The Law of Misrepresentation

A complex area of law

Misrepresentation is a complex area of the law because there are several different ways in which a misrepresentation can be relied upon by an innocent party. Misrepresentation may be a ground for rescinding a contract; it may sound in damages in the torts of deceit or negligence; it may give rise to statutory liability under the Misrepresentation Act 1967 and other legislation; or it may give rise to a claim for breach of contract.

The concept that is common to these disparate areas of the law is that of the ‘actionable statement’. An ‘actionable statement’ is one which can be used in court proceedings (‘an action’) to set up a claim or a defence.

The law recognises that there are certain types of statement which should not give rise to liability on the part of the person who makes them.  Carlsberg’s famous strapline of ‘Probably the best lager in the world’ is a good example: not only is it impossible to prove that the statement is false, but no reasonable person would take the statement at face value in the first place.

Broadly speaking, a statement is less likely to be actionable if it is:

• Obvious hyperbole e.g. Disneyland’s slogan: ‘The Happiest Place on Earth’
• Vague e.g. a house advertised as ‘substantial and convenient’
• Not qualified e.g. a person who says ‘I believe X is true’ will generally only be liable if the statement is dishonest
• A statement of intention e.g. a person who says ‘I will deliver the goods in the next 10 days’ may be liable for breach of contract if he fails to deliver, but will not usually be liable for misrepresentation
• Made by someone with no specialist knowledge: a private seller who says that a car is in ‘good condition’ is less likely to be held liable for misrepresentation than a motor dealer

Rescission

Rescission means setting aside a contract and restoring the parties to the position they were in beforehand. So, if a contract for the sale of a car is rescinded, the seller gets his car back and the buyer gets his money back. In order to claim rescission, the innocent party must show that:

• The other party made a false representation
• The innocent party relied on that representation when entering into the contract
• The innocent party has chosen to rescind the contract rather than claim damages

The right to rescind is lost (except in cases of fraud) if the innocent party delays too long. The period of delay permitted will depend on the facts of the particular case, and the safest course, if you are the innocent party, is to seek legal advice as soon as possible.

Deceit

Deceit is more difficult to prove than other forms of misrepresentation, because the innocent party must be able to show that the other party had no honest belief in the truth of the representation and that he intended the innocent party to act on it. If the innocent party is able to surmount these hurdles, however, the rules on damages are more liberal, which is in part a reflection of the dim view that a court takes of deliberate deception.

Negligent misstatement

This is a form of misrepresentation that most commonly arises in cases involving professionals, such as accountants, surveyors or architects. The professional owes his client a duty to take reasonable care when making a statement. If he makes a careless statement that proves to be false, and his client reasonably relies on it and suffers loss as a consequence, the professional may be liable in the tort of negligence. There may also be concurrent liability in contract. In some cases, parties other than the immediate client may be owed a duty of care and hence may be entitled to claim damages if they suffer loss as a result of a careless and false statement.

Statutory liability

Prior to the Misrepresentation Act 1967, there was a gap in the law in that if you were (a) induced to enter into a contract by a misrepresentation which was (b) false but not fraudulent, and (c) you had lost the right to rescind the contract or did not wish to rescind it, you would have no remedy in law. The 1967 Act provides that a person in those circumstances is entitled to compensation. The other party will have a defence if he can show that he believed the representation to be true at the time it was made and that he had reasonable grounds for his belief.

Although the 1967 Act is the most general form of statutory liability, there are other statutes under which a person can be held liable for misrepresentation, including the Financial Services and Markets Act 2000 and the Package Travel, Package Holidays and Package Tour Regulations 1992.

Breach of contract

A statement made in the course of contract negotiations may amount to a term of the contract. It is typically easier to prove breach of contract than misrepresentation, because you do not need to prove what was in the mind of either party. If the parties’ agreement is in writing, it is sensible to include a term excluding any liability for oral statements, though there are some contexts in which a court may decide that such a term is unfair and should not take effect.

Seek advice

If you feel that you have been mislead and would like some advice about your next steps, then please do get in touch, we’d be happy to talk through the details and see if we can help: 0151 480 5777