The Misrepresentation Act exists to protect consumers from false or fraudulent claims that induce you into buying something, or entering into a contract and allows you to claim damages in the case of fraudulent misrepresentation.
The law of misrepresentation is an amalgam of common law and statute. The act doesn't apply in Scotland but Scottish law is broadly similar.
Types of misrepresentation
A misrepresentation is a statement of fact (not opinion) which is made by the seller before the contract is made.
If you relied on that statement when deciding whether or not to go ahead with your purchase, and this then turns out to be wrong, you can claim compensation.
There are three types of misrepresentation and your path to redress will depend upon the following:
- whether the false statement was made fraudulently
- whether the false statement was made negligently
- whether the false statement was made innocently
A fraudulent misrepresentation occurs when someone makes a statement that -
- they know is untrue, or,
- they make without believing it is true, or,
- they make recklessly
If you enter into a contract as a result of a fraudulent misrepresentation, then you can cancel the contract, claim damages, or both.
The Misrepresentation Act 1967 allows you to base your claim on negligence or on the fraud.
In addition, when a misrepresentation claim is based on negligence, the law states that the person who made the misrepresentation has to disprove the negligence.
In other words, they must prove that they had reasonable grounds to believe the statement, and that they believed the facts represented were true.
This is a misrepresentation under the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.
A negligent misrepresentation may fall under common law or under the Misrepresentation Act 1967. Financial loss may be recovered in some circumstances.
This is where one of the parties, when entering into a contract, had reasonable grounds for believing that his or her false statement was true.
In other words, it is made entirely without fault. This type of misrepresentation primarily allows for the contract to be cancelled.
The purpose of this is to place you and the other party in the same position before the contract had taken place.
However, under Section 2(2) Misrepresentation Act 1967 the court has discretion to award damages instead of allowing you to end the contract if it deems it appropriate. It cannot award both.
This would be judged on both the nature of the innocent misrepresentation and the losses suffered by the victim of the misrepresentation.
Damages or rescission?
Once it has been established that there as been a misrepresentation and what type it is, then the remedies available can be determined.
There are two types of remedy:
- Damages Financial compensation designed to compensate the victim of a misrepresentation for the harm done insofar as money can do this
- Rescission The ability to end a contract and the parties are treated as though the contract never existed
The availability of the different remedies is determined by the type of misrepresentation and the stage the contract has reached when the victim discovers the misrepresentation.
Limitations of a misrepresentation
There are certain limitations on the right to rescission.
For example, if you are aware of a misrepresentation but choose to continue with the contract, you will not then be able to go back to the person who made the misrepresentation and end the contract, or indeed go to court and ask them to end the contract.
In law, you would be taken to have “affirmed” the contract.
An example would be, if you purchased a car on the basis of a misrepresentation as to the number of owners and then after discovering the truth you nevertheless continued to use it.
You may find that the court would say that by doing so, you had affirmed the contract.
In other words you could not later go back to the seller to end the contract, asking him to take back the car.
Timely reporting of misrepresentation
Another bar to ending the contract for a misrepresentation is if the lapse of time from discovering the misrepresentation is sufficiently long.
If this is the case, then it may also amount to evidence of accepting the position and this may give grounds for denying you the remedy of rescission.
For example, you book a holiday in October to be taken in August of the following year, and you discover in November that the brochure contains a misrepresentation in relation to the facilities at the hotel.
If you do nothing until the following June, when the balance becomes payable, and then try to claim the right to cancel the booking due to the misrepresentation, the court might say that such a long delay before trying to end the contract amounted to you “affirming” the contract.
Obviously, each case would be considered on the individual facts of that case.
But it's important to always bear in mind the potential bars to your remedies for misrepresentation, which is why it's important to act very quickly upon discovering that you've been a victim of a misrepresentation.
Also remember that if you are a victim of a misrepresentation and a credit card was used to purchase the goods or service, then you may also be able to pursue a your claim against the credit card company under section 75 of the Consumer Credit Act 1974.