An Introduction to Misrepresentation
in England and Wales
Ramona Danciu
Solicitor
Q: Why should I invest in the company?
A: Because this company will generate £1.5m next year, look at the financial statements and the forecasts, they clearly support that.
Q: Are those figures reliable?
A: Absolutely.
…and it turned out that the projections were significantly overstated. The performance fell short from expectations, and the investor suffered significant losses. It raised significant concerns over the truthfulness of the representations and whether the future performance was misleading or negligently made.
Misrepresentation is a fundamental concept in English contract law. Where facts are misrepresented, informed consent is undermined. A misrepresentation can be present across a range of transactions, from a residential house purchase to purchasing plant and machinery necessary in the running of a business and it can have significant legal consequences, as we will explore below. This article will delve into what misrepresentation is, where it can occur, by reference to some practical examples, and the remedies available under the law of England and Wales.
What is Misrepresentation?
Misrepresentation is defined as a false statement of fact made by one party to another before or at the time of entering into a contract. The false statement must induce the latter party to enter into the contract, causing the second party loss. Misrepresentation is distinguished from statements of opinion or intention. A statement in the sales brochure that the machinery can produce 1000 units per day is a statement of fact, whereas a prediction on the future performance of the machinery would generally be considered a statement of opinion.
Legal Framework: Misrepresentation Act 1967
The Misrepresentation Act 1967 governs the law on misrepresentation in England and Wales.
Types of Misrepresentation
Misrepresentation is generally divided into three types:
- Fraudulent Misrepresentation: This occurs when a false statement is made knowingly, without belief in its truth, or recklessly as to whether it is true or false. The party making the statement intends that the other party relies on the statement and the party who relies on the statement suffers loss.
Case example: Patarkatsishvili & Hunyak v. Woodward-Fisher [2025] EWHC 265 (Ch)
In this case, the claimants purchased a £32.5 million property. They relied on the replies sent by the defendant to pre-contract enquiries, which falsely stated there were no vermin infestations or concealed defects. Specifically, the claimants argued that the defendant’s replies to three specific pre-contract enquiries were false and constituted fraudulent misrepresentation:
- Enquiry 2.1: The defendant stated he was not aware of any vermin infestation. The claimants contended this was false, as the defendant knew about the moth infestation based on the pest control reports.
- Enquiry 2.2: The defendant replied that there were no reports concerning the issues referred to in enquiry 2.1 (I.e. the moths infestation). The claimants argued that the documents from the pest control companies documents constitute “reports” as they contained an expression of opinion from a technician and should have been disclosed.
- Enquiry 2.3: The defendant stated he was not aware of any defects in the property that were not apparent on inspection. The claimants asserted that the moth-infested insulation was a concealed defect, and the defendant was aware of it.
The defendant denied the allegation, stating that:
- Moths are not Vermin: He argued that moths did not fall within the definition of “vermin,” making his reply to Enquiry 2.1 truthful.
- Reports were not Reports: He contended that the pest control companies’ documents were informal updates or quotations for pest control services, not formal reports as required by Enquiry 2.2.
- No Defect in the Property: He claimed the moth infestation did not constitute a “defect” under Enquiry 2.3, as defects referred to structural or visible issues, not concealed infestations.
- Lack of Reliance: He argued that the claimants did not rely on the replies to the enquiries but instead relied on their advisors’ general assurance that there were no “red flags.”
- Defences to Rescission: He asserted that rescission should be barred due to delay, affirmation of the contract, and the impossibility of restoring the parties to their original positions.
The court held that the defendant was aware of a severe moth infestation in the property’s insulation but failed to disclose it. On the arguments above, the judge held that:
- Enquiry 2.1: The moths could reasonably be considered “vermin” in the context of the enquiry. The defendant was aware of the infestation and the reports identifying the insulation as the source, making his reply false.
- Enquiry 2.2: The judge concluded that the documents from the pest control companies amount to reports, providing details on the infestation. The defendant’s failure to disclose makes his reply false.
- Enquiry 2.3: The the moth-infested insulation was a concealed defect, of which the defendant was aware, making his reply false.
The claimants were awarded rescission of the contract and damages for consequential losses, including stamp duty and legal fees. This recent decision bring hope to victims in similar situations that they will be able to recover their losses.
