The Misrepresentation Act exists to protect consumers from false or fraudulent claims that induce you into buying something, or entering into a contract and allows you to claim damages in the case of fraudulent misrepresentation.
Types of Misrepresentation
A misrepresentation is a statement of fact (it is not an opinion), which is made by the seller before the contract is made.
If your decision in buying the purchase was dependant on the statements made by the seller, and the purchase turns out to be different than promised, then you can claim compensation.
Your right to claim will depend upon the 3 different types of misrepresentation outlined below:
- if the false statement was made fraudulently
- if the false statement was made negligently
- if the false statement was made innocently
A fraudulent misrepresentation can be determined if someone makes a statement that –
- they know to be untrue, or,
- they make without believing it is true, or,
- they make recklessly
If you have entered into a contract as a result of a fraudulent misrepresentation, then you have grounds to cancel the contract, claim damages, or both.
The Misrepresentation Act 1967 allows you to base your claim on negligence or on the fraud. In addition, when a misrepresentation claim is based on negligence, the law states that the person who made the misrepresentation has to disprove the negligence. In other words, they must prove that they had reasonable grounds to believe the statement, and that they believed the facts represented were true.
This is a misrepresentation under the Misrepresentation Act 1967 where a statement is made carelessly or without reasonable grounds for believing its truth.
This is where one of the parties, when entering into a contract, had reasonable grounds for believing that his or her false statement was true. In other words, it is made entirely without fault. This type of misrepresentation primarily allows for the contract to be cancelled. The purpose of this is to place you and the other party in the same position before the contract had taken place.
However, under Section 2(2) Misrepresentation Act 1967 the court has discretion to award damages instead of allowing you to end the contract if it deems it appropriate. It cannot award both. This would be judged on both the nature of the innocent misrepresentation and the losses suffered by the victim of the misrepresentation.
Damages or Rescission?
Once it has been established that there as been a misrepresentation and what type it is, then the remedies available can be determined.
There are two types of remedy:
- Damages – Financial compensation which is designed to compensate the victim of a misrepresentation act for the financial damages impacted.
- Rescission – The ability to end a contract and where both parties are treated as though the contract never existed.
The type of misrepresentation suffered by the buyer will determine the end solution. Claiming for an act of misrepresentation can only be done within six years after realising that misrepresentation has occurred.