Facts
- Ogden, the defendants, hired two barges from Howard Marine, the plaintiffs.
- Howard Marine provided incorrect cargo capacity figures, relying on Lloyd’s Register, a shipping reference.
- The accurate capacities were available in the barges’ German documents, which Howard Marine possessed but failed to consult.
- Ogden relied on the figures given and entered into a contract, later discovering the true capacities differed.
- The dispute centered on the false statement affecting the contract, and the allocation of responsibility for it.
Issues
- Whether Howard Marine’s reliance on Lloyd’s Register, despite having access to correct German documents, constituted negligence under section 2(1) of the Misrepresentation Act 1967.
- Whether the burden of proof under section 2(1) required Howard Marine to show reasonable grounds for believing the statement was true.
- How the allocation of responsibility for pre-contractual misstatements is determined in light of section 2(1).
Decision
- The Court of Appeal held Howard Marine made a negligent misstatement by not checking the correct German records.
- The ruling clarified that section 2(1) of the Misrepresentation Act 1967 shifts the burden to the representor to establish an honest and reasonable belief in the truth of their statement.
- Howard Marine failed to demonstrate reasonable grounds for their belief, given their access to the accurate records.
- Damages were to be awarded as if the representation had been made fraudulently, unless the representor discharged the statutory burden, which Howard Marine did not.
Legal Principles
- Section 2(1) of the Misrepresentation Act 1967 mandates that a representor who has made a false statement must prove they had reasonable grounds to believe its truth.
- The test combines honesty with objective reasonableness, requiring proper checks and factual basis for statements.
- Misrepresentation liability is more readily established in commercial negotiations when the representor fails to verify available information.
- The case highlights the importance of accuracy and documentation in statements during contractual negotiations.
Conclusion
Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 is a leading authority on the allocation of responsibility for negligent misstatements in contract law, establishing that the representor bears the burden of proving a reasonable basis for belief in their statements under section 2(1) of the Misrepresentation Act 1967, thereby emphasizing the necessity for diligence and substantiated accuracy in contractual dealings.
