A misrepresentation claim arises when one party to a contract (the representor) made a false statement of fact that induced the other party (the representee) to enter into the contract. Common law and the Misrepresentation Act of 1967 (MA 1967) govern claims for misrepresentation. In this article, Misrepresentation Claims, we take a look at the process involved and the options available to you.
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What is misrepresentation?
Typically, when entering into a business contract, a number of statements describing the deal’s context and specifics are made. This is misrepresentation if someone engages into a contract based on a statement that later turns out to be false. It is not necessary for the false statement to be in a formal written document; it can be information provided in a conversation, meeting, or sales proposal.
If misrepresentation can be proven, the court may void the contract and, if a loss has occurred, may also award damages.
There are primarily three categories of misrepresentation:
- Negligent misrepresentation
- Fraudulent misrepresentation
- Innocent misrepresentation
Negligent misrepresentation
When a negligent statement is made and the claimant relies on it and suffers a loss as a result, this constitutes negligent misrepresentation.
Negligence occurs when a statement is made negligently or in the absence of reasonable grounds for believing it to be true.
If the statement can be shown to be false, the party who made it must demonstrate that they had a reasonable belief that it was true in order to defend against a claim of negligent misrepresentation.
In the event that negligent misrepresentation is proven, the Misrepresentation Act of 1967 permits the payment of damages in lieu of contract cancellation. Misrepresentation damages may also be awarded for the resulting loss. Again, the loss need not be reasonably foreseeable.
Fraudulent misrepresentation
Fraudulent misrepresentation is based on deceit, where a false representation has been made which has induced someone to engage into a contract. It is applicable when a deceptive statement is made:
- Knowingly; and
- Without having faith in its veracity; or
- Recklessly or casually regarding whether it is true or false.
The courts consider this type of misrepresentation seriously and will look for evidence of the following:
- A misleading statement was made to the claimant;
- The defendant either knew that the statement was false or was negligent as to whether or not it was accurate;
- The claimant was intended to rely on the false statement;
- The claimant sustained a loss as a result of relying on the representation.
The claimant must demonstrate that the defendant possessed the requisite state of mind, i.e., that he or she knew the statement was false or was heedless as to whether it was true or false, which is typically demonstrated by inference. When severe misconduct is alleged, the court may be more inclined to infer the necessary state of mind.
Additionally, it must be shown that the claimant would not have entered into the contract if not for the misrepresentation. The court will inquire, “But for the misrepresentation, could the claimant have acted differently?” before rendering a verdict.
If fraudulent misrepresentation is proven, the court can order the contract to be rescinded as well as compensation for any losses caused by the misrepresentation. There is no requirement that the loss be reasonably foreseeable.
Innocent misrepresentation
A person commits innocent misrepresentation when they make a false statement while sincerely believing it to be true, and the statement then induces another party to engage into a contract.
If the case is proven, the court may order rescission of the contract as a remedy or, if damages are also available, damages instead of rescission. However, rescission is the court’s preferred remedy.
What remedies are available for misrepresentation
In cases of fraudulent or negligent misrepresentation, it may be possible for you to rescind the contract (i.e., terminate it) and seek compensation. If you are interested in claiming rescission, it is imperative that you seek legal counsel immediately. This is to ensure that you do nothing that could be construed as an affirmation of the contract by signalling to the other party that you are content for the contract to continue.
For innocent misrepresentation, the nature of the redress you are entitled to will depend on the circumstances. But in most cases a court will order compensation rather than rescinding the contract, especially when no actual damage has been caused. The amount awarded will attempt to place you in the position you would have been in if the misrepresentation had not occurred, such as by reimbursing you for any possible overpayments.
If you intend to file a claim against a company and allege fraudulent misrepresentation, you can file a claim against both the company and any director who made the statement.
Notably, if the alleged misrepresentation is contained within the contract, you may be able to initiate a breach of contract claim instead of a misrepresentation claim. In this instance, the available remedies depend on whether the statement can be classified as a condition, a warranty, or something in between (known as an innominate term). The most important aspect of a violation of contract claim is that the available compensation is typically greater than for misrepresentation.
How we can help
We have a proven track record of helping clients deal with the process involved in misrepresentation claims. We will guide you diligently and ensure all checks are carried out swiftly and efficiently. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting. You can read more about the range of corporate services we offer by clicking here: https://blackstonesolicitorsltd.co.uk/corporate-legal-services/
How to contact our Corporate solicitors
It is important for you to be well informed about the issues and possible implications of a misrepresentation claim. However, expert legal support is crucial in terms of ensuring a positive outcome to your case.
To speak to our Corporate solicitors today, simply call us on 0345 901 0445, or click here to make a free enquiry. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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