Misrepresentation has always been one of the more important ways in which contractors and subcontractors have been able to obtain extra-contractual recoveries in the construction industry. Whether the misrepresentation is relied upon pursuant to one of the statutory bases based on the UK legislation, or by way of negligent misstatement, or by way of misleading conduct pursuant to the Australian Consumer Law, the paradigm case has typically been to do with latent ground conditions. The owner induces the contractor to enter into a construction contract by misrepresenting the state of her knowledge about what is underground.
Typically, she will require the contractor to sign a contract acknowledging that he is entering into the contract without reliance upon anything that she has said, but instead upon reliance on his own inspection. Equally typically, those contractual provisions are ineffective to avoid liability.
In Australia, perhaps the most notable of these cases is Abigroup v Sydney Catchment Authority, where it was held that the employer was liable for her statement that she had no plans showing underground conditions. In fact, and entirely innocently, there was an old plan undiscovered in her archive.
But this is not the only type of case in which an owner who contracts with the head contractor, or head contractor who contracts with the subcontractor, might be liable for misrepresentation. There is another category of case, which sees the light of day less often, which also potentially sees a representor liable for misrepresentation. It is a case particularly common in the context of subcontracting, and so will be described in those terms. The head contractor knows that the project is already in trouble; it is already the subject of delay and disruption with dark clouds already overhead. That delay and disruption is going to affect most, if not all, of the subcontractors yet to start work. Anxious not to inflate subcontract tender prices, the head contractor conceals what it knows about that delay and disruption. Instead, it puts forward to the subcontractor a programme which represents that the subcontractor will get prompt and uninterrupted access to the work. Sometimes, that programme may well have been achievable at the time it was originally put forward, but by the time the subcontract is entered into, the head contractor knows, or ought to have know, that the programme is no longer achievable.
The scenario gives rise to some questions:
- When the head contractor provides a subcontractor with a programme as part of the tender process, does it thereby represent that that programme is achievable? Or at any rate, that it had made a proper assessment as to when and how it would be likely to be able to give access to the subcontractor for its work? Or perhaps merely that it was not aware of any facts, not otherwise known to the subcontractor, making the programme any less reliable than it otherwise would be?
- If so, is that representation a continuing representation up to the execution of the subcontract, such that the head contractor is under a duty to tell the subcontractor that the programme, previously sound, has become unsound?
- To found a case, what does a subcontractor have to show in terms of its reliance on such a programme?
This is comparatively new territory, but it is not entirely uncharted. There are in particular three cases – two Australian and one English – which shed particular light on these questions. They are Baulderstone Hornibrook v Qantas Airways, BSkyB v HL Enterprises and Brighton Australia v Multiplex.
Baulderstone Hornibrook v Qantas Airways
This was a head contract case, but one in which the head contractor was not the only party performing work.
The plaintiff, referred to in the judgment as BHPL, was engaged by Qantas to construct an extension to a terminal building and new valet car park and concourse at Melbourne airport. Pre-contract, Qantas’s agent, Cliftons, provided all tenderers with the programme referred to as FAC 10, which set out the major sequencing and phasing of work to be carried out by other contractors. BHPL asserted that Qantas thereby misrepresented the access that it would have for the purpose of the work.
In large measure, the court found that the representations pleaded by BHPL had simply not been made. The court set out a point of principle limiting the extent to which a precontract programme is to be treated as a representation at all:
58 The background against which the questions under consideration must be determined is as follows. The first point is trite. It is that there is a significant risk of delay and disruption inherent in every major construction project. Numerous things can go wrong at any one of the many stages between the planning and completion of construction. Things may be overlooked; mistakes can be made; climatic and physical conditions may not be as expected; contractors, suppliers or agents may not meet their obligations, to name just a few. It is inevitable that time will be taken up with these matters and costs will be incurred. For this reason a works program, especially a program which is not contractually binding may, when prepared by a contractor, be little more than a statement of intention or a statement that the contractor will use his best endeavours to comply with it. If prepared by an owner, a works program may be more than a statement of expectation; it may be said to contain a timetable which is regarded as feasible. But, in each case, the program will always be regarded as subject to the ever present risk that the project may be delayed or disrupted for a myriad of reasons, including reasons that may be beyond the control of the parties.
