## Introduction

Innocent misrepresentation arises where a false statement of fact induces a party to contract, but the maker honestly believes it to be true and has reasonable grounds for that belief. It sits alongside fraudulent and negligent misrepresentation, differing mainly in fault and remedy. The core remedy is rescission, which unwinds the contract. Courts may also award an indemnity for obligations assumed under the contract, and in some cases grant damages instead of rescission under section 2(2) of the Misrepresentation Act 1967.

This guide sets out the elements you must prove, how it differs from other forms of misrepresentation, the main remedies and their limits, and the leading cases and statutory provisions, including sections 1, 2(2) and 3 of the Misrepresentation Act 1967.

## What You’ll Learn

- What counts as a false statement of fact and how it differs from opinion or sales talk
- The requirements of inducement and reliance, and why there is generally no duty to verify
- How innocent misrepresentation differs from negligent and fraudulent misrepresentation
- Rescission, indemnity, and damages in lieu under the Misrepresentation Act 1967 s2(2)
- Bars to rescission: lapse of time, affirmation, third-party rights, and impossibility
- The effect of the Misrepresentation Act 1967 ss1, 2(2), and 3 on remedies and exclusion clauses
- Key cases, including Bisset, Smith v Land & House, Redgrave, Leaf, Long v Lloyd, Caldwell, Whittington, Thomas Witter, Howard Marine, and Royscot

## Core Concepts

### What counts as a false statement of fact?

A misrepresentation must be a false statement of existing fact (or sometimes law), not a mere opinion or intention.

- Opinion vs fact:
  - In Bisset v Wilkinson [1927], a statement about a farm’s sheep capacity was held to be opinion because both parties knew the seller had no experience of sheep farming on that land.
  - In Smith v Land & House Property Corp (1884), calling a tenant “most desirable” was treated as a factual statement because the seller was in a position to know the tenant’s payment history.

- Statements of intention:
  - A sincere statement of future intention is not actionable unless the speaker never held that intention when speaking.

- Honest belief:
  - Innocent misrepresentation requires an honest belief, with reasonable grounds, that the statement was true. This sets it apart from the fault element described in Derry v Peek (1889) for fraud (knowing falsity, no belief in truth, or reckless disregard).

### Inducement and reliance

The false statement must have induced the representee to contract.

- Reliance threshold:
  - In Redgrave v Hurd (1881), it was enough that the claimant relied on the statement; there was no duty to check its truth unless it is clear they did not rely on it.
  - The representor may rebut reliance if the representee knew the statement was false or did not in fact rely on it.

- Contract clauses and reliance:
  - Section 3 of the Misrepresentation Act 1967 regulates terms that seek to exclude or restrict liability or remedies for misrepresentation, including “non-reliance” or entire agreement clauses. Such terms cannot exclude fraud and must satisfy the statutory test of reasonableness. Courts read them strictly.

### Innocent vs negligent vs fraudulent misrepresentation

- Innocent: false statement made honestly with reasonable grounds for belief in its truth. Remedy focuses on rescission, with possible indemnity and, in the court’s discretion, damages in lieu under s2(2) MA 1967.
- Negligent (at common law and under s2(1) MA 1967): the representor cannot show reasonable grounds for belief in truth. In Howard Marine v Ogden [1978], the defendants failed to prove reasonable grounds. Under s2(1), damages are assessed on the wider deceit measure (Royscot Trust v Rogerson [1991]).
- Fraudulent: knowingly false, without belief in truth, or reckless (Derry v Peek). Damages follow the tort of deceit—more generous than for negligence and contract.

### Remedies and limits

- Rescission: sets the contract aside and aims to restore the parties to their pre-contract positions. Available for innocent misrepresentation (Redgrave v Hurd).
- Indemnity: reimburses obligations necessarily incurred under the contract (e.g., rent and required repairs) but not general losses. See Whittington v Seale-Hayne (1900).
- Damages in lieu (s2(2) MA 1967): for non-fraudulent misrepresentation, the court may refuse rescission and award damages instead. This is discretionary and depends on factors such as the nature of the misrepresentation and the losses caused by rescission. Some authorities have debated whether a current right to rescind must exist; modern cases tend to require an existing right for s2(2) to apply.
- Bars to rescission:
  - Lapse of time (Leaf v International Galleries [1950])
  - Affirmation after awareness (Long v Lloyd [1958])
  - Third-party rights (Car & Universal Finance Ltd v Caldwell [1965] shows the need for prompt, effective steps to communicate rescission)
  - Impossibility of substantial restoration (may defeat rescission)

## Key Examples or Case Studies

- Bisset v Wilkinson [1927]
  - Context: Seller’s estimate of sheep capacity.
  - Point: Opinion, not fact, where both sides know the seller lacks relevant experience.
  - Practice: Test whether the speaker was in a position to know the facts.

- Smith v Land & House Property Corp (1884)
  - Context: “Most desirable tenant.”
  - Point: Can be a factual assertion when the representor has superior knowledge.
  - Practice: A trader’s comforting phrase may be treated as a statement of fact.

- Redgrave v Hurd (1881)
  - Context: Reliance without verification.
  - Point: No general duty to check accuracy; reliance is sufficient unless clearly disproved.
  - Practice: Claimants should evidence reliance; defendants should gather proof of non-reliance.

- Leaf v International Galleries [1950]
  - Context: Painting misattributed; five-year delay.
  - Point: Lapse of time can bar rescission.
  - Practice: Act promptly once the misrepresentation is discovered.

