Party A makes a representation to Party B in respect of a sale, and that Party Y (who is hiding in a cupboard) overhears the statement by chance, acts on it and seeks to claim for misrepresentation, Party Y's claim will fail because Party A (being unaware of Party Y's presence) could not have intended Party Y to act on his statement. The law quite rightly limits the ability of persons who can bring a claim to those for whom the statement was intended. ### The representee must act on the statement in question There must be a link between the statement and the action of the representee. The starting point is to ask whether the representee would have acted as he did if the statement had not been made. If it is clear that the representee would not have acted as he did, but for the statement, then the test is satisfied. ### Did the statement materially contribute to the act? It is essential to note that even if the statement was not the sole reason for the representee's act, he may still be able to bring a claim for misrepresentation. To do this, the representee needs to prove that the statement made a material contribution to (or played a real and substantial part in) the representee's decision. ### Causation is presumed if the statement is fraudulent and material If the misrepresentation is fraudulent and material, the burden of proof lies with the representor. So to avoid liability for misrepresentation, the representor must prove that the representee would have acted as he did but for the statement. ### What if the representee makes his own investigations? In practice, parties often conduct their own due diligence before entering into a contract. If a representee makes investigations to verify the statement, this can undermine the argument that he acted on the statement. For example, in Attwood v Small 7 ER 684, a mine owner made false statements to a prospective buyer about the capabilities of a mine that he was selling. The prospective buyer hired agents to verify ### Practice example 7.7 Ezinne offers shares in her company to the public, stating that the company intends to raise money to grow its business. In actual fact, Ezinne's business has liquidity problems and Ezinne intends to use the funds raised from the share sale to pay off existing liabilities. Is Ezinne's statement of intention a misrepresentation? The answer is yes. This is based on the case of Edgington v Fitzmaurice (1885) LR 29 Ch D 459 CA. In scenarios where a person states that he has an intention that in fact he does not have, the law treats such false statements of present intention as a misrepresentation. ### Exam warning Look carefully for words in statements that indicate the representor's belief or intention. These words lead you to the assumption that the statement is an opinion or belief, which, as a general rule, is not a misrepresentation. The next step is to test your assumption by checking whether the scenario indicates that the representor is in a better position to know the underlying facts than the representee or is falsely stating an intention that he does not have. The superior knowledge of the representor, or the false statement of intention, will displace the assumption that the statement of opinion or belief is not a misrepresentation. ### The statement must induce the representee to enter into the contract Once you have satisfied the first three steps (described previously), you must prove that the statement induced the representee to enter into the contract. To prove this, the representee must satisfy the four conditions below: * The statement must be material, * The representee must be aware of the statement, * The representor must intend the representee to act on the statement, and * The representee must act on the statement. ### Practice example 7.4 Benazir decides to sell her property portfolio. Benazir's sales documentation refers to an office block as 'let to the Prudential Insurance Company for £800,000 per annum'. Eskander buys Benazir's property portfolio and is shocked to find that Benazir had been notified that the Prudential Insurance Company had given notice to end its rental of the office block before she prepared the sales documentation. Has Benazir made a misrepresentation? The answer is yes. This scenario is based on Dimmock v Hallett (1866-67) LR 2 Ch App 21. The court held that the seller's statement led the purchaser to believe that he was buying a property with a continuing tenancy. Whereas, in reality, the purchaser had to find new tenants soon after completing his purchase. It was this failure to present the full picture to the representee that amounted to a misrepresentation. ### Exam warning Watch out for scenarios where one party to a contract knows more than the other, but fails to disclose the full story, or behaves in a way that does not disclose the full story. ### Statements of fact or law The general position is that a misrepresentation must be a statement of fact or law, and not of opinion, belief or intention. ### Statements of opinion or belief Remember the general rule that a misrepresentation must be a statement of fact or law. This means that false statements of opinion or belief are not misrepresentations, provided the representor is not in a better position to know the facts than the representee. ### Practice example 7.5 Jacqui decides to sell a piece of agricultural land. She is in discussions with Shaun, a prospective buyer. Shaun is interested in buying the land to farm sheep on it so he asks Jacqui how many sheep the land could support. Shaun is aware that the land has never been used to farm sheep. Jacqui tells Shaun that if she worked the land, she thought it could support 2,000 sheep. Shaun buys the land, but then discovers that it cannot support 2,000 sheep. Can Shaun claim against Jacqui for misrepresentation? The answer is no. This scenario is based on Bisset v Wilkinson [1927] AC 177 PC (NZ). The court held that such a statement was not a misrepresentation. This was because the buyer was aware that the land had not been used as a sheep farm, so the representor was not in a better position to know the facts than the representee (the buyer). This meant that the representor's statement could only be a statement of opinion. ### Statements of opinion or belief where the representor knows the facts There is an exception to the general rule that a statement of opinion is not a misrepresentation. This exception applies to a statement of opinion by a representor who is in a better position to know the facts than the representee. This is because such opinions imply that the representor knows the facts that justify his opinion. Let us explore how this might arise by working through Practice example 7.6. ### Practice example 7.6 A hotel chain wishes to sell one of its hotels. In its sales documentation it describes a long-term tenant in the hotel as a 'most desirable tenant'. Hamid reads the sales documentation