made to buy a car, rescission would mean that the buyer hands back the car
and the seller hands back the money paid. Damages is the award of money
as compensation for the misrepresentation, and is often the amount needed
to put right a defect, plus an amount for inconvenience. These remedies are
both explained in more detail below.
The innocent party makes a decision as to which is appropriate, and today
has a genuine choice, although that was not always the situation, as the
remedy at one time depended greatly on the type of misrepresentation which
had occurred. As it is often difficult to prove fraud, a party who has suffered
from a misrepresentation often now sues as if the misrepresentation had not
been fraudulent, just to make the process simpler. However, the choice of
action is still available in theory, as will be seen.
The distinction between those misrepresentations which are fraudulent
and those which are not is therefore less important that it once was, but it
is still significant in making a claim. Obviously the difference depends on
the state of mind of the representor (like the requirement of mens rea in
many crimes).
Fraudulent misrepresentation
The classic definition of fraudulent misrepresentation comes from the
House of Lords case, Derry v Peek (1889), in which it was said that a
fraudulent misrepresentation was a false statement made ‘knowing, without
belief in its truth, or recklessly as to whether it be true or false’. Really a
fraudulent statement could be summed up as one which the maker does not
honestly believe to be true.
The courts regard fraud seriously, and will therefore look for more than
mere negligence or carelessness, and since the proof concerns a state of
mind, fraud is very difficult to prove in most cases. In fact it was confirmed
in the case Ahmed v Addy(2004) that the standard of proof should be the
criminal standard (beyond reasonable doubt). If fraudulent misrepresentation
is proved, two remedies are available:
- The plaintiff may claim damages. Damages for fraud are based on the
tort of deceit, rather than on a strictly contractual remedy, and are
therefore calculated in a slightly different way given for breach of
contract. Whereas damages in contract aim to put the plaintiff in the
position that he would have been in if the contract had been fully
performed, the damages in tort try to restore the plaintiff to the position
in which he would have found himself if the tort (here, the fraud) had not
been practised. The plaintiff may also apply for an order to have any
property handed over to be restored to him. - The contract may be rescinded (see below). This means handing back
any property (including money) passed over during the contract, and
Misrepresentation 175