Knowing the different types of misrepresentation - fraudulent, negligent, and innocent - can help you understand when a contract can be challenged and what legal options are available. In this guide, we’ll break down each type, explain the key differences, and explore how to take action if you’ve been misled into an agreement.
What is misrepresentation in UK law?
Misrepresentation happens when one party makes a false statement that convinces another to enter into a contract. If this happens, the affected party may have the right to cancel the contract or claim compensation. Understanding the different types of misrepresentation is important for both individuals and businesses, as it can help determine when a contract can be challenged and what legal options are available.
For a statement to be considered contractual misrepresentation under UK law, it must meet these key criteria:
It’s a false statement of fact, not opinion.
The statement must have been made before or at the time of entering into the contract.
The false statement must have persuaded the other party to enter into the contract.
What are the three different types of misrepresentation?
There are three types of misrepresentation in UK law:
Fraudulent misrepresentation
Negligent misrepresentation
Innocent misrepresentation
Fraudulent misrepresentation explained
Fraudulent misrepresentation happens when someone makes a false statement. They do this intending to mislead another party. This means the person making the statement either knows it's untrue or has no belief that it's true. They might also be acting recklessly without checking the facts. The key element is intent - if a false statement influences another person into making a decision. If they suffer harm as a result, it could be classed as fraudulent misrepresentation.
Example: Imagine a car dealer selling a second-hand vehicle. They know the engine has a major fault but tell the buyer it's in perfect working condition. The buyer makes a decision based on this false statement and purchases the car, only to discover the fault later. This is a clear case of fraudulent misrepresentation because the seller misled the buyer.
Legal remedies for fraudulent misrepresentation
If you’ve been misled by fraudulent misrepresentation, you have legal options to reverse the agreement and recover losses.
Rescission of the contract: You can cancel the contract, returning both parties to their original position. In this case, it's as if the deal never happened.
Claiming damages: You may be able to get financial compensation to cover losses caused by the misrepresentation. This could include expenses that have happened due to the false statement. There may also be extra costs that are needed to fix the situation.
Negligent misrepresentation explained
Negligent misrepresentation happens when someone makes a statement without properly checking if it’s true, and another party relies on it - only to suffer a loss as a result. If a statement turns out to be false, the person who made it must prove they had reasonable grounds to believe it was true. Otherwise, they could be held responsible for negligent misrepresentation.
Example: A real estate agent tells a buyer that a property has planning permission for an extension. But in fact, they haven’t checked with the local council. The buyer then follows this information and purchases the property. They then found out later that planning permission was never granted. While the agent didn’t lie on purpose, they didn’t claim without confirming the facts.
Legal remedies for negligent misrepresentation
If you've suffered money loss due to negligent misrepresentation, the law can help you to correct the situation:
Rescission of the contract: You can ask to cancel the agreement and return both parties to their original positions. Doing this will prove the contract never existed.
Claiming damages: Under the Misrepresentation Act 1967, you may be able to get financial compensation to cover losses. There may be extra costs due to the misrepresentation and relying on incorrect information.
Innocent misrepresentation explained
Innocent misrepresentation happens when someone makes a false statement but does not believe it to be true at the time. Unlike fraudulent or negligent misrepresentation, there is no intent to deceive. They would have taken care in verifying the information and believed there were grounds to be accurate. They then found out that it was incorrect.
Example: A homeowner selling their property tells a buyer that the roof was recently replaced. They were told this by the previous owner. The buyer later finds out that the roof is much older and requires repairs. The seller didn’t intend to mislead and had no reason to think the information they were given was incorrect. This is an example of innocent misrepresentation.
Legal remedies for innocent misrepresentation
Even though there is no offence involved, the law still offers solutions to the party:
Rescission of the contract: You can cancel the contract, and both parties will go back to before the agreement.
Damages instead of rescission: If the contract is not practical or fair, the court may award money for damages. This is at the court’s discretion and is when cancelling the contract wouldn't work.
Representation or a contract term?
When entering into a contract, statements made by one party can either be classed as 'representation' or a 'contract term'. You need to understand the difference to help you decide the steps to take.
What is a representation?
A representation is a statement made during contract negotiations. It can persuade the other party to enter into the agreement. But it's not an actual term of the contract itself. If this turns out to be false, the affected party may have a claim for misrepresentation. It could allow them to cancel the contract or seek damages.
Example: A car seller claims that a vehicle has never been in an accident to encourage a buyer to buy it. If this statement turns out to be false, the buyer may claim misrepresentation. The statement helped them to decide to get the car. But it was not a legal term written in the contract.
What is a contract term?
A contract term is a promise that is in the contract. If a contract term is false or broken, you may be able to make a breach of contract claim. This allows the injured party to seek damages or end the contract.
Example of a contract term: A lease agreement states that a commercial property comes with designated parking spaces. If the tenant discovers that they do not have access to parking after signing, this would be a breach of contract. This promise was part of the agreement itself.
Why does the distinction matter?
The consequences of a false statement depend on whether it is a representation or a contract term:
Factor | Representation | Contract term |
|---|---|---|
Definition | A statement made to persuade a party to enter the contract. | A legally binding obligation that is written into the contract. |
Legal Remedy | Rescission (cancelling the contract) or damages for misrepresentation. | Claim for breach of contract, which may result in damages or contract termination. |
Importance | Not always key to the agreement. | Essential to the contract obligations. |
Effect of a False Statement | Leads a misrepresentation claim if untrue. | A breach may lead to compensation or other legal action. |
How to determine if a statement is a representation or a contract term
Courts look at several factors to determine whether a statement is a representation or a contract term:
The wording of the contract: If the statement is included in the contract, it is likely a contract term.
The importance of the statement: If the statement was so important, the other party would not have signed the contract without it.
The expertise of the party making the statement: If the person making the statement is in a position of authority (e.g. a professional advisor). This is more likely to be considered a contract term than representation.
Time between the statement and signing the contract: If a statement was long before you sign the contract, it is more likely to be a representation.
How can you prove misrepresentation?
To prove misrepresentation, the claimant must show:
A false statement was made.
The statement was about a key fact.
The statement influenced the contract.
Relying on the statement caused a loss.
How can you make a misrepresentation claim?
If you believe you have been misled into entering a contract due to misrepresentation, you can take the following steps:
Gather evidence: Collect any documents, emails, or witness statements proving the false representation.
Consult a solicitor: Legal advice can help determine whether a claim is viable.
Decide on the remedy: Choose between cancelling the contract or claiming damages.
Take legal action: If negotiations fail, you may need to pursue a claim in court.
FAQ
Can misrepresentation occur in verbal agreements?
Yes, misrepresentation isn’t just written contracts. If someone says aloud a false statement to persuade another party to enter an agreement, it can still be a misrepresentation.
Can a contract still be valid if misrepresentation is proven?
If you prove misrepresentation, the contract doesn’t become invalid. The misled party has the option to cancel the agreement or claim compensation, depending on the circumstances.
What is the difference between misrepresentation and mistake?
Misrepresentation happens when one party makes a false statement that influences the other party. Mistake occurs when both parties misunderstand the contract, without any dishonesty involved.
Final thoughts
Understanding misrepresentation is key to knowing your rights when entering a contract. Whether it’s fraudulent, negligent, or innocent misrepresentation, knowing the differences can help you challenge unfair agreements and seek compensation if needed. If you suspect misrepresentation, getting legal advice can help you take the right steps.
References
Consumer Rights Act 2015 by legislation.gov.uk
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.