The takeaway from this point is that a cause of action is not by any means established merely by demonstrating that a pre-contract programme did not accurately forecast events as they unfolded. An innocent party complaining of representation has to demonstrate something different: something about the state of affairs as at the time the representation is made. The court put it in these terms:
66 I said that there is one qualification to my finding that the representations had not been made. The qualification is that, in my view, the circumstances suggest that when Cliftons provided the FAC 10 program to BHPL it implicitly represented that it and Qantas were not aware of any fact, not otherwise known to BHPL, which, in its view (or Qantas’), made the timetable in FAC 10 any less reliable than it otherwise would be. I think this was a continuing representation which remained in effect until 5 September when the building works contract was made. I will deal with its effect later.
In many cases, such implicit representation will be false. But in the Baulderstone case, the court found on the facts that it was not false:
81 The allegation of breach to a large measure proceeds on the supposition that the information necessarily indicates that the FAC 10 works program could not be met. It seems to me that this assumption lies behind much of BHPL’s complaints. I am not, however, prepared to make that assumption. As should be by now apparent there is little evidence to support it…
It was essentially for that reason that the claim failed, although the court also expressed reservations about whether Baulderstone would have been able to show reliance.
BSkyB v HP Enterprise Services
This is a lengthy judgment of the highly respected Mr Justice Ramsey in the Technology and Construction Court in England, running to more than 400 pages. It deals with liability, and also some questions of principle as to quantum.
BSkyB engaged Hewlett-Packard to provide a new customer relationship management system. The project was not a success; the system was not delivered on time, and Sky went on to provide the system itself. Numerous misrepresentations were alleged; at their heart, was a representation as to the achievability of the project programme prepared by the contractor.
The quantum of the claim was very significant, eventually agreed at £318 million. The contract contained a liability cap of £30 million which Sky conceded limited the amount of its claims for negligent misstatement and under the Misrepresentation Act, but not for deceit. Accordingly, the claim included one for deceit, notwithstanding the additional evidential burden of such a claim.
The judgment includes a comprehensive description of the modern law of deceit. That passage is tantamount to a code. Of wider application in practice is the treatment of the case pursuant to the Misrepresentation Act and in negligent misstatement, since is a rare case of liability being founded on misrepresentations contained in a pre-contract programme. The essential misrepresentation by the defendant here was that it had developed an achievable plan, which had been the product of proper analysis and re-planning. Where is the dividing line between mere expressions of opinion which are not actionable, and statements of fact, which might well be actionable? Justice Ramsey had this to say:
The following basic principles of law are relied upon:
(4) If the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion: Smith v. Land and House Corporation (1884) 28 Ch D per Bowen LJ at page 7.
(5) A person who allows a false statement by a third person to the representee to go uncorrected may also make a representation: Pilmore v. Hood 132 ER 1042 [(1838) 3 App Cas 459, per Lord Cairns at p.465]; North British Insurance Co v. Lloyd (1854) 10 Ex Ch 523 per Alderson B at p.529; Bradford Third Equitable Benefit Building Society v. Borders  2 All ER 205 (HL) per Viscount Maughan at p.211 and Lord Wright at p.220…
(8) A representation having been made for the purpose of an intended transaction will normally be regarded as continuing until the transaction is entered into or completed, unless varied or withdrawn in the meantime: DPP v. Ray  AC 370 (HL) at pp. 379, 382, 386, 391.
Dealing with each of those matters in turn:
The making of a representation
The representation must be a representation of a past or existing fact not of opinion. However, a representation as to opinion can amount to a statement of fact to the extent that it is an assertion that the maker does in fact hold the opinion: see Brown v. Raphael  Ch 636 at 641.
