24th August 2015
A recent case has provided welcome clarification on the remedies available for misrepresentation. Walker Morris’ Head of Commercial Dispute Resolution, Gwendoline Davies, highlights the key practical points arising out of this important cause of action.
When parties consider doing business together, a multitude of enquiries, discussions and negotiations take place before any deal is done. Marketing campaigns and promotional offers and communications have often been undertaken and information has been displayed online prior to the contemplation of any particular enquiries or leads. As part of the entire pre-contract process, myriad representations are made, many of which could give rise to liability. To avoid inadvertently leaving yourself open to legal challenge, it is important to understand the types of statements and representations that can found the basis of a claim; what exactly is a legal misrepresentation; and what remedies flow when a misrepresentation occurs.
The law of misrepresentation is not straightforward. It comprises elements of common law, equity and statute (the Misrepresentation Act 1967, MA) and it includes characteristics of both contract law and tort. As the case of Salt v Stratstone  demonstrates, the courts will adopt a sensible and flexible approach to provide suitable recourse for the victim of a misrepresentation where that is possible. However the law is complex and does impose restrictions on the courts’ discretion. This is, therefore, an area with which all businesses should get to grips.
A misrepresentation is:
There are three different types of misrepresentation, each giving rise to different remedies for the party who has suffered loss.
Where the claim relates to negligent or innocent misrepresentation, the court has a discretion under section 2 (2) of the MA to award rescission of the contract or damages in lieu. In Salt v Stratstone the Court of Appeal considered whether the court can exercise its discretion and award damages where the innocent party has, through circumstance, lost its right to rescind.
The claimant had bought a car from the defendant in reliance on the defendant’s representation that the car was “brand new”. The claimant suffered various problems with the car and eventually issued court proceedings on the basis that it was not of merchantable quality and seeking compensation in damages. During those proceedings it became clear that the car had not, in fact, been brand new when the claimant had purchased the car. The claimant therefore amended the proceedings to claim misrepresentation and rescission.
The Court of Appeal confirmed that it was possible in this case to set aside the contract. The car was not exactly the same product now as it had been at the date of purchase (it had been registered in the interim and it had depreciated) and the claimant had had some intermittent enjoyment of the car, but neither of these facts prevented legal restitution . Similarly, it would not be fair to allow the claimant’s delay in bringing a misrepresentation claim to preclude this remedy, as the claimant had only learned of the defendant’s misrepresentation as a result of the ongoing proceedings.
Delivering the first Court of Appeal authority on the subject, Longmore LJ made very clear, however, that the court’s discretion to award damages in lieu of rescission under section 2 (2) only applies where the innocent party is entitled to rescind the contract. If the right to rescind has been lost (for example because the innocent party has, in the meantime, affirmed continuation of the contract or because intervening circumstances have rendered restitution impossible), so too has the ability to recover damages in lieu.
There are a number of practical points and best-practice tips arising from this case, and from the law of misrepresentation generally, of which all businesses should be aware.
For further advice or assistance, please contact Walker Morris’ Commercial Dispute Resolution team.
 Salt v Stratstone Specialist Ltd  EWCA Civ 745
 The measure of damages in these cases will be the tortious measure – that is, to restore the claimant to its pre-misrepresentation position.
 Restitution is restoring the claimant to the position it was in before the defendant had been unjustly enriched at its expense. Here, restitution could be achieved by rescinding the contract: refunding the claimant and returning the car to the defendant.
 You may be interested in the following selection of Walker Morris Business Insights, which consider the UCTA reasonableness test and relevant exclusion/non-reliance clauses in more detail: https://www.walkermorris.co.uk/publications/disputes-matter-july-2015/unusual-decision-on-ucta-unreasonableness/; https://www.walkermorris.co.uk/publications/real-estate-matters-january-2014/do-you-get-what-you-pay-for-reasonable-non-reliance-clauses-defeat-misrepresentation-claims/