Misrepresentation claims explained Types of Misrepresentation and How to Protect your Business

Commercial contracts are of fundamental importance to all businesses.  Disagreements can arise if one party feels a contract has been breached or an undertaking hasn't been followed through. One common type of contractual issue is a misrepresentation claim. If you are facing a misrepresentation claim, it is strongly recommended to seek legal advice for assistance in managing the situation.

In this guide, we explain what is meant by a misrepresentation claim, and how you can handle a misrepresentation claim and protect your business. We also address common queries on dealing with misrepresentation claims.

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What is misrepresentation?

A claim for misrepresentation can occur when one party (the representor) made an untrue statement or fact that persuaded the other party (the representee) to enter into a contract. For example, one party may have been assured that a service or goods would be delivered on a defined date, or that a particular type of service would be provided. A misrepresentation claim can be made if, at a later date, the statement proves to be incorrect and as a result of which causes a loss to the claimant. The reasons for the failure can be due to carelessness, or deliberate or there was an innocent omission.

Claims for misrepresentation are governed by the Misrepresentation Act 1967 (MA 1967).

Who can claim loss through representation

For a misrepresentation claim to succeed, the representation relied on when agreeing to a contract must have been false. To be entitled to damages, a misrepresentation must be proven to be a fraudulent or negligent misrepresentation.

Types of misrepresentation claims

Misrepresentation claims often occur when either buying or selling goods, or contracts for services. Misrepresentations can either be made:

  • Fraudulently—this is where the misrepresentation was made knowingly, without belief in its truth, or recklessly as to its truth. For example, a business may have promised a level of service in a contract that it knew for certain it would be unable to deliver. If this is the case, the claimant may have the contract rescinded and seek damages.
  • Innocently—for a defendant to prove innocent misrepresentation, they must be able to show that they had reasonable grounds to believe their statement was true. If innocent misrepresentation can be proven, the claimant is not entitled to an award for damages, but may be entitled to rescind the contract or to obtain damages in lieu of rescission.
  • Negligently—in negligent misrepresentation, a representation must have been made carelessly or without the representor having reasonable grounds for believing its truth. Under section 2(1) of the Misrepresentation Act 1967, the claimant may seek rescission and/or damages if negligent misrepresentation is proven.

Defending a misrepresentation claim

Under the Misrepresentation Act 1967, you must be able to prove that you believed that the statement which acted as an inducement to enter into a contract was true. In order to do so evidence to prove that you believed your representation was true must be presented to show that there was no intention to deceive.

Giambrone & Partners' commercial lawyers can advise when dealing with all types of misrepresentation claims. It can be difficult to prove that a mistake was innocent. Lawyers who are experienced in commercial contracts can assist in dealing with complicated claims.

Are you dealing with a misrepresentation claim? Find out how we can help here.

What remedies are awarded for misrepresentation?

The remedies for misrepresentation are rescission and/or damages. In the case of fraudulent and negligent misrepresentation, the claimant may claim rescission and damages. In the case of innocent misrepresentation, the court has a degree of discretion to award damages in lieu of rescission (section 2 of the Misrepresentation Act 1967).

Preventing misrepresentation claims

Both “entire agreement” and “non-reliance” clauses can, in certain circumstances, limit liability for misrepresentation.

Entire agreement clauses attempt to limit what has been agreed in particular contractual documents. These clauses aim to prevent pre-contractual representations from being included in the contract unless it can be proved that this was not the parties’ intention. Exclusion of liability for misrepresentation must be clearly stated.

Non-reliance clauses, on the other hand, acknowledges that a contracting party has not relied on any pre-contractual representations in entering into a contract.

We can assist you in preventing misrepresentation claims from arising in the future.

How Giambrone & Partners can help

Our specialist team of litigation and dispute resolution lawyers can advise you on what you need to do to protect your interests. Our lawyers can help resolve your contractual dispute, regardless of the industry sector involved. We can review relevant contracts to ensure that they are legally enforceable and advise on the likely outcome in relation to your case.

We will always attempt to resolve any issues via negotiation, alternative dispute resolution (ADR) by means of mediation or arbitration, rather than defaulting automatically to litigation. The methods of ADR can be very effective in resolving disputes without resorting to the court system and can make the process less confrontational as well as being speedier and cost-effective.

Is your business dealing with a misrepresentation claim? Contact us here for assistance.