Summary
- Misrepresentation occurs when a false statement leads someone to enter into a contract.
- The three types of misrepresentation are fraudulent, negligent, and innocent, each affecting the available remedies.
- Exclusion clauses may limit your rights, but their enforceability depends on their wording and context.
- LegalVision’s business lawyers specialise in advising clients on misrepresentation claims and contract disputes under UK law. This guide provides an overview of the legal framework for handling misrepresentation issues.
Tips for Businesses
To minimise the risk of misrepresentation claims, businesses should keep thorough records of all negotiations, including verbal statements confirmed by email. When entering contracts, request written proof of any claims that influence your decisions and be cautious of misleading information. Reviewing contract clauses carefully and seeking legal advice can help prevent disputes and ensure your interests are protected.
If someone made false statements to your business before you signed a contract, you may have significant legal rights under the Misrepresentation Act 1967. Understanding these rights can help you protect your business, respond effectively when things go wrong and avoid liability for your own pre-contractual statements. This article explores key rights and remedies available under the law, proactive action steps to help protect your small business from contractual risk and the importance of seeking specialist legal advice in respect of misrepresentation issues
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Understanding Misrepresentation in Contract Negotiations
If someone misrepresents a contract and make a false statement that leads you to enter it, it is called misrepresentation. You must know about the statement, rely on it and let it influence your decision, even if it is not the only reason you signed.
Not all statements made during negotiations have legal effect. The law distinguishes between three types:
- only sales talk has no legal effect as these are vague claims that no reasonable person would treat as fact;
- contractual terms form part of the contract. If they are wrong, you may claim for breach of contract; and
- representations are statements that sit outside the contract but influence your decision. If they are false and you relied on them, you may claim for misrepresentation.
Types of Misrepresentation and the Remedies Available
The law recognises three types of misrepresentation and it determines the remedies available to you. Hence, you should get the classification right.
| Fraudulent Misrepresentation | Negligent Misrepresentation | Innocent Misrepresentation |
| When a party makes a false statement knowing it is untrue, or without caring whether it is true or false. This is the most serious type of misrepresentation and allows you to set aside the contract and claim damages. | When a party makes a false statement without reasonable grounds for believing it is true. Once you show the statement is false, the other party must prove they had reasonable grounds to believe it. | When a party makes a false statement but had reasonable grounds to believe it was true. The court may allow you to set aside the contract or award damages instead, depending on what is fair in the circumstances. |
Exclusion Clauses and Limitations on Liability
Many commercial contracts include clauses that limit or exclude liability for statements made before the contract is signed. These are often called entire agreement or non-reliance clauses. In practice, this can restrict your ability to rely on statements made during negotiations, even if they are false.
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How to Protect Your Small Business from Misrepresentation Risk
Misrepresentation disputes are costly and stressful, particularly if you have a small business with limited resources. You should take preventive steps before and during negotiations.You should:
- keep a written record of all statements made during supplier negotiations, including verbal statements confirmed by email;
- request written proof of any performance, financial or compliance claims before you rely on them;
- seek written confirmation of anything that materially influences your decision to enter the contract;
- challenge any information presented in a misleading or incomplete way, and ask for full disclosure;
- review exclusion clauses carefully and ask a commercial contracts lawyer to explain the implications before you sign; and
- If you suspect misrepresentation after signing, act immediately. Delays or continuing to perform the contract may be treated as acceptance and limit your available remedies.
Key Takeaways
Misrepresentation occurs when a false statement of fact or law induces you to enter a contract. There are three types of misrepresentation such as fraudulent, negligent and innocent. The type of misrepresentation determines the remedies available to you. Exclusion clauses in supplier contracts can limit your rights, however their enforceability depends on the specific wording and circumstances. Prevention is more cost-effective than litigation. If you discover a false statement after signing, you should act promptly. If you delay it can cost you your available remedies.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced dispute lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.
Frequently Asked Questions
You should act immediately and seek legal advice from a dispute resolution solicitor. Continuing to perform the contract or delaying your response may limit your ability to rescind the contract or recover damages.
Possibly, but the two claims are legally distinct. A disputes lawyer can assess the facts and advise you on which claim is stronger and most appropriate in your circumstances.
Yes. Any statement your business makes that a customer relies on when deciding to sign a contract could give rise to a misrepresentation claim if it later proves untrue. Make sure all statements are accurate, verifiable, and not misleading.
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