Misrepresentation is one of the most heavily tested areas in SQE1 contract law. It deals with what happens when one party makes a false statement that persuades the other to enter into a contract. Unlike breach of contract (which concerns broken promises that are terms), misrepresentation concerns pre-contractual statements that turn out to be untrue. The key statute is the Misrepresentation Act 1967 (MA 1967), which dramatically improved the remedies available to innocent parties.
Examiners love testing three things: (1) Can the claimant establish an actionable misrepresentation? (2) What type of misrepresentation is it - fraudulent, negligent, or innocent? (3) What remedies are available? Always work through these three steps systematically in problem questions.
A misrepresentation is an unambiguous false statement of existing fact (or law) made by one contracting party to the other, which induces that other party to enter into the contract and causes them loss. Each element of this definition must be satisfied for the misrepresentation to be actionable.
The statement must be one of existing fact, not mere opinion. In Bisset v Wilkinson [1927], a seller of farmland said he believed the land could support 2,000 sheep. Since neither party had experience farming the land, this was held to be a statement of opinion, not fact, and therefore not actionable. Both parties knew the seller had no basis for the claim.
However, where the maker of the statement has special knowledge or expertise, what appears to be an opinion may be treated as a statement of fact. In Esso Petroleum v Mardon [1976], Esso's experienced representative estimated a petrol station's throughput at 200,000 gallons per year. This was treated as a statement of fact because Esso had special expertise in forecasting petrol sales. The Court of Appeal held that Esso was in a far better position than Mr Mardon to make such an estimate.
Be careful with the fact/opinion distinction. If the person expressing the opinion has, or claims to have, special knowledge or expertise, their 'opinion' may be treated as a statement of fact. Always consider whether the representor was in a superior position to know the truth.
A statement about what someone intends to do in the future is generally not a statement of fact. However, in Edgington v Fitzmaurice [1885], company directors issued a prospectus stating they intended to use investor funds to improve the business. In reality, they intended to pay off existing debts. The court held that a statement of intention involves an implied statement about the person's present state of mind - and if they never actually held that intention, this is a misstatement of existing fact. As Bowen LJ famously said: 'The state of a man's mind is as much a fact as the state of his digestion.'
A false statement of intention CAN be a misrepresentation - not because the future event did not occur, but because the person misrepresented their present state of mind. The question is: did they genuinely hold that intention at the time they made the statement?
The general rule is that mere silence does not constitute a misrepresentation. There is no general duty to disclose material facts in English contract law (unlike, for example, insurance contracts which are contracts uberrimae fidei - of utmost good faith). However, there are important exceptions where silence or partial disclosure can amount to misrepresentation.
A half-truth is more dangerous than complete silence. If you choose to say something, you must not present a misleading picture. In Dimmock v Hallett, the statement that land was 'let to tenants' was literally true - but omitting that the tenants had given notice to quit made the overall impression fundamentally false.
The false statement must be made by one contracting party (or their agent) to the other contracting party. A statement made to a third party will not normally give rise to a claim for misrepresentation, unless the representor intended or expected the statement to be passed on to the claimant. In Peek v Gurney [1873], statements in a company prospectus were held not to be addressed to those who bought shares on the secondary market, only to original subscribers.
The misrepresentation must actually induce the representee to enter the contract. This has two aspects: the representee must have been aware of the statement, and they must have been influenced by it (at least in part) in deciding to contract. The misrepresentation does not need to be the sole inducement - it is enough if it was one of the factors.
In Attwood v Small [1838], the buyer of a mine was told exaggerated claims about its earning capacity. However, the buyer commissioned his own independent experts to verify the claims and relied on their report rather than the seller's statements. The House of Lords held there was no actionable misrepresentation because the buyer did not rely on the seller's statements - he relied on his own independent investigation.
