Contracts, of one sort or another, form the basis of most commercial transactions. Parties to contracts will usually make representations to the other in the course of negotiations. However, if those representations are false or misleading, and have the effect of enticing the other party to enter the contract, this is known as misrepresentation. Where this occurs, the aggrieved party may have a legal remedy.
In order to succeed in a claim, the misrepresentation must be proved. This is not always straightforward. Each dispute is unique and will turn on its particular facts.
What is a misrepresentation?
A misrepresentation is an untrue or false statement of law or fact made by one party, which induces the other party to enter into an agreement or contract.
What are the different types of misrepresentation?
Misrepresentation can be either:
- Innocent misrepresentation;
- Negligent misstatement (common law);
- Fraudulent misrepresentation; or
- Negligent misrepresentation under s.2 (1) Misrepresentation Act 1967.
What are the remedies of misrepresentation in contract law?
If it can be proved that a misrepresentation has occurred, then this can lead to the contract being rescinded (cancelled) or to an award of damages.
Rescission usually allows for the unwinding of the contract, which puts both parties back in the position that they were before entering into the agreement, as if the contract was never made.
However, rescission may not always be available. Some bars to rescission are:
- Where the contract has been affirmed;
- Where there has been a substantial delay in seeking the remedy;
- Where a third party has acquired rights; or
- Where it is impossible to restore the parties to their pre-contract position.
An award of damages (a sum of money) is compensation for the loss that has been suffered. It is not usually possible to claim for absolutely every element of damage. The type of damage for which money is claimed must be a reasonably foreseeable consequence of the misrepresentation.
It is also necessary for the aggrieved party to mitigate (minimise) its losses as far as possible.
Quite understandably, where a perceived misrepresentation has occurred, you can feel very strongly about it. However, before things can be put right, it is important to make sure that the law agrees with you!
How can Nelsons help?
Our expert Dispute Resolution team have extensive experience in commercial disputes. If you or your business have an issue with a contract or any other business disagreement then we will be happy to discuss it with you.