Contract Law: Misrepresentation

A misrepresentation is an unambiguous, false statement of existing fact or law, made by one party to the other, which induces that other party to enter the contract. Where it is established, the contract is voidable, and the remedies depend on how culpable the misrepresentation was. This guide works through each requirement, the three types, and the often-misunderstood remedies.

1. A Statement of Fact, Not Opinion or Intention

A mere statement of opinion is not actionable, because it is not an assertion of fact.

The position differs where the speaker has special knowledge or is in a better position to know the facts. An opinion given by such a person may carry an implied representation that they have reasonable grounds for it.

Silence and changing circumstances

Silence is generally not a misrepresentation, since there is usually no duty to disclose. The major exceptions are half-truths (a literally true statement that misleads), contracts of utmost good faith (such as insurance), and a statement that was true when made but becomes false before the contract is concluded.

2. Inducement

The statement must have induced the claimant to contract. It need not be the only reason, but the claimant must actually have relied on it. There is no defence that the claimant could have discovered the truth but did not (Redgrave v Hurd), although a claimant who relies entirely on their own investigation has not been induced (Attwood v Small).

3. The Three Types of Misrepresentation

Fraudulent

A fraudulent misrepresentation is a false statement made knowingly, without belief in its truth, or recklessly as to whether it is true.

Negligent

A negligent misrepresentation can be claimed at common law where there is a special relationship (Hedley Byrne v Heller), but in a contractual setting the claimant will almost always prefer section 2(1) of the Misrepresentation Act 1967. Under section 2(1) the representor is liable as if fraudulent unless they prove they had reasonable grounds to believe, and did believe, that the statement was true. This reverse burden of proof makes it a powerful claim.

Innocent

An innocent misrepresentation is one made with reasonable grounds for belief in its truth. The primary remedy is rescission, with damages only in lieu under section 2(2).

4. Remedies

Rescission

Rescission sets the contract aside and returns the parties to their pre-contract positions. Being equitable, it is barred by affirmation, lapse of time, the intervention of innocent third-party rights, or where restitution is no longer substantially possible.

Damages

For fraud, damages lie in the tort of deceit and cover all losses flowing directly from the misrepresentation, whether or not foreseeable (Doyle v Olby). Damages under section 2(1) are assessed on the same generous deceit basis. Under section 2(2) the court has a discretion to award damages in lieu of rescission for a non-fraudulent misrepresentation where that is equitable.

5. Worked Example

ISSUE: can the buyer claim for misrepresentation? RULE: a false statement of fact that induces the contract is actionable; under s.2(1) the seller is liable as if fraudulent unless they prove reasonable grounds for belief. APPLICATION: the takings figure is a statement of fact, it induced the purchase, and the seller, having failed to check, will struggle to discharge the s.2(1) burden of showing reasonable grounds. CONCLUSION: the buyer can likely rescind and claim damages under s.2(1).

Examiner Insights

Conclusion

Misrepresentation rewards a methodical structure: prove a false statement of fact, prove inducement, classify the type, then match it to the right remedy. Section 2(1) of the 1967 Act is the workhorse of the topic, so know its reverse burden cold.