Remedies for misrepresentation

1. Damages. Under the Misrepresentation Act 1967, section 2(1), a party to the contract can recover negligence damages for loss arising from a misrepresentation; but the other party has a defence if he can prove that, up to the time of the contract, he believed that his statements were true, and had reasonable cause so to believe. This can be difficult to prove, and the onus of proving it is on the defendant.

In Howard Marine Ltd v. Ogden Ltd (1978), the owners made false statements about the capacity of two barges to a company negotiating to hire them. The owners themselves were mistaken, basing their claims on incorrect entries in the official Lloyd's Register. Nevertheless the owners were liable to the company which hired the barges. Damages were awarded under section 2(1) because the owners should have known the correct capacity, and therefore could not prove that they had reasonable cause to believe their misrepresentations.

In Corner v. Mundy (1988), the vendor of a house told a would-be purchaser that the central heating was in good order. At the time, this was true. However, before the contract was eventually made, the pipes froze and burst, and the purchaser was not told this. The vendor was liable for damages under section 2(1), because he could not prove that he had reasonable cause to believe up to the time the contract was made that his statement was true.

Damages under s.2 (l) can be reduced for the claimant's contributory negligence.

Under section 2(2), damages may also be awarded as an alternative to rescission at the court's discretion and, in this event, even the defendant's innocence may be no defence.

If the misrepresentation was made fraudulently, the partly deceived can, alternatively, sue for damages for the tort of deceit, but since the onus of proving fraud is on the claimant, this will rarely be done.

2. Rescission. Any misrepresentation, even innocent, will give the other party a right to rescind the contract, that is, to end it if he so wishes. Each party must be restored to his original position; for example, the property must be returned to the seller and the price to the buyer. The contract is said to be voidable (Unit 1).

The right to rescind will be lost as soon as it becomes impossible to return the parties to their position before the contract. For example, if the property has been re-sold by the buyer, or has been destroyed by him, it will be impossible to return it to the seller.

Since rescission is an equitable right, it must be exercised reasonably promptly. It is undesirable for a contract to remain voidable for too long, because this leads to uncertainty as to the ownership of the property. If he delays unduly, therefore, the innocent party will lose his right to rescind, and be left to sue for damages. What is a reasonable time is a question of fact, and may in some cases be only a matter of days or hours.

In Leaf v. International Galleries (1950), which was mentioned earlier, the picture was sold in 1944. The claimant only discovered in 1949 that it was not by Constable. Although the contract was not void for mistake, the claimant claimed the right to rescind for innocent misrepresentation. It was held that, after a lapse of five years, any right to rescind had been lost. (The claimant could have claimed damages for breach of contract, but did not in fact do so.)

Time may not run against the claimant, however, until he could with reasonable diligence have discovered the error.

Normally, rescission will only be effective from the moment when it is commu­nicated to the party at fault. This would cause injustice, however, where the misrepresentation was fraudulent and the rogue had disappeared. In this event, therefore, the rule is relaxed.

In Car and Universal Finance Co. Ltd v. Caldwell (1965), Caldwell was persuaded by a rogue to part with his car in return for a cheque which was dishonoured. On discovering this, Caldwell immediately told the police, but could do no more to rescind the contract because the rogue could not be found. It was held that, in the circumstances, Caldwell had done everything possible to make public his intention to rescind, and the rescission was, therefore, effective.

Finally, the right to rescind will be lost if the innocent party 'affirms' the contract, that is, elects to go on with it knowing of the misrepresentation. He cannot blow hot and cold, and once he has decided to go on, he cannot change his mind.

In addition to the civil remedies for misrepresentation, a false statement of fact may also give rise to criminal liability, for example under the Trade Descriptions Act 1968 or the Property Misdescriptions Act 1991.

Section 3 of the Misrepresentation Act makes it very difficult for a party to exclude his liability for misrepresentation (Unit 4). A term in the contract which would exclude or restrict any liability or remedy for misrepresentation will be of no effect unless the defendant can show that the clause is 'reasonable' within the meaning of the Unfair Contract Terms Act 1977.