The statement of opinion may also involve a further implied representation of fact that the person stating the opinion has reasonable grounds for his belief or knows of facts justifying his opinion. In each case whether there is such an implied representation depends on the particular facts. As summarised by the Court of Appeal in Jaffray & Ors v Society of Lloyd’s  EWCA Civ 1101:
“These cases seem to us to show that all depends upon the circumstances. In each case it is necessary to ask the question identified above, namely what would the reasonable person in the position of the representee understand by the words used in the document. In our opinion there is no rule of law that any particular statement carries with it any particular implication. All depends upon the particular statement in its particular context. So, here, as already stated, the question is whether the particular brochure or set of globals relied upon would be reasonably understood by the ordinary applicant for membership of Lloyd’s to have the meaning alleged. That meaning might either be explicit in the words used or implicit (and in that sense implied) from the words used”.
Where a statement relates to the representor’s own intended future action, the statement will often amount to a promise. Such promises are usually actionable by way of breach of contract. But again, a statement of fact might be implied from the promise to the effect that the representor held the particular intention or that the statement of intent was based on reasonable grounds. However, allegations based on such implied statements must be distinguished from allegations that the intention was not carried out…
The falsity of the representation
As Rix J. said in Avon Insurance Plc & Ors v Swire Fraser ltd & Anr  Lloyd’s Rep IR 535:
“a representation may be true without being entirely correct, provided it is substantially correct and the difference between what is represented and what is actually correct would not have been likely to induce a reasonable person in the position of the claimants to enter into the contracts.”
Detrimental reliance of representation
The representee, Sky, must show that the representation induced it to act to its detriment: see Downs v Chappell  1 WLR 426 at 433 per Hobhouse LJ. The representation need not be the sole cause of the claimant acting as he did, provided that it substantially contributed to deceive him: see JEB Fasteners Ltd v Marks Bloom & Co  1 All ER 583 per Stephenson LJ at 589b and Donaldson LJ at 588c/d.
In Avon Insurance Plc Rix J said this at paragraph 18:
“I derive from that case the distinction between a factor which is observed or considered by a plaintiff, or even supports or encourages his decision, and a factor which is sufficiently important to be called a real and substantial part of what induced him to enter into a transaction.”
Where a claimant alleges that a representation has a particular meaning, the claimant has to establish that his understanding as to the meaning of the representation at the time was the same as now alleged: see Smith v Chadwick (1884) 9 App. Cas. 187.
The law of negligent misstatement or misrepresentation
The modern foundation for claims for economic loss caused by negligent misstatement is the decision of the House of Lords in Hedley Byrne v Heller  2 AC 465.
In Henderson v Merrett Syndicates Limited  2 AC 145, Lord Goff identified the principle in Hedley Byrne as being assumption of responsibility by the defendant along with reliance by the claimant. In determining whether there was an assumption of responsibility an objective test is applied; see Lord Goff at 181.
In Smith v Eric S Bush  1 AC 831 at 862 Lord Griffiths said:
“The phrase ‘assumption of responsibility’ can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.”
As Lord Oliver said in Caparo Industries Plc v Dickman  2 AC 605 at 637F:
“[Voluntary assumption of responsibility] is a convenient phrase but it is clear that it was not intended to be a test for the existence of the duty for, on analysis, it means no more than that [sic] the act of the defendant in making the statement or tendering the advice was voluntary and that the law attributes to it an assumption of responsibility if the statement or advice is inaccurate and is acted upon. It tells us nothing about the circumstances from which such attribution arises.”
The passages in Smith v Eric Bush and Caparo were also cited in HM Customs & Excise v Barclays Bank  UKHL 28 by Lord Bingham at para 5 and Lord Mance at para 88.
In Caparo Lord Bridge identified a threefold test at 617:
(1) That the damage caused must have been foreseeable.
(2) There should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood”.
(3) The situation should be one in which the court considers it fair, just and reasonable that the court should impose a duty of given scope upon the one party for the benefit of the other.
Lord Bridge observed at 618 that the concepts of proximity and fairness are “not susceptible of any such precise definition as would be necessary to give them utility as practical tests, but amount in effect to little more than convenient labels to attach to the features of different specific situations which, on a detailed examination of all the circumstances, the law recognises pragmatically as giving rise to a duty of care of a given scope”.
