Misrepresentation in Contract Law

Year Published: 2019

Misrepresentation of the facts in contract law can quite rightly, have financial consequences. The importance of making true and accurate representations when encouraging a party to enter into a contract was highlighted in a well-publicised case in 2018, where a premium dating agency was ordered by the High Court to refund a client £12,600 after it failed to find her the “man of her dreams”.

The Seventy Thirty dating agency, based in Knightsbridge, was sued by Tereza Burki for deceit and misrepresentations about the type and number of men it had on its books.

Misrepresentation in a contract – an untrue statement of fact

A misrepresentation is when an untrue statement of fact or law is made by Party A (or its agent) to Party B, which induces Party B to enter a contract with Party A thereby causing Party B loss.

True or FalseMs Burki, a wealthy divorcee residing in Chelsea, approached the dating service in 2013 and was assured that there was a ‘substantial number’ of wealthy male members actively engaged in its matchmaking services, who were a sufficient match for Ms Burki’s desires. However, Judge Richard Parkes QC held that this was false and misleading as there were only about 100 active male members altogether, and this could not “by any stretch of the imagination” be described as a substantial number.

He went on to say that “the misrepresentations made by Mr Thomas (who was the agency’s then Managing Director) were false and misleading. Had Ms Burki known what the true size of the active membership was, she would not have joined.” The High Court held that she had been “deceived” and mislead about the number of suitors on the site.

Three types of legal misrepresentation in a contract

There are three types of misrepresentation, each of which have different potential remedies:

1) Fraudulent misrepresentation – where a false representation has been made knowingly, or without belief in its truth, or recklessly as to its truth.

Remedy – rescission and damages

2) Negligent misrepresentation – a representation made carelessly and in breach of duty owed by Party A to Party B to take reasonable care that the representation is accurate.

Remedy – rescission and damages

3) Innocent misrepresentation – a representation that is neither fraudulent nor negligent.

Remedy – rescission or damages

Put simply, rescission means that the parties are restored, so far as possible, to the position that they were in before the contract was entered into. Damages are monetary compensation for loss; the aim of a damages award will be to put the party in the position it would have been in had it not entered into the contract. In other words, the damages will be the amount by which the party is out of pocket as a result of relying on the misrepresentation.

The importance of legal advice

The case highlights the importance of seeking legal advice when entering into a contract to avoid any form of misrepresentation. It also demonstrates that where there has been misrepresentation to induce a party into a contract, the Courts are not only willing to rescind the contract but also award damages to the innocent party. In this case, the contract was rescinded and Ms Burki was awarded £12,600 damages for deceit and £500 for distress.

Google reviews can be libellous

Despite being awarded £13,100 by the Court, Ms Burki was ordered to pay Seventy Thirty £5,000 in libel damages after writing a damning Google review of the agency in April 2006, describing the agency as a “scam”. Ms Burki’s remarks about the company being a non-reputable and fraudulent company were deemed untrue and entirely without foundation. The Judge accepted that the agency did have a “sizeable database” and was not “a fundamentally dishonest or fraudulent operation,” therefore Ms Burki’s comments were deemed to be false and damaging to the agency’s reputation. On that basis, Ms Burki was ordered to pay the agency £5,000 in libel damages.

The case demonstrates that you must be extremely careful when making defamatory comments, particularly when making these online.

For further information on misrepresentation in a contract or any other dispute, please contact Nicola Moulds on 0161 475 1207 or email [email protected].

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