Misrepresentation

How BC law treats it

BC law recognizes three types. An innocent misrepresentation is a false statement made honestly and without carelessness. It can support rescission, setting the contract aside, but not damages. A negligent misrepresentation requires a special relationship giving rise to a duty of care, an untrue, inaccurate or misleading statement made negligently, reasonable reliance and resulting loss (Queen v Cognos Inc, [1993] 1 SCR 87). Fraud requires a false representation, the defendant's knowledge of its falsity or recklessness, inducement and loss (Bruno Appliance and Furniture Inc v Hryniak, 2014 SCC 8). Negligent and fraudulent misrepresentation support damages. Neither innocent nor negligent misrepresentation requires any intent to deceive. The statement must be one of fact, not mere opinion, a prediction or sales puffery, although a statement of opinion can imply facts. Silence is generally not a misrepresentation, but liability can arise from a half truth, active concealment, a failure to correct a statement that becomes untrue before closing, or a duty to disclose. Rescission can be lost by affirming the contract, by delay, or where the parties cannot be restored to their original positions. Entire agreement and non-reliance clauses in commercial contracts may limit claims, although they do not protect fraud. Statute adds protection in some settings. For consumers, the Business Practices and Consumer Protection Act, SBC 2004, c 2, ss. 4 and 5 prohibits deceptive acts or practices. The federal Competition Act, RSC 1985, c C-34 deals with false or misleading representations to the public, criminally under s. 52 and as civil reviewable conduct under s. 74.01. Claims are subject to the Limitation Act, SBC 2012, c 13.

What it means for your business

Misrepresentation claims are central to share and asset purchase disputes, commercial leases, franchise sales and investment deals. Buyers who relied on false financial statements or assurances may be able to unwind the deal or recover losses. Sellers and their representatives face personal exposure if statements were careless or dishonest. Clear representations and warranties, accurate disclosure and well drafted entire agreement and non-reliance clauses reduce the risk on both sides. Example: The seller of a Victoria café tells the buyer that monthly revenue is $60,000 when it is closer to $40,000. If the seller knew the figure was false, the buyer can claim rescission and damages for fraud, and even an honest but careless figure may support a negligent misrepresentation claim.

Risks and common mistakes

Assuming a misrepresentation claim requires proof that the other side intended to deceive. Continuing to operate the business for a long time after discovering the problem, which can bar rescission. Relying on oral assurances that contradict a signed agreement with an entire agreement clause. Treating sales talk or projections as statements of fact. Failing to correct a statement that becomes untrue before closing.