Misrepresentation: Do you have a claim?

There can be a fine line between mere sales puff and a misrepresentation. The former simply being part of the general marketing pitch with the latter allowing for the Court to resolve a contractual relationship gone awry.

In our Two-Part Article, we summarise what to look out for when considering if you have been at the receiving end of a misrepresentation and the remedies that may be available to you.

What is a Misrepresentation?

A misrepresentation is an untrue statement of fact, or law, made by Party A to Party B, which ‘induces’ (is of real and substantial relevance in persuading) Party B to enter into a contract causing Party B to suffer a loss.

There must be a contract, be it written down or verbally agreed, and a misrepresentation can occur even where an agent/employee makes the misrepresentation on behalf of their principal/employer. Mere statements of opinion, or statements of an intention that is not subsequently acted upon, do not give rise to a misrepresentation.

Innocent, Negligent or Fraudulent?

In short, an innocent misrepresentation is one which is neither negligent nor fraudulent.

A negligent misrepresentation occurs where Party A makes a misrepresentation to Party B either:

• In a careless manner; or
• Without reasonable grounds to believe that the statement is true.

If Party B can show that the statement made by Party A is false, then Party A must establish that they reasonably believed in the truth of what they stated to avoid liability.

A fraudulent misrepresentation (or a ‘deceit’) is much more difficult to prove. You must show that the misrepresentation in question was made by Party A either:

• Knowingly;
• Without belief in its truth; or
• Recklessly as to whether the statement was true or false (though it might be enough to establish that Party A suspected that their statement might be inaccurate, but that they decided not to enquire as to the statement’s accuracy).

Once a fraudulent misrepresentation is shown, there arises a strong presumption that had it not been for the fraud, then Party B would not have entered into the contract. This presumption is factual (rather than legal) and very difficult to ‘rebut’ (contest).

Additionally, while contributory negligence may be a defence to a negligent misrepresentation (i.e. that Party B should have discovered the misrepresentation after making reasonable enquiries), if Party A makes a fraudulent misrepresentation then it cannot utilise the contributory negligence defence to argue that Party B should have discovered the deceit.

Has the Misrepresentation become a Contractual Term?

It is also possible for a misrepresentation to become a term of the contract. This can include the misrepresentation being within the wording of the contract itself, or through it being appended to the contract.

If this occurs, the misrepresentation can become a condition (an important term going to the heart of the contract) or a warranty (of less importance) within the contract which may give rise to a claim for breach of contract.

Such a claim will depend upon the intention of the parties, but should nonetheless be considered as a further string to your bow in bringing any action.

Negligent Misstatement?

Similar to (but distinctly separate from) negligent misrepresentation, a negligent misstatement may arise from the same set of facts and requires that:

• Party A owe Party B a duty of care not to carelessly make a false statement;
• Party A breaches this duty by making the false statement (and in doing so Party A falls below the required standard of care it owes to Party B);
• Party B relies upon this false statement; and
• The loss of Party B arises from Party A’s false statement.

As negligent misstatement requires Party B to prove both that Party A owed it a duty of care and that this duty was breached, negligent misrepresentation is often preferred as the basis of bringing a claim.

Accordingly, whether negligent misstatement is claimed when bringing proceedings will be part of the delicate balancing exercise in articulating a clear and concise claim as against “throwing in the kitchen sink” to include all bases of a potential claim.

What Next?

Hopefully, this short guide to misrepresentation has helped you to understand the respective issues and also to consider whether you have a potential claim. Whether your concerns may relate to a property that you have purchased or a business that you have acquired, Cardium Law can help explain your options.

In fact, in Part Two of our Article on Misrepresentation we’ll look at the possible remedies available to you, if indeed you have suffered as a result of just such a misrepresentation. If you can’t wait until then, please get in touch with us at daviddavies@cardiumlaw.com or call +44 (0)74 6420 7454.