The Consequences of Making a Misrepresentation

Many statements can be made in the course of trying to win work and there can be a temptation to overstate facts. Whether this could result in a misrepresentation is explained below together with the possible consequences.

Representations are statements of fact – not opinions or intentions. Misrepresentations are untrue representations. In order to be able to sue in respect of a misrepresentation, the injured party must show the statement induced it to enter into a contract and that it would not have done so but for the misrepresentation. If it knew the statement was untrue or only learned about the statement after making the contract, no action could be taken.

Misrepresentations can be fraudulent, negligent or innocent. A fraudulent misrepresentation is made when the person making it knows or believes it to be untrue. A negligent misrepresentation is made when the person making it is careless as to whether it is true or false. An innocent misrepresentation is made when the person making it honestly believes it to be true.

The distinction is important because the remedies and the level of damages will depend on the nature of the misrepresentation. For fraudulent misrepresentation the injured party can claim compensation for all losses resulting from the misrepresentation, whereas losses resulting from a negligent misrepresentation will usually be restricted to those reasonably foreseeable. (If the claim is under the Misrepresentation Act 1967, rather than the common law, the assessment of damages and burden of proof is treated somewhat differently.)

As to the contract itself, the effect of a misrepresentation is to make it voidable by the injured party who can then choose (subject to some qualifications) whether to set it aside and treat it as if it had never been made (this is called rescission) or to continue with it.

At common law, the remedy for innocent misrepresentation is rescission of the contract with no damages being awarded, but under the 1967 Misrepresentation Act the court has power to award damages in lieu of rescission.

The BSkyB v EDS case in which judgment was given on...