Summary
- A false or misleading statement that induces a customer to enter a contract may expose your business to a misrepresentation claim.
- You can face a claim even if you believed the statement was true.
- Contract clauses need legal review because some liabilities cannot be excluded.
- This article explains preventing misrepresentation in business dealings for UK suppliers negotiating customer contracts.
- LegalVision’s business lawyers specialise in advising clients on commercial contracts.
Tips for Businesses
Ask your sales team to check delivery claims with the people responsible for fulfilling them. Keep a dated copy of each proposal and any correction sent to the customer. Speak to a contract lawyer at LegalVision about reviewing sales statements and contract clauses before signature.
A misleading statement of fact or law that induces a customer to enter a contract may lead to a claim. The statement does not have to appear in the final contract. You can still face a claim even if you believed it was true. Misrepresentation arises under contract law and can also give rise to liability in tort. A tort is a civil wrong that can create legal responsibility. When you negotiate contracts as a supplier, check claims about delivery times and how your products or services perform. Train your team to use accurate information and keep records of negotiations. This article provides an introduction to misrepresentation in a contractual setting, how it can expose your business to risk, and key practical steps your business can take to protect itself from such risk as a supplier.
How Can Misrepresentation Arise During Negotiations?
You or someone acting for you may make an untrue or misleading factual or legal statement during negotiations. This can include a statement made by conduct or implication. If that statement induces the other party to enter the contract, it can amount to misrepresentation during negotiations.
Some remarks made during negotiations are simply sales talk and have no legal effect. Other statements become terms in the contract itself. If those terms are breached, you may be able to bring a breach-of-contract claim.
Certain statements that induce a party to enter a contract are not in the contract itself. A factual statement you make may amount to misrepresentation if it induces the other party to enter the contract.
What Will the Court Consider?
The court will consider various factors to determine whether there has been misrepresentation. The statement does not need to be the sole statement that induces the contract.
The statement might be written or spoken. The law will not excuse you just because you made the statement in good faith.
Even if you genuinely believe a statement is true, you can still commit misrepresentation. This applies if the customer relies on it and it induces them to enter the contract.
“Ask the person responsible for delivery to check the promise in your proposal before it goes to the customer. Give your contract lawyer that checked wording alongside the sales correspondence”
What Are the Types of Misrepresentation?
UK law recognises three main types of misrepresentation. Each has different consequences and possible remedies, meaning the legal responses available to a customer.
- Innocent misrepresentation: you genuinely believe the statement is correct and have reasonable grounds for that belief, but the other party relies on it.
- Negligent misrepresentation: you make a statement carelessly or without reasonable grounds for believing it is true.
- Fraudulent misrepresentation: you know the statement is false or act recklessly about its truth. You intend the other party to rely on it.
What Could a Customer Claim?
The remedies available will depend on the type of misrepresentation. Certain remedies will require proof of loss.
They include rescission, which essentially cancels the contract. It aims to return the parties to their position before the contract. They also include damages, which compensate for loss caused by the misrepresentation.
A customer’s possible remedy depends on the specific circumstances and type of misrepresentation. Seek legal advice to understand how claims could affect your business, including the possibility of cancelling the contract.
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How Can You Reduce Misrepresentation Risk?
You can reduce the risk of misrepresentation through careful communication, clear contracts and consistent internal processes. Check what your team tells customers before they sign. Keep the information they use accurate and correct any statement you discover is wrong.
Download this free Supplier Contracts Checklist to ensure your contracts will meet your business’ needs.
Use Clear Contract Clauses
Work with a commercial lawyer to draft clauses intended to protect your business. These may include exclusion clauses, non-reliance clauses and entire agreement clauses.
Exclusion clauses seek to exclude legal responsibility. A non-reliance clause states that the parties have not relied on any statement other than those set out in the contract. It covers statements made before the contract that are not included in it.
These clauses confirm that the written contract forms the full agreement and seek to limit reliance on pre-signing statements. Ask your lawyer to review them for legal reasonableness and enforceability.
Train and Supervise Your Team
Train and supervise everyone who negotiates with customers so they provide only accurate, approved information. Review sales scripts and training materials regularly. Explain how careless or inaccurate statements can lead to legal claims and financial consequences.
Check Your Marketing Materials
Fact-check your websites, brochures, leaflets and proposals on a regular schedule. Remove outdated or misleading claims before customers rely on them.
Keep Complete Negotiation Records
Record and securely store key discussions, emails and meeting notes alongside the draft and signed contract. These records help you show what was said and agreed.
Correct Inaccurate Statements Promptly
If you discover an inaccurate or outdated statement, tell your customer immediately. Update the contract or supporting documents before signature. Take legal advice straight away to confirm the best way to correct or document the change.
These steps help you maintain a clear record of negotiations. They can strengthen the enforceability of your contracts and reduce the risk of a misrepresentation claim.
How Can You Check a Sales Claim Before Signature?
Give each significant sales claim a clear route from the person making it to the person who can check it. This helps your team answer customer questions without guessing. Use the following example as a practical way to organise those checks within an existing sales process.
Check the Evidence Behind the Claim
For example, suppose your sales representative tells a prospective customer that your software works with the customer’s existing system. Before sending the proposal, the representative asks your technical lead to check the exact system and software version.
The technical lead records what has been tested and identifies anything still unconfirmed. The representative then checks the proposed wording against that response. If testing remains incomplete, the team should describe that position accurately when communicating with the customer.
Keep the technical response with the proposal so the person negotiating the contract can find the evidence. Give the account manager access to the same material. This makes it easier for your team to give consistent answers when the customer asks a follow-up question.
Carry Corrections Through to the Final Documents
If the technical lead discovers an earlier statement was inaccurate, identify every customer document that repeats it. Ask the representative to correct the statement with the customer promptly. Have the person preparing the contract update the relevant description before signature.
Keep both the earlier version and the corrected version in the deal file. Record when the correction was sent and who received it. Include the customer’s response alongside the correction, so your lawyer can follow the sequence if a question arises later.
Before sending the final documents, ask the account manager to compare the proposal with the technical response and the draft contract. Resolve any inconsistent descriptions and pass uncertain wording to your lawyer. Give your lawyer the supporting correspondence as well as the contract itself.
Key Takeaways
You may face a misrepresentation claim if a misleading statement induces a customer to enter your contract. You can still face a claim even if you believed the statement was true.
A customer may seek cancellation of the contract or compensation. The type of misrepresentation affects the remedies available, and certain remedies require proof of loss. Contract clauses need careful legal review because some liabilities cannot be excluded.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced contract 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
Why should you be careful in negotiations?
Statements made before signing can carry legal weight. A customer may bring a claim if a false or misleading factual or legal statement induces them to enter the contract. They may seek cancellation or compensation, depending on the circumstances and any losses suffered.
How can you reduce the risk of misrepresentation?
Train your team to share accurate, approved information and keep complete negotiation records. Check marketing materials regularly and correct inaccuracies promptly. Ask a lawyer to review the clauses intended to protect your business.
Can an honest mistake lead to a misrepresentation claim?
Yes, you can face a claim even if you believed a statement was true. The customer must have relied on it and been induced to enter the contract. The type of misrepresentation affects the remedies available.
What does a non-reliance clause do?
A non-reliance clause states that the parties have not relied on statements outside the contract. Your lawyer should check its wording against requirements for reasonableness and enforceability. Some liabilities cannot be excluded by law.
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