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Misrepresentation: What is it and what remedies are available?

As a result of the global pandemic, a significant number of UK companies have had no option but to substantially reduce their operations or completely cease trading and close their doors. Whilst certain companies have managed to continue to operate throughout the last year, Covid-19 has resulted in a huge downturn in the number of contracts, both business to business and business to consumer, that have been entered into.

However, as it appears the UK is heading towards a more stable covid-19 situation due to the vaccine programme and other factors, more and more companies are beginning to re-open, commence trading and start to operate to some degree of normality. Confidence is growing and consequently, parties are entering into more contracts. Whilst seeing trade and businesses picking up again is an extremely positive position for the UK economy, certain contracts may give rise to misrepresentation.

What is misrepresentation

Before entering into a contract, often many aspects are discussed between the parties and certain things are said at this time. Whilst some of this will only constitute sales talk, other things will be classed as representations. Representations are essentially statements of opinion which may or may not become terms of the contract, or statements made by one party which has induced the other party to enter into the contract. There is a clear distinction between those which do become a term under the contract and those that do not.

When determining whether a statement is a term of the contract or a representation, the intention of the parties at the time the contract was entered into is important. The key indicators to be considered in examining a party's intention is the timing of the statement, the importance of the statement and the relative knowledge of the parties.

When looking at whether a representation has been made it is assessed on an objective basis, taking into account the impact that the statement may be expected to have on a reasonable person in the position and with the known characteristics of the actual representee.

A misrepresentation is an untrue statement of fact or law made by Party A to Party B, which induced Party B to enter into the contract. Consequently, Party B has experienced some form of loss as a result of the untrue statement. Please note, this can include statements made by an agent acting within his scope of authority. For a misrepresentation to be unlawful, the party to whom it was said must have relied upon it when entering into the contract. If at the time they entered into the contract they had the knowledge that the statement was untrue, they cannot rely on the argument of misrepresentation. Reliance itself is a question of fact and would be assessed on a case-by-case basis.

Types of misrepresentation

• Fraudulent misrepresentation

A fraudulent misrepresentation is a false representation that is made knowingly, or without belief in its truth, or recklessly as to its truth. Therefore, if Party A makes a representation that they know is not true, or are reckless as to whether or not it is true and Party B seeks to rely on it when entering into the contract, consequently Party B suffers a loss. If however, Party A honestly believed that their statement was true, there would not be any fraud element to the misrepresentation.

• Negligent misrepresentation

This type of misrepresentation is detailed within the Misrepresentation Act 1967 and it occurs where a statement is made by one party to the other carelessly or without reasonable grounds for believing its truth. When seeking to claim for negligent misrepresentation, the claimant only needs to show that the statement was false, it is then for the party which made the statement to prove that they believed that the statement was true and that such a belief was reasonable.

• Innocent misrepresentation

Innocent misrepresentation occurs where one party makes a statement which they reasonably believe to have been true, however it subsequently turns out to be false. There is no fault on the parties in this circumstance.

Remedies

When determining what the appropriate remedies are, a claimant must first establish what type of misrepresentation has occurred. Once this has been established, the party can then seek to ascertain which remedies are available to their specific circumstance.

Any of the different types of misrepresentation can make a contract voidable by the claimant and therefore the claimant has a choice as to whether to rescind the contract or to affirm it. In addition, depending on the type of misrepresentation that has occurred, damages may also be sought.

Rescission: This form of remedy seeks to set aside the contract and put the parties back into the position they would have been in before the contract was entered into.

Affirmation: This is where the claimant has chosen to treat the contract as continuing as oppose to rescinding it.

Damages: This type of remedy is case subjective. Where the misrepresentation induced the claimant to enter into the contract, a damages award would aim to put the claimant back into the position they would have been in had they have not entered into the contract.

If you find yourself a party to a contract in which you believe there to be a misrepresentation, you must obtain legal advice as soon as possible.

For more information contact Georgie Read in our Dispute Resolution department at Georgie.Read@forbessolicitors.co.uk or on 0333 207 1149. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Business Dispute Resolution department here

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