Misrepresentation happens when someone is misled into signing a contract based on false information. This can lead to financial losses or even make the agreement invalid. Your legal options depend on whether the misrepresentation was fraudulent, negligent, or innocent. In this guide, we’ll break down your rights, when you can cancel a contract, and how to claim compensation if you’ve lost out.
What is misrepresentation?
Contractual misrepresentation happens when one party makes a false or misleading statement. This might have persuaded another party to enter into a contract. If the misled party later discovers the statement was untrue, they may have legal grounds to cancel the contract. They may also seek compensation.
To count as misrepresentation, the statement must:
Be false or misleading: It must not reflect the truth accurately.
Relate to a material fact: The information must be important enough to influence the decision to enter the contract.
Be relied upon: The misled party must have trusted the statement when agreeing to the contract.
Types of Misrepresentation
There are three types of misrepresentation under UK law, each with different consequences by law:
Fraudulent misrepresentation: When a false statement is made deliberately or rashly. A car dealer sells a faulty car purposely, but claims it is in perfect condition.
Negligent misrepresentation: When a false statement is made without checking if it is true. An example of this would be a real estate agent who claims a property has planning permission without verifying the information.
Innocent misrepresentation: When a false statement is made with a genuine belief that it is true. For example, a homeowner selling a property says the roof was recently replaced due to being told this from a previous owner, but later finds out it wasn’t.
Legal remedies for misrepresentation
When misrepresentation occurs, the legal solutions depend on several factors. It depends on whether the false statement was fraudulent, negligent, or innocent. Each type carries different consequences, and the misled party may be able to cancel the contract or claim compensation.
What are the legal remedies for fraudulent misrepresentation?
This is the most serious form of misrepresentation and happens when a party makes a false statement on purpose. They are doing this to deceive the other party. The fixes available include:
✅ Rescission: The misled party can cancel the contract and it will be like the contract had never existed. This helps undo any unfair obligations caused by the fraud.
✅ Damages: The misled party can claim compensation for financial losses which are directly down to the fraudulent misrepresentation. These damages aim to cover all losses, even if they were not directly linked to the contract.
✅ Punitive measures: Courts may add penalties on the fraudulent party to stop misconduct. If it's proven there is fraud, the guilty party may also face criminal charges or legal costs.
What are the legal remedies for negligent misrepresentation?
This occurs when you make a false statement without checking carefully its accuracy. The person making the statement may not intend to deceive, but they fail to check the facts properly. Legal repairs include:
✅ Rescission: The contract can be cancelled, meaning it is treated as if it never existed. The misled party is then back to its original position.
✅ Damages: The misled party can claim compensation for financial losses. This is due to the misrepresentation under the Misrepresentation Act 1967. Unlike fraudulent misrepresentation, damages are only given for losses that were due to the false statement.
What are the legal remedies for innocent misrepresentation?
This happens when a party makes a false statement without knowing it is untrue. There have to be grounds to believe it was accurate. Since there is no fraud or negligence, there are only a few solutions.
✅ Rescission: You could cancel the contract, allowing the misled party to walk away from the agreement. They can then go back to their position before the contract.
✅ Discretionary damages: Courts may award damages instead of cancelling the contract if it’s not practical or fair. This could happen if the misled party has already benefited from the contract. Or cancelling the contract would cause significant disruption.
How to make a claim for contractual misrepresentation
If you entered into a contract based on false or misleading information, you may be able to make a misrepresentation claim. Whether the misrepresentation was fraudulent, negligent, or innocent, you need to take the right steps. This can help you protect your rights and recover losses.
1. Gather evidence
Before making a claim, you need to get all relevant documents and proof to support your case. This may include:
Written statements or emails containing false information.
Contracts, agreements, or marketing materials that misled you.
Financial records showing any losses caused by the misrepresentation.
Witness statements from others who were also misled.
2. Consult a solicitor
Misrepresentation claims can be complex, so speaking to our commercial solicitor can help you. We can help strengthen your legal position and help you find the best solution.
They can assess whether misrepresentation occurred and the strength of your claim.
Our solicitor will help determine whether to negotiate a settlement or take legal action.
If your claim goes to court, they can represent you and present your case.
3. Decide on the remedy
Depending on the type of misrepresentation, you may be entitled to one or both of the following:
✅ Rescission: Cancelling the contract so that both parties return to their original position. This applies when misrepresentation impacts the contract.
✅ Damages: Seeking compensation for losses suffered due to the misrepresentation. This is more common in fraudulent or negligent misrepresentation claims.
4. Initiate legal proceedings
If negotiations with the other party fail, you may need to take legal action for your claim.
Pre-action negotiations: Before going to court, your solicitor may send a formal Letter Before Action to try and resolve the issue.
Court proceedings: If you don't reach an agreement, you can file a claim in court. After presenting the case, the judge will decide on the solution.
Settlement options: Many cases settle before reaching court, often through mediation or compensation.
FAQ
Can I claim damages for all types of misrepresentation?
Not always. You can claim damages for fraudulent and negligent misrepresentation. For innocent misrepresentation, it’s up to the court to decide if compensation is fair.
How long do I have to make a misrepresentation claim?
The time limit depends on the type of misrepresentation and the contract terms. It’s best to get legal advice as soon as possible to avoid missing any deadlines.
Can I still claim if I signed the contract without checking the details?
Yes, but only if you can prove that you relied on false information when entering the contract. If the misleading statement influenced your decision, you may still have a case.
Final thoughts
Misrepresentation can have serious consequences, from financial losses to contract cancellations. Whether the misrepresentation was fraudulent, negligent, or innocent, understanding your legal rights is crucial. If you've been misled into an agreement, seeking legal advice can help you explore your options, protect your interests, and recover losses.
References
Misrepresentation and non-disclosure by Financial Ombudsman
Misrepresentation Act 1967 by legislation.gov.uk
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified professional.