In Redgrave v Hurd [1881], a solicitor buying a law practice was given documents to verify the claimed income but did not bother to check them. The court held that the mere opportunity to discover the truth does not prevent a claim for misrepresentation. The representee is entitled to rely on the statement without independently verifying it. This is a crucial distinction from Attwood v Small - the key question is whether the representee actually relied on their own investigation, not whether they could have done so.
This is a classic exam comparison. In Attwood v Small, the buyer actually carried out independent verification and relied on it - no inducement. In Redgrave v Hurd, the buyer had the opportunity to verify but did not take it - inducement still established. The distinction is between actually relying on your own investigation vs merely having the chance to investigate.
The misrepresentation must be material - that is, it would have influenced a reasonable person in deciding whether to enter the contract. If the statement is objectively material, there is a presumption of inducement that the representor must rebut. A trivial or immaterial false statement will not found a claim even if the claimant says they relied on it.
Once an actionable misrepresentation is established, the next step is to classify it. The type determines the remedies available and, crucially, who bears the burden of proof. There are three types: fraudulent, negligent (both at common law and under statute), and innocent.
| Type | Mental Element | Burden of Proof | Key Authority |
|---|---|---|---|
| Fraudulent | Knowingly, without belief in truth, or recklessly | Claimant must prove fraud | Derry v Peek [1889] |
| Negligent (s.2(1) MA 1967) | No reasonable grounds for believing statement true | Defendant must prove reasonable belief (reversed burden) | S.2(1) Misrepresentation Act 1967 |
| Negligent (common law) | Failure to exercise reasonable care where special relationship exists | Claimant must prove duty and breach | Hedley Byrne v Heller [1964] |
| Innocent | Reasonable grounds for believing statement true | Defendant proves they had reasonable grounds | S.2(1) MA 1967 (by default if defendant discharges burden) |
Fraudulent misrepresentation is defined in the landmark case of Derry v Peek [1889]. The House of Lords held that fraud is proved when a false representation has been made: (1) knowingly, or (2) without belief in its truth, or (3) recklessly, careless whether it be true or false. The key point is dishonesty. An honest belief in the truth of the statement, even if that belief is unreasonable, will defeat a claim of fraud.
The tort of deceit gives rise to the action. The burden of proof rests on the claimant, and it is a heavy burden - essentially requiring proof of dishonesty. This is why, in practice, most claimants prefer to rely on s.2(1) MA 1967 where the burden is reversed. However, fraudulent misrepresentation remains important because the damages are more generous and there are no bars to rescission based on lapse of time.
Alleging fraud is a serious step. The court requires cogent evidence - the more serious the allegation, the stronger the evidence needed. A solicitor who alleges fraud without proper evidence may face professional conduct consequences. In practice, s.2(1) MA 1967 is almost always the better route.
Before the MA 1967, the common law provided no remedy for non-fraudulent misrepresentation unless there was a contractual relationship. Hedley Byrne & Co v Heller & Partners [1964] changed this by establishing that a duty of care could arise in tort where there was a 'special relationship' between the parties. The representor must have special skill or knowledge, the representee must reasonably rely on the statement, and the representor must know (or ought to know) that reliance is being placed on their statement. This remains relevant where the MA 1967 does not apply (e.g., where the parties are not contracting with each other).
Section 2(1) of the Misrepresentation Act 1967 is the most commonly used provision. It provides that where a person has entered into a contract after a misrepresentation has been made to them by another party, then if the representor would have been liable in damages had the misrepresentation been made fraudulently, they shall be liable in damages unless they can prove that they had reasonable grounds to believe, and did believe up to the time the contract was made, that the facts represented were true.
In SQE1 problem questions, unless the facts clearly point to fraud, the claimant should almost always be advised to claim under s.2(1) MA 1967. It has a reversed burden of proof AND generous damages. Hedley Byrne is mainly relevant where the parties did not contract with each other.
