Misrepresentation
A misrepresentation is a false statement of fact which induces the representee to enter a contract. Where a statement made during the course of negotiations is classed as a representation rather than a term an action for misrepresentation may be available where the state- ment turns out to be untrue. The affect of a finding of misrepresentation is the contract is voidable i.e. the contract exists but may be set aside by the representee.
It is important to bear in mind that although the false statement may have induced the contract, it does not form part of the contract obliga- tions. If the statement had been regarded by the parties as sufficiently important to form part of the contract obligations, it would then be classed as a term of the contract and if the term turned out to be false, the appropriate remedies for breach of contract would be available.
1. There must be a false statement
First, it must be illustrated that there was a false “statement of fact” as oppose to statements of opinion, law or future intentions. However, a statement of opinion may amount to misrepresentation where the representor was in a position to know the facts (Smith v Land and House Property Corp); and a statement as to future intent will amount to misrepresentation where the representor had no intention of carrying out the stated intent (Edgington v Fitzmaurice).
The false statement may be made orally or in writing, or it may be inferred from a person’s behaviour – but silence will not constitute mis- representation, except in cases:
- involving a half-truth where one party makes a statement which is true in itself but keeps silent about some fact which distorts the positive statement made;
- where an original statement, true when made, becomes incorrect because of a change of circumstances before the contract is formed;
- where the parties enjoy a relationship of trust and wish to contract with each other, they are under a duty to disclose material facts
- where the contract is one involving utmost good faith (e.g. all insurance contracts), there is a duty to disclose material facts.
2. There must be reliance/inducement
Once it has been established that a false statement has been made, it is then necessary for the representee to demonstrate that the false state- ment induced them to enter the contract. There can be no inducement or reliance on the statement if:
- the representee knew the statement was false; or
- was unaware of the statement (Horsfall v Thomas); or
- they did not allow the statement to affect their decision to contract (Smith v Chadwick); or
- they relied on their own investigations (Attwood v Small)
If the representee is capable of checking the validity of the statement, but does not, the representee is still able to demonstrate reliance on the statement (Redgrave v Hurd). The false statement need not be the only reason for making the contract (Edrington v Fitzmaurice).
3. Types of Misrepresentation
Once it has been established that a false statement was made and that it induced the contract, it is necessary to determine the type of mis- representation in order to determine the available remedy.
Misrepresentation can be:
- Fraudulent
Fraudulent misrepresentation is a false statement made either: (i) knowing it to be false, without belief in its truth, or (ii) recklessly, care- less as to whether it is true or false. The burden of proof lies on the claimant, and it must be shown that the representor had a “wicked mind” (Derry v Peek).
- Negligent
- negligent misstatement at common law (tort based)
- negligent misrepresentation under s21(1) Misrepresentation Act 1967 (statute based) A statement is negligent if the maker had no reasonable grounds for believing it to be true.
For negligent misstatement, the false statement does not need to induce the contract. It must be proved that a duty of care was owed to the plaintiff by the defendant (the existence of a “special relationship”), and there must be a breach of duty and resulting damage. The burden of proof also lies on the representee to prove his case.
For negligent misrepresentation, it will only be available where the false statement induced the contract. No duty of care need be proved. The representee must prove that a misrepresentation has been made which has caused him loss and then, the representor to demonstrate they had reasonable grounds for believing the statement to be true (Howard Marine v Ogden).
- Innocent
Innocent misrepresentation is where the maker of the statement honestly believed that his statement was true, and he had reasonable grounds for believing it to be true.
4. Available Remedies for Misrepresentation
- Rescission – available to all
Any form of misrepresentation renders the contract voidable, i.e. to have the contract set aside and restore the parties to their pre- contractual positions as if it had never existed. However, the remedy is equitable and discretionary and not only may the court exercise its discretion against you, but rescission might also be unavailable where:
- It is impossible to restore the parties to their pre-contractual position (Erlanger); or
- If the representee discovered the misrepresentation and took no action to set the contract aside (Long v Lloyd); or
- If the representee delayed too long (Leaf v International Galleries); or
- If third party rights have intervened (Car and Universal Finance v Caldwell), i.e. A, the representee, sells X on credit to B, the representor, on the basis of B having misrepresented his identity. B then sells X to C, a third party.
In some cases where it is impossible to achieve an exact restoration, the court is prepared to “iron out” small differences by payment of an indemnity. An indemnity payment is not damages.
2. Damages
All misrepresentations lie outside the contract and it therefore follows that there can be no damages available in the law of contract.
- Fraudulent Misrepresentation
This amounts to the tort of “deceit” – damages in tort are available for all loss that flows directly from the contract, even if the claimant’s loss was not foreseeable (Doyle v Olby).
- Negligent Misrepresentation
The same remedies are available as if the statement was made fraudulently (Royscot Trust v Rogerson). This amounts to the tort of “deceit” – damages in tort are available for all loss that flows directly from the contract, even if the claimant’s loss was not fore- seeable (Doyle v Olby).
- Negligent Misstatement
This amounts to an ordinary claim for damages in the tort of negligence. Tort based damages are designed to put the injured party into the position he would have been in if the tort had not been committed, but only actual (foreseeable) losses are recoverable.
- Innocent Misrepresentation
The remedies for an innocent misrepresentation are rescission or damages in lieu of rescission. The claimant cannot claim both (s.2(2) Misrepresentation Act 1967)
