Misrepresentation

What is a misrepresentation

Distortion, fabrication, falsification, mutilation or adulteration of what is true. Colouration, slanting stretching, twisting or exaggerating reality.

We are subjected to misrepresentations, from Comedians to Disney from Beauty to Dating site. The issue in law is whether or not the false representation injured the party subject to the misrepresentation or falsehood.

Misrepresentations therefore are a complete or partial false statement of fact made to another, which [whilst not being a term of the contract] induces another to enter into a contract/arrangement.

Not all misrepresentation are actionable claims and part of the recipe is that the party who is subject to the misrepresentation is exposed to injury

Wrongful Statement of Fact

An actionable misrepresentation must be a false statement of fact, not wrongful opinion (a) or future intention (b) or misinterpretation of law (c).

By way of explanation

A Statement of Opinion

We are all entitled to an opinion therefore a false/wrong statement of opinion is not a misrepresentation of fact. This principle was established in Bisset v Wilkinson [1927] AC 177.

That said where the sales representative is giving a statement and he was in a position to know the truth or the true facts and it can be proved that he could not have reasonable held such a view then his opinion can and should be treated as a statement of fact. This principle was outlined in Smith v Land & House Property Corp. (1884) 28 Ch D 7.

That said all litigants should understand that some expressions of opinion are merely sale puffs. A sale puff is to suggest for instance “if you fly xxx airline it will result in others consider you to be beautiful”. In Dimmock v Hallet (1866) 2 Ch App 21, the description of land as ‘fertile and improvable’ was held not to constitute a misrepresentation.

Statement as to the Future

A false statement made by a timeshare person as to what he will do in the future is not a misrepresentation and will not be binding on the represented unless the statement is incorporated into a timeshare contract.

However, if a person knows that his promise, has induced another to enter into a contract and knows that the promise will not-in fact-be carried out then the resort will be liable as expressed in Edgington v Fitzmaurice (1885) 29 Ch D 459 and Esso Petroleum v Mardon [1976] QB 801.

Statement of Law

A false statement as to the law is not and actionable misrepresentation.  Each citizen in the UK is presumed to know the law as such a consumer should know the law and should have known the representation was false. This explained, the distinction between fact and law is not simple and is discussed in Solle v Butcher [1950] 1 KB 671.

Silence

Generally is difficult to establish silence as a misrepresentation. The consequence of the maxim caveat emptor is that the other party has no duty to disclose problems voluntarily.

If therefore a timeshare consumer is labouring under a misapprehension there is no duty on the timeshare salesman to correct that misapprehension. “buyer beware” Smith v Hughes (1871) LR 6 QB 597.

However, there are three fundamental exceptions to this rule:

Half truths

The timeshare salesmen must not misleadingly tell only part of the truth. In the event that a proclamation that does not present the whole truth the claim may be regarded as a misrepresentation. Nottingham Brick & Tile Co. v Butler (1889) 16 QBD 778.

Statements that become false

Where a statement was true when made out but due to a change of circumstances has become false by the time it is acted upon, there is a duty to disclose the truth. With v O’Flanagan [1936] Ch 575.

Contacts Uberrimae Fidei

Contracts uberrimae fidei (utmost good faith) impose a higher duty of disclosure of all material facts because timeshare representative is in a strong position to know the truth. Examples would include finance contracts or loan aggreement.

A measureable fact is something which would inspire a reasonable person in entering the contract. If one party fails to do this, the contract may be avoided. Lambert v Co-Operative Insurance Society [1975] 2 Lloyd’s Rep 485.

Where there is a fiduciary connection between say the parties to a contract a duty of disclosure will arise, eg, solicitor and client, bank manager and client, trustee and beneficiary, and inter-family agreements.

The misrepresentations must have induced the contract.

The false statement must have induced the the consumer to enter into the contract. The requirements here are that (a) the misrepresentation must be material and (b) it must have been relied on by the consumer.

In respect to material

The misrepresentation must be material, in the sense that it would have tempted a reasonable person to enter into the contractual arrangement. However, this is not strictly objective:

Relience

The consumer must have relied on the misrepresentation.

There will be no reliance if the consumer was unaware of the misrepresentation. Horsfall v Thomas [1862] 1 H&C 90.

There will be no reliance if the consumer did not rely on the misrepresentation but on his own judgment or investigations. Attwood v Small (1838) 6 CI & F 232.

 Types of Misrepresentation

Once misrepresentation is established it will be necessary to ponder what type of misrepresentation has been made. There are three basic types of misrepresentation: fraudulent, negligent and wholly innocent. The importance of the distinction lies in the remedies available for each type.

Fraudulent misrepresenation

This is defined by Lord Herschell in Derry v Peek (1889) 14 App Cas 337. as a false statement that is “made (i) knowingly, or (ii) without belief in its truth, or (iii) recklessly, careless as to whether it be true or false.” Therefore, if someone makes a statement which they honestly believe is true, then it cannot be fraudulent.

The burden of proof is on you the consumer – “he who asserts fraud must prove it”. Tactically, it may be difficult to prove fraud, in the light of Lord Herschell’s requirements.

The remedy is rescission (subject to exceptions discussed later) and damages in the tort of deceit.

Negligent Misrepresentation

This is a false statement made by a person who had no reasonable grounds for believing it to be true. There are two possible ways to claim: either under common law or statute.

Negligent Misstatement at Common Law

The House of Lords have held that in certain circumstances damages may be recoverable in tort for negligent misstatement causing financial loss in Hedley Byrne v Heller [1964] AC 465.

Success depends upon proof of a special relationship existing between the parties. Such a duty can arise in a purely commercial relationship where the timeshare salesman has (or purports to have) some special skill or knowledge and knows (or it is reasonable for him to assume) that you the consumer will rely on the representation. See: Esso Petroleum v Mardon [1976] and Williams v Natural Life Health Foods (1998) The Times, May 1.

The remedies are rescission and damages in the tort of negligence

Negligent Misrepresentation

UNDER s2(1) MISREPRESENTATION ACT 1967

Section 2(1) of the Misrepresentation Act 1967 provides:

“Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

This provision does not require the consumer to establish a duty of care and reverses the burden of proof. Once a party has proved there has been a misrepresentation which induced them to enter into the contract, the person making the misrepresentation will be liable in damages unless he proves he had reasonable grounds to believe and did believe that the facts represented were true. This burden may be difficult to discharge as shown in Howard Marine & Dredging Co v Ogden & Sons [1978] QB 574.

Innocent Misrepresentation

This is a false statement which the person makes honestly believing it to be true.

The remedy is either

  • (i) rescission with an indemnity, or
  • (ii) damages in lieu of rescission under the courts discretion in s2(2) Misrepresentation Act 1967 (see below).

Last modified: 5th February 2016