At first glance, the law surrounding misrepresentation can seem relatively straightforward. For example, in McMeekin v Long 1 the sellers were asked whether there had been any disputes concerning the property or any neighbouring property and, whether they had received any complaints about anything they had or had not done as owners. The sellers falsely answered “no”, in the full knowledge that there had been disputes over the dumping of rubbish and parking during their period of ownership. The sellers were found guilty of fraudulent misrepresentation and had to pay damages of £67,500 plus costs.
McMeekin was a decision at one end of the spectrum of dishonesty, involving a clear case of fraudulent misrepresentation. Other cases are less clear and misrepresentation can be categorised into three types – fraudulent, negligent and innocent.
In order to found a claim based on misrepresentation, an untrue statement needs to be made by one party to the other, which induces the representee to enter into a contract. The misrepresentation must be of fact, not of opinion or intention; although in some cases silence itself will be regarded as misrepresentation.
A fraudulent statement is one that the maker does not honestly believe to be true. It has to be more than just foolish, inaccurate or unreasonable and the burden of proof is high.
Fraudulent misrepresentation was considered in the recent case of FoodCo UK LP v Henry Boot Developments Ltd 2 where the court made clear that the subjective state of the mind of the representor was crucial in deciding whether or not a representation was fraudulently made.
Henry Boot was a case brought by various tenants of a service station facility who claimed that they entered into agreements for lease on the basis of misrepresentations made by the developer. The developer had developed facilities accessible from junction 11 of the M20 comprising a petrol station and retail and catering units. The developer’s marketing material and a third party report on which the marketing material was based, predicted 88,000 visitors a week on opening – a prediction which proved wildly optimistic. The claimant tenants alleged that they had been “tricked” by the developer and that the developer had made misrepresentations about: the extent of the motorway signage that would be provided for the site; the likely number of visitors to the site; and the facilities that the site would offer.
As the contract contained a clause which declared that the tenants acknowledged that they did not rely upon any representation made on behalf of Henry Boot except for solicitors’ written replies to pre-contract enquiries, the tenants’ only option was to bring a claim for fraudulent misrepresentation which cannot be excluded by contract. The tenants failed. Henry Boot was found to have had an honest belief in the predictions that it made. The mere fact that a person holds a belief on unreasonable grounds is not fraud, although it might be evidence of fraud.
Under the general law, where a “special relationship” exists between parties (for example, because one party has some relevant special knowledge, expertise or skill), then a duty of care is owed by that party to the other. If a careless statement is made by that expert then a claim for negligent misstatement can be brought whether a contractual relationship exists or not. If a contract is induced then a claim for negligent misrepresentation may also be founded and a person may sue under the Misrepresentation Act 1967.
Under the Act, if a representor does not have reasonable grounds to believe up to the time the contract is made that the facts represented are true then a representee may bring a claim. Crucially, the burden of proof under the Act is on the defendant (as opposed to the normal position where the burden of proof is on the claimant) to show that he had reasonable grounds to believe the statement he was making was true. The burden on the person making the representation is heavy and not easy to discharge; the Act imposes an absolute obligation not to state facts which the representor cannot prove he had reasonable grounds to believe.
If the misrepresentor has been neither fraudulent nor negligent, his misrepresentation is wholly innocent. In other words the person making the statement is able to show that he had reasonable grounds to believe that his statement was true.
The Act states that if a contract contains a term which would exclude or restrict any liability or remedy for misrepresentation then such an exclusion clause must be reasonable within the meaning of the Unfair Contracts Act 1977. For this reason in Walker v Boyle 3 when the seller of a house made an innocent but incorrect statement that there were no disputes regarding the boundaries of the property, the buyer was entitled to rescind the contract. The contract had been concluded using the National Conditions of Sale which contained a clause stating “no error, mis-statement or omission in any preliminary answers concerning the property… shall annul the sale.” The seller relied on this term as excluding his liability but the court still granted rescission. One of the grounds for this decision was that the exclusion clause was an unreasonable one.