Disclaimer: This is not legal advice.
“The law deters. It does not prevent.”
You signed a contract based on promises that turned out to be false. Maybe you were assured that a service provider guaranteed results, or a business partner persuaded you to invest in a deal.
Later, you realise those statements were not true. The service is substandard, the figures were inflated, or the product does not function as described. Worse, you never receive what you were promised in exchange. Had you known the truth, you would not have agreed to the deal.
So what can you do?
In the law of England and Wales, if someone induces you to enter into a contract by making a false statement of fact, that is known as misrepresentation. Depending on the type of misrepresentation, you may be entitled to rescind the contract (cancel it) and or claim damages.
Note on consumer contracts: if you are a consumer, different rules apply. The Consumer Rights Act 2015 provides remedies for misleading statements in consumer contracts. This article focuses on business to business contracts and other non-consumer agreements.
What is misrepresentation?
Misrepresentation occurs where:
- A false statement of fact is made before an agreement is reached.
- That false statement induces the other party to enter the agreement.
- The misled party suffers a loss as a result.
This differs from breach of contract, which involves failing to perform obligations after agreeing. Misrepresentation focuses on what was said (or done) before you agreed.
Misrepresentation does not only apply to spoken or written words. Conduct can also amount to misrepresentation if it creates a false impression that leads someone to enter a contract.
Example: In Spice Girls Ltd v Aprilia World Service BV (2002), Aprilia agreed to sponsor the group’s tour. Before signing, the group participated in promotional activity while knowing that one member intended to leave before the sponsorship period ended. The court held that this created a false impression, amounting to misrepresentation by conduct.
What counts as a misrepresentation?
- A false statement of fact: “This software is fully compatible with your system.” “Our company made £10 million in profit last year.”
- A half truth: a statement that is literally true, but misleading because it omits key facts. For example, describing a property as fully let without disclosing that the tenants have given notice to quit.
- A failure to disclose a change in circumstances: where a statement continues to influence the other party’s decision, you may need to correct it if it becomes untrue.
- A misleading action or conduct: for example, deliberately concealing dry rot with paint before selling a property.
Statement of future intention: a statement about future intention is not misrepresentation if it genuinely reflects the speaker’s current intention. However, where it is made to influence the recipient’s decision, it may operate as a continuing representation and may need correcting if circumstances change.
Example: A landlord tells a business tenant that he intends to carry out refurbishment works and will need vacant possession. The tenant relocates. Before the tenant vacates, the landlord decides he will not proceed within the relevant timeframe but does not inform the tenant. If the tenant moves out relying on what they were told, the failure to correct the statement can amount to misrepresentation.
Opinions and sales talk: saying “I think this strategy will double your revenue” is typically an opinion rather than a statement of fact. However, an opinion may still amount to misrepresentation where the speaker has special knowledge, or is in a better position to know the truth.
The three types of misrepresentation
Three categories of misrepresentation are recognised, each with different legal consequences.
1) Fraudulent misrepresentation
This is the most serious type. It arises where a false statement is made knowingly, without belief in its truth, or recklessly, careless whether it be true or false.
Example: a company fabricates financial data to secure an investment.
Remedy: the misled party can seek rescission and full damages for all losses flowing from the deceit, even if those losses were not foreseeable.
In some cases, the conduct may also engage criminal liability under the Fraud Act 2006.
2) Negligent misrepresentation
If a statement is made carelessly or without reasonable grounds for belief in its truth, it falls under section 2(1) of the Misrepresentation Act 1967. Unlike fraud, there is no need to prove dishonest intent.
Example: a company provides capacity figures without checking its records, and the figures turn out to be wrong.
Remedy: the misled party may seek rescission and damages. Under section 2(1), damages are assessed on the basis applicable to fraudulent misrepresentation, even though there was no dishonesty. Under section 2(2), the court has discretion to award damages in lieu of rescission where it considers that equitable, taking into account the nature of the misrepresentation and the consequences of rescission.
Bonus: Even if you are not in a contractual relationship, you may still have a claim if someone gave you careless advice and you relied on it to your detriment. This is known as negligent misstatement and typically applies where someone (such as a professional or advisor) owes you a duty of care when giving information. You can claim compensation for foreseeable losses. In some cases, the same situation can give rise to both negligent misrepresentation under section 2(1) and negligent misstatement under tort.
3) Innocent misrepresentation
This arises where a false statement is made by a party who genuinely believes it to be true and has reasonable grounds for that belief. There is no element of fraud or negligence.
Remedy: the misled party may seek rescission and, where appropriate, an indemnity intended to help restore the parties to their pre contract position. The court can also award damages instead of rescission where it considers that equitable, for example where undoing the contract would cause disproportionate hardship.
Rescission may not always be possible
- Third party rights have intervened: if the subject matter has passed to an innocent third party who acquired it in good faith, the contract cannot be unwound.
- Restitution is no longer possible: rescission requires that the parties can be put back, substantially, into their pre contract positions. If that cannot be done, rescission may be barred.
- The contract has been affirmed, or there has been undue delay: if the misled party continues with the contract after discovering the truth, or waits too long before acting, the right to rescind may be lost.
Example: you buy a business after being misled about its profits, then sell it on to an unrelated purchaser.
Example: you buy specialised machinery based on false specifications, but it is later irreversibly modified or destroyed in use.
Example: you discover that revenue figures were inflated but continue operating the business for years without complaint.
Watch out for non-reliance clauses
Many contracts include a non-reliance clause, where one or both parties state that they have not relied on any statements or representations made before the contract, other than those expressly set out in the agreement. These clauses are often used to try to defeat misrepresentation claims by removing the element of reliance.
A non-reliance clause does not automatically prevent a misrepresentation claim. To be effective, it must be clearly drafted and satisfy the reasonableness requirement under section 3 of the Misrepresentation Act 1967, read together with the Unfair Contract Terms Act 1977. The court will look closely at the wording and the circumstances, including bargaining power and whether legal advice was available.
Important: a non-reliance clause cannot exclude liability for fraudulent misrepresentation.
🧭 Final thought
If you are reading this, chances are you have already been misled. At this stage, advice about carrying out due diligence is of little help. What you need now is a way forward.
The first step is to identify what type of misrepresentation you may have been subject to. You may wish to contact the other party without making accusations or revealing your intentions, to see whether they are willing to put matters right. Their response, or their silence, may help clarify whether the misrepresentation was innocent, negligent, or fraudulent.
If you suspect fraud, you should consider reporting the matter to the police (https://www.reportfraud.police.uk). Even if the authorities do not take immediate steps, particularly where the issue overlaps with a civil dispute, creating a formal record can still be worthwhile. It may prove useful if you later bring proceedings.
You also have a legal duty to take reasonable steps to minimise your loss. Prompt and reasonable action helps to protect both your position and your legal rights.
If you need further assistance, get in touch to discuss your next steps.