Sabrina owns ‘Witch Mobiles’, a mobile phone shop situated in Magic Street, Warlockshire. She has told Zelda that she is thinking of selling it, in order to set up a potion shop with the money raised. When Zelda expresses an interest, Sabrina said that the shop was making good profits, and if Zelda wished to check the books she would supply them. Zelda, trusting Sabrina, did not take up the offer. She guessed that Sabrina must be doing well, as she drove a new BMW with a personalised number plate.
When Zelda came to look around the shop in June, Sabrina told her that there were many students in the area as the main ‘Hogworth University’ campus was very close and that it was well known that lots of young people changed their mobile phones frequently. She added that there were no other mobile phone shops in the area.
Zelda bought the business in August, and immediately found that the shop made little profit. Nevertheless she decided to completely refit the shop and expand the business to include MP3 players. However, in September she was perturbed to discover that the Salem Mobile Phone Company had just opened a shop in the same street. She also heard from a friend that Sabrina was aware of the potential development in May, when an article featuring the opening of a new branch in Magic Street appeared in the local newspaper.
When the students returned to campus in October, Zelda finds little improvement in the way of sales. This she discovers is mainly due the Hogworth University student union shop selling mobile phones at discount prices, a practice which they have done for the past two years.
Zelda would like to rescind her contract with Sabrina for the misrepresentation.
This question requires the discussion of misrepresentation, and, what, if any, remedies, may be provided to Zelda.
Statements made during the negotiations of the contract may be incorporated as a term or, forms the basis of a collateral contract, or as in this situation, a mere representation. Thus where Sabrina states that the phone shop is making a good profit, and that there are no other mobile phone shops may be conceived as an actionable misrepresentation
Actionable misrepresentation may be defined as an untrue false statement of fact, past or exiting, made by one party to the other, which, whilst not being a term of the contract induces the representee to enter the contract.
The first requirement to constitute misrepresentation is for the statement to be one of facts, and not a ‘mere puff’ or vague boasts, which are not intended to be taken seriously.
In the case of Dimmock v. Hallett (1866) LR 2 Ch App 21, Turner LJ said that representation that land was ‘fertile and improveable’ would not, be considered misrepresentation other than in extreme cases. It seems the more specific the statement is, the more likely it is to be viewed as a misrepresentation, rather than a mere puff.
This was demonstrated in the case of Carlilll v carbolic smoke company Ca, (1893). The defendants advertised that they would pay £100 to anyone who contracted influenza after using their product for a specified period. The claimant contracted the flu, and sought action. The defendants argued that this statement was a mere puff. Claimant succeeded.
Where false statement of opinion has occurred this will not construe a misrepresentation of facts. This was highlighted in, Bisset v. Wilkinson  AC 177. During negotiations, the owner of a farm stated to the prospective purchaser, that he believed that it could hold 2000 sheep. The purchaser was aware of the fact that the land had never been used for this purpose. The Privy Council held that the farm owner’s estimation was purely an opinion; therefore the purchases did not have the right to rescind the contract.
Sabrina told Zelda the second time she came to look around the shop, that ‘Hogworth university’ campus was nearby and that it was well known that young people changed their mobile phones a lot. Based on the principle of Bissett v Wilkinson this statement is more likely to be held as an opinion.
However Lord Denning distinguished between this, where two parties negotiating a contract, are able to equally form an opinion, or, as in the case of Esso Petroleum Ltd. v Mardon  QB 801 one party has special knowledge or skill. In this case Esso owned a petrol station which was in the process of construction and were negotiating with M to grant him tenancy. They made the representation that, throughput of petrol at the station was likely to reach 200,000 gallons per year.
The local council had insisted the pumps to be moved to the back of the site and so was invisable from the main street. As a result of the changes the throughput was considerably less and M incurred considerable losses in operating the station. Esso sought to repossess the station since M failed to keep up with payment to Esso. M counterclaimed for damages for breach of contract and for negligent misrepresentation. Esso relying on the principles illustrated in Bisset v. Wilkinson, argued that their statement as to the throughput was a statement of opinion and consequently not actionable.
