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Misrepresentation: a legal route map

What is a misrepresentation?

A misrepresentation is an untrue statement of fact or law made by one person to another, which convinces one of them to enter into a contract that then causes them a loss.

Some misrepresentations will be clear-cut. For example, where the marketing material says that every flat will have their own parking, which turns out not to be the case.

But in many cases the misrepresentation is less clear-cut depending on where you are standing. For example, when a buyer does not think that his block of flats has the secure car parking promised in the marketing material; but the developer disagrees as he has put in place a number of security measures.

Three stage process

We have set out a three stage process to help decide whether you have made a misrepresentation and how to respond to it.

1. Is it a misrepresentation?

To qualify as a misrepresentation, the statement needs to be fact rather than an opinion, which is objectively assessed by the courts.
 
In the recent case of Raiffeisen v Royal Bank of Scotland Plc (2010) where the court dismissed a claim for misrepresentation, it was held to be relevant that the parties were each sophisticated and had commercial expertise of the market in question.

In contrast, it might not be unreasonable to assume that many buyers in the sector could be first time buyers and therefore relatively unsophisticated. This could make it easier for them to satisfy this hurdle.

2. Has the misrepresentation been relied on by one of the parties?

To prove that a misrepresentation was made in marketing materials, the person who received it must have relied on it in entering into the contract.

This is known as the issue of reliance and will depend on the facts of each case, including what is happening in the market. For example, in a rising property market where buyers are keen to get on the housing ladder, how likely is that they would have relied on the offer of secure car parking to enter into their contract to purchase the property?

3. Has the misrepresentation caused loss?

Even if we accept that a misrepresentation has been made, proof is needed as to whether this has caused them actual loss. In practice, this tends to be the most difficult area to prove in misrepresentation cases. This is because loss has a particular legal meaning; a right to be compensated by way of an award of damages.
The normal measure of damages is to put the claimant in the position that they would have been in had they not entered into the contract.

In the example where someone was promised car parking, which did not materialise, this might be fairly straightforward to work out. This can be done by calculating the difference between the price paid and the actual value of the property without a car parking space.

But in our experience many misrepresentation claims are less straightforward - particularly when the misrepresentation involves a promise as to the extent of something promised, rather than the total absence of the thing promised.

In those cases, it may be difficult for a valuer to say that there is any difference in value between car parking and secure car parking.

Summary

If a mistake has been made in marketing materials, we appreciate that you'll want to act responsibly and do everything you can to put it right. Ultimately you want to keep your customers happy and protect your reputation.

But there will be other cases where you think you have done exactly that and the purchaser is still pursing you and threatening to take you to court. In those cases you need to know where you stand legally and what the customer needs to do to bring a valid claim against you.

Our three stage process will help you identify misrepresentation and help you decide whether you should be fighting them or settling them.

This publication is intended for general guidance and represents our understanding of the relevant law and practice as at September 2016. Specific advice should be sought for specific cases. For more information see our terms & conditions.

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