Misrepresentation Act 1967

Brief Background

The Misrepresentation Act 1967 is an Act which governs English contract law in the United Kingdom in situations where misrepresentation is involved, prior to parties entering into a contractual agreement. A misrepresentation can be considered to be a false statement of fact which prompts an individual to enter into a contract on the basis of that false statement. Misrepresentation can be established with three different types of statement. These are fraudulent, negligent and innocent misrepresentations and are often considered tiered in terms of severity by the courts.

Why was it introduced?

Misrepresentation is an important factor in both contract law and tort law in the English legal system. The Misrepresentation Act 1967 ensures that parties have an action to pursue in both contract law as well as the law of tort if the misrepresentation causes loss to one of the parties. Moreover, the Misrepresentation Act 1967 allows for the parties to be placed back into the same position that they would have been in before the contract was constructed as if a misrepresentation is found a contract can be effectively voided. This rule applies whether the misrepresentation was fraudulent, negligent or an innocent mistake.

What was the aim of the Act?

The introduction of the Misrepresentation Act 1967 was meant to provide a greater amount of security to parties that enter into a contractual agreement, to ensure that they are not tied to an agreement, or suffer loss, as a result of a misrepresentation. The Misrepresentation Act 1967 provides a party who has relied upon a misrepresentation, an action by way of contract law, which may also be able to run concurrently with an action under tort for deceit, to enable them to be in the same position they would have been in, had the contract not become valid.

What main changes did it make to the law?

A prominent change that was made to the law by the introduction of the Misrepresentation Act 1967 was that it removed the bars to rescission that had been established by older common law in cases such as Wilde v Gibson (1848). Historically, in circumstances where a contract had been performed but there had been a misrepresentation by one of the parties to another, this would severely limit the extent to which a suffering party could rescind the contract. The Misrepresentation Act, section 1 states clearly that this rule no longer exists and therefore the Act will allow parties to claim under a greater range of circumstances.

Further to this, the Misrepresentation Act 1967 also clearly defines the actions and remedies that would be available to the parties if they suffered as a result of misrepresentation. The Act, therefore, allowed greater clarity regarding the actions that might have been available in such circumstances.

Key Sections

Misrepresentation Act 1967, section 1 states that where a person has entered a contract on the basis of a misrepresentation, where the contract has been performed or the term is part of a contract, then that individual would be entitled to rescind the contract.

Misrepresentation Act 1967, section 2 regulates damages that might be available following a misrepresentation. Section 2 (1) states that where a fraudulent misrepresentation creates loss for the claimant, then that individual would be able to claim for damages unless the party that made the representation had reasonable grounds to believe that this statement or representation was true at the time of making the contract.

Misrepresentation Act 1967, section 2 (2) states that the individual would be able to rescind the contract if the representation that had been made was anything other than fraudulent. This would have the effect of putting the parties into the same position as if the contract had not been agreed. However, section 2 (3) does state that damages may also be available for those claiming for non-fraudulent misrepresentations.

Misrepresentation Act 1967, section 3 states that if a contract contains a term which excludes or limits liability arising out of a misrepresentation, then that term shall no longer have an effect. This prevents parties from contracting out of the Act and therefore adds a greater level of protection to the parties. This is an understandable provision as one that wishes to contract out of this Act might have questionable motives in terms of the representations that they have made.

Misrepresentation Act 1967, section 5 states that the Act shall not apply to misrepresentation in sales contracts which were created before the Act had been passed.

Misrepresentation Act 1967, section 6 states that the Act does not apply to the jurisdictions of Scotland (subsection 3) or Northern Ireland (subsection 4).