MISREPRESENTATION ACT 1967

The principle of good faith requires the parties to operate honestly and transparently when a contract is formed and contains terms which do not create any specific or particular problems.  The contract is binding unless certain factors arise which in the eyes of the law will render the contract ineffective in some way.

 

These issues can/may arise before, during or at the time of making the contract; and are collectively described as “vitiating factors”.  A mistake, illegality, duress and undue influence or a misrepresentation will fall within the definition of vitiating factors.

 

A term is a part of the contract which, when broken, leads to a breach of contract.  A representation is not part of the contract: it is a statement made prior to the contract and as such cannot lead to a breach of contract.

 

A representation is a statement or a party’s conduct that does not amount to/or create a contractual term, but would nonetheless induce a party to whom it was made to enter into the contract.  If the representation is found to be incorrect i.e., a misrepresentation, then it has legal implications as to the validity of the contract.  If a party relies upon that misrepresentation in the belief that it is a true statement and then enters into a contract they may or may not have a claim for breach of contract, but they would still have a course of action for misrepresentation.

 

The approaches in common law and civil law have significant differences despite some common themes.

 

In common law: - a misrepresentation or a statement of fact made by one party to the other, which induces the other party to enter into the contract must be false to be actionable.

 

Silence is not a misrepresentation: -, so a failure to mention certain facts which might affect the other party’s willingness to enter in to a contract would not usually amount to misrepresentation.

 

For example, seller is not obliged to disclose all the details about the product, including information known to him which may detract from its marketability.  This follows the principal of buyer beware “caveat emptor”: - the emphasis being on the buyer to undertake sufficient enquiries/investigations to ascertain the relevant details before proceeding with the contract i.e., the purchase of a car.

 

The common law principle does not extend to (1) the representer telling the half-truth, or where the meaning is distorted because the whole truth is not revealed.  In these circumstances, it may be a misrepresentation (2).  A continuing representation is when a statement is true at the time it was made but circumstances change before the making of the contract at a later date is negated because of non-disclosure

 

To prove a claim in misrepresentation, a Claimant must show that the Defendant knowingly made an untrue statement of fact that induced the Claimant to enter a contract, thereby causing the Claimant’s loss.

 

What are the damages for misrepresentation?

 

The Court of Appeal held that, as a general principle, the proper approach for calculating damages for fraudulent misrepresentation should be to (1) ascertain the actual value of the assets bought at the relevant date and (2) deduct that figure from the price paid

 

What are the 3 types of misrepresentation?

 

There are three types of misrepresentations—innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation—all of which have varying remedies.

 

(1)  The defendant made a false representation of a past or existing material fact susceptible of knowledge;

(2)  The defendant did so knowing that the representation was false, or without knowing whether it was true or false; and

(3)  The defendant intended to induce the plaintiff to act in reliance upon that representation.

 

Types of misrepresentation include innocent and fraudulent; an agreement depends on the goodwill and honesty of those who have entered into the contract.

 

• Definitions to Know.

• Misrepresentation Occurrences.

• Fraudulent Misrepresentation.

• Negligent Misrepresentation.

 

Is misrepresentation a criminal Offence?

 

Misrepresentation can be both a civil wrong (a tort) or a criminal wrong. If the misrepresentation rises to the level of fraud, a defendant can face serious legal consequences.

 

Is misrepresentation void or voidable?

 

When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement/contract is voidable at the option of the party whose consent was so obtained by the fraudulent activity.

 

What are false representations?

 

Legal Definition of false representation:

 

An untrue or incorrect representation regarding a material fact that is made with knowledge or belief of its inaccuracy — see also misrepresentation.

 

Although a representation is not part of the contract, it often influences the buyer’s decision to enter into.  The law recognises that such a statement can have legal effect.  A false representation can entitle the innocent party, the representee, to sue for a remedy in misrepresentation.

 

Statement of Fact

 

The statement will only be a misrepresentation if it is a statement of fact.  This statement must be distinguished from statements of, law, opinion and/or future intention.  The reason why these statements cannot give rise to an action for misrepresentation is the underlying philosophy that everyone is presumed to know the law.  In other words ignorance of the law is not a defence.

 

Statement of Opinion

 

If a person is giving an opinion, there is no misrepresentation, even if the opinion was badly formed.  In Bisset v Wilkinson (1927) Bisset was seeking to sell a piece of land and told Wilkinson that in his opinion the land would hold 2,000 sheep.  Wilkinson having bought the land, later found this to be untrue and sued.  It was held that this was not misrepresentation.

 

In Smith v Land & House Property Corporation (1884) a favourable reference was given to a tenant who often failed to pay rent.  Land & House Property Corporation argued that this was merely an opinion.  The Court said that a reasonable man with such knowledge of the defendant would not have given a favourable reference.  Therefore, it was a misrepresentation.

 

Statement of Future Intention

 

A statement will not be treated as a statement of fact if it is a statement of future intention.  However, in a similar way to statements of opinion such statement could be a misrepresentation when a party makes a statement relating to the future knowing at the time he makes it that it cannot or will not be fulfilled.

 

In Edgington v Fitzmaurice (1885) a prospectus to raise money set out the company’s financial status.  It stated that any money raised as an investment would be used to improve the company’s premises.  At the time, the directors knew that the money would be used for other purposes such as paying off debts.  It was therefore held that the statement of future intention was a misrepresentation.

 

The term inducement is often considered to be a payment or a benefit to someone for them providing a service such as making a statement of fact or an opinion favourable to them.  However, an inducement can arise when there is no direct payment for say a dishonest act.  For example, in Attwood v Small (1838) Attwood asked questions about the mines that they were purchasing from Small about their capacity etc. and these answers were provided by an independent engineer.  Six months after the sale was complete Attwood found that the answers were wrong and sued for misrepresentation.  The Court found that Attwood was persuaded to enter the contract on the advice of the independent engineer and not on Small’s information and therefore the act for misrepresentation against Small failed.

 

However, had Attwood sued the engineer in the same action then he “might” have succeeded against the engineer on the grounds of a duty of torte.

 

Whether the representee was actually induced was always a question of fact even where false statements are made.

 

Fraudulent Misrepresentation

This is the most serious type of misrepresentation in the business world. This is when a party knowingly makes false statements in order to coerce the other party to sign a contract.

 

Innocent Misrepresentation

It is extremely important to understand and to be able to distinguish between the different types of misrepresentation as the remedy available to the aggrieved party will vary.  An innocent representation is where the representor reasonably believed that the information given (the misrepresentation) was true.  In such cases this will usually limit the type of remedy available to the representee.

 

Error vitiates consent only when it concerns the cause without which the obligation would not have occurred, and that cause was known or should have been known to the other party.

 

In Derry v Peake (1889) Lord Herschell referred to fraudulent misrepresentation as one which was made knowingly, or belief in its truth, or recklessly, careless as to whether it to be true or false.

 

In practice, this type of misrepresentation is difficult to prove as the Courts will not likely accept allegations of fraud.

 

In civil law the approach is somewhat different, a misrepresentation is a false misrepresentation of fact.  Two examples are: -

 

·         During negotiations a party lies about certain facts concerning the future contract in order to induce the other party to enter into the contract; and

·         A party is aware of information, but they hide it and do not communicate it effectively concealing a fact that may have an implication on whether or not the other party continues and enters into a contract.  The lie and concealment are acts that correspond to the French idea of dol.  Dol constitutes a fork which was linked in roman law with the idea that dishonest acts should be repressed.