A similar approach was taken in Smith v. Land & House property Corp (1884) 28 Ch D7. Smith sold his hotel to D having described it as ‘let to Mr. Fleck, a most desirable tenant’. Mr. F had been in arrears with rent for some time before the sale went through. Smith was aware of this and it was held to be misrepresentation.
In this case Bowen LJ said that where “the facts are equally known to both parties, what one party says to the other is frequently nothing but an expression of opinion…But if facts are not equally known to both sides, then the 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 the facts which justify his opinion”.
Applying the points emphasized above to the question at hand it may be possible that, as Sabrina has special knowledge and that the facts, are not equally known, Sabrina’s statement is impliedly one of fact.
The second criteria is that for it to be shown that the representation was addressed to the party that is claiming to have been misled. Sabrina in this case directly communicated the representations to Zelda both the first time and again in June
Finally the representation must have induced the representee to enter into the contract. This requirement was not satisfied in JEB Fastners v. Marks, Bloom and Co  1 All ER 583. The defendant (D) in this case negligently prepared the accounts of a company which was taken over by the claimants (C). The claimants had reservations about the accounts but nonetheless proceeded with he take over because they wished to acquire the service of the directors of that company. The take-over was not successful and the claimants brought an action against the defendants alleging that they had negligently prepared the accounts. The Court of Appeal dismissed the action on the ground that the representation did not play a ‘real and substantial’ part in inducing the claimants to act.
Two statements are made to Zelda which may have induced her into the contract. The initial statement is made when Sabrina states that the shop is making good profits and Zelda can if she wished to take a look at the books. This seems to be substantial and play a part in inducing the representee into the contract. Although Zelda does not take up the offer straight away she returns to inspect the shop in June. It can be inferred from the facts of the case that this statement was an inducement though not the sole inducement it is sufficient so long as it was actively present in the representee’s mind (Edgington v. Maurice).
Sabrina does not disclose the fact of the potential development of another mobile phone shop on Magic Street. The general rule in English law is that silence does not amount to misrepresentation. An example of this rule was seen in Keates v. Lord Cadogan (1851) 138 ER 238. The defendant let a house to the plaintiff, knowing the plaintiff wanted it for immediate occupation. He did not inform the plaintiff that the house was uninhabitable. The courts held in the absence of fraud, the defendant was under no implied duty to disclose the state of the house.
However there are exceptions to this rule. Where the representor tells the literal truth but fails to mention other relevant matters, the truth in the statement, may be deemed as misleading
Sabrina lets it be known to Zelda that there are no other mobile phone shops in the area. Since there is no general duty to disclose a material fact that is not known to the other contracting party; where Sabrina omits that she is aware of the opening of Salem Mobile Phone Company might not be considered as a misrepresentation.
However one must consider whether this statement made, was in fact a half truth, as illustrated in Dimmock v. Hallett (1866) LR 2 Ch App 21. Land for sale was described as ‘let to Hickson at £130 p.a.’, another farm as ‘let to Wigglesworth at £160 p.a.’ Both tenants were yearly Lady Day tenants. No reference was made to the fact hey had both given notice to quit although there were other statements made that some of the other tenants had given notice to quit. Statements made were held to be a misrepresentation.
Following this, Sabrina’s statements made in June may well be a misrepresentation given that the statement was one of fact and directed at Zelda, and had induced her into the contract. The knowledge of opening of another mobile phone shop was relevant and should have been disclosed.
Referring to the initial statement made by Sabrina, Zelda may not be able to rely on it to rescind the contract.
In the case of Smith v. Eric Bush, the House of Lords stated that Redgrave (where it was held that since the plaintiff knew the facts of the representation was untrue, the defendant was entitled to have the contract rescind) would no longer apply where it was reasonable to expect the representee to use the opportunity but fail to do so. Hence since Zelda fails to take up the opportunity even though it is reasonable to expect her to do so, the initial statement made by Zelda could not be relied upon to rescind the contact.
Establishing that there has been a misrepresentation by Sabrina one must determine the type of representation.
from the facts of the case Sabrina knowingly makes a misrepresentation regarding the statements made in June, as a result we can rule out innocent misrepresentation (s2 (2) misrepresentation Act 1967).
