One of the fundamental principles
underpinning English contract law is that there should be a meeting of minds
between the parties (consensus ad idem).Inevitably questions will be asked and
statements made during the pre-contractual negotiations which will impact upon
each party’s decision to enter into a legally binding agreement. However, it is
possible that some of the statements made and relied upon may not be accurate
and amount to a misrepresentation in English law, casting doubt on the validity
of the contract and providing the aggrieved party with a suitable remedy.
In English contract law,
misrepresentation is a false statement of fact made by one party to another,
which, whilst not being a term of the contract, induces the other party to
enter the contract giving the innocent party the right to rescind the contract
and/or claim damages. Over the years the English Legal System has developed a
series of principles which provide guidance on the application of the law
relating to misrepresentation.
To be actionable in English
law, the misrepresentation must be a false statement of fact, not opinion or
future intention or law. It must involve a positive statement by one party
which induces the other to enter into the contract which means that silence
will generally not amount to a misrepresentation Smith v Hughes 1871. However,
there are exceptions to this rule for example contracts involving the sale of
land and insurance.
A false statement of opinion
will generally not amount to misrepresentation however there are exceptions as
highlighted in the case of Smith v Land House Corp. 1884 in which the claimant
purchased a hotel. The seller described one of the tenants as being ‘most
desirable’. In fact, as the seller knew, the tenant was in arrears and on the
verge of bankruptcy. This was held to be a statement of fact rather than
opinion as the seller was in a position to know the facts.
Different types of
misrepresentation exist in English Law, accordingly misrepresentative
statements may be made fraudulently, negligently or innocently.
was defined by Lord Herschell in the case of Derry v Peek(1889) as a false
statement that is “made (i) knowingly, or (ii) without belief in its
truth, or (iii) recklessly, careless as to whether it be true or false.”
involves one party making a false statement having no reasonable grounds for
believing that the statement is in fact true. A case to illustrate this
principle is Hedley Byrne v Heller in which the defendant was held liable as a
duty of care existed. Further, under s.2(1) Misrepresentation Act 1967, a
negligent misrepresentation has been defined as a statement made without
reasonable grounds for belief in its truth. Here, the burden of proof rests on
the representor to demonstrate they had reasonable grounds for believing the
statement to be true.
involves a party making a false statement which he reasonably believes to be
true not only at the time of making the statement but also when the contract
was actually entered into.
Remedies available for
misrepresentation are dependent on the type of misrepresentation. For all types
the remedy of rescission is available. This is putting the parties back in
their pre-contractual position. Each party gives back the benefit which they
have received under the contract. However, it is not always possible to rescind
the contract and in some circumstances the right to rescind may be lost in
which case damages may be considered a more appropriate for the injured party.