misrepresentations

Misrepresentations are false statements. A misrepresentation is a false statement made by one person to another, which induces the other to enter into a contract, whether it relates to fact or law. It is not essential that the maker of the statement is a party to the contract. Whatever form the representation takes, it must be false at the time the contract was made.

Whether or not a statement is a representation can be important in a contractual setting. This is because promises are paid for as part of the consideration of a contract and are terms of the contract. Courts take the approach that if a contracting party considered a statement important, it would have found its way into the terms of the contract.

Accordingly, representations are not enforceable as terms of contracts; contracting parties misled by a misrepresentation have resource to the law of misrepresentation, rather than breach of contract. The difference in treatment is due to the difficulty to ascertain at a later date what the intention of the maker of the statement was at the time of the contract, and whether the receiver of that statement placed any importance on it to enter into the contract in question.

Makers of Misrepresentations

In most cases, the person making the representation (representor) is a party to the contract, along with the receiver of the statement (the representee). In cases where the representee is not a party to the contract, the representee has a claim against the representor, and the contract remains in force assuming the representor is not connected to the contracting party, by vicarious liability, a common design or agency.

Requirements

There are legal requirements to constitute a representation.

1. They may be oral or in writing, and conduct may also qualify.
2. They are usually statements made in respect to an existing fact and past event, and not statements of intention.
3. Statements of intention are promises relating to some future conduct and are generally excluded.
4. However, statements of future conduct can be seen to relate to a present intention. For instance, a company intending to supply goods in the future (where it has no ability to supply), or where a representation is made to supply in the future and there is no intention to supply those services.
5. Statements of intention are not misrepresentations unless the maker of the statement intends to carry out the expressed intention. For instance, where a person says that he intends to pay off debts if he is granted a loan, the creditor loans money on that reason, the statement is a misrepresentation of the person does not repay the loan with the money advanced.
6. Statements of opinion may be found to be representations if the maker of the statement has no reasonable basis for making the statement; that is, the maker of the statement. There are at least two situations:
   1. where the maker of the statement has equal knowledge as the receiver
      The opinion is not likely to make an impression on the receiver, and not be relied upon.
   2. where the maker of the statement has better knowledge or means of knowing relevant information than the receiver
      The maker of the statement may well contain a representation of a material fact (implied or otherwise) and thus likely to make more of an impression on the receiver.
7. General statements such as sales talk designed to make a product or service more attractive are not considered misrepresentations. Examples include "Best pies in London" and "Most efficient delivery service". However misdescriptions which set up goods and services as having a nature of something which is not laudatory do not fall into this category of statements; the more specific and quantifiable the statement, the more likely the statement will be considered a representation, such as "Delivered to your door within 24 hours of order".
8. Statements of the law of the land which do not relate to private rights or foreign law are not misrepresentations. Accordingly, misunderstanding the general law is not basis to claim misrepresentation as it is seen to be one or more of (1) within the knowledge of the receiver of the statement, (2) ignorance of the law is no excuse, or (3) a statement of the law is a statement of opinion.
9. Silence does not amount to a misrepresentation, other than (1) in contracts of the utmost good faith, (2) half-truths, (3) where there has been a change in circumstances since an earlier true statement was made, or (4) one party was in a fiduciary relationship to disclose information for the benefit of the other.
10. Statement must be unambiguous when interpreted in a common sense way within the context of the factual matrix. Courts will also consider the statement which was made objectively, in the sense that the statement is given its natural meaning which the representor knew or should have known the representee would have put on the statement. Statements are considered true if they are substantially true, in the sense that the extent that the statement was false would be considered immaterial by the receiver. The subjective meaning of the statement is also taken into account in cases of fraudulent misrepresentation.
11. Courts will have regard for all of the circumstances and context in which it was made. This means that words used in one set of circumstances and amount to a misrepresentation may not be a misrepresentation in slightly different circumstances.

Reliance

The false statement must be relied on by the misled party to enter the contract. The representation made must be of a type to be material to the decision of the representee to decide to enter into the contract, and did in fact induce them to enter the contract. This is an objective test which imports a standard of reasonable conduct on the part of the representee - a reasonable person would have been induced to enter the contract on the basis of the representation made.

It follows that where the statement is false, a person entering into a contract using his own skill and judgment (or otherwise without any reliance on the statement, such as by obtaining independent advice) would not have an action for misrepresentation because they have not relied on the statement. In other cases, false material may have been available but it never came to the knowledge of the representee before entering into the contract. For instance, the mileage on a car may have been wound back, but the purchaser did not ask about the mileage or look at the clock on the car. There can be no inducement or reliance on a representation which was not known to the representee.

Types of Misrepresentation

Fraudulent

A fraudulent misrepresentation is made when the maker of the statement does not hold a honest belief in the truth of the statement made. In Derry v Peek, Lord Herschell said "fraud is proved when it is shown that a false representation has been made (1) knowingly, (2) without belief in its truth, or (3) recklessly, careless whether it be true or false". Provided the person had a genuine belief that the statement was true cannot amount to fraud; the statement would have been made negligently if it was untrue.

Negligent

When a representor is not able to show that the representation was not made with reasonable grounds to be it was true, the misrepresentation will be negligent.

Innocent

This is a residual category which catches misrepresentations which are not made fraudulently or negligently.

Remedies

Options

Contracts which have been tainted by misrepresentation are voidable at the option of the misled party. The misled party may (1) affirm the contract, (2) rescind the contract, and (3) depending on the type of misrepresentation, claim damages at common law. Where a fiduciary relationship exists between the representor and representee, the misrepresentor/fiduciary may be made liable on the basis of an account of profits to the representor.

Where the representee wishes to rescind the contract, the representee must be informed of the exercise of that right. In cases were the representee cannot be located (such as disappearing after fraudulent conduct), the police and/or other appropriate bodies (such as the AA) should be notified.

Measure of Damages

As misrepresentation is a tort, damages are assessed by reference to tortious principles of assessment rather than contractual damages.

Damages:

1. at common law are available for negligent and fraudulent misrepresentation, but not innocent misrepresentation.
2. for innocent misrepresentation are available under section 2 of the Misrepresentation Act 1967. However the damages awarded are likely to be less than those awarded under the general law and section 2(1).
3. Damages are available for innocent misrepresentation under section 2 of the Misrepresentation Act 1967.
4. Damages are limited by the rules governing remoteness of damage, and so the loss suffered must be reasonably foreseeable in order to recover the damages claimed.

Rescission

Rescission is available to the misled party to cancel the contract. The representee may also elect to affirm the contract and sue for damages. In this way, the contract is voidable, in that the contract remains in force unless and until the right to rescind is exercised.

Where the other party has performed its obligations and refuses to reinstate the pre-contractual position, court proceedings are required to reinstate the position. Remedies otherwise available to the misled party are no longer available if the contract has been affirmed. In circumstances where the parties cannot be restored to the pre-contractual position or a third parties rights would be prejudice by the rescission, damages may be awarded under the Misrepresentation Act instead.

Rescission is also able to be used as a defence. Where the misrepresentor alleges a breach of contract, the representee as a defendant is entitled to assert the right to rescind (assuming the contract has not been affirmed) with the result that there was no contract; if the contract has been affirmed, damages would be available for the misrepresentation on the part of the claimant/representor.