Misrepresentation & Non-Disclosure Claims

Misrepresentation and non disclosure claims are central to many high value commercial conflicts, particularly when parties allege that inaccurate statements or concealed information influenced their decision to enter into a contract. As a key topic within Commercial & Corporate Disputes, these claims affect mergers and acquisitions, investment agreements, financing arrangements, joint ventures, and commercial contracts where trust, transparency, and accurate information are fundamental. When one party relies on false, misleading, or incomplete information, the legal and financial consequences can be substantial. This article examines the legal foundations of misrepresentation and non disclosure claims, how they arise, the remedies available, and the strategies businesses can use to manage or defend against such allegations.

Understanding Misrepresentation in Commercial Agreements

Misrepresentation occurs when one party makes a false or misleading statement of fact that induces another party to enter into a contract. The essence of the claim is reliance: the injured party must have reasonably relied on the statement when making its commercial decision.

Types of Misrepresentation

Courts recognise several categories of misrepresentation, each with distinct legal consequences:

• Fraudulent misrepresentation: A false statement made knowingly, without belief in its truth, or with reckless disregard for accuracy.
• Negligent misrepresentation: A careless or inaccurate statement made without reasonable grounds for believing its truth.
• Innocent misrepresentation: A false statement made with reasonable belief in its accuracy at the time it was given.

The severity of the remedy often depends on the type of misrepresentation and the conduct of the parties involved.

Non Disclosure and Concealment

Non disclosure claims arise when a party fails to reveal material information that would have reasonably influenced the transaction. While many commercial relationships follow the principle of “buyer beware,” there are key exceptions that create affirmative duties to disclose.

When Non Disclosure Leads to Liability

Non disclosure may be actionable when:

• A party conceals defects or risks that cannot be discovered through reasonable diligence.
• There is a fiduciary, advisory, or confidential relationship requiring full transparency.
• Statutes or regulations impose disclosure obligations, such as in securities, financial services, or real estate transactions.
• Silence creates a misleading impression because partial information has been provided.

Non disclosure claims often arise in investment and joint venture disputes, where parties allege they were denied critical information during negotiations.

When one party relies on false, misleading, or incomplete information, the legal and financial consequences can be substantial.

How Misrepresentation and Non Disclosure Claims Arise

These disputes commonly appear in high value, complex transactions such as acquisitions or fundraising. Typical scenarios include:

Overstated Financial Performance

Claims where revenue, EBITDA, order pipelines, cash flow projections, or debt obligations were misrepresented.

Concealed Liabilities or Risks

Examples include undisclosed litigation, regulatory investigations, supply chain disruptions, or customer attrition.

Misleading Statements During Negotiations

Assurances regarding future performance, contractual rights, or operational readiness that later prove inaccurate.

Distorted Valuation Inputs

Manipulation or omission of information affecting valuation models, market assumptions, or asset quality.

Incomplete Regulatory or Compliance Disclosures

Especially common in sectors like finance, healthcare, technology, and energy where compliance failures carry significant consequences.

Legal Elements Required to Prove Misrepresentation

To succeed in a misrepresentation claim, the claimant must generally demonstrate:

• A false statement of fact made by the defendant.
• Materiality, meaning the statement would influence a reasonable party’s decision.
• Reliance by the claimant on the false statement.
• Resulting loss caused by the reliance.

In cases of fraudulent misrepresentation, the thresholds are higher, but the remedies are more severe.

Remedies Available for Misrepresentation and Non Disclosure

The remedies depend on the nature of the misrepresentation and may include:

Rescission of the Contract

Setting aside the contract entirely and returning parties to their pre contract positions. This is common where the entire negotiation was built on false assumptions.

Damages

Compensation for financial loss resulting from reliance on inaccurate statements, including:

• Loss of bargain damages.
• Out of pocket expenses.
• Consequential or indirect losses, depending on jurisdiction and contract terms.

Indemnification or Contractual Claims

Where contracts contain warranties or indemnities, misrepresentation may trigger specific financial remedies.

Reformation or Adjustment

Courts may modify contract terms if misstatements distorted key commercial assumptions.

Defences to Misrepresentation Claims

Defendants often rely on several strategies to dispute liability, including:

Non Reliance Clauses

Many contracts contain clauses stating that parties have not relied on pre contractual statements. While not always decisive, they can weaken misrepresentation claims.

Entire Agreement Clauses

These clauses limit reliance to written contractual terms. Courts consider them carefully, especially in cases alleging fraud.

Reasonable Due Diligence

Defendants may argue that claimants failed to conduct adequate due diligence and therefore cannot claim reliance.

Lack of Materiality

If the misstatement was minor or unrelated to the loss, courts may dismiss the claim.

Truth or Honest Belief

Demonstrating that statements were accurate or believed to be accurate at the time provides strong defence against negligent or innocent misrepresentation claims.

Managing Misrepresentation Risk in Commercial Transactions

Companies can reduce litigation exposure by implementing structured negotiation and contracting practices, including:

• Providing accurate, well documented disclosures during negotiations.
• Using detailed warranties and indemnities to define allocation of risk.
• Conducting thorough due diligence on financial, operational, and regulatory matters.
• Ensuring internal consistency in information provided to counterparties.
• Maintaining robust internal controls to prevent misstatements.

Evidence Considerations in Litigation

Misrepresentation claims rely heavily on documentation and communication. Critical evidence includes:

• Email correspondence and negotiation records.
• Financial statements, audit reports, and supporting documentation.
• Internal presentations or risk assessments.
• Draft versions of contracts and disclosure lists.
• Expert testimony regarding financial models or valuation.

Strong evidence can determine whether a claim succeeds or fails.

Conclusion

Misrepresentation and non disclosure claims are among the most impactful disputes in commercial and corporate environments, often involving significant financial exposure and reputational risk. Whether arising in M&A, investment, financing, or partnership contexts, these claims require careful legal analysis, strong documentation, and strategic negotiation. By understanding the principles that govern misrepresentation, drafting clear contractual protections, and maintaining transparent business practices, companies can minimise the risk of disputes and protect their commercial interests in complex transactions.