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Misrepresentation is, at its core, a misuse of communication: words used to deceive and not to inform. A misrepresentation is a false statement made by one party (the defendant) to another party (the claimant), which leads the claimant to believe something untrue. In certain circumstances, it is possible for a defendant to be liable for representations made by a third party.
Understanding Misrepresentation
There are three different types of misrepresentation:
Innocent misrepresentation
A false statement that is neither fraudulent nor negligent. An honest mistake, but one that still affects the other party’s decision-making.
Negligent misrepresentation
A representation that is made carelessly and in breach of a duty owed to take reasonable care that the representation is accurate.
Fraudulent misrepresentation
A false representation that is made knowingly, or without belief in its truth, or recklessly as to its truth (see below).
Fraudulent misrepresentation
In a claim for fraudulent misrepresentation the following elements must be made out:
- A false representation was made to the claimant.
- The defendant knew or was reckless as to whether the statement was false.
- The defendant intended that the claimant should act in reliance on it.
- The claimant acted in reliance on the representation and in consequence suffered loss.
Liability for someone else’s misrepresentation
A person may be liable as a joint tortfeasor where there is a shared intention or a common design to defraud, even if that person hasn’t said anything and the representation has been made by someone else.
In the case of Avonwick v Azitio, the court looked at issues regarding joint tortfeasor liability and agency in deceit claims. This case was a dispute between three prominent Ukrainian businessmen and their corporate vehicles, involving allegations of misrepresentation, deceit and conspiracy in a claim of over US$1billion.
The claimant alleged that the defendants were liable on a joint tortfeasor basis for a fraudulent misrepresentation made to the claimant regarding a price for the sale of shares. Although the issue was not strictly relevant on the case as it was decided, the judge noted that for a person to be liable for a fraudulent misrepresentation made by another, each of the defendants would need to be a party to “the common design”, following the case of Inter Export LLC v Townley. This means that all of the elements of the tort of deceit must be shared by each of the defendants.
The Claimant in Avonwick v Azitio also ran an alternative case that the individual who had made the misrepresentation did so as an agent of the other defendants. Picken J noted that the Court of Appeal had confirmed in Winter v Hockley Mint Ltd that a principal is liable for a misrepresentation made by its agent if it was within the agent’s actual or apparent authority to make that representation. If a misrepresentation is made by the defendant’s agent, acting within the scope of their authority, this is sufficient even if the defendant doesn’t know that the statement is being made. In this case, the judge found that the agency case was made out.
Interestingly, it is worth noting that if the misrepresentation is made in the context of negotiating a contract, it is not necessary to show that the person making the statement is the defendant’s agent for the purposes of agreeing the entire contract; it is enough to be able to demonstrate that they are an agent simply for the purpose of making the misrepresentation.
Another example of liability for a statement made by another person is where the defendant has actual or constructive notice of the misrepresentation, or alternatively where the defendant manifestly approves a representation made by a third party. This latter point was tested in the case of Ivy Technology Ltd v Martin, which involved claims of fraudulent misrepresentation against two defendants. In that case, the judge decided that the approval and agreement of the party alleged to be liable must have been manifested or communicated to the claimant.
Conclusion
Some clients may find it surprising that there are scenarios where you can be liable for someone else’s misrepresentation. However, this does emphasise the need for clear and unambiguous communications, particularly when there is an agency relationship.
Further information
If you have any questions regarding this blog, please contact Katie Allard in our Dispute Resolution team.
About the author
Katie is a Senior Associate in the Dispute Resolution Team. She has a wide-ranging commercial practice with particular interest and expertise in complex civil fraud and asset tracing investigations, boardroom and shareholder disputes, and breach of contract claims, acting for both claimants and defendants.
We welcome views and opinions about the issues raised in this blog. Should you require specific advice in relation to personal circumstances, please use the form on the contact page.
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