The House of Lords has confirmed that a defendant
who makes a fraudulent misrepresentation cannot raise
a defence of contributory negligence (Standard Chartered
Bank vPakistan National Shipping Corporation(2003)).
2 Negligent misrepresentation. This is where the
person making the false statement has no reasonable
grounds for believing the statement to be true. Damages
may be awarded in tort for a negligent misstatement
under the principle established in Hedley Byrne &
Co Ltd vHeller and Partners Ltd(1963) (discussed in
Chapter 11 ).
Part 3Business transactions
238
fraud (44p per share). The House of Lords held that the
claimant was entitled to recover for all the damage
resulting from the transaction. The loss suffered by the
claimant was £10,764,005, which represented the differ-
ence between the contract price and the value of the
shares with knowledge of the fraud.Esso Petroleum Co Ltdv Mardon(1976)Mardon entered into a three-year tenancy agreement
with Esso in respect of a newly developed petrol filling
station. During the negotiations an experienced dealer
representative employed by Esso told Mardon that the
station would have an annual throughput of 200,000
gallons by the third year. Despite Mardon’s best efforts,
the throughput only reached 86,000 by the third year.
Mardon lost a considerable sum of money and was
unable to pay for petrol supplied by Esso. Esso sued for
money owed and possession of the petrol station. Mardon
counterclaimed for rescission of the tenancy agree-
ment and damages for negligence. The Court of Appeal
applied the principle established in Hedley Byrne & Co
LtdvHeller and Partners Ltd. When Esso’s repres-
entative forecast the station’s potential as part of the
precontractual negotiations, a duty of care arose. Esso
intended that its forecast would be relied upon by Mardon.
Esso was in breach of the duty of care because of the
error made by its representative. Esso was liable in
damages for its negligence.
Comment. Although this case was decided in 1976, the
events to which the decision relates took place in the early
1960s, before the introduction of the Misrepresentation
Act 1967.Damages may now also be awarded under s 2(1) of
the Misrepresentation Act 1967.
Howard Marine and Dredging Co Ltdv
A Ogden & Sons (Excavations) Ltd(1978)
The defendants won a contract to carry out excavation
work for the Northumbrian Water Authority. The work
involved dumping the spoil at sea, for which purpose
the defendants needed to charter seagoing barges. The
defendants approached the claimants who were the
owners of two suitable barges. During the course of
negotiations, the claimants’ marine manager stated that
the payload of the barges was 1,600 tonnes. This was
based on the deadweight figure of 1,800 tonnes given in
the Lloyd’s Register. However, the Register was wrong.
The shipping documents, which the marine manager had
seen, gave the true deadweight as 1,195 tonnes, and
this gave a payload of 1,055 tonnes. The contract to
charter the barges did not mention these figures.
The defendants fell behind schedule because of the
shortfall in the capacity of the barges. They ceased to
pay the charter hire and were sued by the claimants.
The defendants counterclaimed for damages under the
Misrepresentation Act 1967 and in negligence at com-
mon law. The Court of Appeal held the claimants were
liable under s 2(1) of the Misrepresentation Act 1967
for the misrepresentation of the barges’ capacity. The
claimants were unable to prove that their marine man-
ager had reasonable grounds for relying on the capacity
figures given in the Register in preference to the figures
contained in the shipping documents. The court did not
reach a firm conclusion about the claimants’ liability for
negligence at common law.Comment. (i) The Court of Appeal in this case was
concerned only with the question of liability and not the
measure of damages. There had been some uncertainty
as to whether the basis of damages under s 2(1) of the
Misrepresentation Act 1967 was contractual or tortious.
However, in Sharneyford Supplies LtdvEdge(1987)
the Court of Appeal held that it should be tortious. The
effect of this is that the representee can only recover
loss which he has incurred through reliance on the mis-
representation. However, the damages will be assessed
in the same way as for fraud so that the misrepresentee
can recover for all losses flowing from the misrepres-
entation (Royscot Trust LtdvRogerson(1991)). (ii) In
IFE Fund SAvGoldman Sachs International(2007)
the Court of Appeal considered (obiter) the relationship
between an action under the Misrepresentation Act
and in tort. Waller LJ commented that where there is
a contract between the parties, the Misrepresentation
Act would apply. If the Act did not provide a remedy,
there would be no room for an action for negligent
misstatement.