Keith Mack
Misrepresentation is a false or misleading statement or a material omission that renders other statements misleading, with the intent to deceive. It is mainly based in contract law and is one of several vitiating factors that can affect the validity of a contract. There are four types of misrepresentation: fraudulent misrepresentation, negligent misstatement, negligent misrepresentation, and innocent misrepresentation. The type of misrepresentation categorised is important as they have differing burdens of proof and remedies. For instance, fraudulent misrepresentation is a tort claim that occurs when a defendant makes an intentional or reckless misrepresentation of fact or opinion with the intention to coerce a party into action or inaction. In the case of negligent misrepresentation, the claimant may get damages as of right under s.2(1) and/or damages in lieu of rescission under s.2(2).
| Characteristics | Values |
|---|---|
| Definition | Misrepresentation is a false or misleading statement or a material omission that renders other statements misleading, with the intent to deceive. |
| Types | Fraudulent Misrepresentation, Negligent Misrepresentation, Negligent Misstatement, Innocent Misrepresentation |
| Areas of Law | Contract Law, Consumer Law, Tort Law |
| Proof | The burden of proof varies depending on the type of misrepresentation. For negligent misrepresentation, the defendant must prove they had reasonable grounds to believe the statement was true. |
| Remedies | Remedies for misrepresentation include damages, injunctions, rescission of the contract, and other measures. |
| Examples | Commonwealth v. Scott, Striker v. Graham Pest Control Co., Drew v. Sylvan Learning Center, Corp. |
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What You'll Learn
Common law tort of deceit
Misrepresentation occurs when someone enters into a contract based on a statement that later turns out to be untrue. This false statement can be given in a conversation, meeting, or sales pitch, and need not be a formal written document.
The tort of deceit is a type of legal injury that occurs when a person intentionally and knowingly deceives another person into taking action that causes them harm. Specifically, deceit requires that the tortfeasor makes a false statement that they do not believe to be true, or that they have no reasonable grounds for believing to be true. Deceit also includes the suppression of a fact by someone who is obliged to disclose it or who provides other facts that are likely to mislead.
Fraudulent misrepresentation is based on deceit, where a false representation has been made, inducing someone to enter into a contract. If fraudulent misrepresentation is proved, the court can order the rescission of the contract and damages for any losses arising from the misrepresentation. The defendant is liable for all losses flowing directly from the tort, whether they were foreseeable or not.
Negligent misrepresentation occurs when a statement is made carelessly or without reasonable grounds for believing it to be true. If the statement is proven false, the party who made the statement must show that they reasonably believed it to be true to defend the allegation.
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, and this statement induces someone to enter into a contract. In this case, the court can order rescission of the contract or damages instead of rescission.
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Misleading and deceptive conduct
Misleading or deceptive conduct, often referred to as misleading conduct, is a doctrine of Australian law. It is prohibited by Section 18 of the Australian Consumer Law (ACL), which is found in Schedule 2 of the Competition and Consumer Act 2010. This law mirrors the previous ban on misleading or deceptive conduct in Section 52 of the Trade Practices Act.
The ACL prohibits conduct by corporations, individuals, and financial services in trade or commerce that is misleading or deceptive or is likely to mislead or deceive. Trade or commerce is given its ordinary construction and applies not only to transactions between corporations and consumers but also to anyone providing or acquiring goods or services. This includes all means of communication, such as advertisements, websites, marketing materials, company statements, and media releases.
To establish misleading or deceptive conduct, it must be shown that the conduct was done in trade or commerce and, in all the circumstances, was misleading or deceptive. It is important to note that the ACL applies to representations made to any person or business and that the information provided must be truthful, represent the whole story, have a reasonable basis, and not lead the recipient into error.
Misleading or deceptive conduct is a strict liability offence, meaning it does not matter whether the conduct was intended to mislead or deceive. However, a person will not be deemed to have engaged in misleading or deceptive conduct if they merely pass on information without claiming it as their own or expressly disclaim personal responsibility for what it conveys.
The Australian Competition and Consumer Commission (ACCC), the State-based Fair Trading Offices, and the Australian Securities and Investment Commission are all regulators that target false, misleading, or deceptive conduct.
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Negligent misstatement
Misrepresentation is a vitiating factor that can affect the validity of a contract. In the context of common law, misrepresentation can be fraudulent or innocent. Fraudulent misrepresentation is a tort claim that typically arises in contract law. It occurs when a defendant makes an intentional or reckless misrepresentation of fact or opinion with the intention to coerce a party into action or inaction based on that misrepresentation. To determine whether fraudulent misrepresentation occurred, the court considers six factors, including whether the defendant knew the representation was false, whether the plaintiff relied on the misrepresentation, and whether the plaintiff suffered harm as a result.