and buys the hotel. Hamid soon finds out that the tenant was behind with her rent when the sales documentation was written. Can Hamid claim against the hotel chain for misrepresentation? The answer is yes. This scenario is based on Smith v Land & House Property Corporation (1884) LR 28 Ch D 7 CA. The court held that in cases where the representor knows the facts best, his statement of opinion involves a material statement of fact. ### Statements of intention As with statements of opinion, statements of intention do not generally amount to misrepresentations. But beware that if a person fraudulently claims to have an intention that he does not have, the law interprets this as a false statement of fact and therefore a misrepresentation. ### Practice example 7.2 Kwasi wants to sell his medical practice and talks to Matt who is interested in buying it. Kwasi tells Matt that the medical practice generates income of around £50,000 per annum. This statement is true at the time Kwasi makes it. But after Kwasi makes the statement, he loses interest in his practice and the income of the medical practice falls. By the time Matt buys Kwasi's business a few months after their discussions, the annual income of Kwasi's medical practice has fallen to £20,000 per annum. Is Kwasi's statement to Matt that the medical practice generated £50,000 per annum a misrepresentation? The answer is yes. This example is based on the scenario in With v O'Flanagan [1936] Ch 575 CA. The court held that the representee was entitled to believe the statement about the income of the medical practice until he bought it. Clearly, the seller's statement was correct when he made it. But the statement became incorrect before the sale. The court held that the seller was under a duty to correct the statement that had become untrue before the sale took place. The seller's failure to correct the statement that had become incorrect meant that it was a misrepresentation. ### Statement The requirement for a statement covers words communicated to the representee. But a misrepresentation can also be made by: * a person's conduct or behaviour, or * by a person's statement that fails to disclose all the relevant facts. ### Conduct A statement can be conduct that conveys a false impression. Practice example 7.3 provides a useful example of conduct conveying a false impression. ### Practice example 7.3 Elizabeth is planning to sell her flat, but she is worried about the fact that it will be difficult to sell as one of the walls shows signs of dry rot. So Elizabeth paints over the wall to hide the dry rot. Eryl, a prospective buyer, visits the flat and decides to buy it. After a few months, Eryl discovers that the flat has dry rot. Does Eryl have a remedy against Elizabeth? The answer is yes. This scenario is based on the case of Gordon v Selico (1986) 18 HLR 219. The court held that painting to hide the dry rot was a misrepresentation that there was no dry rot. ### Failure to disclose all the relevant facts Generally, there is no rule of disclosure under English law. This means that where two parties are planning to enter into a contract, neither party is under an obligation to disclose to the other all relevant facts that he knows. But note that this rule is subject to exceptions, including: * change of circumstances (see Practice example 7.2), and * not the whole truth. ### Not the whole truth A statement that is misleading because it fails to disclose all the material facts can be a misrepresentation. Such statements might describe what appears to be factually true at the time they are made, but because they do not include all of the relevant facts, they communicate a false message to the representee. For example, imagine a client instructs a solicitor to act for him in the purchase of a land plot. When the client asks the solicitor to confirm if there are any restrictions on the land plot, the solicitor, who has not read the legal documents, responds that he is not aware of any restrictions. The solicitor's statement is a misrepresentation. Although it is technically true for the solicitor to say that he is not aware of any restrictions, his statement is misleading. This is because he has left out the important information that he is not aware of any restrictions because he has not read the relevant documents. ### Practice example 7.4 Kwasi wants to sell his medical practice and talks to Matt who is interested in buying it. Kwasi tells Matt that the medical practice generates income of around £50,000 per annum. This statement is true at the time Kwasi makes it. But after Kwasi makes the statement, he loses interest in his practice and the income of the medical practice falls. By the time Matt buys Kwasi's business a few months after their discussions, the annual income of Kwasi's medical practice has fallen to £20,000 per annum. Is Kwasi's statement to Matt that the medical practice generated £50,000 per annum a misrepresentation? The answer is yes. This example is based on the scenario in With v O'Flanagan [1936] Ch 575 CA. The court held that the representee was entitled to believe the statement about the income of the medical practice until he bought it. Clearly, the seller's statement was correct when he made it. But the statement became incorrect before the sale. The court held that the seller was under a duty to correct the statement that had become untrue before the sale took place. The seller's failure to correct the statement that had become incorrect meant that it was a misrepresentation. ### Revision tip It will help your revision to understand that the driver behind this condition is to narrow the number of persons who can bring a claim for misrepresentation. So, for example, if an SQE1 assessment question tells you that Party A makes a representation to Party B in respect of a sale, and that Party Y (who is hiding in a cupboard) overhears the statement by chance, acts on it and seeks to claim for misrepresentation, Party Y's claim will fail because Party A (being unaware of Party Y's presence) could not have intended Party Y to act on his statement. The law quite rightly limits the ability of persons who can bring a claim to those for whom the statement was intended. ### Revision tip It will help your revision to understand that the driver behind this condition is to narrow the number of persons who can bring a claim for misrepresentation. So, for example, if an SQE1 assessment question tells you that Party A makes a representation to Party B in respect of a sale, and that Party Y (who is hiding in a cupboard) overhears the statement by chance, acts on it and seeks to claim for misrepresentation, Party Y's claim will fail because Party A (being unaware of Party Y's presence) could not have intended Party Y to act on his statement. The law quite rightly limits the ability of persons who can bring a claim to those for whom the statement was intended. ### The representee must act