Misrepresentation Lecture

A misrepresentation is a false statement of fact or law, made by words or conduct, that has the result of inducing the other party to enter a contract. If a misrepresentation is shown to have occurred, the effect will be that the contract becomes voidable. This means that the party who was induced into the contract as a result of the misrepresentation may choose to rescind the contract, but does not necessarily have to.

Misrepresentation is based mainly in contract law, and has a relationship with other areas of contract that this module guide will explore, such as terms and mistake. There is also the negligent element of misrepresentation, which is based in tort. Therefore, an understanding of tortious principles will be helpful in understanding the law.

This chapter will be split into four distinct sections which should allow for a full and comprehensive understanding of the law of misrepresentation.

1. Defining a misrepresentation
2. What makes a misrepresentation actionable?
3. What type of misrepresentation has been made?
4. The remedies for misrepresentation

1. Defining a misrepresentation

A misrepresentation is a form of statement made prior to the contract being formed. When deciding the effect of a pre-contractual statement, consider whether it may:

1. Form part of the contract
2. Operate as a representation inducing the contract, whether or not it also becomes a term.

The importance of this distinction has been explained in the chapter relating to terms, so for a full understanding it is recommended that you have studied that chapter. But to recap, if a statement is made that is considered to be a term, in the event of this statement being breached, the aggrieved party would have a remedy under a breach of contract. A statement may also induce the contract as a representation. If false, it may give rise to a claim for misrepresentation, even if it became a term (section 1 of the Misrepresentation Act 1967). Mere advertising puff need do neither.

Intention

The courts will attempt to give effect to the parties’ intention insofar as this is possible. This will be an objectively applied standard. There are a number of presumptions related to when or how a statement is made which will help the courts when they are attempting to ascertain whether a statement is a term or a representation (Heilbut, Symons & Co v Buckleton [1913] AC 30). These factors were covered in detail in the chapter on terms, therefore this chapter will provide a simple overview of the factors. For more information on this you should refer to the chapter on terms.

Statement is reduced to writing

A statement included in the written contract is more likely to be a term than one appearing only in negotiations. A party who signs a contractual document is generally bound by its terms even if unread (L’Estrange v F Graucob Ltd [1934] 2 KB 394).

If there is a statement reduced to writing, the parties may suggest there was an oral agreement which is contradictory to the statement made in writing. The parol evidence rule generally prevents evidence of prior discussions from varying a document intended to record the whole agreement. It does not exclude evidence that the agreement was induced by misrepresentation.

Therefore, when there is a statement which has not been reduced to writing, the presumption may be that it is a representation. Be careful, as oral statements can still form a term of the contract; you should still considers the other factors alongside this one.

Specialist skill or knowledge

If the statement is made by a party who has, or claims to have, specialist skill or knowledge, there will be a presumption that this statement is a term. The cases of Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 1 WLR 623 and Oscar Chess v Williams [1957] 1 WLR 370 are good authorities for this. In Dick Bentley, the statement was held to be a term because it was made by a car dealer who would claim to have specialist skill or knowledge. However, in Oscar Chess, the statement was made by a private seller who had no real specialist skill or knowledge.

Lapse of time

As a general rule, if there is a longer lapse of time between the statement and the formation of the contract, the greater the presumption will be that the statement is a representation.

2. What makes a misrepresentation actionable?

In order for a representation to become a misrepresentation, the claimant must show that it conveyed a false statement of fact or law on the meaning reasonably understood in context. In order to prove this misrepresentation is actionable, it must be shown that this representation induced the claimant to enter the contract.

Unambiguous, false statement

False and unambiguous

Ascertaining whether a statement is false in the context of misrepresentation is not as straightforward as a question of whether the statement is true or false. The degree of falsity is a relevant consideration. The case of Avon Insurance plc v Swire Fraser Ltd [2000] 1 All ER (Comm) 573 ruled that the test to apply is whether or not the statement is “substantially correct”. The question is whether the difference between what was represented and the truth was likely to matter to a reasonable person in the claimant’s position. This is distinct from whether this claimant was actually induced.

The meaning attributed to the statement must be reasonable in its context. A claim cannot be founded on a meaning that only the claimant’s unreasonable interpretation gives it. The case of McInerny v Lloyds Bank Ltd [1974] 1 Lloyd’s Rep 246 is an example of this, where the unreasonable interpretation of the statement by the claimant meant the claim failed.

