What is misrepresentation?
By Joanna Connolly, head of consumer credit at MSB Solicitors LLP
In law, misrepresentation is an untrue statement of fact, made in the course of negotiating contracts, that induces one party to enter into the contract. The remedies available for misrepresentation depend on whether representation is found to be fraudulent, negligent, or innocent.
When consumers want to buy goods but cannot afford to pay in full, it’s normal to enter into hire purchase agreements (where consumers have options to buy the goods at the end of the agreement) or hire agreements (where consumers do not have options to buy goods at the end of the agreement). This means the goods in question are sold to either the finance company or the broker – not the consumer.
During negotiations before consumers enter into agreements, certain promises/statements may have been made to consumers which may later turn out to be false. The question consumers often ask is what can they do about it? The answer depends what type of credit agreement they entered into.
Is your agreement regulated or unregulated?
If an agreement is with an individual – the definition being a person, sole trader or partnership of two or three partners – and has been entered into after April 2008, it will be a regulated agreement (unless you are rich and classed as a 'high-net-worth' individual. Pre April 2008, limits on regulated agreements were for credit of less than £25,000.
If agreements are regulated, Section 56 of the Consumer Credit Act 1974 will apply. This means a supplier makes a representation of fact, which you believe, and on the basis of which you decide to enter into an agreement, the finance company will be assumed to have made the same promises.
This means consumers have a potential claim to rescind the contract (essentially cancelling it) for misrepresentation. The consumer will need to prove there was a statement of fact, which he/she relied on which induced him/her to enter into the agreement. If the consumer has lost the right to rescind damages for misrepresentation, it can be claimed from the finance company.
It’s important that consumers check whether retailers are selling goods to the finance company or to the broker. If the goods are sold to the broker, consumers will have no claim against the finance company. Consumers may however still be able to claim against the retailer instead under what is known as a collateral contract.
The general principle is that retailers who sell goods to the finance company under an unregulated agreement are not the finance company's agent unless there are exceptional circumstances which apply.
If a false statement of fact (misrepresentation) has been made by the supplier to the consumer then although the consumer cannot claim against the finance company he/she may have a claim against the retailer for damages under a collateral contract. For the consumers claim to succeed the consumer must be able to show there are some "exceptional circumstances" which, by their very nature, are uncommon.
It is therefore important for consumers to be aware who they are dealing with when entering into agreements. It is common when purchasing goods such as a car for consumers to be dealing with at least two independent companies. However, the good news for consumers is that if the agreement is regulated then consumers will have additional protection. If the agreement is unregulated then it is likely that consumers are left with little (if any) claim against the finance company if the statements of facts turn out to be wrong.
The views expressed in these articles are the views of the author only. No liability attaches to you for any advice given in the absence of a written retainer. If any issues affect you, you must instruct a solicitor and take appropriate legal advice.
Joanna Connolly is head of consumer credit at well-established Liverpool law firm MSB Solicitors LLP.
She has a particular interest in consumer credit and the enforceability of consumer credit agreements.
In addition to debt and insolvency expertise, MSB represents clients across Britain and internationally.
To contact Joanna Connolly directly e-mail firstname.lastname@example.org or call MSB Solicitors on 0151 254 2200