In order for Zelda to prove fraudulent misrepresentation it must be proved that “a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false”, as defined by Lord Herschell in Derry v. Peek (1889) 14 App Cas 337; [1886-9] All Er Rep1. Therefore for this to apply there must be an absence of honest belief by Sabrina. If this was to be proved the damages would be assessed on tort principles- compensation give for the loss suffered plus consequential damages.
In Derry v. Peek a share prospectus falsely stated that the company had the right to use mechanical power to draw trams, without explaining this was subject to governmental consent. The consent was refused but P had relied upon this and had bought shares so brought an action against the company. The House of Lords held that there had been no fraudulent misrepresentation because the statement made in the prospectus was made in honest belief that it was true.
However dishonesty is difficult to prove and so fraud is not lightly invoked in the court. Also since Zelda is seeking to rescind her contract Zelda may choose to pursue the case as negligent misstatement in tort. In Hedley Byrne v. Heller the House of Lords stated obiter that in certain circumstances damages may be recoverable in tort for negligent misrepresentation causing financial loss. This liability depends on a duty of care arising from ‘special relationship’ between the parties.
Under this principle a party can claim damages where such a misrepresentation has induced the representee to enter a contract; Esso Petroleum Ltd v. Mardon. This will generally occur when the representor possesses knowledge or skill relevant to the subject matter and can reasonably foresee that the representee will rely upon it. The burden of proof is on Zelda who must also justify the reliance on the representors statement. In this instance Sabrina posses’ knowledge relevant to the subject and so there may be a special relationship between herself and Zelda.
The misrepresentation may be Negligence misrep under s 2(1) Misrepresentation Act 1967 was illustrated in Howard Marine and Dredgeing Co v. A Ogden and sons  QB 574. The defendants wished to hire barges from the claimants and during negotiations the claimants manager represented hat the dead weight capacity per barge was 1,600 tones where in fact it was 1,055 tones. They had trouble using the barges for months until discovering the truth and refused to continue the hire. The claimants commenced proceedings for hire charges. D’s counterclaimed for damages under the Act. The representation made by the manager was based on the Lloyds Register. The true dead weight was found in the manual. The claimants had failed to show reasonable grounds for ignoring the true capacity in the manual. The defendants succeeded.
Since the burden of disapproving is on the representor it is difficult to disprove. There is also no requirement for there to be a relationship between the two parties and thus, overcoming the difficulties in establishing the existence of such a relationship.
Once Zelda has established the existence and type of misrepresentation then the remedy for the misrepresentation must be considered. Here she is seeking to rescind the contract; where the contract is put aside. This is available for all types of Misrepresentation and renders the contract void
There are, however exceptions to the right to rescind. Where the mislead party declares his intention to proceed with the contract or if they do an act from which the intention may be implied. This was highlighted in the case of Long v. Lloyd  2 All ER 402. The D advertised his lorry for sale in a newspaper-describing it as being in excellent condition. the plaintiff (P) viewed the lorry and was told by D that it was capable of 40 mph. P took the lorry on a trial run, D told P that the lorry did 11 miles to gallon. 2 days later P returned with the lorry since he had discovered that it had to have a new dynamo and only did 5 miles per gallon. The D offered to pay for a new dynamo which was accepted by P. The lorry broke down and this time the P tried to rescind the contract but failed, as it was held that P had affirmed the misrep and accepted the lorry in full knowledge of its condition and performance.
Zelda is aware of the misrepresentation in August but nevertheless she continues to expand the business. As a result she may have lost the right to rescind the contract
She may have also lost the right to be awarded damages because of the loss the right to rescind by affirmation. This subject has conflicting authority but was not accepted in Thomas Witter Ltd v. TBP Industries  2 All ER 573, 591. Jacob J held that he does not loose the right to claim damages, provided he had the right to rescind in the past. However the later view held by Judge Humphrey Lloyd QC in the case Floods of Queensferey Ltd v. Shand construction Ltd  BLR 81 did not follow the ruling in the Thomas Witter on the basis that the courts had no jurisdiction to award damages under s.2 (2).
In conclusion although it is apparent from the case there has been a misrepresentation made to Zelda should she wish to rescind the contract she may have lost the right to do so due to the affirmation made, when she continued to carry on the business after having discovered the misrepresentation. However if she had sought to recover damages in fraudulent misrepresentation or negligent misrepresentation instead, it may be possible that she is awarded.