Statement

The word ‘statement’ has been broadly interpreted. ‘Statement’ does not just refer to a verbal statement; it has been held that conduct can amount to a statement for the purpose of misrepresentation. The case of Curtis v Chemical Cleaning & Dyeing co Ltd [1951] 1 KB 805 outlined this fact. An example of this can be found in Gordon v Selico (1986) 278 EG 53, where the concealment of some dry rot during an inspection of a property was held to be a statement which misrepresented the fact that the property was free of dry rot.

Silence or non-disclosure alone will not normally amount to a representation. Therefore, although in Gordon v Selico the party was silent as to the existence of dry rot, the conduct went beyond merely remaining silent; there were active steps to conceal this fact.

Half-truths

A misleading half-truth will amount to a misrepresentation. A misleading half-truth is a true statement which is misleading due to all relevant information not being revealed. Take the case of Nottingham Patent Brick & Tile Co v Butler (1886) 16 QBD 778, where a solicitor was asked whether any restrictive covenants burdened some land. The solicitor answered that he was not aware of any, which was technically true, as he had not yet checked. He failed to say that he had not examined the deeds to find out. Therefore, the statement was technically true, but only half-true and misleading, meaning it would be construed as false.

Change of circumstances

If a continuing representation is true when made but becomes false before the contract is concluded, there is a positive duty on the statement maker to ensure to inform the relevant party of this.

In With v O’Flanagan [1936] Ch 575, the defendant was contracting for the sale of his medical practice. A question was asked of the income of the practice. At the time, business was excellent, so he truthfully disclosed this. The sale was made a few months later, in which time the business’ income had dropped drastically. Therefore, due to the change of circumstances, the defendant had a positive duty to notify the plaintiff of this. The fact he didn’t was held to be a false statement of fact.

In contracts which are negotiated over a long period of time, any statements made of a volatile nature can be considered “continuing statements”, with which extreme care should be taken.

Disclosure in insurance contracts

Certain types of contracts will impose a higher duty of disclosure than under normal circumstances. This is due to the nature of the relationships between the parties. The most common example of such a relationship is that between an insurer and the insured. A consumer must take reasonable care not to make a misrepresentation to the insurer (Consumer Insurance (Disclosure and Representations) Act 2012, section 2). There is no general duty to volunteer material facts. In non-consumer insurance the insured must make a fair presentation of the risk, disclosing material circumstances it knows or ought to know, or giving enough information to put a prudent insurer on notice to enquire further (Insurance Act 2015, section 3). In either case the insurer must show it would have declined the risk or contracted on different terms. The remedies in Schedule 1 to each Act distinguish deliberate or reckless breaches from other qualifying breaches. The latter may result in different terms or a proportionately reduced payment rather than a refusal of the claim.

This differs greatly from the usual duties of contracting parties, whereby there is generally no duty to volunteer information (Keates v The Earl of Cadogan (1851) 10 CB 591).

False statement of fact

This section will be concerned with whether or not the statement was of fact. This is a key component of misrepresentation, as a claim for misrepresentation depends on what the statement conveyed, including any facts implied by an expression of opinion.

Statements of opinion

As mentioned above, the general rule is that a statement of opinion is not a fact. This is exemplified in the case of Bisset v Wilkinson [1927] AC 177. In this case, a farmer stated that “it was his opinion” that the land could hold 2,000 sheep. The plaintiff claimed for misrepresentation, but it was held not to be a statement of fact. This was due to two factors

1. He expressly stated it was only his opinion
2. He held himself out as having no expertise as to whether the land held that many sheep, he had never claimed to keep sheep on the land, it was merely a guess. The plaintiff was also aware of this fact.

A statement confined to what the maker honestly believes does not necessarily warrant the truth of the underlying facts (Hummingbird Motors Ltd v Hobbs [1986] RTR 276).

In Hummingbird, the seller of a used car stated that its recorded mileage was correct to the best of his knowledge and belief. The mileage was wrong, but he honestly held the belief he had expressed.

Therefore, the question to ask is whether the statement maker is in a better position to know the truth than the plaintiff? If not, and the plaintiff is aware of this, it will likely be classified as an opinion.

An opinion from someone with superior knowledge may imply that they know facts which justify it. If those facts do not exist, the implied representation may be false even though the words are expressed as an opinion.

The case of Smith v Land & House Property Corporation (1884) 28 Ch D 7 is an example of an opinion amounting to a fact. The landlord sold a property and described the tenant as ‘a most desirable tenant’, and this was not true. Although this may have been expressed as an opinion, the seller knew that the tenant had struggled to pay the rent. The description implied a factual basis the seller knew was absent.

