Gavin Howe
Misrepresentation is a legal term for any type of falsehood or omission of fact that affects the behaviour of a contractor or other party. It is an important concept in the contract laws of England, Wales, and certain other Commonwealth countries. There are three main types of misrepresentation: fraudulent misrepresentation, negligent misrepresentation, and innocent misrepresentation. These types of misrepresentation are fundamental to understanding contract law and ensuring that unscrupulous or negligent behaviour does not go unpunished.
| Characteristics | Values |
|---|---|
| Definition | Misrepresentation is a legal term for any type of falsehood or omission of fact that affects the behaviour of a contractor or other party. |
| Types | Fraudulent Misrepresentation, Negligent Misrepresentation, Innocent Misrepresentation |
| Fraudulent Misrepresentation | Occurs when a party to a contract knowingly makes an untrue statement of fact which induces the other party to enter that contract. |
| Negligent Misrepresentation | Occurs when a statement is made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate. |
| Innocent Misrepresentation | Occurs when a false statement is made by someone who genuinely believes it to be true and the statement then induces someone to enter into a contract. |
| Remedy | The usual remedy for misrepresentation is rescission of the contract, also with the aim of putting the claimant in the situation they would have been in if they had not entered into the contract. |
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What You'll Learn
- Fraudulent misrepresentation: a false statement made knowingly or without belief in its truth
- Negligent misrepresentation: a statement made carelessly and in breach of duty
- Innocent misrepresentation: a false statement made by someone who believes it to be true
- Misrepresentation act: damages paid instead of contract rescission
- Common law tort of deceit: a fraudulent misrepresenter is liable for all direct consequences
Fraudulent misrepresentation: a false statement made knowingly or without belief in its truth
Fraudulent misrepresentation is a critical concept in contract law, encompassing situations where a party to a contract knowingly makes a false statement of fact, leading the other party to enter the contract. This also includes instances where the party making the statement does not believe in its truth or acts with reckless disregard for its accuracy.
To establish fraudulent misrepresentation, several key elements must be proven. Firstly, there must be evidence of a false statement or misrepresentation of fact. This could be an outright lie, an omission of relevant facts, or a reckless statement made without verifying the information. For example, a seller advertising a used car as having 50,000 miles on the odometer when it actually has 150,000 miles would constitute a false statement.
Secondly, it must be demonstrated that the false statement induced the claimant to enter into the contract. In other words, the misrepresentation must have been a material factor in the claimant's decision-making process. The representation must be relevant and significant enough to positively influence a reasonable person to enter the contract. For instance, a buyer relying on the misrepresented mileage in the previous example would constitute inducement.
Thirdly, it is essential to prove that the defendant knew the statement was false or acted without belief in its truth. This element distinguishes fraudulent misrepresentation from other forms of misrepresentation, such as negligent or innocent misrepresentation, where the defendant may have made a mistake or had no intention to deceive.
Finally, the claimant must show that they relied on the false statement and suffered a loss as a result. This reliance element is crucial in establishing the connection between the misrepresentation and the resulting damages. It is important to note that opinions or predictions do not typically constitute misrepresentation, only statements of fact are considered.
Fraudulent misrepresentation can have significant consequences, including punitive damages awarded to punish the responsible party. It is advisable for individuals who believe they have been victims of fraudulent misrepresentation to seek legal advice promptly and gather substantial evidence to support their claims.
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Negligent misrepresentation: a statement made carelessly and in breach of duty
Negligent misrepresentation is a statement made without the defendant attempting to verify its truth before executing a contract. This is a violation of the concept of "reasonable care", which a party must undertake before entering an agreement. For instance, a real estate agent may state that the roof of a property was recently renovated, when in fact, it needs significant repairs. Despite not intending to deceive, the agent's negligent statement about the roof's condition may have influenced the buyers' decision to make an offer on the property. If the buyers later discover the true state of the roof, they may have grounds to claim damages from the agent for the costs of repairing the roof as the agent was negligent in sharing incorrect information.
Negligent misrepresentation is a tort based on the 1964 obiter dicta in Hedley Byrne v Heller, where the House of Lords found that a negligently-made statement could be actionable if relied upon and if a special relationship existed between the parties. This was further supported by Caparo Industries plc v Dickman, which established that for a claim in negligence to be successful, there must be a special relationship between the parties, resulting in a duty of care.
In the context of contract law, a misrepresentation is an untrue statement of fact that induces a party to enter a contract. It is important to note that misrepresentation applies only to statements of fact, not opinions or predictions. A claim for negligent misrepresentation under common law is typically referred to as a 'negligent misstatement'. The burden of proof for negligent misrepresentation under statute differs from common law, as once the claimant establishes inducement from a false statement of fact, it is up to the defendant to prove they had reasonable grounds to believe their statement was true.
