The Importance of Misrepresentation
If a statement is a term of the contract, the innocent party can sue for breach if it is untrue. However, in many cases a statement which induced the contract will not be part of the contract itself. This means that no action for breach of contract will arise. In those circumstances, the innocent party may find a remedy by relying on misrepresentation as a defence or action.
To establish misrepresentation, the innocent party must establish that:
- The other party made a false statement of fact or law;
- The statement induced the innocent party to enter into the contract.
The false statement must be one of law or fact, and not a statement of opinion: Bisset v Wilkinson  AC 177. There is an exception to this where:
- The statement is one of opinion based on false facts which the representor was in a position to know: Smith v Land & House Property Corp (1884) 28 Ch D 7; or
- The statement was one of future intent which the representor had no intention to carry out: Edgington v Fitzmaurice (1885) 29 Ch D 459.
Conduct which conveys information can amount to a statement of fact or law: Spice Girls v Aprilia  EWHC Ch 140. Silence cannot normally be an actionable misrepresentation: Smith v Hughes (1871) LR 6 QB 597. This is so unless the contract is one of ‘utmost faith’ (e.g. insurance contracts): HIH Casualty and General Insurance Ltd v Chase Manhattan Bank  UKHL 6.
If a statement of fact or law was true at the time it was made but later becomes false, it will be a misrepresentation not to correct it: With v O’Flanagan  Ch 575. However, there is no duty to disclose relevant information in the absence of a misleading representation: Turner v Green  2 Ch 205.
The innocent party must show that they knew about and relied on the representation when deciding to enter into the contract: Horsfall v Thomas  1 H&C 90. This means that but for the representation, the innocent party must show he would not have entered into the contract had he known the truth.
The courts will presume, in the absence of contrary evidence, that the innocent party relied on the statement if it was ‘material’. A statement is material if a reasonable person would have relied on it: Museprime Properties Ltd v Adhill Properties Ltd (1991) 61 P & CR 111.
However, in fraudulent misrepresentation cases, the innocent party only needs to prove that the representation was actively in their mind when they made the decision – a lower threshold. The court will also presume that a fraudulent misrepresentation induced the contract if the representor intended it to induce a contract: BV Nederlandse Industrie Van Eiprodukten v Rembrandt Entreprises  EWCA Civ 596.
Reliance will not exist if the innocent party made checks to verify the statement himself: Attwood v Small  UKHL J60. However, the fact that the innocent party could have verified the statement but failed to does not mean he did not rely it: Redgrave v Hurd (1881) 20 Ch D 1.
Remedies for Misrepresentation
Effect of Misrepresentation
If the innocent party establishes misrepresentation, the contract becomes voidable at their election.
A contract which is voidable is not treated as never existing. Rather, it is treated as existing until the innocent party communicates that they are terminating the contract or take reasonable steps to do so. Reasonable steps include reporting the goods stolen if the defendant has vanished.
Types of Misrepresentation
The exact range of remedies which are available for misrepresentation depends on whether it was fraudulent, negligent or innocent.
A fraudulent misrepresentation is one which the representor knows is false, does not believe is true or which the representor is reckless as to its truth or falsity: Derry v Peek (1889) 5 TLR 625.
A negligent misrepresentation is one which the representor cannot prove he had reasonable grounds to believe was true: Howard Marine v Ogden  QB 574.
As a result of section 2(1) of the Misrepresentation Act 1967, the remedy for a negligent misrepresentation is the same as the remedy available for a fraudulent misrepresentation: Royscott Trust v Rogerson  2 QB 297. Alternatively, the court may refuse an application for rescission and grant damages (assessed according to contractual principles) in lieu, if it thinks this is equitable in light of the potential harm rescinding/not rescinding would cause to each party: Misrepresentation Act 1967, s 2(2).
An innocent misrepresentation is one which is neither fraudulent or negligent.
The remedy for innocent misrepresentation is rescission. Alternatively, the court may refuse an application for rescission and grant damages (assessed according to contractual principles) in lieu, if it thinks this is equitable in light of the potential harm rescinding/not rescinding would cause to each party: Misrepresentation Act 1967, s 2(2).
Because misrepresentation renders the contract voidable rather than void, the right to rescind may be lost. The court is also likely to refuse rescission and grant damages in lieu under the Misrepresentation Act 1967, s 2 where:
- The innocent party’s real reason for seeking rescission is to escape a bad bargain unrelated to the misrepresentation: William Sindall plc v Cambridgeshire County Council  EWCA Civ 14;
- The misrepresentation has not caused the innocent party any loss.