Misrepresentation — SQE1 FLK1 Contract Law

You are on a forecourt, buying a used car for £9,000. The dealer tells you it has had one previous owner. You want a short ownership history, so you buy. It has had four, and the dealer's own records show it. Nothing about ownership appears in the written sale agreement. Can you do anything about it? Yes.

One word is not an answer, though, and the how is where the marks are. Misrepresentation is one of the most heavily tested areas in SQE1 contract law, and one of the easiest to fumble. Everything turns on three questions asked in order. Is there an actionable misrepresentation? What type is it? What remedies follow? Keep the car in mind. We come back to that forecourt twice.

Here is the route. First, what counts as a misrepresentation at all: fact against opinion, statements of intention, and silence. Then inducement, which is where careful candidates lose marks. Then the three types, and who has to prove what. Then remedies: rescission, the four bars, indemnity and damages. Then exclusion clauses. And last, the consumer route that runs alongside all of it.

Start with the definition, because every mark in this topic hangs off it. A misrepresentation is an unambiguous false statement of existing fact, or law, made by one contracting party to the other. It induces that other party to enter the contract, and it causes them loss. Every element has to be satisfied. Miss one and there is no claim, however unfair the result feels.

Five elements. A false statement, not, in general, mere silence. A statement of existing fact, not opinion, not future intention, not sales puff. Made by one contracting party to the other. It induced the representee to contract. And the representee actually relied on it. Nothing has to be written into the agreement. Breach is about broken promises that are terms. This is about pre-contractual statements that turn out untrue.

Element two does most of the work. Take a seller of farmland who says he believes the land could support 2,000 sheep. Neither he nor the buyer has ever farmed it. In Bisset v Wilkinson, from 1927, that was opinion, not fact, and not actionable. Both of them knew he had no basis for the figure. An honest guess by someone with no means of knowing is not a statement of fact.

Now change one thing. The speaker is an expert. A petrol company's experienced representative estimates a station's throughput at 200,000 gallons a year. Opinion, or fact? Fact. In Esso Petroleum v Mardon, from 1976, that was treated as a statement of fact. The company had special expertise in forecasting petrol sales, and was far better placed than the tenant to judge. Do not weigh the word the speaker chose. Ask who held the information.

Statements about the future, then. Saying what you intend to do is generally not a statement of fact. But directors once issued a prospectus saying they intended to spend investors' money improving the business, when they meant to pay off existing debts. In Edgington v Fitzmaurice, from 1885, the court held that a statement of intention carries an implied statement about the speaker's present state of mind.

Bowen LJ put it in a line you will not forget. The state of a man's mind is as much a fact as the state of his digestion. So the falsehood is not that the future event failed to happen. It is that the intention was never held.

Silence now, and the general rule is friendly to sellers. Mere silence is not a misrepresentation, and English contract law imposes no general duty to disclose material facts. Say nothing and you are usually safe. Usually. Five exceptions, and the exam lives inside them.

First, half-truths. A statement can be literally true and still actionable if what it leaves out makes the whole picture false. Land was once described as let to tenants. Perfectly true. The tenants had given notice to quit, and that went unmentioned. A half-truth is more dangerous than complete silence.

Second, change of circumstances. A representation continues until the contract is made. A doctor selling his practice said it earned £2,000 a year, true when he said it. By completion, illness had cut the income dramatically. He said nothing. A statement falsified before contracting has to be corrected.

Third, fiduciary relationships, where a positive duty of disclosure exists: solicitor and client, trustee and beneficiary. Fourth, contracts uberrimae fidei, of utmost good faith, most obviously insurance, which require full disclosure of material facts. Fifth, conduct that creates a false impression. Concealing a defect can be a representation without a word.

A quieter element decides whole questions. The statement must be made by one contracting party, or their agent, to the other. Statements in a company prospectus have been held to reach the original subscribers only, not later buyers on the open market.

Inducement is where careful candidates lose marks. The representee must have known about the statement, and must have been influenced by it. Influenced, note. It need not be the sole reason for contracting. One of the factors is enough. It must also be material, meaning it would have swayed a reasonable person.

Two buyers, and the difference is worth learning cold. The first is told exaggerated figures about a mine's earning capacity. He does not take the seller's word for it. He sends in his own experts, takes their report, and buys on that. No actionable misrepresentation. He relied on himself.

