Misrepresentation in Contract Disputes : Sold a Promise, Bought a Problem… 

Bought a business after being told its biggest customer is staying? 

Signed a lease after receiving assurances that there are no major defects? 

Appointed a supplier because it promises to deliver a new system within six months? 

Then the truth emerges. 

What is misrepresentation? 

Misrepresentation occurs where one party makes a false statement which induces another party to enter into a contract. 

The statement does not need to be the only reason you signed the agreement. It simply needs to have been an important factor in your decision. 

Misrepresentation can arise from deliberate dishonesty, careless statements, or even genuine mistakes. 

The Three Types of Misrepresentation  

1. Fraudulent Misrepresentation (founded in the tort of deceit)  

The established test comes from Derry v Peek (1889), wherein fraudulent misrepresentation arises where a false statement is made: 

1. knowingly; 

2. without genuine belief in its truth; or 

3. recklessly, without caring whether it is true. 

2. Negligent Misrepresentation 

Under section 2(1) of the Misrepresentation Act 1967, a party may be liable if it makes a false statement and cannot prove that it had reasonable grounds to believe, and did believe, that the statement was true. 

This is important because the burden shifts to the person who made the statement. 

3. Innocent misrepresentation 

A false statement made honestly and with reasonable grounds for believing it was true. Liability may still arise, although the available remedies are often more limited. 

What Remedies Are Available? 

Rescission 

Rescission sets the contract aside and seeks to return the parties to the position they were in before the agreement was made. 

However, rescission may not be available if there has been significant delay, the contract has been affirmed, third-party rights have intervened, or it is no longer possible to restore the parties to their original positions. 

Damages 

Damages may be available where losses have been caused by a fraudulent or negligent misrepresentation. In some cases, damages may also be awarded instead of rescission. 

The false statement may also amount to a contractual term, potentially giving rise to a separate breach of contract claim. 

Common Defences 

A defendant may argue that: 

1. no actionable representation was made; 

2. the statement was true; 

3. the claimant did not rely on it; or 

4. the contract validly limits liability. 

While contracts often contain entire agreement and non-reliance clauses, these do not automatically defeat a misrepresentation claim and will often be closely scrutinised by the courts. 

What Should You Do? 

If you believe you have been misled: 

1. preserve emails, messages and marketing materials; 

2. identify precisely what was said and by whom; 

3. gather evidence showing the true position; and 

4. seek legal advice promptly. 

Speed can be important, particularly if you may wish to rescind the contract. 

Conclusion 

Misrepresentation claims are not confined to outright lies. A careless assurance, unsupported forecast, misleading half-truth, or failure to correct inaccurate information can all result in liability. 

Whether you are bringing or defending a claim, early advice is often crucial.  

The key issues are usually straightforward: what was said, was it false, was it relied upon, and what loss has been caused? 

If you believe that you entered into a contract based on false or misleading information, or are facing allegations of misrepresentation, early advice can be crucial. The remedies available, and the steps you take after discovering the truth, can significantly affect the outcome of any claim. 

At Wellers, we advise businesses, professionals and individuals on a wide range of commercial disputes, including claims involving misrepresentation, breach of contract and professional negligence. To discuss your situation, please contact James Day at james.day@wellerslawgroup.com or on 01732 457575, or speak to another member of our Dispute Resolution team for a no-obligation initial discussion. 

Five Payment Terms That Can Help You Get Paid Faster

Whilst debt recovery is often viewed as something that begins after an invoice becomes overdue, the reality is that many payment disputes can be avoided, or at least made easier to resolve, by getting the payment terms right from the outset.

Here are five practical changes businesses should consider if they want to improve cash flow, reduce late payments and strengthen their position when debts arise.

Stop Offering Lengthy Credit Terms by Default

Many businesses offer 30-day or 60-day payment terms simply because they always have (“…it’s what we’ve always done!”).

The difficulty is that every additional day effectively provides the customer with interest-free credit, while the company might be struggling with cash flow (when otherwise avoidable).

Whilst longer payment terms may be commercially necessary in some sectors, businesses should actively consider whether they remain appropriate rather than treating them as standard

Where commercially viable, reducing payment periods or (preferably) requiring payment on receipt/presentation can:

1. improve cash flow;
2. reduce the risk of accumulating aged debts;
3. encourage clients to deal with invoices promptly; and
4. allow earlier recovery action where payment is not made.

Simply shortening payment terms can often have a greater impact on cash flow than many businesses realise.

Be Clear About When Payment Falls Due

One of the most common causes of payment disputes is uncertainty. Invoices should make it crystal clear:

1. when payment becomes due (i.e. “Payment on presentation”); and
2. how payment should be made (inclusive of relevant details).