He continued by referring to the incremental approach and said:
“Whilst recognising, of course, the importance of the underlying general principles common to the whole field of negligence, I think the law has now moved in the direction of attaching greater significance to the more traditional categorisation of distinct and recognisable situations as guides to the existence, the scope and the limits of the varied duties of care which the law imposes. We must now, I think, recognise the wisdom of the words of Brennan J. in the High Court of Australia in Sutherland Shire Council v. Heyman (1985) 60 A.L.R. 1 , 43-44, where he said:
“It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories, rather than by a massive extension of a prima facie duty of care restrained only by indefinable ‘considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed.””
The entire agreement clause did not avail the defendants:
- Clause 1.3.1 of the Prime Contract under the heading “Entire Agreement” provides as follows:
“Subject to Clause 1.3.2, this Agreement and the Schedules shall together represent the entire understanding and constitute the whole agreement between the parties in relation to its subject matter and supersede any previous discussions, correspondence, representations or agreement between the parties with respect thereto notwithstanding the existence of any provision of any such prior agreement that any rights or provisions of such prior agreement shall survive its termination. The term “this Agreement” shall be construed accordingly. This clause does not exclude liability of either party for fraudulent mis-representation.”
- In Inntrepreneur Pub Company v East Crown Ltd  2 Lloyd’s Rep 611 Lightman J held that an entire agreement prevented a claim based upon a collateral warranty. The clause in question differs greatly from the one in this case. In coming to his conclusion Lightman J said at :
“The purpose of an entire agreement clause is to preclude a party to a written agreement from threshing through the undergrowth and finding in the course of negotiations some (chance) remark or statement (often long-forgotten or difficult to recall or explain) on which to found a claim such as the present to the existence of a collateral warranty. The entire agreement clause obviates the occasion for any such search and the peril to the contracting parties posed by the need that may arise in its absence to conduct such a search. For such a clause constitutes a binding agreement between the parties that the full contractual terms are to be found in the document containing the clause and not elsewhere, and that accordingly any promises or assurances made in the course of the negotiations (which in the absence of such a clause might have effect as a collateral warranty) shall have no contractual force, save in so far as they are reflected and given effect in that document.”
- He also observed at  that “An entire agreement provision does not preclude a claim in misrepresentation, for the denial of contractual force to a statement cannot affect the status of the statement as a misrepresentation.” He referred to the leading case of Deepak v. Imperial Chemical Industries plc  2 Lloyd’s Rep. 139, affirmed  1 Lloyd’s Rep 387…
- [The relevant words of Clause 1.3.1 ] do not, in my judgment, amount to an agreement that representations are withdrawn, overridden or of no legal effect so far as any liability for misrepresentation may be concerned. The provision is concerned with the terms of the Agreement. It provides that the Agreement represents the entire understanding and constitutes the whole agreement. It is in that context that the Agreement supersedes any previous representations. That is, representations are superseded and do not become terms of the Agreement unless they are included in the Agreement. If it had intended to withdraw representations for all purposes then the language would, in my judgment, have had to go further.
- As a result, for the reasons set out above, I do not consider that the Entire Agreement clause precludes SSSL from advancing a claim for negligent misrepresentation or misstatement against EDSL.
Having reviewed the law, Justice Ramsey went on to consider whether in the circumstances – where one contracting party had put forward its programme to the other contracting party – a duty of care was owed. His answer was “yes”:
- I first deal with the question of whether EDSL owed SSSL a duty of care or whether such a duty was excluded or limited by the terms of the Prime Contract. As Lord Goff said in Henderson v Merrett at 191 where the parties are in contract, a concurrent or alternative liability in tort will not permit a party to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort. However, subject to that qualification, where concurrent liability in tort and contract exists the plaintiff has the right to assert the cause of action that appears to be the most advantageous to him in respect of any particular legal consequence.
- In principle, subject to the limitation set out above, I can see no reason why a common law duty of care should not be owed by EDSL to SSSL in relation to any pre-contract representations. There is evidently a sufficient relationship between the parties in the period leading up to the Prime Contract and, in circumstances where SSSL might suffer damage as a result of such representations, I consider that it is sensible and just for a duty of care to be found to exist.
