Types of misrepresentation
A misrepresentation is a statement of fact (not opinion) which is made by a seller before a 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 may be able to claim compensation.
There are three types of misrepresentation and your path to redress will depend upon whether the false statement was made fraudulently, negligently, or innocently.
The general remedy for misrepresentation is cancelling or unwinding the contract so that both parties are put back in the position they were in before they made the contract. Damages will also be available in some circumstances, either in addition to or as an alternative to unwinding the contract.
Damages or unwinding the contract?
Once it has been established that there has 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
- Unwinding a contract The ability to end a contract and the parties are treated as though the contract never existed
The availability of the different remedies is mostly determined by the type of misrepresentation and the stage the contract has reached when the victim discovers the misrepresentation.
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 (i.e. that person does not care about whether the statement is true or not).
If you enter into a contract as a result of a fraudulent misrepresentation, then you can choose to unwind the contract, claim damages, or both. You may lose your right to cancel the contract, however, in certain circumstances detailed below.
There is a negligent misrepresentation under the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.
When a claim for negligent misrepresentation under the Act 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.
There is a right of action for negligent misstatement under common law in addition to the rights under the Act, but the Act is often more useful for claimants because it contains broader remedies, and because the common law action requires claimants to prove a greater number of facts.
If you make a successful claim under the Act, you will be entitled to unwind the contract. You may also be entitled to damages, or a court might award you damages as an alternative to unwinding the contract. Financial loss may be recovered in some circumstances.
This is where a person making a misrepresentation, 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.
However 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.
Limitations of a misrepresentation
There are certain limitations on the right to unwinding a contract.
For example, if you are aware of a misrepresentation but choose to continue with the contract (either in writing or through conduct), 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 unwind the contract if you change your mind later.
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, and you should take legal advice where appropriate.
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.