Deceit and Injurious Falsehood

Context

Historically, misrepresentations of law were not “actionable” The general principle is that a person is not liable for misstatement of the law. However, the courts have draws distinctions between matters of private law and contractual matters, for which there may be liability for misrepresentation, and matters of common and statute law which were presumed to be known by all.

Prior to the 1960s, liability for negligent misrepresentation and misstatement had not been established as a tort /civil wrong. Negligent misrepresentation could nonetheless have significant implications in various other contexts, in particular in the context of contractual negotiations. See our chapter in relation to negligent misstatements.

There is a separate form of liability for fraudulent or deliberate misrepresentation and false statements. Unlike the case with a claim for negligent misstatement, a special relationship need not have existed between the claimant and the defendant.

A person who deliberately makes a false statement is liable for all of the direct consequences that arise from it. Unlike the case with negligence, it is not just limited to the consequence which are reasonably foreseeable.

In order to prove a case for deceit, the claimant must prove the following;

• the making of a representation regarding a past or existing fact;
• that the representation was made knowing or without belief in its truth or with reckless  disregard as to whether it is true;
• that it was intended to be acted upon by the defendant;
• that the claimant  acted on it and thereby suffered loss or damage

The representation of fact may be by spoken or written words. It may happen in a business context are otherwise.  It may arise, for example, in the sale of goods.

Requirements

The tort of deceit, which is based on a fraudulent misstatement, does not require any prior relationship or proximity between claimant and defendant. Because liability is based on fraud, the rules on remoteness are more expansive. The defendant is liable for all loss that flows directly. Issues of reasonable foreseeability do not arise.

The tort of deceit requires that a representation be made as to present or past matter of fact. The person making the representation must

• know that it is false,
• have no belief in its truth or be reckless as to whether it is true or false; and
• intend that the defendant should rely and act on it.

The defendant must, in fact, act on it and suffer loss and damage in consequence.

Nature of Statement

The statement is usually made by spoken words. In some circumstances, it may be implied. For example. A person may deliberately wear a particular uniform to give the false impression for a specific purpose.

Generally, silence would not be enough. If a statement is made, which becomes false in the course of negotiations, it must be corrected. A half-truth may amount to misrepresentation if omits to say one thing and thereby suggests something else. The defendant may be under a legal obligation to give information such as were fiduciary duty exists.

The statement must be one of fact rather than one of opinion. However, in certain circumstances and opinion implies underlying facts and the assertion of the opinion impliedly asserts these facts. In this case, there may be liability where the underlying fact is false.

The person making the statement must know that the statement is false or acts with reckless disregard for its truth. Where a person honestly believes something to be true, there is no liability for deceit.

Limits

The defendant must have intended the claimant to act on the basis of the statement. If it is addressed to a group of people, it is enough that some members is the group acted.  It is necessary to show the claimant relied on the truth of the representation. The person must be is induced to enter into a transaction by reason of the false statement.

If the claimant carries out his own investigation and relies on it, there can be no liability.  Damage must be proved. This could be financial or personal injury or damage to property.

A false misrepresentation design to obtain credit is unenforceable unless it is made in writing by the person concerned. This is because of this of legislation which requires that guarantees be proved in writing signed by the guarantor.

Misrepresentation

The misrepresentation must be of a past or present fact. It may be written or spoken or may be made through other effective communication. It will commonly arise in the context of a sale of an asset, whereby some important fact is misrepresented which has the effect of causing the buyer to buy or pay a higher price than would otherwise be paid.

Silence, by itself, is not generally enough to constitute a misstatement. However, there may be circumstances whereby there may be misrepresentation by silence. Where a statement is true when made, but subsequently becomes false, there is an onus on the person who made the statement to correct it. Where a statement is literally true by its terms, but in context and in fact is misleading, there may be a misrepresentation if it is not corrected or clarified.

In certain contexts, something may be held out as being a particular thing or having a particular nature or quality by its setting. The placing of something in a particular place or category may amount to a misrepresentation.

In some cases, a person is obliged to disclose information known to him such as under the principle of utmost good faith, in the context of insurance contracts. The defendant may stand in a fiduciary position relative to the claimant. In this case, he may be liable for inaction and silence in his dealings with the person to whom the fiduciary duties are owed.

