Misrepresentation is the legal term used when something has been said or written, in the build-up to a contract being formed, which is not correct. The misrepresentation can be:
- Innocent or accidental. For example a seller may tell you the car they are selling has never been in an accident because they genuinely believe it hasn’t. Perhaps the accident took place before the seller owned the car.
- Negligent or reckless. Perhaps the circumstances are such that the seller really ought to have known, or it was careless for them not to know. When a reckless misrepresentation takes place the lack of care would have even more extreme than with a negligent misrepresentation.
- Fraudulent or deliberate. Here the seller knows the accident took place but decides to lie and say it hasn’t.
Depending on the nature of the misrepresentation the victim may be entitled to damages and/or for any contract entered into as a result of the misrepresentation to be rescinded. Rescission is where a contract is set aside and the parties are put back into the position in which they were before the contract was made, and is one of the remedies available for misrepresentation alongside damages (money). It effectively means the contract entered into as a result of the misrepresentation is annulled/cancelled as if it had never happened. It is an equitable remedy and will not always be available depending in the circumstances, if, for example, the contract literally cannot be undone because it is too late.
Probably the most significant type of contract people enter into are in relation to the buying and selling of property. As part of the conveyancing process the buyer, usually via their solicitor, will ask all kinds of questions of the seller about the property in question. The seller will also be expected to fill in certain standard property information forms (SPIFs) in which they have to give accurate information about the property to the buyer. The buyer will rely on the information and answers given when weighing up whether to proceed with the purchase.
In a recent case the Seller had redeveloped a large property in London, using insulation which had a high wool content. The Seller's wife subsequently found clothes moths at the property, and they employed a pest control company to deal with the problem. Despite numerous attempts, the pest control company produced a report that the moth infestation would not go away unless and until the wool insulation was replaced with something else.
When the property subsequently went up for sale, the Seller stated in the SPIFs that he was not aware of any vermin infestation and no reports were available regarding any infestation, and furthermore, that he was not aware of latent defects in the property.
The property was bought by the Buyer for £32.5million, and only after completion did they discover both the infestation and the existence of the report. As such they then brought a claim against the Seller for misrepresentation, and of course the assertion was that this was deliberate and fraudulent.
At the hearing the High Court found in the Buyer’s favour. The Seller was unable to repay the £32.5million, so the court ordered that the buyer would return the title to the property to the Seller, but subject to an “equitable mortgage” in favour of the Buyer. This mechanism would allow the Seller to rectify with the moth infestation, sell the property, and then use the sale proceeds to repay the Buyer.
As stated, misrepresentation is, unfortunately, surprisingly common. With property transactions it is often easier to prove as everything is said and done in writing, and generally via solicitors. With other scenarios it is frequently more difficult to prove as the misrepresentation will often be verbal, and thus the seller can then try to deny it. If there is ever anything important said to you in the build up to entering into a contract it’s vital that you get that put into writing should it turn out to be false.