Statements of intention

A statement of future intention represents the maker’s present state of mind. A genuine later change of plan does not by itself make the earlier statement false (Inntrepreneur Pub Co v Sweeney [2002] EWHC 1060 (Ch)).

A statement of future intention made with absolutely no intention at the time of the statement, however, will amount to a misrepresentation, as seen in Edgington v Fitzmaurice (1885) 29 Ch D 459.

Statements of law

A misstatement of law can be actionable on the same basis as one of fact.  Pankhania v Hackney London Borough Council [2002] EWHC 2441 (Ch) concerned the purchase of a property to be used as a car park. There was a statement that the occupier of the car park was a licensee whose occupation could be ended on three months’ notice. In fact it held a protected business tenancy. This was incorrect, and therefore classified as a false statement of fact.

Inducement of the claimant

Once it has been proven that a false statement of fact has been made, the next step is to prove that this statement of fact induced the claimant to enter the contract. There are three questions to consider:

1. Was the representation material?
2. The representee’s awareness
3. The representation must be acted upon

Materiality of the representation

The representation must not be an inconsequential statement which is of irrelevance to the plaintiff. A statement likely to influence a reasonable person may support an inference of actual inducement. This is a question of fact, as seen in Smith v Chadwick (1884) 9 App Cas 187.

Whether the claimant actually relied on the statement is a separate question. In JEB Fasteners Ltd v Marks Bloom & Co [1983] 1 All ER 583 the purchasers sued the auditors of the company they acquired. They would have proceeded with the acquisition to secure the directors’ services even if the accounts had been accurate.

There is a slightly alternate approach of the courts where a representee relies on a statement that a reasonable person would not have considered a relevant factor in entering the contract. In such a case, the representee will have the burden of proving that this representation was material to their decision to contract (Museprime Properties Ltd v Adhill Properties Ltd (1991) 61 P & CR 111).

The representee’s awareness

The representation must have influenced the decision to contract. Conscious thought about an implied representation is not essential. In Credit Suisse Life (Bermuda) Ltd v Ivanishvili [2025] UKPC 53, the Privy Council explained that, in deceit, a claimant may act on a false assumption induced by the defendant’s conduct without recognising it as a representation.

Horsfall v Thomas (1862) 1 H & C 90 is an excellent example of this. The buyer alleged that a defect in a gun had been concealed. He had not inspected the gun before accepting it, so the alleged concealment had not influenced him.

A representation made to one party which then induces a third party may be amount to a misrepresentation under the following circumstances:

A statement can reach the claimant through an intermediary. In deceit the maker must intend the claimant, or a class to which the claimant belongs, to act on it. In negligence the question is whether the maker owed the claimant a duty of care for the use in question. A residential mortgage valuation provides an example in Yianni v Edwin Evans and Sons [1981] 3 All ER 593.

In Yianni v Edwin Evans and Sons, the purchasers did not see the valuers’ report to the building society. They relied on the society’s willingness to lend. On the facts, the valuers owed them a duty of care.

The representation must be acted upon

The final requirement of proving inducement is that the representation was actually acted upon. The representor may attempt to prove the representee was induced by another factor, and not the misrepresentation.

Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 outlines this requirement. The investor knew the final documents set out the investment on offer but signed without checking that it matched his understanding of the earlier telephone description. On the facts, that description did not induce acceptance of a different investment.

It should be noted that the misrepresentation does not have to be the sole inducement for the formation of the contract, as long as it formed part of the inducement this will suffice - Edgington v Fitzmaurice(1885) 29 Ch D 459

If the statement is made fraudulently and is material, the court may draw a strong inference that the statement was relied upon - Barton v County Natwest Ltd [1999] Lloyd’s Rep Bank 408

Checking a statement does not necessarily defeat a claim. The question is whether it still influenced the decision or whether the claimant relied entirely on their own enquiries. In S Pearson & Son Ltd v Dublin Corporation [1907] AC 351 a requirement to verify information did not excuse fraud. Even suspicion that a statement is false need not defeat inducement if it still influenced the decision (Hayward v Zurich Insurance Co plc [2016] UKSC 48).

If the representee has an option to validate the truth of the representor’s statement, but refuses to do so, this will not prevent the statement as being held to be a misrepresentation, as the representee has relied upon this statement, thus being induced by it - Redgrave v Hurd (1881) 20 Ch D 1.

