What is Misrepresentation in England and Wales?

If you are running a business, you will want to make sure that you are familiar with the law of misrepresentation. Misrepresentation is an area of contract law that focuses on compensating customers who enter into a contract based on a misrepresentation. Further, the law can offer a wide variety of remedies. This article will explain the three types of misrepresentation and offer advice on factors to keep in mind.

What is Misrepresentation?

A misrepresentation is an untrue statement between two people (A and B), which causes B to enter into a contract with A. B then has suffers loss in some way as a result.

There are three types of misrepresentation:

• innocent misrepresentation;
• negligent misrepresentation; and
• fraudulent misrepresentation.

Innocent Misrepresentation

An innocent misrepresentation is a one without any fault. The person making the misrepresentation must show that they had reasonable grounds for believing in their statement.

If you make an innocent misrepresentation, the other party might still be able to take you to court. If they do, then the court can award rescission. Rescission is where both parties are restored to their position before entering the contract. For example, you may have to give back the money the other party paid you, and they will give back the product they received from you.

The court might also decide to give the other party damages (compensation) rather than rescission. In particular, the court may choose to give compensation rather than rescission if it would be difficult to make the parties return what they received under the contract.

Negligent Misrepresentation

Negligent misrepresentation is where you make a statement and are careless about whether it is true or do not have reasonable grounds to think that the statement is true. If you make a negligent misrepresentation, a party will be able to take you to court.

In court, the claiming party will only have to show that a false statement has been made. Once the false statement has been proven, it then falls on the person who made the statement to show that they had reasonable grounds to believe in its truth.

This puts you in a tricky situation because you have to show a court that you had reasonable grounds for believing in your statement. Unfortunately, the common law on negligent misrepresentations makes this very difficult to do. As a result, you should always be very conscious of ensuring that you do your research thoroughly before making statements.

Compensation Example

Going back to the vase example, this would mean you would have to compensate for the difference in the value of the 15th and 19th century vase. However, it would also mean that you would have to compensate for all loss suffered as a result of the misrepresentation. For example, if the person who bought the vase would have invested in a grocery store if you did not make your misrepresentation, you could have to compensate them for the money they would have made in that business.

Fraudulent Misrepresentation

A fraudulent misrepresentation has four elements. It requires:

• a false statement to be made;
• the person making the statement to know that it is false (or be reckless to it being false);
• the person making the statement to hope that the other person to the contract relies on the statement; and
• the other person to the contract to actually rely on the statement.

In a fraudulent misrepresentation, the claimant must show that the person who made the representation did not genuinely believe in the statement. This is harder to prove, but if proven, you will be liable for the same extent of damages as in negligent misrepresentation.

Key Takeaways

If you make a misrepresentation that another party relies on and then suffers loss, you could be liable to pay a lot of compensation. Because of this, you should be very cautious of the statements that you make and ensure that you have reasonable grounds to believe all of your statements. You should seek professional legal advice if you are unsure that you are basing your statements on ‘reasonable grounds’.

If you need help with understanding misrepresentation, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

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