Misrepresentation (AQA A-Level Law): Revision Notes
Misrepresentation
Introduction to vitiating factors
In contract law, certain factors can invalidate or vitiate an agreement. A vitiating factor is a legal issue that makes a contract potentially null and void. The AQA specification examines two main vitiating factors: misrepresentation and economic duress. This note focuses on misrepresentation, which occurs when a party enters into a contract based on a false statement of fact.
This content will be assessed in Paper 2.
The nature of misrepresentation
Misrepresentation arises when one party is induced to enter into a contract because of a false statement of material fact made by the other party. When this untrue statement is later discovered, the innocent party may be entitled to a legal remedy.
A clear example of an untrue statement leading to misrepresentation can be seen in Inntrepreneur Estates Ltd v Holland (2000), which demonstrates how false factual claims can form the basis of a misrepresentation claim.
What cannot constitute a misrepresentation
Not every false or misleading statement will amount to actionable misrepresentation. The following do not qualify:
1. Mere opinion
A statement expressing someone's personal view or judgment cannot be a misrepresentation. In Bissett v Wilkinson (1927), the court held that an opinion about a matter (where the speaker has no special knowledge) does not create liability if it turns out to be wrong.
2. Statement of future intention
A declaration about what someone intends to do in the future is not a misrepresentation, even if those intentions change. This principle was established in Edgington v Fitzmaurice (1885), though note that if someone states a future intention they have no genuine intention of fulfilling, this may constitute fraudulent misrepresentation.
3. Trade puff
Exaggerated advertising claims or promotional statements that no reasonable person would take literally are known as trade puffs and cannot be misrepresentations. The case of Carlill v Carbolic Smoke Ball Co. (1893) provides important context for understanding when promotional statements become legally binding.
How misrepresentation can arise
Misrepresentation can occur through different means:
Conduct
A false representation can be made through actions rather than words. In Spice Girls Ltd v Aprilia World Service BV (2000), the court found that conduct (allowing a band member to participate in promotional activities when the group knew she was leaving) could constitute misrepresentation.
Silence
Generally, mere silence or failure to disclose information does not amount to misrepresentation. In Hamilton v Allied Domecq (2007), Lord Rodger explained that while failing to speak might be morally questionable, this does not automatically create a legal duty to disclose information.
There are limited exceptions to the general rule on silence (such as contracts of utmost good faith), but the general principle is that silence alone is not actionable.
Timing requirements
For a statement to be actionable as misrepresentation, it must be made before the contract is formed. A false statement made after the parties have entered into the agreement cannot be a misrepresentation. This principle was established in Roscorla v Thomas (1842), which clarifies that only pre-contractual statements can vitiate the contract.
Types of misrepresentation
Once it has been established that a false statement was made and this statement induced the other party to enter the contract, the next step is to identify which type of misrepresentation occurred. This is crucial because different types attract different remedies. There are three categories:
1. Fraudulent misrepresentation
Fraudulent misrepresentation is the most serious form. It occurs when a person makes a statement that they know to be false, or without believing it to be true, or recklessly without caring whether it is true or false.
The leading case is Derry v Peek (1889), where Lord Herschell established the test for fraudulent misrepresentation. A statement is fraudulent if it was made:
- Knowing it to be false
- Without belief in its truth
- Recklessly, or carelessly as to whether it is true or false
This requires proof of deliberate deception or a complete disregard for the truth. The person making the statement must have acted dishonestly or with reckless indifference to accuracy.
2. Negligent misrepresentation
Negligent misrepresentation involves making a careless or inaccurate statement without taking reasonable care to ensure its accuracy. Unlike fraudulent misrepresentation, there is no dishonesty, but the statement is made negligently. This category can be established in two ways:
At common law
Under common law principles established in Hedley Byrne and Co. Ltd v Heller and Partners Ltd (1963), negligent misrepresentation can be actionable where financial loss occurs. However, liability only arises when there is a 'special relationship' between the parties and the person making the statement owes a duty of care to the recipient. This is a more limited form of action requiring proof of a specific relationship.
Under statute
Section 2(1) of the Misrepresentation Act 1967 provides a more accessible route. Under this provision, where a misrepresentation is made and loss results from relying on it, the person who made the statement will be liable unless they can prove they had reasonable grounds to believe the statement was true and did believe it up to the time the contract was made.
