Misrepresentation. This word is closely related to the law governing contracts, including charters. The word means a statement that gives a wrong or false impression or that contains wrong or false information and one party is induced into entering into the contract.
For example, to state that the deadweight capacity of a ship is 55,000 tonnes when it is really 50,000 tonnes is to “misrepresent” a fact. Other misrepresentations can be in the description of the ship, such as its name or cargo capacity.
If the misrepresentation is made with knowledge of its incorrect (or false) nature, it is known as a “false or fraudulent misrepresentation”. If it is made with no reason to believe it to be true or correct, it is called a “negligent misrepresentation”. If an honest mistake is made and there is reasonable belief that a statement is true or correct but it is not, this is an “innocent misrepresentation”.
If there has been misrepresentation the person who has been led to enter into the contract because of the information has four options open to him. He can: (a) cancel (“repudiate” or “rescind”) the contract; (b) bring an action for damages; (c) insist that the misrepresentation is corrected, if possible; and (d) rely on the misrepresentation as a defence if an action is brought against him by the other party for breach of contract.
However the remedies may be lost in certain circumstances. In the case of The Lucy, 1983, the ship was sublet under the condition that most of the terms of the subcharter would be identical to the terms of the head charter. During the negotiations the subcharterers were provided with. a copy of the head charterparty. However, while the head charterparty expressly restricted the ship’s trading limits to “Institute Warranty Limits” (“IWL”) the owners and the head charterers had agreed on changing the trading limits. After nine months on the subcharter, the subcharterers discovered the “secret” agreement and attempted to cancel because of the alleged misrepresentation. The judge held that there was an innocent misrepresentation and, normally, the subcharterers would be entitled to rescind the contract. However, when the subcharter was being negotiated, the subcharterers were not induced into entering into the contract because of the agreement to trade outside the IWL.
Under English law, section 2(1) of the Misrepresentation Act 1967 establishes a right for damages when a person enters into a contract on the basis of a negligent misrepresentation. The person making the false statement may escape liability for damages if he can prove that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true. Thus, the burden of proof on the person making the statement is heavy. Section 2(2) a court or arbitrator to exercise discretion to order damages as an alternative to cancellation in the case of a misrepresentation made innocently or negligently but not fraudulently.
In the case of Howard Marine v. A. Ogden, 1978, a misrepresentation by the owners as to the deadweight capacity of two chartered barges caused Ogden to be unable to complete a dredging contract in the planned time. The wrong information resulted because there was an error in Lloyd’s Register of Ships, the standard international reference book of ship information. It was held that the owner of the barges did not have reasonable grounds to believe that the deadweight of the barges was as represented.
Under section 2(1) of the Misrepresentation Act 1967 only the principals to a contract can become liable for damages because of a misrepresentation, even if this is caused by the negligence of the agents. An agent is not personally liable for misrepresentation. In The Skopas, 1983, some of the defendants to the action were agents and shipbrokers. The judge in the case decided that they were not liable in law under the Act.
To summarise, in chartering, if the particulars stated in the negotiations towards a charter are incorrect but lead one party to enter into the charter and the misrepresentation is sufficiently serious to affect the charter and the ship’s performance under the charter, this may lead to cancellation of the charter (“rescission”) and other remedies. Such remedies for misrepresentation arise only when the contract is made.