The second is a solicitor buying a law practice. He is handed the papers that would have shown the true income and never opens them. His claim succeeds. A mere opportunity to discover the truth does not displace reliance. Actually investigating defeats inducement. Having the chance to investigate does not.

So you have an actionable misrepresentation. Step two: classify it. The type decides the remedies and, more usefully in a problem question, who carries the burden of proof.

Fraudulent first. In Derry v Peek, from 1889, the House of Lords set the test. A false representation made knowingly. Or without belief in its truth. Or recklessly, careless whether it be true or false. The key word is dishonesty. And here is the sting. An honest belief defeats fraud even if that belief was wholly unreasonable.

Fraud gives you the tort of deceit, and the claimant carries the burden. It is a heavy one, essentially proof of dishonesty. So why plead it? The damages are more generous, and lapse of time does not bar rescission in the same way.

Which is why most claimants go elsewhere, to section 2(1) of the Misrepresentation Act 1967. That is the workhorse of this topic. Where a person enters a contract after a misrepresentation by the other party, the representor is liable in damages. There is one way out. They must prove they had reasonable grounds to believe, and did believe up to the moment of contracting, that the facts were true.

Read that again for the burden. The defendant proves reasonable belief. The claimant never proves negligence, and no special relationship has to be established. Damages are then assessed as if the misrepresentation had been fraudulent. Reversed burden, generous damages, one subsection. Unless the facts shout fraud, that is the route.

One common law route survives beside it, for negligent misstatement where a special relationship exists, mainly where the parties never contracted at all. And innocent misrepresentation? That is what is left when the representor does discharge the statutory burden. Honest, and reasonable.

Remedies. Rescission is available for all three types. It is equitable: it sets the contract aside and tries to restore the parties to where they started. It is not automatic, either. The representee must communicate the election to rescind, and where the representor has vanished, reasonable steps, such as telling the police, can do it.

One distinction is worth a mark on its own. A contract affected by misrepresentation is voidable, not void. It stays binding until the representee elects to rescind. So if an innocent third party acquires rights before that election, rescission may already be gone.

Four bars, and equity applies all of them. Affirmation first. A representee who, knowing the truth, does something consistent with keeping the contract alive has elected to keep it. A buyer of a lorry found serious defects on the first journey, accepted the seller's offer to pay half a repair, and sent it out again. Affirmed.

Lapse of time second, and this one is counter-intuitive. For a misrepresentation that is not fraudulent, time runs from the date of the contract, not from discovery. In Leaf v International Galleries, from 1950, a buyer bought a painting described as a Constable. Five years later he found out it was not. Rescission barred. For fraud, time runs from discovery.

Third, impossibility of restitution, where the parties cannot substantially be restored. Precise restoration is not required though, and use and wear are usually met by a money allowance rather than killing the remedy. Fourth, third-party rights: once an innocent third party acquires rights for value, rescission is barred.

Rescind, and you can also claim an indemnity. It covers obligations the contract itself forced you to take on, and nothing wider. Lessees of a poultry farm recovered their rent and their rates, because the lease made them pay those. Not the birds that died, or the medical bills. An indemnity restores. It does not compensate.

Damages, and the measures differ sharply. For fraud they are tortious: you go where you would have been had the tort never happened. Remoteness is generous. All direct losses flowing from the fraud are recoverable, foreseeable or not. So are profits the claimant would have made had they never been induced into the contract.

Now the strange part. Under section 2(1), the representor is liable as they would have been had the misrepresentation been fraudulent. In Royscot Trust v Rogerson, from 1991, the Court of Appeal read those words literally. That is the fiction of fraud: a merely negligent representor is liable for all direct losses, unforeseeable ones included. Heavily criticised. Not overruled. Apply it.

Innocent misrepresentation is the poor relation, with no right to damages at all. What exists instead is section 2(2) of the Misrepresentation Act 1967. The court has a discretion to award damages in lieu of rescission, where that is equitable. It weighs the nature of the misrepresentation against the loss to each side.

And here is the trap the topic turns on. Look again at section 2(2). It is a power to award damages instead of rescission. If rescission has already gone, to lapse of time or to affirmation, there is nothing left to award damages in lieu of. The discretion dies with it. An innocent misrepresentee can end up with no remedy at all.

Can any of it be excluded? Section 3 of the Misrepresentation Act 1967 answers that, as amended by section 8 of the Unfair Contract Terms Act 1977. A clause excluding or restricting liability for misrepresentation, or any remedy for it, is of no effect. Not unless it satisfies the reasonableness requirement in section 11 of UCTA 1977.

