When things are not quite as they seem – buying goods on false promises

When entering into a contract, especially in the context of buying property, goods, or services, buyers will normally make their own decision and rely heavily on the accuracy of the information provided by the seller. However, not every seller is honest, giving a false statement, or they may not know the full history of the item that they’re selling. So what happens when the information they provide does not match what they’re selling you?

Misrepresentation

Misrepresentation occurs when one party makes a false statement of fact that another party will rely on which induces them to enter a contract. Note that a false statement here does not mean a statement which is based on opinion or future intention.

Where a party does make a misleading statement, and another party enters a contract as a result of that misleading statement, the contract formed may be rescinded (unwound) under the Misrepresentation Act 1967 (‘the Act’). In addition, the injured party may claim damages. 

There are of course different ways that somebody may make a misrepresentation, and this can have an effect on how the injured party may be compensated.

There are three types of misrepresentation:

• Innocent misrepresentation – where the false statement was made on the basis of genuine belief.  
• Negligent misrepresentation – where the statement was made carelessly or without reasonable grounds for believing it was true.
• Fraudulent misrepresentation – where the statement was made knowingly without believing its truth, or recklessly (where there was a risk of the statement being untrue and the party made it anyway).

How does the Act protect the buyer?

The Act strengthens a buyer’s position in several ways:

1. The right to rescind:  if a buyer has entered a contract due to a false statement, they may well be able to rescind the contract.  This basically unwinds the deal and returns both parties to the position they were in before the contract was entered into.  This is relatively easy and useful when the goods or property purchased are not as described and easily returned.  Sometimes, however, it is not possible to return the goods or property – for example where the buyer has altered the goods or they have been incorporated into a new product.  

2. Claim for damages: an injured party may be able to claim damages for negligent or fraudulent misrepresentation, unless the seller can provide evidence that they had reasonable grounds to believe the offending statement was true. The sorts of damages a buyer could claim might include investigation costs, loss of profits and difference in value if the goods cannot be returned.

In some cases, where the misrepresentation is found to be innocent, the court still has a discretion to award damages instead of ordering the contract be rescinded.  The court cannot order both recission and damages, however. 

Sellers’ attempt to limit their liability

Sometimes sellers (especially professional ones) try to limit their liability through disclaimers or exclusion clauses. However, the Act accounts for this and states that clauses are only valid if they satisfy a “reasonableness” test under the Unfair Contract Terms Act 1977. This is intended to ensure that buyers are not unfairly prevented from seeking a remedy to the situation. 

What might be considered misrepresentation?

In many instances, it may be obvious where a seller has misrepresented the goods they are selling; for example a mobile phone charger may be advertised as an official product where in fact, it is actually an imitation. 

However, there are instances where a buyer may not realise that they have a claim against a seller.  This applies typically where larger items such as cars or property are concerned, especially if it has been some time since the goods were purchased. Examples of this include;

• When buying a property, the seller stated there had been no disputes with the neighbours.  However, after the buyers have moved in, they discover that the neighbour had in fact made numerous complaints about (say) trees on the new property that are causing damage to a boundary fence or damaging their drains.  The neighbour might already have demanded that the trees be removed, but the seller never undertook any works. The neighbour then demands that the new owner remove the trees and pay for the drainage to be fixed.  This is likely to be fraudulent misrepresentation, and whilst the buyer may not want to rescind the contract (this would mean actually returning the property), they may be able to claim for the costs involved in resolving the matter. 
• Where a person buys a car, having been told by the seller that it had never been in an accident.  However, a few months later the paint on the door begins to peel and it transpires there is filler underneath, as a result of a previous accident.  Here, the seller might say that they did not own the car at the time of the accident, and it must have occurred before their ownership, but the burden of proving that is on them.  The misrepresentation in this instance could be any of innocent, negligent or fraudulent and depending on which, the buyer may have the options.  What options will depend on the evidence and circumstances.

A quick note

Generally, under the Act, a claim against a seller for misrepresentation needs to be made within 6 years of the purchase. Unfortunately, sometimes, the misrepresentation does not become evident for some time after the purchase, possibly over 6 years later.  In this event, it may still be possible to bring a claim after the 6-year point has run down because of the Limitation Act 1980. 

Conclusion

The Act is extremely useful in safeguarding buyers from the effects of misleading statements, but it can be difficult at times to understand what type of misrepresentation has been made, whether a claim can be made due to time limits and the potential remedies available to the buyer. 

If you think you may have made a purchase relying on a false statement, and wish to review the remedies available to you, get in touch as soon as possible to see how we can help you achieve the outcome you seek.  You can speak to a member of our team here.