An innocent misrepresentation arises where the representor proves (under s.2(1)) that they had reasonable grounds for believing, and did believe up to the time the contract was made, that the statement was true. In other words, if the defendant successfully discharges the burden under s.2(1), the misrepresentation is classified as innocent. The primary remedy for innocent misrepresentation is rescission, but the court has a discretion under s.2(2) MA 1967 to award damages in lieu of rescission.
Rescission is available for all three types of misrepresentation. It is an equitable remedy that sets the contract aside and aims to restore the parties to their pre-contractual positions (restitutio in integrum). Rescission is not automatic - the representee must communicate their election to rescind to the representor (or, where the representor cannot be found, take reasonable steps such as notifying the police, as in Car and Universal Finance v Caldwell [1965]).
A contract affected by misrepresentation is voidable, not void. This means it remains valid and binding until the representee elects to rescind. This distinction matters enormously for third-party rights - if an innocent third party acquires rights before rescission, rescission may be barred.
Because rescission is an equitable remedy, it is subject to equitable bars. If any bar applies, the right to rescind is lost and the representee is limited to claiming damages (if available for their type of misrepresentation).
This case is critical for SQE1. The buyer purchased a painting described as a Constable. Five years later, he discovered it was not. The Court of Appeal held that the lapse of time barred rescission, even though the buyer could not reasonably have discovered the truth earlier. For innocent/negligent misrepresentation, time runs from the contract date. For fraud, time runs from discovery.
Where the contract is rescinded, the representee may also claim an indemnity. An indemnity covers obligations necessarily created by the contract - i.e., expenses the representee was legally obliged to incur under the contract. It is narrower than damages and only covers obligations arising from the contract itself, not consequential losses. In Whittington v Seale-Hayne [1900], lessees of a poultry farm could recover rent and rates (obligations under the lease) but not the cost of lost poultry stock or medical expenses (consequential losses).
Damages for fraudulent misrepresentation are assessed on the tort measure (putting the claimant in the position they would have been in had the tort not been committed). Crucially, the remoteness rules are very favourable to the claimant: the defendant is liable for ALL direct losses flowing from the fraud, whether or not they were foreseeable. This was established in Doyle v Olby (Ironmongers) [1969]. In East v Maurer [1991], the Court of Appeal also allowed recovery of lost profits the claimant would have made had they not been induced into the contract.
Section 2(1) creates a statutory right to damages for negligent misrepresentation. Controversially, in Royscot Trust v Rogerson [1991], the Court of Appeal held that because s.2(1) creates a 'fiction of fraud' (damages are assessed as if the misrepresentation had been made fraudulently), the same generous remoteness rules apply. This means unforeseeable but direct losses are recoverable under s.2(1) - the same position as fraud, even though the defendant was merely negligent.
Royscot Trust v Rogerson is controversial but remains good law. It means a negligent misrepresentor under s.2(1) is liable for all direct losses, even unforeseeable ones. Many academics criticise this as unfair, but it has not been overruled. For SQE1, apply it as stated.
There is no right to damages for innocent misrepresentation as such. However, under s.2(2) MA 1967, the court has a discretion to award damages in lieu of rescission. This power is only available where the representee would otherwise be entitled to rescind. Critically, if rescission has been lost (e.g., due to one of the bars), the court cannot award damages under s.2(2) either. The damages under s.2(2) are generally lower than under s.2(1) and are assessed on a contractual, difference-in-value basis.
| Type | Damages Available? | Measure | Remoteness |
|---|---|---|---|
| Fraudulent | Yes - tort of deceit | Tort (out-of-pocket loss) | All direct losses, foreseeable or not (Doyle v Olby) |
| Negligent (s.2(1)) | Yes - statutory right | Tort (fiction of fraud) | All direct losses, foreseeable or not (Royscot Trust v Rogerson) |
| Negligent (common law) | Yes - Hedley Byrne tort | Tort | Reasonably foreseeable losses only |
| Innocent | Only s.2(2) in lieu of rescission | Contractual (difference in value) | Limited - discretionary award |
Section 2(2) MA 1967 gives the court a discretion to award damages in lieu of rescission where it would be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if the contract were upheld, as well as the loss to the other party if the contract were rescinded. This provision applies to negligent and innocent misrepresentation only - not fraudulent.