Use Interest as a Commercial Incentive

Most businesses know they can charge interest on overdue debts.

The Late Payment of Commercial Debts (Interest) Act 1998 gives businesses important rights when dealing with overdue commercial debts. In qualifying business-to-business transactions, creditors may be entitled to statutory interest at 8% above the applicable Bank of England reference rate, together with fixed compensation and potentially reasonable recovery costs.

The legislation currently provides for fixed compensation of:

1. £40 for debts (each invoice) below £1,000;
2. £70 for debts (each invoice) between £1,000 and £9,999.99; and
3. £100 for debts (each invoice) of £10,000 or more.

Many businesses never mention these rights until a debt recovery solicitor becomes involved.

A contractual interest clause can also be included within standard terms and conditions to provide certainty and create a meaningful commercial incentive for prompt payment.

The prospect of a debt increasing each day often encourages resolution long before proceedings become necessary.

Do Not Wait Too Long to Act

Even the best payment terms lose value if businesses ignore them. Many organisations allow invoices to become 60, 90 or even 120 days overdue before taking meaningful action.

Review Your Standard Terms and Conditions

Many businesses devote considerable time to pursuing unpaid invoices whilst rarely reviewing the contractual terms that govern payment.

That can be a costly mistake.

A properly drafted set of standard terms and conditions may include provisions dealing with:

1. interest on overdue invoices;
2. recovery/enforcement costs;
3. suspension of further services or deliveries;
4. personal guarantees;
5. retention of title rights for suppliers of goods; and
6. termination rights where payment is not made.

Although these provisions may never be needed, they can significantly strengthen a business’s position when disputes arise. Importantly, many of these protections must be incorporated into the contract before they can be relied upon later.

Conclusion: Prevention Is Better Than Recovery

Debt recovery is often viewed as something that starts when payment stops. The strongest debt recovery outcomes are frequently achieved long before an invoice becomes overdue.

Businesses that use clear payment terms, maintain effective credit control procedures and regularly review their contractual documentation place themselves in a much stronger position when problems arise.

A relatively small investment in reviewing payment processes and standard terms can often save significant management time, legal costs and cash flow pressures in the future.

How Wellers Can Help

At Wellers Law Group, our Commercial Litigation team advises businesses across London, Kent and the Southeast on debt recovery/enforcement, commercial disputes and the drafting of effective terms and conditions.

If your business is struggling with unpaid invoices, late payments or commercial debt recovery issues, contact James Day at james.day@wellerslawgroup.com or on 01732 457575 for a no-obligation initial discussion.

Can a Lender (or Applicant) Prevent a Borrower (or Respondent) from Moving Assets Before Securing Judgment?

A judgment may confirm that money is owed, but it is of little value if, by the time the case reaches trial, the Respondent’s assets have disappeared.

An Applicant may suspect that funds are being moved between accounts, property is being transferred, or valuable assets are being placed beyond reach. In some cases, those concerns prove justified. The difficulty is that litigation can take months or years to conclude.

So, to address that risk, the courts have the power to grant a freezing injunction.

An Interim Remedy (Not a Final Remedy)

A common misconception is that a freezing injunction is a form of judgment or enforcement (as though securing one brings an end to the broader dispute), but it is not.

A freezing injunction is an interim injunction which restricts the Respondent from disposing of, or transferring, assets pending the determination of the principal claim/dispute. A freezing injunction does not determine liability or quantum/damages.

It simply preserves the status quo so that any future judgment is not, ultimately, rendered worthless.

A freezing injunction is almost always ancillary to a principal claim/dispute. The Applicant must still pursue the underlying cause of action. The injunction does not replace those proceedings; it supports them. They can be sought at any time. However, if granted before proceedings are commenced, the court will generally expect the substantive claim to be issued promptly thereafter.

As such, from a practical perspective, and one of cash-flow, anyone seeking a freezing injunction must be able to incur the costs associated with the freezing injunction, alongside those of issuing the principal claim in brief succession.

The Legal Framework

Historically, freezing injunctions were viewed as purely ancillary relief, available only where there was an underlying cause of action before the court.

However, the modern authorities demonstrate a broader approach.

In Broad Idea International Ltd v Convoy Collateral Ltd [2021] UKPC 24, the Privy Council reaffirmed the breadth of the court’s injunctive jurisdiction and emphasised that freezing relief exists to prevent the frustration of the court’s processes and protect the effectiveness of future judgments. It is rooted in the court’s wider objective to ensure that justice can ultimately be done.

When Will the Court Grant a Freezing Injunction?

