Saturday, August 06, 2005

Contractual Representation

Many disputes arise as to the effect of inaccurate statements. In the tender documents, statements of fact such as quantities of work involved, nature of the site or the methods by which the work can be carried out, intended to be acted upon by the contractor are term Representation.

If a statement has been expressly made a term of a contract, e.g. a report about soil conditions is incorporated into the contract and expressly warranted to be true, the plaintiff remedy, if its inaccuracy causes him losses, is to claim damages for the breach of the contract. If such a statement does not form part of the contract, and did not act as an inducement to the contractor to enter into the contract, it is of no legal effect.


An untrue representation is a misrepresentation. A misrepresentation, which induces the making of a contract and causes loss, may result in legal liability:

i. If it is made fraudulently, or
ii. If it is an actionable negligent misstatement, or
iii. Under the misrepresentation Act 1967, or
iv. If it is or become a collateral warranty.

Additionally innocent misrepresentation may in certain circumstances entitle the other party to an order rescinding the contract to elect to rescind it.

Mere Puff

A puff is a statement, which by its nature, and in the context in which it is made, is not intended to have legal effect – a statement that any ordinary reasonable man would take “with a large pinch of salt”. An announcement by a builder that he is the best builder in town is likely to be a mere “puff”.

Honest opinion

A mere statement of honest opinion not impliedly involving a statement of fact is not actionable. Circumstances which can impliedly give rise to a statement of opinion involving a statement of fact include those where facts are not equally known to both sides, where a statement of opinion by one who knows the facts best very often involves a statement by him of material effect. A misstatement of material fact is one of the elements in a claim for, or based on misrepresentation.

Fraudulent misrepresentation

In the leading case of Derry vs Peek (1889) 14App.Cas.337(H.L.); Lord Herschell said: “ fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it is true or false. To prevent a false statement being fraudulent there must always be an honest belief in its truth…if fraud be proved, the motive of the person guilty of it is immaterial; not that there was no intention to cheat or injure the person to whom the statement is made. Fraud in this sense always involves dishonesty even if the motive is not personal gain. (Ibid; Armstrong vs Strain (1952) 1 K.B. 232 (C.A.).

Lord Lore burn said: “ no one can escape liability for his own fraudulent statements by inserting in a contract a clause that the other party shall not rely upon them. I will not say that a man himself innocent may not under any circumstances, however peculiar, guard himself by apt and express clause from liability for the fraud of his own agents. It suffices to say that in an opinion the clause before us do not admit of such a construction. (1907) A.C. 351 at 353 (H.L.).

The plaintiff must always prove that the fraudulent misrepresentation was an inducement, but the defendant cannot succeed in his defense by showing that there were other more weighty causes which contributed to the plaintiff’s decision, “ for in this field the court does not allow an examination into the relative importance of contributory causes. (Barton vs Armstrong (1976) A.C. 104 at 118(P.C.). A person liable for deceit whether personally or vicariously is not entitled to deny by a plea of contributory negligence that his deceit was the sole effective cause of the damage suffered by his victim. (Alliance & Leicester Building Society vs Edgestop Ltd. (1993) 1 W.L.R.1462.

Remedies for Fraud

Where the contractor has been induced to enter into the contract by a fraudulent misrepresentation he can on discovering the fraud avoid the contract and treat it as at an end, or he can affirm the contract and complete. In either event he can recover damages in an action for the tort of deceit. (Archer vs Brown (1985) Q.B. 401; Chitty on Contract (27th ed.), vol.1, 6-026et seq. Where losses are made in the course of running a business, the assessment of damages for deceit can include both the actual losses incurred and loss of profit that could have reasonably been anticipated.

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