Chapter 9: Misrepresentation

• Misrepresentation claim

  Requires a false statement of fact or law to be made by one party to another to induce them to enter into a contract
• Statement addressed to the innocent party

  • A clear and unambiguous pre-contractual statement must have been made to the innocent party either by the party making the misrepresentation or by a third party
• False statement of fact or law

  • To be actionable, the misrepresentation must be a false statement of fact in either words or conduct or law
  • Faults for these purposes means not substantially correct
  • Statements of fact or statements of present or past conditions
  • A statement of opinion is not a statement of fact as long as the opinion is honestly, genuinely and reasonably held
  • A promise goes beyond a statement of fact and therefore not a representation
  • A statement about future events cannot be a statement of fact as there is no way of knowing the truth when the statement is made
  • A statement of intention may be a misrepresentation if the person making the statement knew that it was false when they made it
• Silence

  Silence will not usually amount to an actionable misrepresentation - there needs to be a false statement, under the law of contract, there is no general duty on a party to disclose facts. However, disclosure can be required in fiduciary relationships, where there is a duty of trust and confidence between the parties
• Uberrimae Fidei (Utmost good faith)

  There are certain contracts where it is incumbent on the parties to make full disclosure, the reason is that one of the parties has knowledge essential to the contract which is impossible for the other party to check
• Partial non-disclosure

  A partial non-disclosure or half-truth is essentially a statement that is technically true but misleading, it can amount to actionable misrepresentation
• Failure to correct a representation

  There may be an actionable misrepresentation if a representation made at the outset of negotiations is initially true but it becomes false before the contract is entered into, the maker of the statement has a duty to correct the information as silence in this situation is not acceptable
• Representation or term of the contract - induces the innocent party to enter into the contract

  • For there to be an actionable misrepresentation, the false statement of fact or law must have induced the innocent party to enter into the contract
  • The representation does not have to be the only reason the innocent party entered into the contract but it needs to be a substantial reason
  • When the courts are considered inducement, they will need to consider whether the representation was material and whether viewed objectively a reasonable person in the claimant's position would have been influenced by the false statement
  • If the innocent party did not believe the statement to be true or was not aware of the statement or if the statement was not actually communicated or did not affect the innocent party's decision to enter into the contract then no actionable misrepresentation will have occurred
  • A court may dismiss a statement which appears to be no more than advertisers as a mere puff and conclude that it cannot have induced the innocent party to enter into the contract
• Types of misrepresentation

  • Fraudulent misrepresentation
  • Negligent misrepresentation
  • Innocent misrepresentation
• Fraudulent misrepresentation

  Fraudulent misrepresentation has its origins in the tort of deceit, it requires an element of fraud, the statement was made 1) knowingly 2) recklessly or 3) without reasonable belief in its truth, fraudulent misrepresentation is very difficult to prove
• Negligent misrepresentation

  Negligent misrepresentation is a cause of action for damages in contract created by the Misrepresentation Act 1967, under the act any misrepresentation is actionable unless the person making the statement can prove that they had reasonable grounds for believing and did not believe until the contract was entered into that the facts were presented were true, as a burden of disproving negligence is on the party making the representation, negligent misrepresentation is an easier claim for the claimant to bring than fraudulent misrepresentation
• Innocent misrepresentation

  An innocent misrepresentation is a representation that is not made fraudulently or negligently, the maker of the statement has reasonable grounds for believing that it's true
• Remedies

  • Contract is voidable
  • Rescission
  • Indemnity
• Notification required

  The innocent party must notify the other party of their intention to rescind the contract or obtain a court order to that effect, in the absence of notification or a court order, the party that has made the representation is entitled to treat the contract as ongoing
• Indemnity

  If the innocent party wishes to rescind the contract, the court may order an indemnity from the party who has made the misrepresentation, the purpose of the indemnity is to assist in restoring the parties to the pre-contractual position and it is paid to cover any expenses or obligations necessarily incurred as a result of entering into the contract
• Bars to rescission

  • Affirmation
  • Lapse of time
  • Impossibility of restitution
  • Third party rights
• Affirmation

  If upon discovering the misrepresentation the innocent party decides to carry on with the contract they are said to affirm it so decision is not available at a later date, affirmation can only occur if the affirming party has full knowledge of the misrepresentation
• Lapse of time

  If the innocent party delays in rescinding they may lose the right altogether through lapse of time
• Impossibility of restitution

  If it is impossible to restore the parties to their pre-contractual position because the goods in question have declined in value or the nature of the subject matter has changed substantially, the innocent party loses the right to rescind and will only be able to bring an action for damages if substantial restoration is possible
• Third party rights

  If a bona fide third party has acquired any rights under the contract, rescission will not be possible
• Damages for fraudulent misrepresentation

  An action for fraudulent misrepresentation is based on the tort of deceit and so any claim for damages will be made under tortious basis, such damages are intended to put the innocent party back into the position they would have been in had the representation not being made, the innocent party can recover all their losses incurred as a result of the transaction, they do not need to prove that their losses were reasonably foreseeable
• Damages for negligent misrepresentation

  The Misrepresentation Act creates a right of action for damages for negligent misrepresentation, the measure of damages is the same as for fraudulent misrepresentation on the basis of the tort of deceit, as well as damages under the Misrepresentation Act the innocent party may have a cause of action in tort for negligent misstatement
• Damages for innocent misrepresentation

  As a general rule damages are not available for innocent misrepresentation, however this does not preclude damages being awarded by the court in lieu of rescission pursuant to the Misrepresentation Act
• Damages in lieu of rescission

  Under the Misrepresentation Act the court has discretion to award damages instead of ordering rescission for negligent or innocent misrepresentation, normally if the misrepresentation had not been made, the innocent party would not have entered into a contract, they will recover losses incurred as a result of entering into the contract and also any incidental expenditure, the innocent party can recover damages even if they have rescinded the contract, the innocent party is required to take all reasonable steps to mitigate their loss once the misrepresentation has come to light and any damages received will be reduced by the value of any benefit has received as resolved entering into the contract
• Remedies by type of misrepresentation

  • Fraudulent misrepresentation:
  • Rescission available
  • Damages for deceit available
  • Damages in lieu of rescission not available
  • Negligent misrepresentation:
  • Rescission available
  • Damages available unless misrepresented can prove that misrepresentation was innocent
  • Damages in lieu of rescission available
  • Innocent misrepresentation:
  • Rescission available
  • No damages available
  • Damages in lieu of rescission available
• Exclusion clauses

  Any attempt to exclude liability or any remedy for misrepresentation will be void unless it is reasonable, the reasonableness test is the same as the Unfair Contract Terms Act 1977, an exclusion of liability for fraudulent misrepresentation is unlikely to be reasonable