Claims for misrepresentation: interpretation of section 2(2) of the Misrepresentation Act 1967 (“the Act”) and awards for damages in lieu of rescission

• United Kingdom

• Construction and engineering

14-08-2015

Salt v Stratstone Specialist Limited trading as Stratstone Cadillac Newcastle

The Court of Appeal has recently, in the case of Salt v Stratstone Specialist Limited trading as Stratstone Cadillac Newcastle [2015] EWCA Civ 745, considered section 2(2) of the Act and whether it has discretion to award damages for innocent or negligent misrepresentation where rescission is not available. 

Salt purchased a car from Stratstone in 2007; a verbal statement to Salt was made informing Salt that the car was “brand new”.  Numerous issues arose with the car and in March 2009 Salt issued proceedings on the basis that the car was not of merchantable quality and claimed damages.  Following disclosure of documents during this initial claim, Salt discovered that the car was not”brand new” at the time of sale. Salt amended the particulars of claim and claimed misrepresentation and rescission.

The County Court held that rescission was not available under section 2(2) of the Act for several reasons, including that restitution was impossible.  The court did however rule that damages in lieu or rescission was available. The High Court, on appeal by Salt, reversed the decision. It held that rescission was possible and ordered the contract be rescinded. This decision was upheld by the Court of Appeal.

In its judgment, the Court of Appeal considered the availability of damages in lieu of rescission pursuant to section 2(2) of the Act.  It concluded that “the words “in lieu or rescission” must… carry with them the implication that rescission is available (or was available at the time the contract was rescinded).”  If rescission is not (or was not) available in law then damages cannot be said to be awarded “in lieu of rescission” and are not, therefore, available under section 2(2) of the Act.  

In considering whether restitution was impossible, the Court of Appeal stated that neither depreciation nor intermittent enjoyment should be regarded as reasons for saying restitution is impossible. The normal remedy for misrepresentation is rescission and should be awarded if possible.  If there is a requirement for a representor to be compensated for depreciation then the onus is on that representor to assert and prove its loss.

One must, therefore, carefully consider the grounds for making a claim where misrepresentation is asserted.  A claimant should determine the nature of the misrepresentation (fraudulent, innocent or negligent) and ensure that it pursues the correct remedy.  If a right to rescind a contract is lost, damages should be sought pursuant to section 2(1) rather than section 2(2), in which case the representor must show that it had reasonable grounds to believe the representation was true.  One must also assess the right to rescind, having knowledge of the statements made in this case that depreciation and intermittent enjoyment should not be regarded as reasons for saying restitution is impossible.  This may be particularly relevant in the construction arena where issues are not always immediately apparent.