Fraudulent and Negligent Misrepresentation

Misrepresentation

Fraudulent misrepresentation occurs when a party communicates a fact to another party, with the intent that the statement will be relied upon, knowing that the fact is false. If the party that receives the false statement relies on the statement and suffers a loss, they can hold the communicator liable for fraudulent misrepresentation.

There are several things to note here. Firstly, there must be at least two parties to the “representation”, the communicator (Defendant) and the intended recipient of the communication (Plaintiff). People that eavesdrop, overhear things, or surreptitiously receive communications cannot consider themselves to be the recipient of a “representation”.

Secondly, the “representation” can involve statements about the representor’s intentions, statements which are promises, statements of a third parties’ intentions, or other statements as to the future. Notably, puffing and exaggerating does not amount to a “representation”.

Thirdly, a “representation” can be implied or inferred from words. Courts will consider what a reasonable person would understand was being conveyed by the words and conduct in question.

Fourthly, the “representation” must be substantially false and material in nature – that is, the parts of the statement that were intended to have an effect on the listener, and did have an effect on the listener, were not true.

Lastly, the Defendant must have made the statement knowing it is false, not believing it to be true, or recklessly not caring if it is truthful or not.

If successful in an action for misrepresentation, the court will award damages to compensate for losses the Plaintiff suffered because of the representation. If the Defendant’s actions were malicious or exceptionally outrageous, the court may also award additional punitive damages to the Plaintiff.

Fraudulent misrepresentation can be used as a response in breach of contract actions. If a fraudulent misrepresentation is made during contractual negotiations, and the recipient then defaults on their obligations, they may be excused if they can show that the false representation induced them into entering the contract.

A lesser degree of misrepresentation is negligent misrepresentation. In the case of The Queen v. Cognos, the Supreme Court of Canada established the following test to establish a claim for negligent misrepresentation:

(i) a duty of care existed based on a special relationship between the parties;

(ii) the representation was untrue, inaccurate or misleading;

(iii) the defendant acted negligently in making the misrepresentation;

(iv) the plaintiff relied, in a reasonable manner, on the negligent misrepresentation; and

(v) reliance was detrimental to the plaintiff in the sense that damages resulted.

Our firm is routinely involved in commercial litigation files where parties are in court because someone has either carelessly or intentionally made material misrepresentations. Courts provide relief in such cases not only to provide justice, but also because commerce cannot function if misrepresentations are unchecked. The marketplace relies on a degree of truthfulness amongst participants.

If you have an issue involving fraudulent or negligent misrepresentation, our team at NuriLaw would be happy to help. Call us now to set up a consultation at (416) 323-5092. We look forward to hearing from you.