Our commercial litigation solicitors have a real depth of experience in advising clients on valuable and high-profile claims in the county courts and particularly at the High Court. Using their knowledge, they provide some useful points re misrepresentation, or false statements of fact, which are very common in commercial disputes. Of particular note, if directors of companies make a dishonest representation, they might be held personally liable.
1. What is misrepresentation?
It is a legal term, commonly shortened to "misrep.", which broadly covers when one party makes a statement of fact to the other party which encourages them to enter into a contract, but the statement later turns out to be incorrect, either carelessly, on purpose or innocently, and which has caused the other side loss.
2. When does it arise?
It can happen in all types of commercial contracts, but most commonly happens in property sales and contracts for buying/selling goods or contracts for services. Someone might outline they are experts in a particular matter when they are not, or say something is much better quality than it is to encourage the sale, but turns out to be untrue.
3. Are all false statements misrepresentations?
Statements can be split into different types in law; not all allow you to bring a claim. For example, if someone simply gives their opinion, this might not be misrep. Half-truths might not be misrep depending on the context. Silence is generally not misrepresentation, although if the parties' conduct afterwards misleads you, it might be. If you knew the statement was likely untrue but decided to enter the contract anyway, this may not be misrep. The statement needs to induce you to enter into the contract and you need to show reliance on it.
4. What if the person believes the information is true?
Sometimes people make statements with legitimate reasons to think the information is true, but it later turns out to be incorrect. Situations where false information was given without blame, might be labelled "innocent misrepresentations". It is important to identify the correct type of misrep. as each type allows different claims in law. If innocent misrep. occurs, the parties may be able to treat the contract as cancelled, and restore parties to their positions before the contract took place, unless this is impossible, in which case the court might award compensation instead, for example if goods have perished.
5. What if the person simply hadn't checked carefully?
It is surprising how often people make statements on loose assumptions and without double checking the facts. If this happens, and someone gives incorrect information which they could have easily checked, then this might be "negligent misrepresentation". The other side may have a defence if they can show it was reasonable for them to think the information was correct. If the court finds negligent misrep, it can reverse the contract to the original position and award compensation to the wronged party. If the contract cannot be reversed, the compensation may increase to reflect that.
6. What if I know the person was deliberately misleading me?
If you can prove it, this might be fraudulent misrepresentation. This test is arguably more difficult, as it requires proof of what the other side was thinking at the time they made the statement, although you do not need to show they had a particular motive. It can be difficult to set this out in evidence with any certainty. If you can show that the person knew a statement was false or reckless in not checking whether it was true or not, this might be fraudulent misrep, and might overlap with the criminal offence of fraud. If fraudulent misrep is found, the contract can be reversed and compensation awarded.
7. What remedies does misrep give me?
As above, this depends to some extent on the type of misrep. Taking legal advice early on can assist you. Misrep most commonly can reverse the contract, but in some types, compensation might be awarded instead of reversing the contract. In other types, compensation can be awarded as well. There are different legal tests for calculating compensation depending on the type of misrep. It is useful legal remedy, but involves careful early analysis and legal advice is very helpful so you do not start the claim on the wrong basis.
8. Is claiming misrepresentation always best?
Not necessarily, sometimes a wronged party might be able to bring a claim for misrepresentation and / or breach of contract. A breach of contract claim might allow recovery of loss of profits where the deal is a good bargain. Where the deal is not a good bargain, it might be sensible to bring a claim for misrep. The burden of who has to prove the claim changes between the two, and it might be easier evidentially to bring a claim for misrep. Early legal advice can assist.
9. How long do I have to bring a claim?
If you discover information or a statement is false, you need to act quickly, otherwise the law might consider you have accepted the contract despite the false statement. This is a matter of degree and will depend on the facts of each case. Early legal advice and action is sensible.
10. What can I do if the other side has limited their liability in the contract?
Some commercial contracts expressly try to restrict liability for misrepresentation as it can so easily occur in commercial dealings. The party who drafts the contract might try and exclude liability altogether, or limit compensation to a very low amount. This restriction might be buried deep within the contract in the hope you don't notice. If you agree the terms, it might potentially be binding, but may depend whether the court considers it is reasonable to allow it.
At Saunders Law, we're dedicated litigators with vast experience assisting clients to resolve their commercial disputes. We're well-known for our high-profile work and excellent client satisfaction. Operating from offices facing the High Court in central London, we're also ideally located to handle commercial litigation including misrepresentation claims. For a free, no-obligation, initial discussion of how we may be able to help, please contact us.
If you have a commercial dispute worth more than lb10,000 or and need assistance on dealing with a claim involving false statements, contact our lawyers for an informal chat on 02076324300