The courts recognise that a freezing order can have significant consequences for a Respondent’s business and personal affairs. Accordingly, they do not grant such orders lightly.

Whilst each case turns on its own facts, an applicant will generally need to satisfy the court that:

The requirement for a “good arguable case” does not mean the Applicant must prove its case at the interim stage. However, there must be a solid evidential foundation for the claim.

• the English court has jurisdiction;

• there is a substantive cause of action or interest worthy of protection

• the Applicant has a good arguable case;

• there are assets capable of being frozen; and

• there is a real risk that those assets will be dissipated before judgment can be enforced.

More often than not, the battleground is the final requirement: establishing a real risk of dissipation.

The Importance of Evidence

Many Applicants believe that proving a debt is sufficient. It is not.

The courts have repeatedly stressed that a freezing injunction is not available merely because enforcement may prove difficult or because the Respondent has failed to pay.

The risk of dissipation must be established by solid evidence. Mere suspicion, inference or generalised assertions are unlikely to suffice.

The court will typically consider factors such as:

1. evidence of dishonesty or fraudulent conduct;
2. misuse of corporate structures;
3. concealment of assets;
4. transfers to connected parties;
5. movement of assets offshore;
6. misleading statements concerning ownership or financial position;
7. conduct suggesting an intention to frustrate enforcement.

The Respondent’s conduct after default may also be relevant. Sudden transfers of wealth, unexplained changes in corporate structure, disposal of significant assets or a refusal to engage with legitimate enquiries may all contribute to the evidential picture.

The question is ultimately an objective one:

“Is there a real risk that any future judgment will go unsatisfied because assets are being unjustifiably dissipated?”

A Practical Example

Consider a specialist lender that has advanced £750,000 to a property development company.

The borrower defaults. Proceedings are threatened and the lender discovers that several development properties have recently been transferred to associated companies controlled by the same director. At the same time, substantial funds have left the company’s bank accounts and the director has become increasingly evasive when asked for explanations.

Individually, each of those matters may have an innocent explanation. Collectively, however, they may suggest a deliberate attempt to place assets beyond the reach of creditors.

In those circumstances, the lender may consider issuing its substantive claim whilst simultaneously seeking a freezing injunction under CPR Part 25 to prevent further transfers pending determination of the proceedings.

Whether relief is granted will depend upon the evidence available, but this is the type of scenario in which freezing injunctions are frequently considered.

What Assets Can Be Frozen?

The scope of a freezing injunction is often wider than many Applicants realise.

The courts can freeze a broad range of assets including bank accounts, shares, land, investment portfolios, motor vehicles and digital assets such as cryptocurrency.

The court may grant a domestic freezing order limited to assets within England and Wales or, where appropriate, a Worldwide Freezing Order extending to assets held abroad.

Typically, the order will be limited to the value of the claim together with anticipated interest and costs, rather than imposing a blanket prohibition on dealing with all assets.

Without Notice Applications and Full and Frank Disclosure

Where there is a genuine concern that assets may disappear if warning is given, freezing injunctions are often sought without notice to the Respondent.

That tactical advantage comes with a significant obligation.

The Applicant owes a duty of full and frank disclosure to the court. This requires disclosure not only of facts supporting the application but also matters that might assist the Respondent.

The duty extends to adverse facts, weaknesses in the evidence and relevant legal authorities. A failure to comply can lead to the injunction being discharged, even if the underlying claim is otherwise strong.

The Importance of the Cross-Undertaking in Damages

Applicant’s often focus on the evidence required to obtain a freezing injunction and overlook one of the most important practical considerations: the cross-undertaking in damages.

The court will almost invariably require the Applicant to undertake to compensate any person who suffers loss as a consequence of the injunction if it later transpires that the order should not have been granted. This is a fundamental safeguard to thwart spurious or retaliatory injunctions.

The message is simple: obtaining a freezing injunction is not risk-free. An applicant must be prepared to stand behind the order financially if it later proves unjustified.

Applicants considering a freezing injunction must therefore conduct a careful cost-benefit analysis. The remedy can be highly effective, but it is not risk-free.

A Powerful Remedy, But Not One to Be Used Lightly

Freezing injunctions remain one of the most effective tools available to Applicants faced with a credible threat of asset dissipation. In the right case, they can preserve recovery prospects and prevent a Respondent from undermining the effectiveness of a future judgment.

However, they are not a shortcut to recovery, and they are not a substitute for the underlying claim. The court will expect compelling evidence, strict compliance with the procedural rules and a willingness to stand behind the cross-undertaking in damages.

