Misrepresentation: How the Law Shifted After 1967

Before examining the changes brought by the Misrepresentation Act 1967 (MA 1967), it is necessary to understand how misrepresentation operated at common law.

A misrepresentation is a false statement of fact or law that induces a party to enter into a contract.

Under the common law, misrepresentation was divided into three categories: fraudulent, negligent and innocent misrepresentation. Each category carried different evidential burdens and different remedies.

Fraudulent Misrepresentation

Fraudulent misrepresentation required the representee to prove fraud, as defined in Derry v Peek.

Lord Herschell stated that fraud could be established in two ways: by showing that the representor knowingly made a false statement without believing it to be true, or by showing that the representor was reckless as to its truth. Proving a fraudulent state of mind was notoriously difficult, as courts required a high degree of probability before finding fraud.

If fraud was established, the representee could seek rescission and damages.

The development of damages in deceit is illustrated by East v Maurer. Earlier cases such as Doyle v Olby and Toteff v Antonas had not considered whether loss of profit was recoverable.

In East v Maurer, Beldam LJ confirmed that loss of profit could fall within Lord Atkin’s definition of damages in deceit in Clark v Urquhart: actual damage directly flowing from the fraudulent inducement. The claimant’s loss was the profit he would have earned from running a similar business elsewhere. This broadened the quantification of damages beyond the traditional reliance measure.

Because fraudulent misrepresentation allowed generous damages, including loss of profit, claimants often attempted to frame their claims as fraudulent where possible.

Negligent Misrepresentation

If fraud could not be proved, a claimant could bring an action for negligent misrepresentation under the principles in Hedley Byrne v Heller.

This required a special relationship giving rise to a duty of care, a breach of that duty, and loss suffered as a result. Remedies included rescission and damages, but damages were limited to reliance losses such as wasted expenditure.

Negligent misrepresentation was the claimant’s second choice, but establishing a duty of care was difficult, as such relationships existed only in limited circumstances.

Innocent Misrepresentation

Innocent misrepresentation occurred where the representor honestly believed the statement to be true. Although the representor was neither fraudulent nor negligent, the misstatement still constituted a civil wrong. Remedies were limited: rescission or damages instead of rescission. Because compensation was minimal, innocent misrepresentation was the claimant’s last resort.

Problems with the Common Law

Claimants faced several obstacles under the common law:

• The burden of proof rested entirely on the representee.
• Proving fraud or negligence was often extremely difficult.
• Evidence could be lost or destroyed, making proof harder.
• Rescission was an equitable remedy subject to bars such as affirmation, lapse of time, impossibility and third‑party rights.
• Courts retained discretion over rescission, making outcomes uncertain.

These difficulties meant that many valid claims failed simply because the claimant could not discharge the evidential burden.

The MA 1967

To address these problems, Parliament enacted the MA 1967. Two sections—s.2(1) and s.2(2)—significantly reshaped the law.

Section 2(1): Reversal of the Burden of Proof

Section 2(1) provides that where a party enters a contract after a misrepresentation and suffers loss, the representor is liable for damages as though the misrepresentation were fraudulent, unless he can prove that he had reasonable grounds to believe the statement was true.

This reverses the burden of proof. Instead of the claimant having to prove fault, the representor must prove reasonable belief. This directly addresses the main weakness of the common law: the claimant’s inability to prove fraud or negligence.

Damages under s.2(1) are assessed on the same basis as fraudulent misrepresentation, including loss of profit as recognised in East v Maurer. Rescission remains available, subject to the usual bars.

Section 2(2): Damages in Lieu of Rescission

Section 2(2) applies only where the representor successfully proves reasonable grounds for belief under s.2(1). It allows the court to award damages in lieu of rescission. These damages are based on reliance loss.

There is judicial disagreement about whether damages under s.2(2) depend on rescission being available:

• In Thomas Witter v TBP Industries, damages were awarded even though rescission was no longer possible.
• In Government of Zanzibar v British Aerospace, damages were refused because rescission had been lost.

The correct interpretation remains debated, but s.2(2) clearly expands the court’s remedial flexibility.

Conclusion

The MA 1967 fundamentally changed the landscape of misrepresentation.

By reversing the burden of proof under s.2(1) and expanding remedies under s.2(2), the Act removed many of the barriers that had prevented claimants from succeeding under the common law.

As a result, claimants now favour statutory misrepresentation over common‑law misrepresentation, as the Act provides a more accessible and more generous route to compensation.