False Statements

Misrepresentation at Law in England

General

Generally speaking, the law of misrepresentation, when substantiated at law, taints the otherwise lawful formation of a contract. A false statement made during contractual negotiations may be a mere statement with no contractual effect, or become a term of the contract. Where a representation is untrue, it will constitute a misrepresentation.

An actionable misrepresentation comprises a false statement of fact made by one party to the other which induces the other party to enter into the contract. The statement made will usually be in words, but it is possible that other forms of communication will be sufficient to amount to a misrepresentation. In the case of Spice Girls v Aprilia World Service BV, CA (2002), a misrepresentation by conduct appeared in promotional material for the company. The person made the representation in the knowledge that Ms Halliwell was leaving the group.

Inducement

It is not enough that a false statement has been made. The false statement must have induced the other party to enter into the contract. There are four conditions which need to be satisfied in order for there to have been an inducement:

If the claimant relies upon the misrepresentation when entering into a contract, this will amount to an inducement, even where the claimant did not take advantage of an offer to check the statement made.

However, where the claimant relies upon their own judgement, or having made their own investigations, there will be no inducement as they have not relied upon the misrepresentation.

Types of misrepresentation

Misrepresentation can fall into three different categories: Fraudulent; negligent; and innocent. The remedies available for misrepresentation depend upon which category it falls within.

1. Fraudulent

Fraudulent misrepresentation was defined by Lord Herschell in Denny v Peak (1889) as a false statement “made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless as to whether it be true or false”, that is to say there is absence of honest belief.

2. Negligent

There are two types of negligent misrepresentation:

a) At common law

Traditionally, damages could only be claimed for fraudulent misrepresentation. In the case of Hedley Byrne and Co. v Heller and Partners Ltd (1994), the House of Lords extended common law negligence to negligent statements which cause loss.

b) Under the Misrepresentation Act 1967

Section 2(1) of the Misrepresentation Act 1967 provides a statutory claim for damages for negligent misrepresentation.

3. Innocent

Where one party makes a statement which he reasonably believes is true, there will be no misrepresentation and the statement will be regarded as ‘wholly innocent’.

Damages can not be claimed where there had been an innocent misrepresentation, however the plaintiff may rescind the contract and be entitled to an indemnity to restore him to the position he was in before the contract was made.