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Fraudulent Misrepresentation: How to Prove It and How to Deal With It

posted 1 year ago

Fraudulent misrepresentation is the gravest type of misrepresentation and is taken very seriously by the courts.

It arises when someone relies on false information presented to them and as a result enters into a contract. An example would be buying something or entering into a business deal based on information that turns out not to be true and where an element of fraud was involved.

What are the different types of misrepresentation?

What is fraudulent misrepresentation?

Fraudulent misrepresentation is when a false statement is dishonestly made to someone and that person relies on the statement, enters into the deal, and then suffers a loss as a result. If you are bringing a fraudulent misrepresentation claim, you will need to demonstrate the following:

  • A false representation was made to you;
  • The person who made the statement either:
    • knew that it was false; or
    • had no belief in its truth; or
    • was reckless as to whether it was true or false
  • The person who made the statement intended that you should rely on it
  • You relied on the statement
  • You would not have entered into the contract, but for the misrepresentation
  • You have suffered loss or damage as a result of the misrepresentation

The court will presume that the fraudulent representations made in a case have induced the claimant to take up the contract, unless there is strong evidence to rebut this presumption.

The statement will be false if it has an element of deception, deceit, dishonesty or fraud or if it is misleading.

The court will look at the case and decide whether, on the balance of probabilities it has been proved, ie. it is more likely than not that fraud has taken place.

Proving fraudulent misrepresentation

Your case will need to include substantial evidence of what happened before you entered into the contract, showing each of the above points. Where the defendant genuinely believed that the statement they made was true, they will have a defence to fraud, although they may still have misrepresented the situation to you. Even if there is a valid defence to negligent misrepresentation, you could have a claim for negligent misrepresentation or innocent misrepresentation.

Examples of fraudulent misrepresentation include selling something that is faulty and claiming that it is in good working order or providing falsified or inaccurate documents, such as annual accounts, before entering into a business deal.

The misrepresentation can be verbal or written and could take place in emails, advertising content, discussions, promotions or exaggerated claims. It could be implied, provided that a reasonable person would have drawn a similar inference from the words or conduct.

It could arise because initial facts that were true subsequently changed, but the other party did not notify you of this.

Remedies for fraudulent misrepresentation

If you have been the victim of fraudulent misrepresentation, the court can choose to rescind the contract. This means that the contract will be set aside with the aim of restoring you to the position you would have been in, had you not entered into the contract.

The court can also make an order for damages. This can be instead of or as well as recission. The amount awarded will be to compensate you for your losses. All consequential losses may be covered and these losses do not have to be foreseeable.

The amount awarded will not be related in any way to whether the defendant profited from the fraud. Their profit is not taken into account, only the loss to the claimant.

A claim can generally still be brought, even if the contract contains a time restriction or exclusion clause as these will not usually override a case of fraud.

A claimant should not act unreasonably in failing to stop losses once they are aware of the breach.

Dealing with fraudulent misrepresentation

If you believe that you have entered into a contract on the basis of fraudulent misrepresentation, you are advised to seek legal advice promptly. It will be necessary to put together a substantial amount of evidence and the sooner a solicitor is able to request disclosure, the more likely it is that the relevant documents will be available.

If you ask us to represent you, we will go through what has happened with you and establish the facts. We will also look at the available evidence as well as the documents we should be able to obtain from the other party.

We will give you an assessment of the strengths and weaknesses of your case. If you decide to go ahead with a claim, we will notify the other party and ask for their response.

They may agree to enter into negotiations, in which case, we can try to resolve matters out of court. Otherwise, we will put a robust case together on your behalf. This will include making requests for disclosure of all relevant documents.

If you win your case, you can usually expect the court to award you your legal costs as well as the remedies that it considers appropriate.

Contact us

We are pleased to announce that we have won the Global Awards by ACQ5 award for Best Firm for Commercial Disputes London 2023. We were named as the ‘Commercial Disputes Specialists of the Year’ in the Corporate Livewire Innovation & Excellent Awards 2020 as well as ‘Boutique Litigation Law Firm of the Year’ in both the 2019 and 2020 Global Awards by ACQ5. Partner, Dipesh Dosani, was named Commercial Litigation Lawyer of the Year in 2019 and 2020 in the ACQ5 Law Awards.

If you would like to talk to one of our expert legal team about a contract dispute, call us on 020 3968 6030, email us at [email protected] or fill in our contact form and we’ll be happy to help.

The above information is for general guidance on your rights and responsibilities and is not legal advice. If you need more details on your rights or legal advice about what action to take, please contact a legal advisor.

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