- Long v Lloyd [1958]
  - Context: Lorry defects; continued use after discovery.
  - Point: Affirmation defeats rescission.
  - Practice: Stop using goods and notify rescission without delay.

- Car & Universal Finance Ltd v Caldwell [1965]
  - Context: Rescission where a rogue resold a car.
  - Point: Taking decisive steps (e.g., notifying police/authorities) may be enough to rescind before third-party rights intervene.
  - Practice: Communicate rescission quickly and clearly.

- Whittington v Seale-Hayne (1900)
  - Context: Lease of unhealthy premises.
  - Point: Indemnity covers obligations under the contract (rent, repairs), not consequential losses.
  - Practice: Keep a clean record of obligatory expenditures.

- Thomas Witter Ltd v TBP Industries Ltd [1996]
  - Context: s2(2) damages in lieu and exclusion clauses.
  - Point: Discussion of when s2(2) is available and strict treatment of clauses limiting liability.
  - Practice: Draft and assess entire agreement/non-reliance terms with s3 reasonableness in mind.

- Howard Marine v Ogden [1978]
  - Context: Incorrect barge capacity.
  - Point: Burden under s2(1) is demanding; defendants must show reasonable grounds.
  - Practice: Keep due diligence records to prove reasonable belief.

- Royscot Trust v Rogerson [1991]
  - Context: Damages measure under s2(1).
  - Point: Fraud measure applied by statute to negligent misrepresentation.
  - Practice: Damages can be broader than in contract—consider pleading routes carefully.

## Practical Applications

- Building the claim
  - Plead misrepresentation with particulars: the statement, when and by whom, why false, and reliance.
  - Consider alternative causes of action: negligent misstatement (Hedley Byrne v Heller [1964]) and breach of contract if the statement is a term (Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965]).
  - Seek rescission promptly; send clear written notice and offer to restore benefits received.

- Choosing remedies
  - If rescission is still practical, request it and, where appropriate, an indemnity for obligations under the contract.
  - If rescission would be disproportionate or impractical, invite the court to consider damages in lieu under s2(2) MA 1967 (for non-fraudulent misrepresentation).
  - Assess whether negligent misrepresentation under s2(1) (or at common law) offers a better damages outcome; be mindful of the burden to show the representor lacked reasonable grounds (Howard Marine).

- Anticipating defences and bars
  - Time: do not delay once you discover the misrepresentation (Leaf).
  - Conduct: avoid acts amounting to affirmation (Long v Lloyd).
  - Third parties: act decisively to prevent new rights arising (Caldwell).
  - Restoration: consider whether the subject matter can substantially be returned.

- Contract drafting and due diligence
  - Record key pre-contract statements in writing and mark what is a warranty versus a representation.
  - If using entire agreement or non-reliance clauses, ensure they cannot be read as excluding fraud and that they meet the reasonableness test under s3 MA 1967. Courts construe these clauses strictly.
  - Keep documentary evidence to show reasonable grounds for belief in statements made (important for rebutting s2(1) liability).

- Practical steps to rescind
  - Notify the other party clearly and promptly.
  - Offer to return what was received (or account for benefits).
  - Stop using or dealing with the goods or assets.
  - If the other side is unreachable or uncooperative, consider steps that amount to clear communication to the world (for example, engaging insurers, financiers, or regulators where relevant).

## Summary Checklist

- False statement of fact, not mere opinion, and made honestly with reasonable grounds
- Inducement: the statement played a real part in the decision to contract (Redgrave)
- Innocent vs negligent vs fraudulent: fault level dictates remedy and damages
- Rescission is the primary remedy; act without delay and avoid affirmation
- Bars to rescission: time, affirmation, third-party rights, impossibility of restoration
- Indemnity covers necessary contractual outgoings; it is not general compensation
- Damages in lieu under s2(2) MA 1967 for non-fraudulent misrepresentation at the court’s discretion
- s3 MA 1967 controls exclusion and non-reliance clauses; fraud cannot be excluded and terms must be reasonable
- Consider alternative claims: s2(1) MA 1967, negligent misstatement (Hedley Byrne), or breach of contract if the statement is a term
- Keep thorough records to show reasonable grounds for belief (helps defeat negligence claims)

## Quick Reference

| Topic                      | Authority                                 | Key point                                                     |
| -------------------------- | ----------------------------------------- | ------------------------------------------------------------- |
| Definition of fraud        | Derry v Peek (1889)                       | Fraud = knowing falsity, no belief, or reckless disregard     |
| Opinion vs fact            | Bisset [1927]; Smith v L&H (1884)         | Position to know can turn “opinion” into fact                 |
| Reliance                   | Redgrave v Hurd (1881)                    | No general duty to verify; reliance is enough                 |
| Bars: time and affirmation | Leaf [1950]; Long v Lloyd [1958]          | Delay and post-discovery affirmation bar rescission           |
| Third-party rights         | Car & Universal Finance v Caldwell [1965] | Prompt, clear steps to rescind can protect against disposals  |
| Indemnity scope            | Whittington v Seale-Hayne (1900)          | Only necessary contractual obligations are recoverable        |
| Damages measures           | MA 1967 ss2(1), 2(2); Royscot [1991]      | s2(1) uses fraud measure; s2(2) damages in lieu of rescission |


Innocent Misrepresentation: Definition, Elements and Remedies