Against this background, what was the representation as to time that was founded in the programme? Justice Ramsey formulated this in terms of “proper analysis”, “reasonable grounds” and “proper estimate” as to whether the programme was achievable:
- In my judgment, for the reasons set out above, Sky is correct in their submission that prior to the Letter of Intent EDS represented:
(1) that they had carried out a proper analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the contact centre and that they held the opinion that, and had reasonable grounds for holding the opinion that they could and would deliver the project within the timescales referred to in the Response.
(2) that they had carried out a proper estimate of the cost of completing the project and that they held the opinion that, and had reasonable grounds for holding the opinion that, they could and would deliver the project within that budget in the Response.
He went on to find that those representations were false. The defendant was liable, not only in deceit, but under the Misrepresentation Act 1967 and for negligent misstatement. It seems likely that the same result would have been achieved in Australia, with the substitution that in those States where there is no equivalent of the Misrepresentation Act, the same result would be achieved by way of damages for misleading conduct under section 18 of the Australian Consumer Law.
The court’s approach to the continuing nature of representations is of particular importance. A representation contained in a contract programme is inherently different from a representation about latent conditions, not least because contract programmes are continually in flux whereas a latent condition is generally fixed. The programme representations in question are typically (not always) made some weeks or months earlier than the time when the subcontract is entered into. What is the position where the contract programme is put forward as a proper analysis at that time, but in the intervening weeks or months before the subcontract is entered into, the head contractor knows or ought to know that it has become unsound? Is the contractor obliged to tell the tendering subcontractor of the changed circumstances? Or to put the same point in another way, is the representation a continuing one? The court’s approach was to follow the line of DPP v Ray. In that case, an individual had entered a restaurant with some friends without the means to pay for his meal himself, but believing that one of his friends would lend him the money to do so. It then became apparent that his friends would not lend him the money. He nevertheless stayed in the restaurant, ate the meal and then made a run for it. The House of Lords found by a majority that by remaining in the restaurant and eating the meal, he had made a continuing representation as to his ability to pay.
As to quantum, there are a couple of interesting points. The first is that it was conceded on the basis of Royscot Trust Ltd v Rogerson that the measure of damages under the Misrepresentation Act is the measure of damages for fraud, such as to include both foreseeable and unforeseeable damages. That principle should apply in South Australia and the ACT in claims for statutory misrepresentation; further, there is no obvious reason why it should not also apply in claims under the Australian Consumer Law for misleading conduct.
Secondly, in assessing the quantum, Justice Ramsey was prepared to adopt a formula approach. This was a “no transaction” case: the finding was that but for the representation, the plaintiff would not have entered into the contract at all. Translating this to a construction context, this means that a subcontractor who succeeds in a misrepresentation claim based on a misleading programme may well be able to recover not only his actual losses on the project, but also any damages for loss of profit for other work he would have undertaken had there been no contract, such damages for loss of profit to be assessed on a Hudson formula or similar basis.
Brighton Australia v Multiplex Constructions
This case was decided just last year by Riordan J in the Supreme Court of Victoria. The plaintiff, Brighton, was a plasterwork subcontractor. At tender stage, it was provided with a programme, and asserted that the programme amounted to a misrepresentation by the head contractor, Multiplex, as to when it would make areas of the building available to Brighton.
The claim, made for misleading conduct under the Australian Consumer Law, failed, essentially on a pleading point. The Referee found as a matter of fact that the programme was not misleading at the time it was issued, and this finding was not later challenged. Both the Referee and then the court found that Brighton had failed to plead its better case: that Multiplex had not disclosed changes in circumstances between the issue of that tender programme and the formation of the subcontract.
It is implicit in the judgment that the claim would have succeeded if it had been differently pleaded, and if Brighton had proved the necessary reliance.
It is not evident from the judgment that the court was referred to, or considered, the BSkyB case. Far from proceeding on the basis that any representation in the original tender programme was by its nature a continuing representation until the subcontract was entered into, the court found that a failure specifically to plead any continuing representation was fatal to the plaintiff’s case.
