What is the difference between negligent and innocent misrepresentation

If misrepresentation can be proved, then the contract may be rescinded by the court and if a loss has occurred, damages may also be awarded. Fraudulent misrepresentation is based on deceit, where a false representation has been made which has induced someone to enter into a contract. It applies to a false statement that is made:. This type of misrepresentation is taken seriously by the courts, who will look for evidence of the following:. The claimant must show that the defendant had the requisite state of mind, ie.

Where the allegation is of serious misconduct, the court may be more inclined to infer the necessary state of mind. It is also necessary to demonstrate that the claimant would not have entered into the contract, but for the misrepresentation. If fraudulent misrepresentation is proved, the court can order rescission of the contract as well as damages for loss arising from the misrepresentation. The loss does not have to be reasonably foreseeable.

Where a statement is made that is found to be negligent and the claimant relied on this statement and suffered a loss as a result, this is negligent misrepresentation. Negligence occurs when the person making the statement makes it carelessly or without reasonable grounds for believing it to be true. If the statement can be shown to be false, then the party who made the statement will have to show that they reasonably believed it was true to defend the allegation of negligent misrepresentation.

The Misrepresentation Act provides that damages can be paid instead of rescission of the contract where negligent misrepresentation is proved. Glossary Misrepresentation Related Content. An action for misrepresentation can be brought in respect of a misrepresentation of fact or law.

There are three types of misrepresentation:. Precontractual misrepresentations come in 3 types. Each of them are different causes of action. The maker of the statement must reasonably believe that what was stated to be true. The remedy of rescission entitles the affected party to an indemnity or court orders to a similar effect to restore them to the position they were in before the contract was made known as restituio in integrum. Traditionally, damages could only be claimed for fraudulent misrepresentation.

Not negligent misrepresentation. Only the remedy of rescission was available. Section 2 1 of the Misrepresentation Act changed that. It introduced the availability of damages as a remedy for negligent misrepresentation.

Also, a court has a discretion to refuse the remedy of rescission and award damages instead. Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.

The burden of proving that there was no negligence falls on the maker of the statement. Further, in Hedley Byrne and Co v Heller and Partners Ltd , the law of negligence which is a different cause of action to negligent misrepresentation was extended.

Negligent statements which cause loss became actionable. The duty of care owed must arise from a "special relationship", that is to say, where one party has special knowledge about the subject matter, that person can reasonably assume that the other party will rely on the statement. For the purpose of making a reckless statement, there is no need to prove dishonesty or fraud: only that the statement was made without caring whether the statement was true or not.

The difference between fraudulent misrepresentation and negligent misrepresentation is the existence of a fraudulent intention. There's no reason in principle why a fraudulent misrepresentation can't also be a negligent misrepresentation, provided the facts of the case satisfy the test for each cause of action.

The primary remedy for misrepresentation is rescission , which places the parties in the position they would have been in, if the contract had not been made. The effect of the contract is reversed. Damages are not available for innocent misrepresentation. A higher scale of recovery of damages is available for fraudulent misrepresentation, because of the deceit involved by the person inducing the other contracting party to enter the contract in the first place. A series of bars apply to obtain misrepresentation, where a party would be prevented from rescinding the contract.

These are usually referred to as bars to rescission. Damages for negligent and fraudulent misrepresentation are calculated in accordance with the usual law of damages. When coupled with rescission, an award of damages is designed to put the party in the position they would have been, had the misrepresentation not been made.

Damages for not calculated on the basis that the misrepresentation was true. In an assessment of damages, the claimant bears the burden of proof on the balance of probabilities to show:. In negotiations which lead to an oral contract, there can be some doubt whether something said or communicated was intended to be a representation or a term of the contract. If it is a term of the contract, the false statement will lead to a breach of contract , rather than a claim for misrepresentation.

There are a series of factors at work to decide whether it's a misrepresentation or a term of contract:. In contrast, where the expertise levels are about equal or the receiver of the statement has a greater knowledge, the statement is more likely to be a representation. Misrepresentation in contract law is a cause of action geared to address misleading statements, whether innocent, negligent or made by fraudulent intention. What is Misrepresentation in Contract Law?

They give rise to legal claims for rescission of the contract and damages. Elements of Misrepresentation The law of misrepresentation operates when: a pre-contractual statement of fact is made to a party intending to enter a contract, and the statement is relied on to enter the contract, and the statement is false. Terminating contracts. The doctrine of res judicata. Tort and negligence. Transferring contracts and rights of third parties. Sign-in Help. Misrepresentation—falsity fraudulent, innocent or negligent misrepresentation Misrepresentation—falsity fraudulent, innocent or negligent misrepresentation Practice notes.

The following Dispute Resolution practice note provides comprehensive and up to date legal information covering: Misrepresentation—falsity fraudulent, innocent or negligent misrepresentation Representation must have been false When is a misrepresentation fraudulent? Why plead fraudulent misrepresentation? A word of caution to the claimant Negligent and innocent misrepresentation non-fraudulent misrepresentation Innocent misrepresentation Negligent misrepresentation Assessing the merits of a claim for misrepresentation Misrepresentation—falsity fraudulent, innocent or negligent misrepresentation A claim for misrepresentation requires that the statement made must have been false.

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