Prior to the Misrepresentation Act 1967, common law recognised two categories of misrepresentation: fraudulent and innocent. The 1967 Act created a new category by dividing innocent misrepresentation into two separate categories: negligent and "wholly" innocent. This recognises that the defendant may have varying degrees of blameworthiness, leading to different remedies for the claimant. Once misrepresentation has been proven, it is presumed to be "negligent misrepresentation" unless the claimant can prove that the defendant's culpability was more serious and the misrepresentation was fraudulent.
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Innocent misrepresentation: a false statement made by someone who believes it to be true
Innocent misrepresentation is one of the three types of misrepresentation in common law, the other two being negligent misrepresentation and fraudulent misrepresentation. Misrepresentation is a legal term for any type of falsehood or omission of fact that influences the behaviour of a contractor or another party. It is an important concept in the contract laws of England, Wales, and certain other Commonwealth countries.
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, and this statement then induces someone to enter into a contract. In such cases, the claimant may get only damages in lieu of rescission. The court has the discretion to award damages instead of rescission; it cannot award both. The court will usually prefer to make an order for rescission.
In the case of innocent misrepresentation, the defendant is at best merely careless and, at best, may honestly believe on reasonable grounds that they have told the truth. For many years, lawyers presumed that damages would be on a contract/tort basis requiring reasonable foreseeability of loss. However, this changed in 1991 with the case of Royscot Trust Ltd v Rogerson.
It is important to note that misrepresentation applies only to statements of fact, not to opinions or predictions. A statement of law that is incorrect will amount to a false statement of fact for the purpose of misrepresentation. For example, in the case of Pankhania v Hackney London Borough [2002], there was a statement that the occupier of a car park could be evicted within three months under the law. This was incorrect and therefore classified as a false statement of fact.
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Misrepresentation act: damages paid instead of contract rescission
In common law jurisdictions, a misrepresentation refers to a false or misleading statement of fact made during negotiations by one party to another, which induces the other party to enter into a contract. The Misrepresentation Act 1967 amended the common law in England and Wales, and its principles have been adopted in other jurisdictions, including the United States and former British colonies like India.
The Act provides that a party (Party B) has a cause of action against another party (Party A) for misrepresentation if Party A makes a false representation of fact that induces Party B to enter into a contract, and Party B did not affirm the contract after learning of the false representation. In such cases, Party B can seek remedies such as rescission of the contract, damages, or both.
However, there are complexities and nuances to consider. Firstly, the type of misrepresentation matters. There are generally considered to be three types: fraudulent, negligent, and innocent misrepresentation. Fraudulent misrepresentation occurs when a party knowingly makes an untrue statement or acts without belief in its truth or with recklessness regarding its truth. In these cases, the claimant can claim both rescission and damages. Negligent misrepresentation involves a representation made carelessly or in breach of a duty owed to the other party. Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, but it still induces someone to enter into a contract.
For negligent misrepresentation, the claimant may be awarded damages as of right under s.2(1) of the Misrepresentation Act and/or damages in lieu of rescission under s.2(2). For innocent misrepresentation, the claimant may only be awarded damages in lieu of rescission under s.2(2). This means that damages can be paid instead of rescinding the contract, but the court has the discretion to make this decision, and the usual remedy is rescission. The court will consider the actual losses suffered by the claimant due to the misrepresentation when deciding whether to rescind the contract or award damages.
Additionally, it is important to note that a claim for negligent misrepresentation under common law is typically referred to as a 'negligent misstatement'. This claim requires a special relationship between the parties, creating a duty of care. The burden of proof is also reversed in negligent misrepresentation claims under statute, as the defendant must prove they had reasonable grounds to believe their statement was true.
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Common law tort of deceit: a fraudulent misrepresenter is liable for all direct consequences
Misrepresentation is a legal term for any type of falsehood or omission of fact that affects the behaviour of a contractor or other party. It is an important concept in the contract laws of England, Wales, and certain other Commonwealth countries. A misrepresentation is an untrue statement of fact that induces a party to enter a contract.
The three types of misrepresentation are innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation. In the context of contract law, a fraudulent misrepresentation occurs when a party to a contract knowingly makes an untrue statement of fact that induces the other party to enter that contract. It also occurs when the party either does not believe the truth of their statement or is reckless as to its truth.
Fraudulent misrepresentation is based on deceit, where a false representation has been made, inducing someone to enter into a contract. It is a serious offence, and the courts will look for evidence of the defendant's knowledge of the falsehood of their statement or their recklessness as to its truth.
A fraudulent misrepresenter is liable in the common law tort of deceit for all direct consequences, regardless of whether the losses were foreseeable. This means that the misled party may rescind the contract and may also be awarded damages. The usual remedy for misrepresentation is the rescission of the contract, with the aim of restoring the claimant to the position they would have been in had they not entered into the contract. Damages may also be awarded to compensate for any losses arising from the breach.
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