| Date | 14 March 1996 |
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| Judgment | Lancaster City Council -v- Unique Group Limited 15 December 1995 |
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| The Issue | Interpretation of the 1967 Misrepresentation Act. |
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| Implication |
A statement of future earning potential is opinion and cannot form an actionable representation for the purposes of Section 2(1) of the Misrepresentation Act 1967. |
printMisrepresentation is an area of the law that construction professionals tend to shy away from. Unless the matter can be readily argued with reference to terms of the contract, a wronged party will find it very difficult to obtain resolution of a dispute without recourse to lengthy and expensive legal process. Making claims for misrepresentation has therefore been assumed to be a last resort approach to recovering sums due. This is notwithstanding that actionable misrepresentation is probably a very common occurrence in the construction industry. Subcontractors, for example, are routinely told before they enter into subcontract the progress of the works, the programmes to which they will work, including the sequencing of their works, and although the subcontractor will rely on this information before entering into subcontract, all too often the information proves no more than wishful thinking on the part of the main contractor. Another example is the current trend for design and build contracts where the employer leads the tendering contractors into believing that a complete and workable design has been prepared and forms part of the employer's requirements. Very often this proves not to be the case but impossible to verify within the short tender period. It is with all this that Noel Edmunds, Mr Blobby and the world of Crinkly Bottom comes to mind following a case heard on 15 December 1995 between Lancaster City Council -v- Unique Group Limited. More of that in a minute. First of all some background to the law of misrepresentation. An actionable misrepresentation is a false statement of fact made during pre-contract negotiations by one party which induces the other party to enter into a contract. Statements of opinion or belief if false do not constitute actionable misrepresentation. For present purposes misrepresentation can be classed as either fraudulent or negligent. Fraudulent misrepresentation was defined by Lord Hershell in Derry -v- Peek in 1889 as a false statement that is made knowingly; or without belief in its truth; or recklessly or carelessly as to whether it would be true or false. Negligent misrepresentation falls into two categories: 1. Negligent mis-statement Until 1963 damages could only be claimed for misrepresentation where it was fraudulent. All non-fraudulent misrepresentations were classed as innocent and damages were not available for such innocent misrepresentations. In 1963 the House of Lords stated in Hedley Byrne & Co Limited -v- Heller Partners Limited that in certain circumstances damages may be recoverable in tort for negligent mis-statement causing financial loss. 2. Negligent misrepresentation under the Misrepresentation Act 1967 Section 2(1) of the Act introduced for the first time a statutory claim for damages for non-fraudulent misrepresentation. This section of the Act has the effect of putting the burden on the maker of a statement to disprove negligence by the so-called 'statutory defence' whereby the maker must prove: "that he had reasonable grounds to believe, and did believe, up to the time the contract was made that the facts represented were true." Returning to Crinkly Bottom, Lancaster owned a park in Morecambe known as Happy Mount Park, and in 1993 Noel Edmunds was engaged by them to switch on the illuminations. During this exciting event the parties discussed the creation of a theme park at Happy Mount based on the fictional village of Crinkly Bottom. To the enthusiasm of all, Noel's House Party, Mr Blobby and Mr Edmunds himself were to become major attractions in Morecambe, such that Lancaster and Unique (Mr Edmunds's company) entered into a written agreement to produce the theme park. The enthusiasm was apparently short lived and less than a year after the park had opened it was closed down, gate receipts and other revenue failing to meet expectations. Lancaster sued Unique Group and its statement of claim alleged that there had been a misrepresentation that the total gate receipts would amount to £ 1.2 million over a three year period and that income to Lancaster from merchandising Crinkly Bottom products would amount to £ 330,000 over a three year period. In considering this matter, the judge first made it clear that in order to give rise to liability for damages under Section 2(1) of the Act, the representation in question must be a representation of fact. Were that no so, the judge considered, the statutory defence (mentioned earlier) would be meaningless. In his judgement neither of the pleaded representations were representations of fact such as could give rise to a liability to damages. He was quite satisfied that the statements of anticipated gate receipts and merchandising revenue were not statements of existing facts but statements of opinion. In finding this, the judge distinguished the case of Esso Petroleum Co -v- Mardon in which Esso had been held to have breached a tortious duty of care in forecasting the throught put of a filling station. Unique were therefore successful in having the case against them struck out. A statement as to existing earning potential is no more than a forecast of future income by another name held the judge. Noel Edmunds and his world of Crinkly Bottom therefore live to fight another day.
CJ-9609
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