Misrepresentation is a concept of contract law that refers to a false statement of fact, made by one party to another during the negotiation or formation of a contract, that induces the innocent party to enter into the contract in reliance on that statement. It is not a term of the contract, and therefore cannot be actioned as a breach. Where a party has entered into a contract as a result of reliance on a misrepresentation, there is relief and remedies available.
The court will evaluate misrepresentations based on an objective approach (reasonable person test). The elements of misrepresentation are:
- The misrepresentation must have been relied on when entering into the contract
- The misrepresentation must be a statement of fact
- The misrepresentation must be positive
- A statement and not silence
- Exceptions arise where there is a duty of disclosure
Misrepresentation can occur in three forms:
- Innocent misrepresentation: when a false statement is made by one party to another by genuine mistake and without the intention to deceive or mislead.
- Negligent misrepresentation: when a false statement is made by one party to another in breach of a duty of care or without reasonable grounds for believing it to be true.
- Fraudulent misrepresentation: when a false statement is made by one party to another with the intention to deceive or defraud or with recklessness as to the truth.
If a misrepresentation is made, the innocent party may have the right to rescind the contract (i.e., treat the contract as if it never existed) and/or claim damages for any loss suffered as a result of the misrepresentation.
If the misrepresentation occurred in the context of a business transaction, a plaintiff may action it under section 18 of the Competition and Consumer Act 2010 (Cth) Schedule 2. This avenue allows for higher damages.