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Fraudulent misrepresentation - Edwards v Ashik (2014)

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Posted by Matthew Goodwin on 01 October 2014

Matthew Goodwin Associate-Solicitor-Advocate

In general, where a claimant argues that a defendant has made a misrepresentation, it is for the claimant to show that the misrepresentation induced the claimant to enter into the contract.

However, in circumstances where the court finds a misrepresentation was made fraudulently (i.e. deliberately to mislead), a presumption is made that the claimant was induced to enter into the contract as a result. The burden passes to the defendant to show that the representation did not cause the claimant to enter into the contract.

The Court of Appeal recently considered this issue in Edwards –v- Ashik.

Background

Mr Edwards purchased a nightclub owned by Mr Ashik. In answer to pre-contractual enquiries, Mr Ashik failed to confirm that there had been a complaint about the club and that recommendations made by the Local Authority had not been implemented. 

The judge found that Mr Ashik had deliberately and dishonestly not informed Mr Edwards of the true position as he wanted to sell the club. Mr Edwards was the only person who had made an offer.

Mr Edwards contended that he would not have proceeded with the purchase if the true position had been identified. As the misrepresentation was found to be fraudulent, it was for Mr Ashik to show that Mr Edwards would have proceeded with the purchase in any event.

Mr Edwards’ Evidence

Mr Edwards’ evidence at trial indicated that he was an unsophisticated purchaser. His evidence was that he had no recollection of seeing the responses to the pre-contract enquiries but that his solicitor had told him everything was okay. During cross-examination, his answers suggested that he did not care what responses had been received. When asked whether the answers his solicitor may have received concerned him, his response was “Err, no”.

Accordingly, Mr Ashik argued that Mr Edwards had not been induced to enter into the contract by the misrepresentations. If Mr Edwards had not been induced, then he was not entitled to reverse the contract.

Decision

The judge initially found that Mr Edwards had not been induced into the contract. Mr Edwards appealed the decision.

On appeal, the Court of Appeal decided that Mr Edwards had been induced to enter into the contract. Even though his answers indicated that he had not considered the specific responses, his position was that his solicitor had informed him that it was okay to proceed. The Court of Appeal found that he did not actually have to have seen the fraudulent replies to rely upon them. It was sufficient that his solicitor had seen them and he had relied on a statement that he was okay to proceed. The presumption that he had relied upon them would only have been rebutted if his cross-examination established “an unqualified and clear admission that he did not, in fact, rely on what his solicitors told him”.

The case emphasises the, unsurprisingly, difficult barrier faced by a party who has fraudulently misrepresented the position. It is a steep barrier to overcome the presumption that the fraudulent misrepresentation has induced the other party to enter into the contract. 

Whether a misrepresentation has been made fraudulently, negligently or innocently, there are potential options available to the party who has relied upon the representation to enter into a contract. If you discover that statements made to you before entering into a contract are untrue, then you may be entitled to rescind the contract or seek damages as a result. 

About the author

Matthew Goodwin

Associate-Solicitor-Advocate

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

Matthew Goodwin

As an associate within the tax and financial services litigation team, Matthew regularly acts for corporates and individuals, dealing with a variety of disputes.

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