14th November 2017
When parties consider doing business together, a multitude of enquiries, discussions and negotiations take place before any deal is done. Marketing campaigns, promotional offers and other communications have often also been undertaken prior to the contemplation of any particular enquiries or leads. At this pre-contract stage, myriad representations are made, many of which could give rise to liability. The law of misrepresentation is not straightforward. It comprises elements of common law, equity and statute (the Misrepresentation Act 1967, MA) and it includes characteristics of both contract law and tort. To avoid inadvertently leaving itself open to legal challenge, therefore, it is important for any business to understand the types of statements and representations that can found the basis of a claim.
A misrepresentation is an untrue statement of fact or law upon which a party relies in being induced to enter a contract, which thereby causes the relying party to suffer loss. Misrepresentations can be express written or oral statements; they can be implied by words or by conduct; made when making plans or projections for the future; arise via half-truths; or arise where a statement was true when it was made, but later becomes untrue if circumstances change. Misrepresentations can occur more readily in relationships of utmost good faith, such as partnerships or contractual arrangements requiring full disclosure. It is also possible for a statement made in negotiations to be a representation that becomes a binding term of the contract itself. Liability can therefore arise both under the MA and for breach of contract.
There are certain steps, however, that can be taken to exclude or limit liability for misrepresentation.
It is possible to insert an exclusion clause into a contract which seeks to exclude or limit liability for misrepresentation . If an exclusion clause is ambiguous or uncertain, it will generally be construed against the party trying to rely on it (the contra proferentem rule) and so, to be on the safe side, the clause should expressly state that is covers misrepresentation or tort, as well as breach of contract. As with the general laws on exclusion clauses, whether or not a clause which purports to restrict liability for misrepresentation is effective will depend upon the application of the Consumer Rights Act 2015 (in the case of business to consumer contracts) and UCTA.
An ‘entire agreement’ clause (often forming part of the standard ‘boilerplate’ of a commercial contract) attempts to provide that the contract constitutes the entire agreement between the parties, such that it supersedes any prior agreements, negotiations, or heads of terms. Entire agreement clauses have their limitations, however, and it is a common misconception that they will necessarily prevent liability for misrepresentation. Instead, as reliance on a statement as an inducement to enter into a contract is one of the requirements of an actionable misrepresentation, parties should expressly exclude liability by means of a ‘non-reliance statement’.
A very recent case, Djurberg (t/a/ Hampton Riviera) v Small , is an example of entire agreement clauses falling short, and serves as a salutary warning which is applicable in commercial and consumer transactions alike.
The seller made representations that the sale and purchase of luxury houseboats included 125 year mooring licences. The buyer relied on those representations, which were untrue. The contract specifically stated that mooring licences were sold by separate agreements and it contained an entire agreement clause. Nevertheless, the court found that the seller was liable for both misrepresentation and breach of contract. The buyer recovered, as damages, the difference between the sums paid for the houseboats and their value without the moorings. (That effectively amounted to the buyer recovering the full purchase price).
The court reasoned:
There are a number of practical points and best-practice tips of which all businesses should be aware:-
 albeit a term which excludes or restricts liability for fraudulent misrepresentation is wholly ineffective as a matter of public policy, and a term which excludes or restricts liability for misrepresentation resulting in death or personal injury caused by negligence is wholly ineffective under section 2 (1) of the Unfair Contract Terms Act 1977 (UCTA).
 (unreported, Ch D, 1/9/17)