A misrepresentation is a false statement of fact or law 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 statement turns out to be untrue. There are three types of misrepresentation: innocentmisrepresentation, negligent misrepresentation and fraudulent misrepresentation.
The affect of a finding of misrepresentation is the contract is voidable ie the contract exists but may be set aside by the representee. The remedy available depends on the type of misrepresentation, but generally consists of rescission and or damages. The right to rescind the contract may be lost in some circumstances. The law relating to misrepresentation is mainly found in common law with the Misrepresentation Act 1967 providing some further details.
In order to amount to an actionable misrepresentation certain criteria must be satisfied:
False statement
There must be a false statement of fact or law as oppose to opinion or estimate of future events:
Unless it is a contract of uberrimae fidei. ie one of utmost good faith such as an insurance contract or where the representor is in a fiduciary position. In such contracts a duty exists to disclose all material facts and a failure to do so may give rise to an action for misrepresentation.
Once it has been established that a false statement has been made it is then necessary for the representee to demonstrate that the false statement induced them to enter the contract. There can be no inducement or reliance if the representee was unaware of the false statement:
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 misrep in order to determine the available remedy. A misrepresentation can be classed as either:
Fraudulent misrepresentation
Negligent misrepresentation under s.2 (1) Misrepresentation Act 1967
Negligent Misrepresentation under the Misrepresentation Act 1967
Under s.2(1) Misrepresentation Act 1967, a negligent misrepresentation is a statement made without reasonable grounds for belief in its truth. The burden of proof being on the representor to demonstrate they had reasonable grounds for believing the statement to be true.
An innocent Misrepresentation exists where the representor can demonstrate reasonable grounds for belief in the truth of the statement. See s.2(1) MA 1967
Remedies
Remedies available for misrepresentation are dependent on the type of misrepresentation. For all types the remedy of rescission is available. This is putting the parties back in their pre-contractual position. Each party gives back the benefit which they have received under the contract. However, it is not always possible to rescind the contract and in some circumstances the right to rescind may be lost.
Remedies for fraudulent misrepresentation
Where there has been a fraudulent misrep, the innocent party is entitled to rescind the contract and claim damages. The damages that are awarded are not based on contractual principles but the damages available in the tort of deceit. There is thus no requirement that the damages are foreseeable:
S.2(1) Misrepresentation Act 1967 states that the same remedies are available where the statement was made negligently as if it were made fraudulently. Royscott v Rogerson confirmed that the principle in fraudulent misrep relating to tortious damages applied also in negligent misrep:
Under s.2(2) Misrepresentation Act 1967 the remedies for an innocent misrep are rescission or damages in lieu of rescission. The claimant cannot claim both. Damages are assessed on normal contractual principles.
Bars to rescission
The right to rescind the contract may be lost where a third party acquires rights, where the representee affirms the contract, through lapse of time or where restitution in integrum impossible.
3rd party acquires rights
If a third party acquires rights in the goods, eg where they have been sold on or subject to a charge or mortgage, rescission will not generally be granted as it will prejudice the third party. If however, the representee does an act to rescind the contract before a sale has taken place the 3rd party has not acquired any rights:
If the representee does an act to adopt the contract, or demonstrate a willingness to continue with the contract after becoming aware of the misrepresentation they will lose the right to rescind:
The right to rescind will be lost after a lapse of time. If the misrep is negligent or fraudulent, time only starts to run from discovery. If a wholly innocent misrep time runs from the entering of the contract:
Leaf v International Galleries [1950] 2 KB 86 (Case summary)
Restitution in integrum impossible
Where it is impossible to restore the parties to their precontractual position, eg where the goods have perished or have been consumed, the right to rescind will be lost.