For an Applicant who suspects assets are being moved beyond reach, early legal advice can make a significant difference. Once assets have disappeared, the available options frequently become more complicated, more expensive, and considerably less effective.

At Wellers, we advise lenders, finance providers and other creditors on all aspects of asset preservation and debt recovery, including freezing injunctions, guarantee enforcement and broader enforcement strategies. From urgent pre-action applications through to judgment and enforcement, obtaining early advice can often place creditors in the strongest possible position to protect assets, maximise recovery and minimise risk.

If you believe that assets may be at risk of dissipation, or would like advice on whether a freezing injunction may be appropriate, please contact James Day at james.day@wellerslawgroup.com or on 01732 457575, or another member of the Dispute Resolution team for a no-obligation initial discussion.

What Every Director Needs to Know

Cash flow issues, slow-paying customers and unexpected liabilities can place even successful companies under significant financial pressure. However, if your company is struggling to pay its debts, it is important to understand when financial difficulties become insolvency, and what that means for you as a director.

When Does Financial Pressure Become Insolvency?

Under section 123 of the Insolvency Act 1986 (“the Act”), a company may be insolvent if it is unable to pay its debts as they fall due (exceeding £750.00), or if its liabilities exceed its assets. However, Insolvency does not automatically mean that a company must cease trading immediately. What it means is that directors must be increasingly mindful of the interests of creditors, rather than focusing solely on shareholders/dividends and the growth of the business.

Can Directors Be Personally Liable?  

Many directors mistakenly believe that the protection of limited liability means they cannot be held personally responsible for decisions taken whilst a company is insolvent.

Whilst that protection is fundamental, it is not absolute. Once insolvency becomes a realistic prospect, a director’s actions may later be scrutinised by a liquidator, administrator or the court.

Preferences, Transactions at an Undervalue and Phoenix Companies

A director whose company is facing insolvency may repay a loan from a spouse, family member or another company whilst leaving other creditors unpaid. Whilst this may seem understandable, such payments can later be challenged as preferences under section 239 of the Act. Similarly, transferring a company vehicle, stock or equipment to a connected company for less than market value may be challenged as a transaction at an undervalue pursuant to section 238 of the Act.

Particular care should be taken when dealing with company assets. Transactions entered into before insolvency may later be challenged as transactions at an undervalue under section 238 of the Insolvency Act 1986, where assets are transferred for significantly less than their true value. Likewise, repayments made to connected parties, directors, family members or favoured creditors may constitute preferences under section 239 if they put one creditor in a better position than others in the event of insolvency.

Wrongful Trading and Misfeasance

Perhaps the best-known risk is a claim for wrongful trading under section 214 of the Insolvency Act 1986. If a company subsequently enters liquidation, a liquidator may seek a court order requiring a director to contribute personally to the company’s assets if they knew, or ought to have concluded, that there was no reasonable prospect of avoiding insolvent liquidation and failed to take every step to minimise losses to creditors.

Directors should also be aware of misfeasance claims under section 212 of the Act. This provision allows a liquidator to seek repayment or compensation where a director has misapplied company money or property, retained company assets, or breached their duties (pursuant to sections 171 to 177 of the Companies Act 2006). Common examples include payment of personal expenses through the company or transferring company funds or assets for non-commercial purposes.

The Risk With “Phoenix Companies”

The temptation to transfer assets into a new company can be especially dangerous. Whilst not all so-called “phoenix companies” are unlawful, any arrangement that seeks to move valuable assets or business opportunities away from creditors is likely to attract scrutiny from an insolvency officeholder. What may appear to be a sensible commercial decision at the time can later become the subject of litigation.

In more serious cases involving dishonesty, directors may face allegations of fraudulent trading under section 213 of the Insolvency Act 1986. Unlike wrongful trading, fraudulent trading requires an intention to defraud creditors and can have serious personal and financial consequences.

What Should Directors Do Next?

The good news is that insolvency does not necessarily mean the end of the business. Many companies successfully recover through restructuring, refinancing, investment, informal arrangements with creditors, Company Voluntary Arrangements (CVAs), administration or other formal insolvency processes. However, the earlier advice is sought, the more options are likely to be available.

Directors should seek professional advice if they notice persistent creditor pressure, unpaid tax liabilities, increasing arrears, county court judgments, threats of winding-up proceedings, or a reliance on borrowing merely to meet existing debts. These are often warning signs that a company’s financial difficulties require urgent attention.

The key message is simple: trading whilst insolvent is not automatically unlawful, but ignoring insolvency can be. Directors who recognise the warning signs, keep accurate financial records, take professional advice and make decisions with creditors’ interests in mind are far better placed to protect both the company and themselves.