3. What type of misrepresentation has been made?

Categorising the type of misrepresentation made is one of the most complex parts of the law of misrepresentation, as there are four different types:

1. Fraudulent Misrepresentation - Common Law Tort of Deceit
2. Negligent Misstatement - Common Law via Hedley Byrne v Heller
3. Negligent Misrepresentation - Statutory under the Misrepresentation Act 1967
4. Innocent misrepresentation - rescission in equity and section 2(2) of the Misrepresentation Act 1967

The importance of these distinctions will become clear when each one is assessed, as they have differing burdens of proof and remedies. The distinctions turn on dishonesty, any duty of care, and whether the statutory conditions are met. Types 2 and 3 will be dealt with under the one heading of “Negligent misrepresentation”, the common law and statutory differentiation affect the remedies available.

Fraudulent misrepresentation

The significance of a misrepresentation being classified as a fraudulent one is that the measure of damages may be greater under certain circumstances. There are two remedies available for fraudulent misrepresentation: rescission and damages.

Fraud must be specifically pleaded and proved on the balance of probabilities. The seriousness of the allegation calls for careful scrutiny of the evidence, but does not raise the civil standard of proof.

A fraudulent misrepresentation was defined in Derry v Peek (1889) 14 App Cas 337 as a false statement which is ‘made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false’.

In order to assess whether a statement has been made fraudulently, you should consider whether:

1. The statement maker knows that the statement he has made is false
2. The statement maker honestly believes the statement is true, even if it is false

In the case of a, there will clearly be a fraudulent statement.

In the case of b, an honest belief defeats fraud even if it was unreasonable. A lack of reasonable grounds may be evidence that the professed belief was not genuinely held.

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573 clarified that where a statement is made where the statement maker has no idea whether or not it is true or false, this statement would be fraudulent due to the recklessness asserting it is true when it may not be.

True statements which become false

As we have discussed earlier in this section, some statements made may be true at the time of the statement, but later become false. In those situations, it was established that there is a duty for the statement maker to make the representee aware of this change. However, for the purposes of ascertaining the type of misrepresentation, would a failure to update the representee be classed as a fraudulent misrepresentation?

In With v O’Flanagan [1936] Ch 575 the earlier statement remained operative until the sale. Whether failure to correct such a statement is fraudulent depends on the maker’s state of mind:

Fraudulent: The maker knowingly or recklessly leaves the other party to contract on a false impression, intending them to act on it (Banks v Cox (No 2) unreported)

Non-fraudulent: An honest error may still give rise to statutory liability under section 2(1), or to liability in negligence if the maker owed and breached a duty of care.

Negligent misrepresentation

A negligent misrepresentation is made out where the statement maker has belief in his statement, but has been careless in reaching this conclusion. It is considered ‘negligent’ as there has been a breach of duty of reasonable care and skill when making the statement. As mentioned earlier in this section, the statutory claim and the tort claim differ in their requirements, burdens of proof and remedies.

Negligent misstatement

A claim for a negligent misrepresentation that is based in tort under the common law is usually referred to as a ‘negligent misstatement’ This claim was first established in the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. As per Caparo Industries plc v Dickman [1990] 2 AC 605, in order for a claim in negligence to be successful, there must be a special relationship between the parties so that there would be a duty of care which arises.

Subsequent case law which considered negligence of misrepresentations in the context of duty of care concluded there would be a duty of care owed if there was an ‘assumption of responsibility’ on the part of the statement maker (Henderson v Merrett Syndicates Ltd [1995] 2 AC 145). The court considers what the maker undertook to do, for whom and for what purpose, and whether reliance was reasonable. Claiming expertise is relevant but does not by itself establish a duty.

The significance of a negligent misrepresentation under a tortious claim is that the aggrieved party has the burden of first proving the duty of care, and then proving that this duty of care has been breached. As will become clear from the following section, a claim under the statute is much easier to prove and therefore favourable.

Negligent misrepresentation

An alternative approach to a claim for negligent misrepresentation is to pursue the claim under statute. The Misrepresentation Act 1967 Section 2(1) allows for such a claim. Here are the key components of a claim under the Misrepresentation Act.

1. A misrepresentation has induced the representee to enter the contract
2. The representee has suffered loss as a result
3. The statement, if made fraudulently, would have been actionable as a fraudulent misrepresentation
4. If so, the representor will be liable for negligent misrepresentation unless they prove that they actually believed it was true, on reasonable grounds, until the contract was made.

The significance of a negligent misrepresentation claim under statute is that the burden of proof from the common law claim is reversed. Once the claimant establishes the ingredients listed above, the defendant must prove both honest belief and reasonable grounds for it until the contract was made. This is advantageous to the representee, and thus a favourable action to bring.