The judgment considered whether the claim was barred by a time bar provision. Disagreeing with the Referee, the court said, “No”. Clause 46.3 of the Subcontract provided that any claim not notified within 7 days would be ‘absolutely barred’. Riordan J put it thus:
105 The Referee found that the ACL claim was a claim within the meaning of cl 46 and that, in the absence of any evidence of compliance with the requirements of that clause, the claim was barred. He rejected the submission that cl 46 was in the nature of an exemption clause and found that the temporal limitation set out in the clause was permissible adopting the reasoning in Owners SP 62930 v Kell & Rigby Pty Ltd, Lane Cove Council v Michael Davies & Associates and Firstmac Fiduciary Services Pty Ltd v HSBC Bank of Australia Ltd.
129 … in my opinion, any attempt to restrict the remedy by limiting the time in which an action can be brought is an unacceptable interference with the public policy underpinning the provisions. As was observed by Ball J in Omega Air Inc v CAE Australia Pty Ltd:
If the parties can agree to limitations on those rights, it is not easy to see how the line can be drawn between those limitations that are acceptable and those that are not.
What emerges from these cases?
Clearly, when a subcontractor is induced into a subcontract by a programme which paints a misleadingly rosy picture of the state of the project, and then suffers a substantial project loss, then a misrepresentation claim represents an attractive way of recovering that loss. Even if the subcontract contains provisions entitling him to some recompense if he is denied timeous access, those provisions are likely to entitle him to a less than complete indemnity, and in practice, the time barring notice provisions in the contract may well be of the “Queen of Hearts” variety, designed to be difficult or impossible of compliance such that the subcontractor will not have complied with them.
Is the cause of action available? In principle, it seems clear that the answer is “yes” both under the Misrepresentation Acts and under the Australian Consumer Law in appropriate factual circumstances. However, it is equally clear that the courts, perhaps concerned about floodgates, are not making things too easy for plaintiffs; the claim needs to be carefully pleaded and the pleaded case needs to be properly supported by evidence. Reliance is likely to be a particular challenge for a plaintiff, not least because of the evident willingness of subcontractors to enter into absurdly onerous subcontracts suggests that they are not infrequently willing to enter into subcontracts however unpromising the prospect. But a plaintiff who is able to, for example, point to board minutes or internal memoranda at the time of the subcontract saying something along the lines of, “We are fully stretched. Let us only enter into subcontracts which are relatively straightforward, and avoid the ones that look potentially problematic” will probably be able to satisfy the reliance criterion.
It also seems clear that the cause of action cannot readily be excluded, whether it be brought under a Misrepresentation Act or under the Australian Consumer Law. Indeed, it is arguable that the more onerous subcontract is, the more likely it is that the subcontractor will be dependent upon assurances from the head contractor that the project will run smoothly.
The days when courts were prepared to play fast and loose with contractual obligations are substantially gone; the courts have been moving towards a much more “black letter” approach to contractual obligations. At the same time, the courts have generally been moving towards more willingness to impose statutory regimes, regardless of whether the statutory regimes ride roughshod over the terms of the contract, and in the construction context those statutory regimes include not only the Security of Payment Acts, but also the Misrepresentation Acts and the Australian Consumer Law.
There are likely to be more of these claims over the coming months and years.
 Misrepresentation Act in 1972 (SA) and Civil Law (Wrongs) Act 2002 (ACT. The New Zealand legislation, now to be found at Section 35 of the Contract and Commercial Law Act 2017, is slightly different, in that it more freely permits contracting out.
 As to pronouns, this note follows the usage that employers are treated as female and contractors are male.
 There is a string of decisions that need to be read together at  NSWSC 634,  NSWCA 270,  NSWCA 459,  NSWSC 662,  NSWCA 282,  NSWSC 220,  NSWCA 282 and  HCATrans 146.
  FCA 174.
  EWHC 86 (TCC)
 At [204(8)]; see above.
  AC 370.
  2 QB 297.
 Paragraph 549 of the judgment.
 Including head office overheads.
  VSC 246
 Nor, it seems, did the court pay any regard to DPP v Ray, noted above.
 Opinion -.
  NSWSC 1342 (‘Kell’).
  NSWSC 727 - (‘Lane Cove’).
  NSWSC 1122 - (‘Firstmac’).
  NSWSC 802.
 Ibid .