Misrepresentation
"Misrepresentation may be defined as a false statement of fact that induces another party to enter into a contract."1
Fraudulent misrepresentation is defined by Lord Herschell in Derry v Peek (1889) 14 App Cas 337 as 'a false statement made knowingly or without belief in its truth or recklessly careless whether it be true or false.' As this statement suggests, fraudulent misrepresentation may be made recklessly. It should be distinguished from negligent misrepresentation however as under fraud dishonesty can be found in as far as 'the person could not reasonably have believed in the truth of their statement.'2
When an individual fails to use reasonable care, such as by giving advice negligently, they may be found guilty of negligent misrepresentation as a representor is 'under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.'3 However the defendant may raise the 'innocence defence' or innocent misrepresentation which is available when: '[the representor] had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.4
When the defendant is found to have misrepresented, the contract is voidable. However, the representee has to communicate whether he wishes to affirm or rescind the contract either by a way of action5 or contact. Furthermore, rescission is time sensitive as it is an equitable remedy and it is also unavailable when restitutio in integrum due to the circumstances is impossible.
Under fraudulent misrepresentation either rescission and/or damages are available. While rescission may be considered as straight forward, the measurement of damages is slightly more complicated. As fraud is tortuous, the aim is: 'to put the victim into the situation he would have been in had the misrepresentation not been made.'6 It was established in Doyle v Olby [1969] 2 QB 158 and latter affirmed, that the measure of damages under tort entails all the damages that arise directly from the fraudulent misrepresentation, provided that they are not too remote. Win L. J. elaborates on the concept of remoteness by stating that it is not too remote simply because 'it was not contemplated by the representor.' Instead too remote is when:
'the person deceived has not himself behaved with reasonable prudence, reasonable common sense or can in any true sense be said to have been the author of his own misfortune.'7
Therefore, while the burden of proof under fraudulent misrepresentation is high, the reward is substantial as remedy will be granted for any damage which is a direct consequence whether foreseeable or otherwise. This may be contrasted with the measurement of damages under negligent misrepresentation which are restricted to whether they are reasonably foreseeable. It should be noted however that the test for measuring damages under negligent misrepresentation differs from the test of reasonably foreseeability in contract, as established in Koufos v Czarnikow Ltd, The Heron II [1969] 1 AC 350, as in contract special loss enters into the equation. Furthermore, in contract, if the misrepresentation is a term within the contract they are able to claim under a breach of contract for loss of bargain, which is unavailable under negligent misrepresentation as under contract damages are awarded for had the contract been complied with or had the misrepresentation actually been true.
Negligent misrepresentation was established in Hedley Byrne v. Heller [1964] AC 465prior to which only innocent and fraudulent misrepresentation existed. The remoteness test when claiming for negligent misrepresentation under Hedley Byrne is that of reasonable forseeability. Shortly after Hedley Bryn the Misrepresentation Act of 1967 was enacted which allows for claims of negligent misrepresentation. The remoteness test under this act seems to be comparable to the test for fraudulent misrepresentation, namely direct causation arising from the negligent misrepresentation. Professor Treitel, while at first being of the opinion that claims under the Misrepresentation Act should follow that of fraud as laid down in Doyle v Olby, subsequently changed his mind in reasoning that:
'the preferable view is that the severity of the deceit rule can only be justified in cases of actual fraud and that remoteness under s2(1) should depend, as in actions based on negligence, on the test of foreseeability.'8
However, in Royscot Trust v Rogerson [1991] 2 QB 297 Balcombe L.J., after quoting professor Treitel, concluded that: 'we must follow the literal wording of s2(1), even though that has the effect of treating, so far as the measure of damages is concerned, an innocent person as if he were fraudulent.' [Emphasis added]
Section 2(1), the so called 'fiction of fraud' states that:
'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...'
From the wording of the act it may be seen as to why fraud and not negligence under contract is the remedy available. However, Balcombe L.J. laments that 'To be compelled by Act of Parliament to treat an honest man as if he were fraudulent is at all times painful', yet seems to find no option but to carry the will of Parliament. The wording of section 2(1), if Balcombe L.J. really wished to, may be interpreted as although the misrepresentation is negligent, there still should be remedies as there are when the misrepresentation is made fraudulently. Or to quote R.D. Taylor who might put it more elegantly and concisely:
'[a] person shall be liable in damages notwithstanding that at common law damages were only available for misrepresentation proved to be fraudulent.'9
However, it seems to be settled that the remoteness test to be applied in negligent misrepresentation under section 2(1) is that of deceit as established in Doyle v Olby.
Finally, innocent misrepresentation under common law occurs when the representor has reason to believe that the facts are true. Besides rescission, the only remedy for innocent misrepresentation is the discretionary remedy of lieu of rescission. The measure of damages under innocent misrepresentation is substantially lower than under s.2(1) to be defined by Evans L.J in William Sindall plc v Cambridge County Council [1994] 1 WLR 1016 as: 'the difference in value between what the plaintiff was misled into believing that he was acquiring, and the value of what in fact he received.'
