I have been dealing with a very complex case involving misrepresentation and thought I would share a few pointers in respect of this complex are of contract law.

The law in misrepresentation can be very complicated because not only are you dealing with the effects of Contract Law but as a result of losses which may be sustained due to the breach of the contract you have entered into there may also be a claim in Tort. Torts are civil wrongs resulting in an injury or harm constituting the basis for a claim by an injured party. The first aim of tort law is to provide compensation for the damages suffered by you and to deter others people from committing similar acts. Among the types of damages you as the injured party may recover are: loss of earnings capacity, loss of income etc and these include both present and future expected losses.

A Misrepresentation is a statement of fact which is made by a party/parties or their agent in respect of the terms etc of a contract which induces another party/ies to enter into the contract but which does not form part of the contract.

The misrepresentation must relate to some existing fact or some past event ( e.g.: if A was selling a property to B and stated that the area of land being sold was 400 sq metres when it was in fact 300 sq metres then this would be a clear misrepresentation of the facts).

You must remember that a misrepresentation does not render a contract voidable unless it was intended to cause and has in fact caused the party to enter a contract. It must have produced a misunderstanding in your mind, and that misunderstanding must have been one of the reasons you were induced to make the contract. Therefore you will have no claim for misrepresentation if you did not:

(a) know of its existence

(b) allow it to affect your judgement or

There are various forms of misrepresentation; the two most serious of which are

(a) Fraudelent Misrepresentation. In the leading case of Derry v Peek, Lord Herschell, stated that the definition of fraudulent misrepresentation was if a false statement was made

(1) knowingly, or

(2) without belief in its truth, or

(3) recklessly, careless whether it be true or false’,

The Judge went on to state that the rule is accurately and comprehensively contained in the short formula that a fraudulent misrepresentation is a false statement which, when made, the representor (the person asking you to enter the contract) did not honestly believe to be true.

And;

(b) Negligent Misrepresentation. For negligent misrepresentation to exist there has to be two elements to an agreement:

There must be a fiduciary relationship between you and the party you are entering into an agreement with. e.g Between you and your Solicitor, or, you and an architect
There must have been a negligent pre-contract statement made.

Two leading cases in negligent misrepresentation are Hedley Byrne & Co Ltd v Heller & Partners Ltd and Midland Bank Trust Co Ltd v Hett, Stubbs and Kemp and if you read these cases they will give you an overview of what constitutes negligent misrepresentation.

You must remember that if you knew that a representation made by a party to an agreement you enter into was false prior to your signing such agreement you cannot state that you have been misled by the statement and therefore cannot bring a claim for damages or have the contract set aside.

A misrepresentation does not render a contract voidable unless it was intended to cause and has in fact caused the a party to enter a contract. It must have produced a misunderstanding in your mind, and that misunderstanding must have been one of the reasons which induced you to make the contract. It is the general rule that if you can prove that there has been a misrepresentation then you may be able to have the agreed contract set aside (this is called recission of a contract). Misrepresentation makes a contract voidable and not void.

DO NOT PRESUME THAT BECAUSE YOU BELIEVE THERE HAS BEEN A MISREPRESENTATION THAT THE CONTRACT IS NOT A GOOD CONTRACT. A CONTRACT WILL REMAIN VALID UNLESS AND UNTIL IT IS SET ASIDE BY YOU (the representee) .

Once you have discovered the misrepresentation you can decide whether:

to continue with the contract; OR
set the contract aside.

Lord Atkinson set the position out clearly: “Where one party to a contract expresses by word or act in an unequivocal manner that by reason of fraud or essential error of a material kind inducing him to enter into the contract he has resolved to rescind it, and refuses to be bound by it, the expression of his election, if justified by the facts, terminates the contract, puts the parties in statu quo ante and restores things, as between them, to the position in which they stood before the contract was entered into”.

Having decided to progress with or terminate the contract you cannot change your mind, there are of course always exceptions to the general view but I am just going to deal with the general rule in this article.

If you have sustained financial losses (such as loss of income, etc.) as a result of being induced to enter a contract through misrepresentation you may be able to make a claim under both common and statutory law under section 2 (1) of the Misrepresentation Act which provides that:

“where a person has entered a contract after a misrepresentation has been made to him by another part thereto and a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

It should be noted that this sub-section assumes all non-fraudulent statements to be negligent and puts the burden on the maker of the statement to disprove negligence.

It is very important that if you decide to bring proceedings for losses suffered by you in a claim for misrepresentation that you do the following:

Prepare the claim form stating clearly that you are alleging not only misrepresentation but also fraud and negligence, this ensures that you cover all possible scenarios, especially if you are unsure whether the misrepresentation would be considered to be fraudulent or a negligent statement. You must then set out clearly the following matters in your statement of claim where you wish to rely on them in support of your claim:

(1) any allegation of fraud,

(2) details of any misrepresentation,

(3) details of all breaches of trust (negligent misrepresentation),

(4) notice or knowledge of a fact,

(5) any facts relating to mitigation of loss or damage,

(6) a copy of the contract or documents constituting the agreement should be attached to or served with the particulars of claim and the original(s) should be available at the hearing, and

(7) any general conditions of sale incorporated in the contract should also be attached (but where the contract is or the documents constituting the agreement are bulky attach or serve only the relevant parts of the contract or documents.

(8) Where a claim is based upon an oral agreement, the particulars of claim should set out the contractual words used and state by whom, to whom, when and where they were spoken.

(9)Where a claim is based upon an agreement by conduct, the particulars of claim must specify the conduct relied on and state by whom, when and where the acts constituting the conduct were done.

(10) In a claim issued in the High Court relating to a Consumer Credit Agreement, the particulars of claim must contain a statement that the action is not one to which section 141 of the Consumer Credit Act 1974 applies.

As stated this article is just an overview of this vast subject and is for information purposes only.

Deborah Aloba

Affordable Law For You Limited

This blogpost is for information purposes and should not be relied upon as legal advice because it does not consider or take into account your own personal circumstances. If in doubt, seek legal advice.