To establish negligent misstatement, there must be a special relationship or 'duty of care' between the parties. This duty of care requires the person making the statement to exercise reasonable care to ensure that the information provided is true. A statement of opinion may be treated as a statement of fact if it implies that the person making it has reasonable grounds for their opinion. Negligent misstatement is only actionable in tort if there has been a breach of this duty of care, causing damage to the claimant.
In terms of remedies, for fraudulent and negligent misrepresentation, the claimant may claim rescission and/or damages. For innocent misrepresentation, the court has the discretion to award damages in lieu of rescission but cannot award both.
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Innocent misrepresentation
Misrepresentation is a legal term that refers to a false statement of fact that induces another individual into a contract. It originated in English common law and has been adopted as a legal principle in the United States. There are three types of misrepresentation: innocent, negligent, and fraudulent misrepresentation.
To prove innocent misrepresentation, five basic elements must be established. Firstly, an individual must make a false representation that is false at the time of the transaction and remains false. Secondly, the misrepresentation must be material to the transaction, meaning it concerns an important element. For instance, claiming that a car has 15,000 miles on it when it actually has 150,000 miles would be material. Thirdly, the other party must have substantially relied on the misrepresentation, meaning they would not have gone through with the transaction had they known the truth. Fourthly, the misrepresentation must be a statement of fact, not a statement of opinion or prediction. Lastly, the misrepresentation must induce the other party to enter into a contract.
In terms of remedies, the court has the discretion to award damages in lieu of rescission for innocent misrepresentation. This means that the court can order the cancellation of the contract or award damages to compensate the innocent party for any losses suffered. The court usually prefers to order rescission as it aims to put the claimant in the position they would have been in had they not entered into the contract.
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Breach of contract
Misrepresentation is a false or misleading statement or a material omission that renders other statements misleading, with the intent to deceive. It is one of several vitiating factors that can affect the validity of a contract.
In the context of contract law, a breach of contract occurs when a party fails to perform any term of the contract, including a misrepresentation. A breach of contract claim seeks to put the claimant back in the position they would have been in had the breach not occurred. This may include damages for losses that arose from the breach.
There are four types of misrepresentation:
- Fraudulent Misrepresentation: This is a common law tort of deceit, where a false representation is made with the intention of inducing someone to enter into a contract. It is treated seriously by the courts, which will look for evidence of intent to deceive and reliance on the misrepresentation by the claimant.
- Negligent Misstatement: This is a common law claim that occurs when a false statement is made carelessly or without reasonable grounds for believing it to be true. The claimant must prove that they relied on this statement and suffered a loss as a result.
- Negligent Misrepresentation: This is a statutory claim under the Misrepresentation Act 1967. It occurs when a false statement induces someone to enter into a contract, even if the representor reasonably believed it to be true.
- Innocent Misrepresentation: This occurs when a false statement is made by someone who genuinely believes it to be true, and it induces someone to enter into a contract.
The type of misrepresentation determines the available remedies and the burden of proof. For instance, in fraudulent misrepresentation, the court can order rescission of the contract and damages for loss arising from the misrepresentation. In negligent misrepresentation, damages may be awarded instead of rescission, and the burden of proof is reversed, with the defendant having to prove they had reasonable grounds to believe the statement was true.
Understanding the type of misrepresentation is crucial when determining whether a breach of contract claim or a misrepresentation claim is more appropriate. If a false statement is part of a signed contract, a breach of contract claim may be more suitable.
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Frequently asked questions
Misrepresentation is a false or misleading statement or a material omission that renders other statements misleading, with the intent to deceive. It is mainly based in contract law.
There are four types of misrepresentation: fraudulent misrepresentation, negligent misstatement, negligent misrepresentation, and innocent misrepresentation.
Fraudulent misrepresentation is a tort claim that occurs when a defendant makes an intentional or reckless misrepresentation of fact or opinion with the intention to coerce a party into action or inaction based on that misrepresentation.
Negligent misrepresentation occurs when a statement is made carelessly or without reasonable grounds for believing it to be true, and the claimant relies on this statement and suffers a loss as a result.
Innocent misrepresentation occurs when a false statement is made by someone who genuinely believes it to be true, which then induces someone to enter into a contract.