If you are concerned that your company may be insolvent, obtaining advice at an early stage can often make the difference between a successful turnaround and personal exposure to claims from a future liquidator.

If your company is experiencing financial difficulties, early advice can often make all the difference. At Wellers, we advise directors and businesses on insolvency risks and creditor claims. To discuss your situation, please contact James Day at james.day@wellerslawgroup.com or on 01732 457575, or another member of the Dispute Resolution team for a no-obligation initial discussion.

Understanding Trademark Infringement (statutory) and Passing Off (tortious)

Would the Average Customer Be Confused?

Most business owners understand that they cannot simply copy a competitor’s logo/brand and services and expect to avoid trouble.

But what is the difference between trademark infringement and passing off? They are the two ways in which English law protects brands.

Trademarks (protect registered rights)

The Trademarks Act 1994 (“the Act”) gives registered trademark owners statutory rights. Section 9(1) of the Act confirms:

“The proprietor of a registered trade mark has exclusive rights in the trade mark which are infringed by use of the trade mark in the United Kingdom without his consent.”

Section 10(2) of the Act goes on to explain that a person infringes a registered trade mark if he uses in the course of trade a sign (logo) that is:

“…identical or similar to the [registered] trade mark and used in relation to [similar] goods or services…”

and

“…there exists a likelihood of confusion on the part of the public…”

Imagine you stop at a roadside burger van called “McDonaldz”. The logo features two large yellow curves/breadsticks. The menu boasts the “Big Quack”, the “McChicken-ish”, and the “VERY Happy Meal”.

The owner proudly explains that it is perfectly legal because he has not copied the name McDonald’s exactly. But that is not the test. The correct question to ask is whether:

“…there exists a likelihood of confusion on the part of the public…”

The wording is important. The law is not limited to exact copies. It is concerned with situations where consumers may believe there is some commercial connection between two businesses, even where the branding is not identical.

The courts assess this through the eyes of the average consumer. This is not a meticulous lawyer comparing two logos side-by-side under a microscope. It is an ordinary customer scrolling on their mobile phone, driving past a shopfront, or making a quick purchasing decision.

This is why attempting to circumvent liability by making small changes does not always solve the problem. Customers may not sit down and conduct a forensic comparison. They may simply assume the businesses are linked.

However, it is important to note that where two logos/brands may be the same/similar, there will not be an infringement if the services differ.

For example, if our friend at “McDonaldz” were in the business of supplying kilts (and not burgers), there would be no likelihood of confusion by the public, so unlikely to constitute an infringement.

However, where two companies are similar, it may be possible for them to keep the logo/branding if they can negotiate a “co-existence agreement”, which is where they agree to limit their respective services so that neither feels there would be any likelihood of confusion by the public.

However, not every business has a registered trade mark. That is where the law of passing off comes into play.

Passing Off (protects established goodwill)

The common law tort of passing off, which protects the goodwill a business has built up over time (applicable where that company has an established logo/brand, but it is not registered). Whilst the legal routes differ, both are ultimately concerned with preventing businesses from gaining an unfair advantage through customer confusion.

Imagine a village pub called The Red Fox, which has become locally famous over twenty years.

A rival publican opens across the road under the name The Red(er) Fox. The signage, menu, and websites are similar. A customer books Sunday lunch at one pub and turns up at the other.

At that point, the original owner may have a passing off claim.

Both, however, are fundamentally concerned with preventing confusion in the marketplace.

A Quick Guide

Remedies

Most commonly, the court may grant an injunction preventing the continued use of the offending name, logo, branding or marketing material. For many businesses, this can be the most damaging remedy because it may require an urgent rebrand, replacement signage, amendments to websites and social media accounts, and the destruction of existing stock and marketing materials.

The court may also award damages to compensate for losses suffered. Alternatively, the claimant may seek an account of profits, requiring the defendant to surrender profits that have been generated through the infringing activity.

In appropriate cases, the court may order the delivery up or destruction of infringing goods, packaging, advertising materials and other items bearing the offending branding.

Conclusion

The lesson is straightforward. Before launching a new business, product or rebrand, ask yourself:

Would the average customer think this is connected with somebody else’s business?

If the answer is anything other than a confident “no“, it may be worth taking advice before investing further in your brand.

Likewise, if you believe a competitor is trading off your reputation, adopting confusingly similar branding, or causing customers to believe there is a connection between your businesses, early legal advice can often prevent a dispute from escalating.

If you think that your business is a victim of trademark infringement or passing off, please contact James Day at james.day@wellerslawgroup.com or on 01732 457575 or another member of the Dispute Resolution team for a no-obligation initial discussion.