Bringing a claim for fraudulent misrepresentation
In contract law, ‘misrepresentation’ is where a party makes a false statement on which another party relies to enter into a contract. Where that statement is false, the innocent party can choose to rescind the contract (treat it as though it has not been entered into) and can be put back in the position it would have been had the false statement not been made by claiming damages. There are slightly different remedies depending on whether the misrepresentation was made innocently, negligently, recklessly or fraudulently. This article focuses on fraudulent misrepresentation.
Fraudulent misrepresentation is the most serious type of misrepresentation and therefore it can be the most difficult to prove in court. Innocent and negligent misrepresentation are governed by statue through the Misrepresentation Act 1967, however fraudulent misrepresentation has evolved through common law and the tort of deceit. Whilst fraudulent misrepresentation can also be a criminal offence, most claims are brought with the intention of recovering losses suffered and are therefore brought through the civil courts.
Elements to prove
What differentiates fraudulent misrepresentation cases is the element of deceit and importantly, the defendant’s intention to deceive. In order to bring a claim, a claimant would have to establish the following:
1. That a statement was made dishonestly by the other party;
2. The other party either knew that the statement was untrue, had no belief in its truth or was reckless as to whether it was true or not;
3. The other party intended for the claimant to rely on the false statement;
4. The claimant did in fact rely on the representation and entered into the contract; and
5. The claimant consequently suffered loss as a result.
Successfully proving the above can be a difficult task as the courts require sufficient, tangible evidence that demonstrate the defendant’s intentions. The question of what constitutes intention was considered in the case Eco3 Capital Ltd & Ors v Ludsin Overseas Ltd [2013], where the judge held that intention does not need to be shown as an additional or separate limb, because it can be found to exist within the elements themselves.
Remedies
If a claimant was successful in court, the recourse available can result in rescission of the contract and/or an award for damages. Rescission of the contract means that the claimant would be put back into the position they would have been, had they not entered into the contract. Naturally, this is an attractive remedy for a claimant. It is not available in innocent misrepresentation cases.
The rule for damages awarded in fraudulent misrepresentation cases is that the claimant ought to be restored to the position that they would have been if the misrepresentation had been true; this was established in Doyle v Olby (Ironmongers) Ltd [1969]. This means that unlike negligent misrepresentation, damages are not subject to tests of foreseeability or remoteness of damage and therefore the amount of compensation for a successful claimant can be extensive.
There are many factors to consider when deciding whether to pursue a claim for fraudulent misrepresentation as opposed to bringing an alternative claim, such as negligent misrepresentation or breach of contract. Whilst the rewards can be substantial, given the high burden placed on the claimant and the requirement to prove intent, it is often considered a risky course of action.
Seeking advice
It may be that a party finds itself in the position of having to quickly decide whether to rely on a breach of contract to terminate, to waive the breach and affirm the contract and treat it as continuing, or to rescind the contract for misrepresentation and / or seek damages. This is a key moment where a decision taken without knowing the full legal effects of it might affect a party’s ability to be able to bring a claim for breach of contract or fraudulent misrepresentation.
If you believe you may have been a victim of fraudulent misrepresentation and require advice from one of our solicitors, please contact our commercial litigation team or call 020 7632 4300 who would be pleased to have a no-obligation call to determine how we may be able to assist.