Introduction
Misrepresentation is a vitiating factor in contract law, rendering a contract voidable. It concerns false pre-contractual statements that persuade a party to enter into an agreement. For a misrepresentation to be legally effective, it must be an untrue statement of fact which induces the contract. This essay will discuss the crucial element of inducement, particularly the principle that if a false statement is likely to induce a contract, it is a fair inference of fact that it did so. It will then proceed to provide an overview of the remedies available to a party who has been induced to enter a contract by a misrepresentation.
The Element of Inducement
The statement highlighted in the question, which reflects the position in leading texts like Chitty on Contracts, concerns the legal test for inducement. For a misrepresentation to be actionable, the representee must show that the statement caused them to enter into the contract. It does not need to be the sole or main reason, but it must be one of the reasons (McKendrick, 2022). The case of Edgington v Fitzmaurice (1885) 29 Ch D 459 established that a misrepresentation can be an operative cause even if the representee also had other reasons for contracting.
The core of the principle cited in the question relates to the burden of proof. The first stage is for the claimant (the representee) to show that a false statement was made. The next question is whether it induced them. If the statement is 'material', meaning it is one that would have affected the judgement of a reasonable person in deciding whether to enter the contract, the law allows for an "inference of fact" that the representee was indeed induced. This was confirmed in Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 EGLR 196, where the court held that once materiality is established, the burden of proof shifts to the defendant (the representor) to prove that the statement did not influence the claimant.
Therefore, the statement in the question is an accurate reflection of the law. It is not an "inference of law" which would be an irrebuttable presumption, but rather an "inference of fact" which the defendant can rebut with evidence. For example, a defendant could show there was no inducement by proving the claimant was unaware of the misrepresentation (Horsfall v Thomas (1862) 1 H&C 90), knew it was false, or relied entirely on their own independent investigation (Attwood v Small (1838) 6 Cl & Fin 232).
Remedies for Misrepresentation
Where an actionable misrepresentation is found, the primary remedy is rescission, which may be supplemented by or replaced with damages.
Rescission
Rescission is an equitable remedy available for all types of misrepresentation (fraudulent, negligent, and innocent). It aims to set the contract aside and restore the parties to the position they were in before the contract was made (restitutio in integrum). However, the right to rescind can be lost through several 'bars', including: affirmation of the contract after discovering the truth (Long v Lloyd [1958] 1 WLR 753); a significant lapse of time (Leaf v International Galleries [1950] 2 KB 86); where restitution is impossible; or where a bona fide third party has acquired rights under the contract.
Damages
The availability and measure of damages depend on the type of misrepresentation.
For fraudulent misrepresentation, the claimant can claim damages in the tort of deceit. The aim is to return the claimant to the position they would have occupied had the misrepresentation not been made. The measure of damages is generous, covering all direct losses flowing from the transaction, regardless of whether they were foreseeable (Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158).
For negligent misrepresentation, a claim can be made at common law under the principle in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, or under statute. The most common route is section 2(1) of the Misrepresentation Act 1967. This section provides a powerful remedy, stating that where a party enters a contract after a misrepresentation has been made to them by another party, they can claim damages unless the representor proves they had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true. Crucially, damages under s 2(1) are calculated on the same basis as for fraudulent misrepresentation, a principle known as the 'fiction of fraud' established in Royscot Trust Ltd v Rogerson [1991] 2 QB 297.
For a wholly innocent misrepresentation, there is no automatic right to damages. However, section 2(2) of the Misrepresentation Act 1967 gives the court a discretion to award damages in lieu of rescission. This remedy is only available if the right to rescind has not been lost. The court will consider the nature of the misrepresentation and the respective losses to each party in deciding whether to exercise this discretion.
Conclusion
In conclusion, the statement from Chitty on Contracts accurately summarises the legal position on inducement. The law presumes that a material statement did in fact induce the contract, shifting the evidential burden to the representor to prove otherwise. This approach balances the need to protect representees from false statements with fairness to representors. Where inducement is established, the law provides a flexible range of remedies. The primary remedy of rescission allows the innocent party to escape the contract, while the rules on damages, particularly the powerful remedy under section 2(1) of the Misrepresentation Act 1967, provide financial compensation, with the extent of that compensation depending on the culpability of the representor.
References
- McKendrick, E. (2022) Contract Law: Text, Cases, and Materials. 10th edn. Oxford University Press.
- Attwood v Small (1838) 6 Cl & Fin 232
- Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158
- Edgington v Fitzmaurice (1885) 29 Ch D 459
- Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
- Horsfall v Thomas (1862) 1 H&C 90
- Leaf v International Galleries [1950] 2 KB 86
- Long v Lloyd [1958] 1 WLR 753
- Misrepresentation Act 1967
- Museprime Properties Ltd v Adhill Properties Ltd [1990] 2 EGLR 196
- Royscot Trust Ltd v Rogerson [1991] 2 QB 297