- Negligent Misrepresentation: This arises when a false statement is made carelessly and/ or without reasonable grounds for believing it to be true. Whilst there is no requirement to prove fraud, the courts will use an objective test. Importantly, under the Misrepresentation Act 1967, negligent misrepresentation allows the injured party to claim damages even if the misrepresentation was not made fraudulently, unless the person who made the statement can demonstrate that it has reasonable grounds to believe and that it did believe that the representation made was true.
Case Example: Springwell Navigation Corp v JPMorgan Chase Bank [2010] EWCA Civ 1221
The claimant alleged that the defendant bank misrepresented the risks of certain investments and issued a misrepresentation claim. The Court of Appeal held that the bank’s employee had merely expressed an opinion, not a statement of fact, and dismissed the claim. This case highlights the importance of distinguishing between opinions and factual representations, particularly in commercial transactions.
- Innocent Misrepresentation: This occurs when a false statement is made without fault, meaning the party making the statement genuinely believed it to be true. Remedies for innocent misrepresentation include rescission off the contract or damages under section 2(2) of the Misrepresentation Act 1967.
Where Misrepresentation Can Occur: Some Practical Examples
Misrepresentation can occur in various contractual contexts, including sales contracts, service agreements, and business acquisitions. To illustrate misrepresentation, we have prepared several examples below:
- Example 1: Sale of Goods
A company selling industrial printers claims that the equipment can print 1,000 pages per minute. After purchasing the machinery, the buyer discovers that it can only print 500 pages per minute. If the seller’s claim was false and induced the buyer to purchase the machinery, this constitutes misrepresentation.
- Example 2: Business Acquisition
During the negotiations for the sale of a business, the seller provides financial statements showing a higher profit margin than the business generates. If the buyer relies on these statements to purchase the business, this could be a case of misrepresentation.
- Example 3: Property Transactions
A seller of property states that the premises are free from structural defects. If the buyer later discovers that defects that were concealed, which will then require the buyer’s attention and repairs to be undertaken, this could amount to misrepresentation.
Misrepresentation can, of course, occur in a variety of contexts and is not limited to the examples in this article.
Remedies for Misrepresentation
The remedies for misrepresentation depend on the type of misrepresentation proven and the circumstances of the case. They include rescission, damages and equitable relief.
a) Rescission
Rescission is the primary remedy for misrepresentation. It allows the injured party to effectively cancel the contract and return both parties to their pre-contractual positions. Rescission is available for all types of misrepresentation, but certain bars may prevent it, such as:
- Affirmation of the contract (the injured party continues to perform the contract despite knowing of the misrepresentation).
- Lapse of time (the injured party delays taking action for an unreasonable period of time without a good reason).
- Impossibility of returning parties to their original positions (e.g., if goods have been consumed or altered).
b) Damages
Damages may be awarded depending on the type of misrepresentation:
- Fraudulent Misrepresentation: The injured party can claim damages for all losses directly resulting from the misrepresentation, including consequential losses.
- Negligent Misrepresentation: Under Section 2(1) of the Misrepresentation Act 1967, the injured party can claim damages as if the misrepresentation had been made fraudulently, unless the party making the statement can prove they had reasonable grounds to believe it was true.
- Innocent Misrepresentation: The court may award damages in lieu of rescission if it is equitable to do so, considering the nature of the misrepresentation and the losses suffered by both parties.
c) Equitable Relief
In some cases, the court may provide equitable relief, such as reforming the contract to reflect the true intentions of the parties.
Conclusion
Misrepresentation can have serious consequences, from convincing a buyer to purchase a problematic property to investing into a worthless company. In commercial contracts, it often leads to immense financial losses and disputes. In personal transactions, it can lead to losses so high that burden the personal wellbeing of the victims.
If you believe you have been misrepresented something, entered into a contract, and suffered loss, it is essential to seek legal advice. We offer a fixed fee, limited analysis of your documents to enable us to assess the circumstances which have led to entering into a contract and determine whether you have a valid claim under the Misrepresentation Act 1967 or other applicable laws.
For specialist advice and support. Please get in touch with our corporate solicitors in London by contacting the GOOD LAW INTL office.
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