Misrepresentation — What Remedies Can I Seek?

Misrepresentation is a crucial area of law rooted in statute and comprehensively developed in case law. It protects contracting parties who rely on statements, whether in the contract or during pre-contract negotiations, that turn out to be false or misleading.

There are different classifications of misrepresentation, and a range of remedies for those who suffer loss as a result.

In this article, we consider the various types of misrepresentation, how to prove a claim, and what remedies may be available to you to compensate for financial loss.

Understanding Misrepresentation: What Counts and When It Occurs

Misrepresentation occurs when you enter into a contract relying on a statement made by the other contractual party that turns out to be false, and you suffer a loss because of it.

It applies only to factual statements, not to predictions, conjecture, or opinions. In fiduciary relationships such as solicitor and client, misrepresentation can occur by omitting key facts that would influence the other party’s decision.

The Misrepresentation Act 1967 regulates misrepresentation in England and Wales, providing remedies for claimants who have acted on misleading or false statements.

The Act allows remedies such as damages for financial loss flowing from the false or misleading statement and rescission of contracts.

There are different types of misrepresentation depending on the circumstances and the intent of the person who made the misleading statement. What counts for a successful claim is demonstrable reliance on a false or misleading statement and consequent loss.

Fraudulent Misrepresentation

Fraudulent misrepresentation is when a contractual party makes a statement they know to be untrue, or they are reckless about its truth.

For a court to find that there has been a fraudulent misrepresentation you will need to show that the defendant knew the statement was false or was reckless about its factual basis, you relied on it and then suffered loss as a consequence.

Negligent Misrepresentation

Accusing someone of fraud is a serious thing to do and the court will require a lot of evidence to make such a finding.

The remedies for negligent misrepresentation are also extensive and it can often be more advisable to focus on a claim for negligent misrepresentation.

Negligent misrepresentation is when the defendant made a false statement carelessly or without reasonable grounds to believe its truth. If you can evidence that the statement is untrue, then the defendant must prove that they were not negligent.

Innocent Misrepresentation

Innocent misrepresentation is just that, an innocent mistake about some essential aspect of the agreement that the other party has relied on to their detriment.

Remedies and Reliefs: Damages, Rescission, and Other Orders

Damages and Rescission in Misrepresentation

Part of successfully proving misrepresentation is demonstrating loss. The defendant is liable for losses arising from the false statement. You could claim damages that can be foreseeable and unforeseeable as long as they flow from the false statement.

A claimant can also seek rescission of the contract, effectively cancelling the agreement and returning the parties to their pre-contract positions.

You can request damages and rescission. The availability of rescission depends on the type of misrepresentation and the unique facts of each case.

In cases of fraudulent or negligent statements, a claimant can seek rescission and damages. However, in cases of innocent misrepresentation, a claimant can request rescission but cannot claim damages instead of rescission.

A court has discretion to award damages rather than rescission in claims for innocent or negligent misrepresentation where rescission would be inappropriate or unavailable.

Reliance and Proof of Misrepresentation

The burden of proof in a misrepresentation claim depends on which type is claimed. The available evidence typically dictates what is achievable.

If the claim is for fraudulent misrepresentation, a claimant must be able to prove that a representation made was false, and that the defendant knew the statement was false or was reckless about its truth.

The claimant must demonstrate that the defendant intended that the claimant rely on the fraudulent statement, and that they did rely on it and suffered harm as a result.

If the claim is for negligent misrepresentation, it is the defendant who must prove that they weren’t negligent.

In all cases, the claimant must be able to demonstrate that they relied on the statement/s and that loss flowed as a result.

In some scenarios, breach of contract may be a better basis for legal action. Breach of contract and misrepresentation claims have distinctly different outcomes.

A misrepresentation case aims to put the claimant back into the position they were in before the misrepresentation by awarding damages for any losses and rescinding the agreement.

A breach of contract claim aims to put the claimant in the position they would have been in if the contract had been performed, which may result in a significantly higher financial outcome.

In all cases, legal advice is essential to understand your rights and to pursue the correct legal action and remedy.

Defences and Limitations

Not all false statements constitute misrepresentation. You may not have relied on a false statement as part of your decision-making process to enter into the contract, and this is a legitimate defence for the other contracting party.

Most contracts limit liability for statements made in sub-agreements or pre-contract representations using either a non-reliance clause or an entire agreement clause.

A non-reliance clause is a catch-all statement that asks the parties to agree and sign a disclaimer to the effect that they aren’t relying on any statements made during the contracting process.

An entire agreement clause excludes any terms other than those expressly stated in the contract. It also limits potential remedies to contractual remedies.

However, it’s not legally possible to use either of these methods to limit or exclude liability for fraudulent misrepresentation.

Liability and Accountability in Representation

Sometimes, a false statement is made by someone who is not a party to the contract but is relied on by a contracting party to the detriment of that party.

One example is a third-party agent acting on behalf of the defendant.

The defendant may still be liable if the agent is acting within their authority, allowing you to pursue a claim for negligent or fraudulent misrepresentation against the defendant even if he didn’t know the statement was false.

Another example of accountability is when a director of a limited company makes a fraudulent statement that the claimant relies on. The starting point here is that the director would be making this statement in their office as director of that company and therefore your claim would be against that company.

There is the much rarer position where the director may be held personally liable even though the law recognises the company as a separate legal entity. This is called piercing the corporate veil, a veil that usually protects company directors from personal exposure.

Frequently Asked Questions

What Is Proof of Misrepresentation?

A claim cannot proceed without proof of misrepresentation. The level and type of evidence depend on whether you’re alleging fraudulent behaviour or negligence. Negligent misrepresentation imposes a lower burden of proof on the defendant. In all cases, you must also be able to demonstrate that you relied on the false statement and suffered losses.

What Is the Best Remedy for Misrepresentation?

There is no straightforward answer to this question, it depends on what you want. Do you want to go back to the position of where the contract was never made, or are you looking to recover the losses you made based on the misrepresentation?

It is then a case of carefully balancing the commercial goals you have against the legal and factual position based on the unique facts of your case, so as to come to a realistic and achievable idea of what you might realistically achieve in the litigation.

Misrepresentation Law Provides Remedies for Loss Caused by False Statements

Whichever side of the desk you sit, it’s vital to take care when negotiating contractual terms. Misrepresentation covers pre-contractual statements as well as the terms contained in the final document.

Using professional legal representation protects parties from potential claims by handling pre-contract discussions and drafting, keeping a complete record of negotiations, and protecting you from unnecessary liability.

The experienced commercial litigation team at Helix Law can advise you on your position at every stage of contractual negotiations, whether it is initial terms you might be unsure of the implications of, to the more frequent position where you have a final agreement, but you consider the other side have misrepresented an important part of it and you have suffered loss as a result. We are here to provide fast, practical advice to protect your rights, so get in touch with Helix Law now.