3. CONTRACTOR’S REMEDIES FOR MISINFORMATION. The contractor, despite this clause, may have a remedy for misinformation given to him by the employer about ground conditions or other risks, in a number of cases:
(a) If the contractor can show that in the contract documents (see F.I.D.I.C.International Conditions cl. 11) or before or at the time when the contract was made, the employer gave any definite information about site conditions, etc., whether verbally or in writing, in a form or in circumstances which implied particularly that the information might be accepted and acted on as correct by the contractor, then the employer may be liable if the information is not correct. The information may be binding either on the grounds that it is a term of the construction contract—a warranty—that the information is correct, or that the employer and contractor have made a collateral contract about the information quite separate from the construction contract. ss
Whether or not a statement is intended to be binding as a warranty depends on the intention of the parties. Their intention is, however, judged objectively—if the form or circumstances of the statement are such that a reasonable person would believe that the employer intended to warrant the information the employer is bound, even though in his own mind he did not intend to do so. It is suggested that a statement about the nature of sub-soil made casually or in passing even in the contract documents does not amount to a warranty, particularly if it is practicable within cl. 11 for the contractor to find out the actual conditions, but that a definite and clear statement made to influence the contractor in pricing may do so, unless it is specifically stated that the information is not guaranteed.
It is clear also that the statement in this cl. 11 that the contractor may take information supplied by the employer into account does not of itself amount to a warranty of the accuracy of that information, which is not made part of the contract and usually is expressly stated not to be guaranteed.
A collateral agreement by which the contractor agrees to enter into the construction contract on the employer’s oral or written promise that certain information is correct need not be made in so many words but may be implied from the parties’ statements and behaviour. Such agreement may be enforced even though it is not referred to in the contract documents and it seems even though it is inconsistent with the terms of the construction contract—e.g. with the usual statement that borehole records or similar information is not guaranteed:
Conditions of sale at an auction set out that no verbal warranty of the quality of any animal being sold was to be effective unless it was written on the purchaser’s account. A cow was put up for auction but its appearance was not impressive enough to produce any bid. The auctioneer then said that there was nothing wrong with the animal and that he would take her back if she turned out not to be as he said.
Held: This verbal assurance was binding and overrode the written condition. uu
If there is in this way a warranty or collateral contract between the parties that, e.g., site onditions are as stated, then the contractor has all the remedies for breach of contract (ch. 16) if they are not so, even if the employer had reasonable grounds for believing that the statement of the conditions was correct.
Although the employer may bind himself, the engineer as such has no apparent authority in relation to the contractor to bind the employer by any assurance outside the contract documents, e.g. as to feasibility of the design, the accuracy of the quantities or the conditions of the site. The employer will not therefore be bound if the engineer gives an assurance on his behalf without special authority, but the engineer may be liable to the contractor for breach of warranty of authority (p. 399).
(b) If a statement is made by the employer which does not become contractually binding under (a) the contractor will nevertheless have remedies if he was induced to make the contract in reliance on the statement and it was made fraudulently or recklessly.
A misrepresentation is fraudulent if it is made knowing that it is not true; reckless if it is made without knowing that it is untrue but “with a reckless indifference whether…(it is) true or false”, “a reckless disregard of the interests of the other contracting party”.
A disclaimer of responsibility for representations will not exclude liability for fraud or recklessness:
The engineer had shown a wall on the contract drawings in a position which he knew was not correct. Held: that the clause in the contract to the effect that the contractor would satisfy himself as to the dimensions, levels and nature of all existing works and that the employer did not hold himself responsible for the accuracy of information given, was no defence to liability to the contractor for fraud.
(c) Formerly the remedies for an innocent misrepresentation, that is, a misrepresentation made without fraud or recklessness, were very limited. Now, under the Misrepresentation Act 1967, the remedies formerly restricted to cases of fraud or recklessness apply to all misrepresentations, unless the contracting party who made the representation 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”. zz
As a result, the remedies for misrepresentation are damages in the case of a negligent or fraudulent misrepresentation, and rescission (i.e. ending of the contract) in the case of such a representation or even a blameless misrepresentation where the contracting party had reasonable grounds to believe that it was true. Obviously a contractor who finds that some soil conditions have been seriously misrepresented may prefer to end his contract rather than perform it at extra cost with the usual delay in recovering the damages to which he may be entitled. However, except in the case of a fraudulent misrepresentation, the remedy of rescission is in the discretion of the court, which may refuse the remedy and grant damages instead. Since no cases have yet been decided on the point, it remains to be seen what the attitude of the courts will be to granting rescission of a construction contract, although clearly a misrepresentation would have to be serious to justify that remedy.
The major restriction on the remedies under this important Act is that a term in a contract which would exclude or restrict any liability or remedy by reason of any misrepresentation made before a contract was made is of no effect except in so far as the term “shall have been a fair and reasonable one to be included having regard to the circumstances which were, or ought reasonably to have been, known to or in the contemplation of the parties when the contract was made”.
Cl. 11 specifically entitles the contractor to take into account information supplied by the employer, and at most limits the contractor’s right to complain of a misrepresentation in such information to cases where it was not practicable for the contractor to discover the error before tender.
The courts are obviously disinclined to allow a party to make a groundless misrepresentation without accepting liability for the consequences. But taking into account general considerations (p. 433) and the uncertainties of the science or art of soil and rock mechanics, this clause is hardly unreasonable in requiring the contractor to test information given to him by making his own inspections, examination and enquiries so far as practicable, provided what is practicable is decided realistically (p. 63). If it is the Act that is applied unrealistically, employers may refrain from giving information.
The engineer will be liable personally for a fraudulent or reckless misstatement, but it is not clear to what extent he may be personally liable under the Act for a negligent misrepresentation. The employer will be liable for a misrepresentation by the engineer if the engineer had special authority to make the representation by giving information to tenderers, see p. 399.
It is relevant both under (a) and under this heading to determine the exact scope of a representation. For example, the wide scope of a statement that, e.g., “the soil is sand” is clear, but to say merely that boreholes were made by the X company and that the following are the results supplied by the company, is a representation that boreholes were in fact made by the particular company and that the results given to the contractors are the results furnished by the company—not that the results are an accurate representation of the soil in the boreholes, or that they are representative of the soil in the area in general. Again, a statement that “in the engineer’s opinion the soil is silt” is only a representation that the opinion is held and at most that he has reasonable grounds for holding the opinion. c′
(d) Concurrently with liability under the Misrepresentation Act, and rather confusingly, the courts have developed a remedy in damages for a negligent misstatement. This liability may give the contractor a remedy against the persons or company which actually carried out the site investigations, the engineer, or even the employer. The remedy is discussed on pp. 394–5.
(e) The fact that information provided by the employer was misleading may be one factor in enabling the contractor to establish a claim under cl. 12—see the next note.
(f) The contractor has independent rights if the actual site conditions result in variations within cl. 51, omissions or misdescriptions in the bill under cl. 55, or in changes in quantities within cl. 56