Promises are not generally beliefs, in that, they indicate future intentions and commitments.  However, some promises may be or may contain statements of facts. It has been famously said that a state of person’s mind may be a matter of fact so that an intention to do a particular thing can be misrepresented if the requisite intent is not in fact present.

An opinion cannot generally constitute a fact, other than the fact that the person believes the opinion concerned. Words of praise or “puffing”, particularly in the context of advertisements are unlikely to constitute statements of facts, in most cases. There may be penal consequences for false or misleading statements in advertisements, under consumer protection legislation, by way of prosecution or civil enforcement.

Knowledge and Intention

The person who makes a misrepresentation must know that it is false, or be reckless as to its truth. A person who makes an honest mistake or who is careless, will not be liable for deceit.

The defendant must have intended that the claimant act on the basis of the representation. It must be “operative”. If the statement comes to the attention of third parties to whom it is not addressed or is not intended to be relied on, there is no liability to them.

The representation need not be made only to the defendant. Where it is made to one party and passed to another closely connected party, and relied on by that party, there may be a fraudulent misrepresentation.

The claimant must rely on the misrepresentation. Accordingly, if he never saw or heard it,  or acted exclusively on his own information, there can be no reliance. The defendant may be liable, even if the claimant made his own enquiries, but which failed to detect the falsity of the matter concerned.

Various Issues

Clauses in contracts which purport to disclaim reliance on fraudulent misstatements are unlikely to be upheld at common law. They are specifically invalidated as unfair contract terms, in UK legislation.

The claimant must have suffered loss in consequence of the fraudulent misrepresentation. It will generally be an economic loss but could be damage to property or even personal injury. Loss and damage flowing directly from the misrepresentation will be generally recoverable.

The Statute of Frauds Amendment Act 1828 applies principally to guarantees. It provides that no action should be brought to charge any person on a representation or assurance made concerning the character, conduct, credit, ability, trade or dealings of another person to the intent or purpose that such a person may obtain credit, money or goods, unless the representation or assurance is made in writing and is signed by the party to be charged (the defendant. This creates somewhat of an anomaly in that it does not apply to negligent misrepresentations.

Malicious Falsehood

Malicious falsehood is constituted by deliberate false statements in relation to a person’s assets or business, which damage him in the course of trade or in a personal capacity. It includes

• slander of title to land, goods or other assets;
• false statements generally regarding person in their trades

such that the falsehood deceives third parties regarding the plaintiff and causes him loss.

The false statement need not necessarily be defamatory in nature. The crucial element is that it is such as to cause loss or damage to the claimant.

Under the Defamation Act, in the case of a slander of title to land, goods or other injurious falsehood, the claimant must prove that the statement concerned was untrue, was published maliciously and referred to the plaintiff, his property, assets, office, calling or profession.

Malice, which is an older common law concept is required. It generally implies a dishonest, unjustified claim. Accordingly, an honest statement belief in good faith obviates malicious falsehood. The defendant must be aware that the statement is false or may be reckless as to whether it is true.

Actual financial damage is required. It may constitute loss of business, loss of a transaction or sale. In an action for slander of title, slander of goods and other malicious falsehood, the 2009 Act requires the claimant to prove special damage, where the publication calculated to cause or likely to cause financial loss to the plaintiff in respect of his property or his office, profession, calling or business.

Injurious Falsehood

Injurious falsehood is similar to defamation. It includes slander of title to land or goods. It also includes false statements designed to injure a person in his trade or business. It is different to defamation in at the falsehood may reflect well on the plaintiff, but nonetheless caused him loss.

It is not necessary to allege any special damage under defamation act if the words in writing or are calculated to cause a loss in respect of an office, profession or trade.

Malicious Prosecution and Abuse of Process

The deliberate misuse of the legal process is a civil wrong. A person may initiate a criminal action by making a complaint to the police. If the proceedings are not successful, and the complaint is made without reasonable cause and an honest belief in the guilt of the accused under circumstances which would lead an ordinary prudent person to conclude there was possible guilt, the tort is made out.

It must be proved that the person making the complaint did not act in good faith for a proper motive. This implies doing something for an improper motive. Damage must be shown to be incurred by the defendant.

Similarly, abuse of the civil process is a civil wrong. This includes false execution against property. It requires the  improper use of the legal system for some wrong purpose or motive. The institution of the action must be in bad faith. It  must have been wrongly maintained and must be bound to fail.