The prevailing view (following dicta in Floods of Queensferry v Shand Construction) is that s.2(2) damages can only be awarded where the right to rescind still exists. If rescission is barred (e.g., by lapse of time or affirmation), the court has no power under s.2(2). This is a common exam trap - if rescission is lost, an innocent misrepresentee may have NO remedy at all.
Contributory negligence can reduce damages under a Hedley Byrne claim (common law negligent misrepresentation). However, it is unclear whether contributory negligence applies to s.2(1) claims. Due to the 'fiction of fraud', and because contributory negligence is not a defence to fraud, the better view is that it does not apply to s.2(1) claims either. The Law Reform (Contributory Negligence) Act 1945 does not apply to the tort of deceit.
Section 3 of the MA 1967 (as amended by s.8 of the Unfair Contract Terms Act 1977) provides that any clause which would exclude or restrict liability for misrepresentation, or any remedy available for misrepresentation, is of no effect unless it satisfies the requirement of reasonableness under s.11 of UCTA 1977. This applies to both negligent and innocent misrepresentation.
It is a settled principle of public policy that liability for fraudulent misrepresentation cannot be excluded or limited by contract. Any clause purporting to do so would be void. This applies regardless of s.3 - it is a common law rule. HIH Casualty & General Insurance v Chase Manhattan Bank [2003] confirmed this at House of Lords level.
Entire agreement clauses state that the written contract constitutes the entire agreement between the parties and that no pre-contractual representations have been relied upon. Such clauses are commonly found in commercial contracts. Their effect on misrepresentation claims is nuanced.
| Type | Rescission | Damages | Indemnity | S.2(2) Damages in Lieu |
|---|---|---|---|---|
| Fraudulent | Yes (time runs from discovery) | Yes - all direct losses (Doyle v Olby) | Yes (on rescission) | No - not applicable to fraud |
| Negligent (s.2(1)) | Yes | Yes - fiction of fraud (Royscot Trust) | Yes (on rescission) | Yes - court discretion |
| Negligent (common law) | Yes | Yes - foreseeable losses only | Yes (on rescission) | No - not under MA 1967 |
| Innocent | Yes | No right to damages | Yes (on rescission) | Yes - court discretion (may be only remedy) |
| Case | Principle |
|---|---|
| Bisset v Wilkinson [1927] | Statement of opinion (not fact) where neither party had special knowledge - not actionable |
| Esso Petroleum v Mardon [1976] | Opinion by party with special expertise treated as statement of fact |
| Edgington v Fitzmaurice [1885] | False statement of intention = misrepresentation of present state of mind |
| Dimmock v Hallett [1866] | Half-truths can be actionable misrepresentations |
| With v O'Flanagan [1936] | Duty to correct statement that becomes false before contract |
| Attwood v Small [1838] | No inducement where representee relied on own independent investigation |
| Redgrave v Hurd [1881] | Mere opportunity to verify does not defeat inducement |
| Derry v Peek [1889] | Definition of fraudulent misrepresentation - knowingly/without belief/recklessly |
| Hedley Byrne v Heller [1964] | Negligent misrepresentation at common law - special relationship required |
| Royscot Trust v Rogerson [1991] | Fiction of fraud under s.2(1) - unforeseeable direct losses recoverable |
| Doyle v Olby [1969] | Fraudulent misrep: all direct losses recoverable, not limited by foreseeability |
| East v Maurer [1991] | Lost profits recoverable in fraud |
| Leaf v International Galleries [1950] | Lapse of time bars rescission for non-fraudulent misrep (time from contract) |
| Long v Lloyd [1958] | Affirmation bars rescission |