The recent cases of Gaydamak v Leviev and Mabanga v Ophir Energy Plc & Anor demonstrate that misrepresentation in commercial relationships is often alleged – and sometimes does occur. This post therefore seeks to clarify what “misrepresentation” actually means under English law and what remedy can be achieved.
We’ll therefore take a look in this article at:
- What is misrepresentation?
- When could misrepresentation occur? (examples provided)
- What are the remedies for misrepresentation?
What is misrepresentation?
Misrepresentation occurs when one party (“party A”) makes false statements of fact to another party (“party B”) which party B relies upon when they decide to enter into an agreement with party A, and the contract would not otherwise have been entered into.
Where a statement is made by one party to another party
There must be a statement communicated by one party to another, either by the contracting party or by an agent acting on the contracting party’s behalf. This statement must be of fact, not opinion. This generally occurs if, for example, the party making the statement states that something is true “in his belief” – this would demonstrate that the party making the statement was not making a statement of fact but one of opinion (although it would depend on the context). However, a statement which is ostensibly one of opinion can be deemed to be a statement of fact in any one of the following situations:
- If the statement of opinion is contradicted by facts that the person making the statement knows
- If the statement of opinion comes from an expert
- If the statement is one relating to an intention to do something at a future date, even though that person had no intention of fulfilling that promise
The other party enters into the contract in reliance of these statements of fact
It is not enough that the statement of fact is simply made. The party entering the contract (“party B”) must actually enter into the contract in reliance of the statement that party A has made. If party B has actually entered into the contract for another reason unrelated to the misrepresentation then the person making such a statement is not liable (although they can be condemned ethically).
When could misrepresentation occur?
A common case of misrepresentation is when the ownership or management of a business make false statements of fact as to the statement of their business’ accounts so as to attract investment or a buy-out. If such a statement of fact were to occur (and it would be difficult to show that this was opinion rather than fact) and the other party invested into or bought the business because of the representations made about the state of the business’ accounts, then there would appear to be an actionable case for misrepresentation. However, the other party would have to show that they entered into the company in reliance of the statements about the accounts. If, for example, the other party actually simply wanted to obtain a number of employees from the business or to simply gain ownership of certain assets then it would certainly be arguable that they had entered into the agreement for reasons other than in reliance of the representations made.
What remedies are there for misrepresentation?
There are remedies available for misrepresentation under common law, equity and statute (the Misrepresentation Act 1967).
1. Recission from the contract by the innocent party (where the innocent party can set aside the agreement and claim limited damages)
2. Damages (under contractual principles, tortious principles or under the Misrepresentation Act 1967)
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