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
- 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:
- knowingly;
- without genuine belief in its truth; or
- recklessly, without caring whether it is true.
- 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.
- 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:
- no actionable representation was made;
- the statement was true;
- the claimant did not rely on it; or
- 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:
- preserve emails, messages and marketing materials;
- identify precisely what was said and by whom;
- gather evidence showing the true position; and
- 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.