The representor cannot escape liability simply by proving that he was not negligent, it must be proven that he had reasonable grounds to believe the statement, as shown in Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574.

It should be noted that a claim under the Misrepresentation Act cannot be made by a third party relying on a statement; section 2(1) requires the misrepresentation to be made by, or on behalf of, the other party to the resulting contract. The statement can be communicated through an intermediary.

Innocent misrepresentation

An innocent misrepresentation is a false representation made honestly and on reasonable grounds which nevertheless induces the contract. The usual remedy is rescission, subject to the bars discussed below.

4. The remedies for misrepresentation

In the previous sections we have mentioned the advantages and disadvantages of certain forms of misrepresentation being in the remedies. This section will first discuss the different remedies available, and then explain the differing scales of damages available to each type of misrepresentation.

Rescission

When a contract has been induced by misrepresentation of any kind, the contract does still confer obligations upon the parties, but the contract will be voidable. The representee normally rescinds by communicating an unequivocal decision to the other party. If a fraudster has disappeared, unequivocal steps to recover the property can suffice (Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525). The aim of this remedy is to put the parties back into the position they were before the start of the contract.

There are a number of restrictions to the use of this remedy. These are known as ‘bars’ to rescission. Section 1 of the 1967 Act provides that performance of the contract, or the representation becoming a term, does not by itself prevent rescission. Each of these shall be covered in turn.

Affirmation

Affirmation occurs where the representee, knowing the relevant facts and their right to rescind, unequivocally elects to keep the contract (Long v Lloyd [1958] 2 All ER 402).

The choice can be made by words or conduct. Mere inaction is not necessarily an election to affirm, though delay may make rescission inequitable.

Lapse of time

Delay can bar equitable rescission if, in the circumstances, it would be unjust to unwind the transaction.

In fraud cases the claimant’s knowledge and conduct after discovery are particularly important. The separate question of statutory limitation is governed, where applicable, by section 32 of the Limitation Act 1980, which refers to discovery of the fraud or when reasonable diligence would have revealed it.

For non-fraudulent misrepresentation, consider the whole history of the transaction. Leaf v International Galleries [1950] 2 KB 86 highlights this sometimes harsh approach. In this case, a painting was purchased as one painted by a famous painter. Five years later it was discovered this was not true. Rescission was refused. In Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745 the Court of Appeal cautioned against treating the passage of a particular number of years as decisive.

Restitutio in integrum

This bar to rescission refers to where a rescission of the contract is no longer possible. The question is whether the parties can be restored substantially to their former positions. Use or depreciation alone need not prevent rescission if a monetary adjustment can do practical justice. In the case of Clarke v Dickson (1858) 120 ER 463 the example of a contract for a sale of a cake we given; once this cake has been eaten, the contract may not be rescinded.

If the event that the goods have only been partially consumed rescission is a more complicated issue. In TSB Bank plc v Camfield [1995] 1 WLR 430 the court declined to rewrite a guarantee so that it secured only part of the liability. In De Molestina v Ponton [2002] 1 All ER (Comm) 587 the court distinguished rescinding part of a single bargain from setting aside a separate agreement within a series of transactions.

For example, buying five kegs of beer under one indivisible bargain does not entitle the buyer to keep the kegs they want and rescind as to the others. If there are separate contracts, each must be considered on its own facts.

Third party interests

Where rescission would encroach on the rights of a third party, the remedy will be unavailable. Usually this will be where the goods have been sold before rescission to a good-faith purchaser for value without notice of the defect in title (section 23, Sale of Goods Act 1979).

Crystal Palace Football Club (2000)Ltd v Dowie [2007] EWHC 1392 gives another example. In this case, rescission of the contract would have resulted in reinstating his employment at Crystal Palace Football Club. Crystal Palace had hired a replacement for him, and he was now employed at another football club. Rescission of the contract would have adversely affected the rights of two third parties; the replacement employee and the new club.

Damages

An award for damages is the most commonly sought after remedy for misrepresentation. Although rescission is effective in releasing the parties from their obligations under the contract, there are often circumstances in which the damage caused goes beyond the contract in question. In this case, damages are an effective remedy.

The measure of damages differs for each of the types of misrepresentation, therefore each will be considered in turn.

Fraudulent misrepresentation

The case of Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 is authority to the effect that damages are awarded on a tortious basis, aiming to put the aggrieved party in the position they would have been had the deceit not induced the transaction.

