Fraudulent misrepresentation occurs where a person deliberately deceives or tricks another to conclude a contract. It is fraudulent misrepresentation if the representation is made knowingly, without belief in its truth or recklessly (fraudulent diligence in ignorance) (see Derry v Peek (1889) 14 App Cas 337). In Boudtich v Peel and Magill, 1921 AD, 561 (a case cited in Makhiwa v Min of Education & Ors HB5/2013 and originating from High Court of Southern Rhodesia) it was held that a person who has been induced to contract by material and fraudulent misrepresentation of the other part may either stand by the contract or claim rescission. Thus in Posts and Telecommunications Corporation v Mhaka HH 127/2003 the court granted rescission of an employment contract which had been entered into as a result of fraudulent misrepresentation. Rescission or standing by the contract are contractual remedies.
Whether one chooses to stand by the contract or rescind it, he may in addition be entitled to recover damages for any patrimonial loss caused. Although fraudulent misrepresentation occurs in contract, the damages are claimed under the law of delict (corresponding to the English tort) and not in contract. The difference between the contractual and delictual measure of damages was clearly outlined in the case of Trotman v Edwick 1951 (1) SA 443 as follows;
“A litigant who sues on contract sues to have his bargain or its equivalent in money or in money and kind. The litigant who sues on (sic) delict sues to recover the loss which he has sustained because of the wrongful conduct of another, in other words that the amount by which his patrimony has been diminished by such conduct should be restored to him …”
The five requirements for a claim for fraudulent misrepresentation are;
- that the misrepresentation relied upon was made;
- that it was a representation as to a fact as opposed to a promise, prediction, opinion or estimate;
- that the representation was false;
- that it was material in the sense that it was such as would have influenced a reasonable man to enter into the contract in issue;
- that it was intended to induce the person to whom it was made to enter into the transaction sought to be avoided, and,
- that the representation did induce the contract.
(See Novick v Comair Holdings 1979 (2) SA 116 (W) at 149-50)
It is not a defence to a claim for damages based on fraudulent misrepresentation that the innocent party was so gullible and hence deceived too easily. It is also not a defence that the parties agreed to exclude any claims based on fraud as such agreement is against public policy and therefore unenforceable.
Fraud is an offence in terms of the Criminal Law (Codification and Reform) Act (Chapter 9:23) and therefore one can be arrested and prosecuted. The purpose of criminal law is mainly to punish the offender (for example by sending the offender to jail) and not necessarily to compensate the innocent party (although the criminal court can sometimes order restitution). For this reason, where one wishes to claim damages for financial prejudice as a result of fraudulent misrepresentation, it is best to sue in the civil court.
The contents of this article are for general information purposes only and do not constitute our legal or professional advice. We accept no responsibility for any loss or damage of whatsoever nature which may arise from reliance on any of the information published herein.
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