The burden of proof is significant here. As demonstrated in Howard Marine v Ogden (1978), once the innocent party shows a misrepresentation was made, the maker must prove they had reasonable grounds for their belief. If they cannot do so, they are liable under s2(1).
3. Innocent misrepresentation
Innocent misrepresentation (sometimes called 'wholly innocent misrepresentation') occurs when an untrue statement is made, but the person making it can demonstrate they had reasonable grounds for believing it to be true. This is the least serious category, involving neither dishonesty nor negligence.
The key distinction from negligent misrepresentation is that here, the maker of the statement can successfully show reasonable grounds for their belief in the statement's truth.
Remedies for misrepresentation
The available remedies depend on which type of misrepresentation has occurred. Understanding these distinctions is essential for exam success.
Rescission is potentially available for all three types of misrepresentation. Rescission is a contractual remedy that aims to place both parties back into their pre-contractual position, as if the contract had never existed.
Rescission may not always be appropriate or available in every case (for example, where substantial time has passed or where the parties cannot be restored to their original positions).
Remedies for fraudulent misrepresentation
For fraudulent misrepresentation, the innocent party has the strongest remedies available:
Rescission
The contract can be rescinded, undoing the agreement entirely.
Damages
The innocent party can claim substantial damages. These are based on the tort of deceit and are calculated generously in favour of the victim:
- There is no requirement that losses were foreseeable (unlike normal contract or tort damages)
- The injured party is entitled to compensation for all damage flowing from the fraudulent inducement, as established in Doyle v Olby (Ironmongers) (1969)
- The defendant is responsible for all losses with a causal link to the misrepresentation, even if the full extent of loss was not foreseeable (see Smith New Court Securities Ltd v Scrimgeour Vickers Ltd (1996))
- Loss of profit can be claimed
- The injured party can choose to affirm the contract (insist on its continued performance) or disaffirm it (refuse future performance)
Remedies for negligent misrepresentation
Section 2(1) of the Misrepresentation Act 1967 provides that the same remedies are available for negligent misrepresentation as if the statement had been made fraudulently. This is advantageous for claimants:
Damages
- Available under the 1967 Act (giving damages as if the misrepresentation were fraudulent)
- Also available at common law (where special relationship exists)
- Common law damages are based on foreseeable loss under tort law principles
- Contributory negligence may reduce damages if the innocent party was partly at fault for their loss
Rescission
The contract can be rescinded where appropriate.
Remedies for innocent misrepresentation
For innocent misrepresentation, section 2(2) of the Misrepresentation Act 1967 provides more limited remedies:
Either rescission or damages in lieu of rescission
The key points are:
- A successful claimant cannot claim both rescission and damages
- There is no automatic right to damages
- Damages are discretionary (the court decides whether to award them)
- If damages are awarded, they are given instead of (in lieu of) rescission
- Rescission remains the primary remedy
This reflects that innocent misrepresentation is the least serious form, where the maker of the statement had reasonable grounds for their belief.
Exam guidance
When answering questions on misrepresentation:
- Identify whether a false statement of material fact was made pre-contractually
- Check it is not merely opinion, future intention, or trade puff
- Classify the type of misrepresentation (fraudulent, negligent, or innocent)
- Apply the appropriate test for that type
- Explain which remedies are available
- Consider whether rescission is practically possible in the circumstances
Common mistakes to avoid:
- Confusing the remedies available for each type
- Forgetting that innocent misrepresentation does not give an automatic right to damages
- Failing to explain that under s2(1) MA 1967, the burden of proof shifts to the defendant
Remember!
Key Points to Remember:
- Misrepresentation is a false statement of material fact made before the contract that induces the other party to enter the agreement
- Mere opinions, statements of future intention, and trade puffs cannot be misrepresentations
- Three types exist: fraudulent (deliberate/reckless lies), negligent (careless statements), and innocent (reasonable belief in truth)
- Fraudulent misrepresentation gives the widest remedies: rescission and full damages including unforeseeable losses
- Negligent misrepresentation under s2(1) Misrepresentation Act 1967 treats damages as if fraudulent, with burden of proof on the defendant
- Innocent misrepresentation gives either rescission or discretionary damages in lieu, but not both
- Rescission returns parties to pre-contractual positions but may not always be available