Start by comparing the claimant’s actual position with the position they would have been in without the fraud. Here is an example:

Party A sells Party B a car for £200. Party A is aware that Party B intends to sell the car on for £2,000. However, Party A has fraudulently misrepresented the make of the car, and it only worth £50 resale value.

If Party B would otherwise have kept the £200, buying a car worth £50 has caused a loss of £150. The hoped-for resale at £2,000 does not itself establish a further loss. Party B would need to prove, for example, that the fraud cost them a profitable alternative purchase.

Under Doyle v Olby (Ironmongers) Ltd and Smith New Court Securities Ltd v Scrimgeour Vickers (Asset Management) Ltd [1997] AC 254, the fraudulent party is liable for loss flowing directly from the transaction, even if unforeseeable. The claimant must still take reasonable steps to mitigate loss. Take the following situation:

Party A contracts with Party B for the sale of 10 limos for £5000. There was a fraudulent misrepresentation as to the quality of the limos. Party B had a £1,000,000 contract to chauffeur a famous football team around, but due to the lack of quality in the limos, has lost this contract. Party B could recover the lost net profit if it flowed directly from the fraud, Party B would otherwise have performed the chauffeur contract and the loss could not reasonably have been avoided. The contract price is not itself the loss.

For a full, in depth understanding of damages you should refer to the chapter on damages. But from this explanation you should be able to understand the measure of damages for fraudulent misrepresentation.

Negligent misrepresentation under the common law

Negligent misstatement under Hedley Byrne v Heller differs from the tort of deceit. In negligence the damage must fall within the scope of the duty of care and satisfy the ordinary rules of remoteness (Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20).

The test of remoteness, from Overseas Tankship (UK) Ltd v Morts Dock & Engineering Co (The Wagon Mound) [1961] AC 388, only allows damages to be claimed that are “reasonably foreseeable”. You should have an understanding of how this will affect misrepresentations from the previous example of the contract for the car.

If the claimant has also been negligent to some extent, damages may be reduced by way of contributory negligence, apportioning some of the blame to the claimant.

Negligent misrepresentation under the Misrepresentation Act

We have already discussed the misrepresentation act being a favourable avenue as to a claim for negligent misrepresentation due to the burden of proof being reversed. A claim made under the misrepresentation act is even more favourable in respect of the damages it may award.

Under Section 2(1) of the Misrepresentation Act, damages are awarded on exactly the same basis as fraudulent misrepresentation. The claimant may recover loss flowing directly from the induced transaction even if it was not foreseeable (Royscot Trust Ltd v Rogerson [1991] 2 QB 297). Section 2(4) excludes damages under section 2 where the consumer has a statutory right of redress for the same conduct under the unfair trading provisions, subject to the saving for consumer credit claims in section 2(5).

Section 2(2) applies to non-fraudulent misrepresentation. Where the claimant is entitled to rescind, the court may instead keep the contract in force and award damages, having regard to the nature of the misrepresentation and the losses rescission or its refusal would cause.

Damages awarded under section 2(2) are in place of rescission. A separate claim for damages in deceit or under section 2(1) can accompany rescission, provided that there is no double recovery.

The current position from Zanzibar v British Aerospace (Lancaster House Ltd) [2000] 1 WLR 2333 is that damages in lieu under section 2(2) require a subsisting right to rescind. The Court of Appeal confirmed this in Salt v Stratstone Specialist Ltd. This restriction does not apply to a claim under section 2(1).

Innocent misrepresentation

For an innocent misrepresentation there is no right to damages in deceit or under section 2(1). The claimant may rescind if no bar applies, and the court may award damages in lieu under section 2(2).

Can liability from misrepresentation be excluded in the contract?

In a non-consumer contract, a term excluding or restricting liability or remedies for pre-contractual misrepresentation is subject to section 3 of the Misrepresentation Act 1967. To be effective, the term must be:

1. Reasonable
2. Clear and precise as to the exclusion of misrepresentation

The party relying on the term must show that it meets the reasonableness test in section 11(1) of the Unfair Contract Terms Act 1977. A non-reliance clause can fall within section 3 (First Tower Trustees Ltd v CDS (Superstores International) Ltd [2018] EWCA Civ 1396). Terms in consumer contracts are governed instead by the fairness test in section 62 of the Consumer Rights Act 2015.

The wording must cover the liability in question. A bare statement that the document contains the entire agreement does not by itself exclude liability for misrepresentation. A party cannot contract out of liability for its own fraud (HIH Casualty and General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6).

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