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Misrepresentation

Misrepresentation is a form of fraud.

Fraud is a little like the “golden thread” [of innocence until proven guilty] running through [British] justice; it means more on some occasions than on others.

In Lazarus Estates Ltd v Beasley [1956] 1QB 702 at 712-713 Denning LJ stated:

No court in this land will allow a person to keep an advantage which he has obtained by fraud. No judgment of a court, no order of a Minister, can be allowed to stand if it has been obtained by fraud. Fraud unravels everything. The court is careful not to find fraud unless it is distinctly pleaded and proved; but once it is proved, it vitiates judgments, contracts and all transactions whatsoever…”

The leading case on deceit is Derry v Peek [1889] UKHL

The promoters of a company issued a prospectus stating that they had a licence to use steam power to run a tram. They did not; they expected to get it as a mere formality. They were refused and the company failed. The shareholders sued for deceit. The action failed, because it was not proved that the directors lacked honest belief in what they had said.

What is in issue in an action claiming fraud is the state of mind of the defendant. It is rare that a plaintiff can prove the malignant state of mind of a fraudster.

Under Section 45 of the Sale of Goods and Supply of Services Act 1980 a right of action was created which ameliorated the burden on plaintiffs complaining of fraudulent behaviour or its equivalent.

In effect the burden of proof was reversed; the defendant must prove that he had a reasonable belief that what he said was true;

45.—(1) Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true.”

One Comment

  1. The phrase “that the fact represented were true” is self contradictory because if they are facts then they are, perforce, true! Perhaps a more correct statement would be as follows ” that the contention(s) [or beliefs] represented were true”