Before entering into a contract, you must give your full and informed consent. Misrepresentation happens when statements made during negotiations that are exaggerated or false induce a person into signing. This vitiates your consent and can give you legal rights to rescind a contract and claim damages. This article outlines what misrepresentation is, the three types of misrepresentation, the role of the Australian Consumer Law and what your legal options are.
How can a statement be a misrepresentation?
To prove misrepresentation, there are three elements to establish. They are as follow:
- The statement is a positive misrepresentation of fact.
- This means the statement is specific.
- The statement is not an opinion or a prediction about the future.
- A reasonable persons understands it as a fact.
- The statement is false.
- This means the statement must be objectively wrong.
- The statement induced entry into the contract.
- This means that you signed the contract while relying on that statement.
What are the three types of misrepresentation?
There are three types of misrepresentation. It is important to understand the differences between them. Each type gives to different legal options.
1. Fraudulent misrepresentation
If a statement is made with no belief in its truth or with recklessness to its truth. Therefore, this gives rise to a claim for damages in tort.
2. Negligent misrepresentation
When a misrepresentation is made in breach of a duty of care. As a result, this gives rise to claims for economic loss.
3. Innocent misrepresentation
When a statement is closer to a genuine mistake than fraud or negligence. Therefore, you cannot claim damages.
Can conduct amount to misrepresentation?
Sometimes misrepresentations do not need to be verbal statements. Nods, winks or smiles can amount to misrepresentations. This conduct is subject to the same tests as verbal statements above. However, silence does not usually constitute misrepresentation. Furthermore, if there is no special relationship between the two parties there is usually no duty to disclose material facts or information.
There may be a duty to disclose in a few circumstances. These circumstances include:
- If there is a fiduciary relationship.
- When a statement that is true at the time ends up becoming false during negotiations.
- If a true statement coupled with a concealment becomes deceptive.
Impact of the Australian Consumer Law
There are a number of protections against misrepresentation under Australian Consumer Law in the Competition and Consumer Act 2010 (Cth). These laws protect you in relation to the sale of goods and services, the sale of land, employment, advertising and the wrongful acceptance of payment. However, these laws are only available for ‘consumers’. In order to be considered a consumer you must satisfy two elements. First, your purchase of goods or services should not exceed $40,000. Second, the goods you purchase can not be acquired for ‘re-supply’ or transformation. To demonstrate this with an example, a baker will not be considered a consumer when buying flour for the baking of bread, but is for an air conditioner they purchase for their bakery.
What are my legal options?
If you are the victim of a misrepresentation there are a number of remedies available to you. The rescission of a contract is the most common remedy to this type of problem. Rescission restores the two parties in a contract to their original positions, as if the contract had never taken place. In cases of fraud or negligence, you may also be able to seek damages. However, it is important to remember that there are many other ways to get out of a contract. To better understand your legal rights as they relate to any contract you have signed, we recommend that you get in touch with a contract lawyer.
