When entering into a business contract, a number of discussions and negotiations take place before any deal is done. As part of this pre-contract process, representations are made, some of which could give rise to liability.
It is important to understand the types of representations, as well as the elements of each of them, in order to avoid being held inadvertently open to a misrepresentation claim.
A misrepresentation is an untrue statement of fact or law made by Party A to Party B, which induces Party B to enter into a contract which, in turn, causes Party B loss.
There are three types of misrepresentation:
There are a number of steps that can be taken to try to limit or exclude liability for misrepresentation. Most commonly, these include drafting an “entire agreement clause” or “non-reliance clause” into a business contract (although the effectiveness of such provisions will depend on the application of the Consumer Rights Act 2015 and Unfair Contract Terms Act 1977, both of which are outside of the scope of this note).
However, a term in a business contract which restricts or excludes liability for fraudulent misrepresentation is wholly ineffective as a matter of public policy. This means that an entire agreement clause or non-reliance clause will never be effective against a claim for fraudulent misrepresentation.
Whilst this might seem like good news for a Claimant (as it allows them to overcome the obstacles of an entire agreement clause or non-reliance clause), it is by no means foolproof.
The Courts will not accept allegations of fraud at face value, just because someone says it has happened. Cogent evidence is required to justify a finding of fraud or other discreditable conduct. For more information on civil fraud, please see our “guide to civil fraud”.
There are a number of practical steps that can be taken to minimise the risk of claims for misrepresentation including:
For advice on claims concerning alleged misrepresentation, or for more information on the contents of this article, please contact Claire Boucher at firstname.lastname@example.org or Cara White at email@example.com.
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