That catches more than it looks: outright exclusions, caps on damages, clauses cutting down the remedies, and non-reliance clauses. An entire agreement clause does two jobs, and only one is caught. Stopping statements becoming terms defines the bargain. Excluding liability for them as misrepresentations must pass the test. And nothing excludes liability for fraud.

Back to the forecourt. Change one fact: you are a consumer, the dealer is a trader, and you were also told the car had a full service history. It has none. Since 6 April 2025, Part 4 of the Digital Markets, Competition and Consumers Act 2024 has prohibited unfair commercial practices, replacing the 2008 Regulations.

Misleading actions, misleading omissions, aggressive practices, and a list of banned practices that are always unfair. A consumer misled into a contract by a misleading action gets a right to redress. Unwind, which means rejecting within 90 days for a refund. A discount on the price. Or damages. Your purchase was three weeks ago. Unwind.

Keep the routes distinct. The Misrepresentation Act is open to any contracting party. The right to redress runs only between a consumer and a trader, and it sits alongside a misrepresentation claim.

A word on how SQE1 tests this. You will not be asked to recall case names or section numbers. You get a scenario, five answers, and one instruction: pick the best. Learn the rules and the reasons. The names in this episode are memory pegs, nothing more.

If you keep only three. Derry v Peek, because honest belief defeats fraud however unreasonable it was. Then section 2(1) of the Misrepresentation Act 1967, because the burden flips onto the representor. And Leaf v International Galleries, because short of fraud the clock starts at the contract, not at discovery.

Traps the examiners set. One: the fact and opinion line. If the speaker had, or claimed, special knowledge, expect the opinion to be treated as fact. The paper will hand you an expert and dress the statement up as a view. Ask who held the information.

Two: half-truths. Literal truth is no defence if the omission makes the picture false. Three: investigating is not the same as having the chance to investigate. Check for yourself and rely on your own findings, and you lose. Decline to check, and you do not.

Four, and this is the one to write on your hand. Damages under section 2(2) are in lieu of rescission. Lose rescission and the discretion goes with it. An innocent misrepresentation, once the clock has run, can leave your client with nothing at all.

Five: no clause excludes liability for fraud, however elegantly drafted. And a currency point that will date a wrong answer instantly. The Consumer Protection from Unfair Trading Regulations 2008 are gone. Cite the Digital Markets, Competition and Consumers Act 2024.

Quick check. Four years ago a dealer sold a printing press, describing it in the sale note as a 2019 machine. He honestly and reasonably believed that: the previous owner had said so. It is a 2012 machine, worth about half what was paid. The printer found out last month, when an engineer read the plate inside the casing. He has used it throughout. Can he rescind and recover the price?

Three candidate answers. One: no, time runs from the sale for a non-fraudulent misrepresentation, and four years is too long. Two: yes, time runs from the printer's discovery of the truth. Three: no, the press has been used for four years and cannot be restored as sold. Pause here if you want a moment.

The answer is one. Lapse of time bars rescission, and short of fraud the clock starts at the date of the contract, not at the date the truth comes out. That is the painting case again: five years, no rescission, even though the buyer could not have found out sooner. Four years is well beyond a reasonable time.

Why the others fail. Two states the rule for fraud, and this dealer was honest and reasonable. Three is the right result for the wrong reason: use and wear are met by a money allowance, not by defeating restitution. The delay defeats him. And because the dealer had reasonable grounds, this is innocent, so section 2(1) gives no damages either.

Five things to take away, and the forecourt carries most of them. One: an actionable misrepresentation is an unambiguous false statement of existing fact, by one party to the other, that induced the contract. Opinion, puff and future intention are out, unless the speaker had special knowledge, or never held it.

Two: silence is usually safe, but half-truths, changed circumstances, fiduciary duties, insurance and concealing conduct are not. Three: classify the type, because the burden moves. Fraud is for the claimant to prove; under section 2(1) the representor must prove reasonable grounds.

Four: rescission runs for all three types and dies to any of four bars, and short of fraud the clock starts at the contract. Five: damages under section 2(1) follow the fraud measure, an innocent misrepresentation gives no right to damages, and section 2(2) dies with rescission. Next time, Mistake, Duress, Undue Influence and Illegality.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.