Deceit and Fraudulent Misrepresentation in Australia

The tort of deceit and fraudulent misrepresentation in relation to commercial contract can allow the innocent party to rescind the contract and seek damages.

The elements of deceit and fraudulent misrepresentation are very similar in that there must be:

1. A false statement of fact conveyed from one party to another.
2. There must be knowledge of the falsity, or reckless indifference as to the truth or falsity of the statement.
3. The innocent party must have relied on that statement to their detriment.
4. These false statement must have caused loss and damage.

If the innocent party can prove the above to a sufficient degree, then they have some legal remedies open to them.

In this article our Sunshine Coast litigation lawyers will explain the law of deceit and fraudulent misrepresentation in more detail.

If you are the victim of deceit and/or fraudulent misrepresentation then it is vital that you get suitably qualified legal advice by profession commercial litigation solicitor.

The Tort of Deceit

A tort refers to a civil wrong or an infringement that causes harm or injury to another person or their property, causing loss or damages.

The tort of deceit arises when a person makes an intentionally false representation, knowingly or recklessly, to another person, to which that person relied, causing damage and loss.

The elements of the tort of deceit were summarised by Gummow, Kirby and Crennan JJ in Magill v Magill [2006] HCA 51 at [114] where they said:

The modern tort of deceit will be established where a plaintiff can show five elements: first, that the defendant made a false representation; secondly, that the defendant made the representation with the knowledge that it was false, or that the defendant was reckless or careless as to whether the representation was false or not; thirdly, that the defendant made the representation with the intention that it be relied upon by the plaintiff; fourthly, that the plaintiff acted in reliance on the false representation; and fifthly, that the plaintiff suffered damage which was caused by reliance on the false representation. Generally, the elements of the tort have been found to exist in cases which concern pecuniary loss flowing from a false inducement and the need to satisfy each element has always been strictly enforced, because fraud is such a serious allegation.

Magill has been followed in numerous further cases.

Elements of the Tort of Deceit

Following the case of Magill above, for a person to be successful in an action for deceit, the plaintiff must prove the following five (5) elements:

1. False Representation – The defendant must have made a false representation, which includes statements, actions, or even silence when there is a duty to speak.
2. Knowledge of Falsity – The defendant must have known that the representation was false or was reckless as to its truth.
3. Intention to Deceive – The defendant must have intended to deceive the plaintiff, knowing that the false representation could lead to the plaintiff’s reliance on it.
4. Reliance – The plaintiff must have reasonably relied on the false representation, acting upon it to their detriment.
5. Damage or Loss – The plaintiff must have suffered some form of harm or loss as a result of their reliance on the false representation.

We will explain these in more detail below.

There must be a False Representation

There must be a representation made, and that representation must be false.

A representation is typically considered to be a statement of fact, whether it is communicated orally or in writing.

However, there are certain circumstances where conduct itself can be viewed as a representation. For example:

1. The reading on the car’s odometer (indicating mileage usage).
2. Smiles, winks, head shakes, and nods.
3. Dressing in a particular way to suggest you are something other than the truth.

The statement of fact must be false. A statement can be considered false when it does not align with the actual facts or reality.

It means that the description, representation, or understanding of a particular situation or condition is inaccurate or untrue.

The dictionary defines misrepresentation as:

the act of giving false information about something or someone, often in order to get an advantage.

The dictionary defines false as:

not true but made to seem true in order to deceive people.

So, as well as making a false representation, the plaintiff must also lead evidence that defendant/s had knowledge of the falsity.

The Defendant must have Knowledge of Falsity

A misrepresentation is considered fraudulent when the person making it either does not believe it to be true or shows a reckless indifference to its truthfulness.

To establish a claim of fraud, it is necessary to prove that the individual making the statement acted dishonestly or with a disregard for whether the information provided was accurate or not.

In Derry v Peek [1889] UKHL 1, The Lords were citing Cotton L.J. in Arkwright v. Newbould 17 Ch D 320 which was adopted by Lord Blackburn in Smith v. Chadwick 9 App Cas 193 when they said:

What in my opinion is a correct statement of the law is this, that where a man makes a statement to be acted upon by others which is false, and which is known by him to be false, or is made by him recklessly, or without care whether it is true or false, that is, without any reasonable ground for believing it to be true, he is liable in an action of deceit at the suit of anyone to whom it was addressed or anyone of the class to whom it was addressed and who was materially induced by the misstatement to do an act to his prejudice.

In Queensland, Derry v Peek was discussed in BM Farage P/L as trustee for Farage Discretionary Family Trust v QBSA [2003] QCCTB 11 in relation to misrepresentations in a building and construction dispute, where Member Ms J McVeigh in said at [49]:

The starting point is the well-known case of Derry v Peek [1889] UKHL 1; (1889) 14 App Cas 337. The House of Lords ruled that fraud is proved when it is shown that a false representation has been made knowingly or without belief in its truth, or recklessly without caring whether it be true or false.

If you can find evidence or knowledge or reckless indifference, then a plaintiff must also prove that the defendant expected the plaintiff to rely on that misrepresentation.

In Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, Elliott J discussed the elements of deceit in-depth, and said at [3229] with reference to relevant authority:

… the defendant made the representation with the knowledge that the representation was false, or was “recklessly, careless” as to whether the representation was false or not. Recklessness is a state of mind established by showing an “indifference to [the] truth or falsity” of the representation. It has alternatively been expressed as the absence of genuine or honest belief in the truth of the statement as it was intended to be understood. Recklessness requires the defendant to have been aware of a risk that the statement was untrue or false and to have consciously disregarded that risk. The second element may also be established where a defendant wilfully shuts her or his eyes to what would result from further enquiry as to the truth or falsity of the statement.

There must be an Intention to Deceive

In relation to the tort of deceit, an essential element is the requirement of an intention to deceive.

This means that the person responsible for the deceitful conduct must have had a deliberate purpose to mislead or trick another party, or a class of persons to which that party belongs.

To establish the intention to deceive, the plaintiff must attempt to demonstrate that the defendant knowingly made false representations or engaged in deceptive acts with the specific aim of inducing the plaintiff (or a class of persons to which the plaintiff belongs) to rely on those representations to their detriment.

The intention to deceive goes beyond mere negligence or innocent mistake. It involves a conscious and deliberate effort to manipulate, mislead, or create a false impression.

Proving the intention to deceive can be challenging, as it requires the claimant to provide evidence or demonstrate circumstances that reasonably infer the defendant’s state of mind.

This can be accomplished through various means, such as showing a pattern of deceptive behaviour, establishing a motive for deception, or presenting direct evidence of the defendant’s knowledge and intent to mislead.

In Magill v Magill [2006] HCA 51 the Court said at [131]:

In a commercial context, it has been stated that once an intention to induce a person to rely on a false statement has been made out, motive is irrelevant. However, motive may be relevant to proof of intention.

Once proven, the plaintiff must also show that they acted in reliance on that misrepresentation.

The Plaintiff acted in Reliance on that Misrepresentation

For the next element, the plaintiff must show that have reasonably relied on the false representation, acting upon it to their detriment.

In Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, Elliott J discussed the elements of deceit that a plaintiff must prove in that case, and said at [3234] with reference to relevant authority:

… the plaintiff acted in reliance on the false representation. The representation need not be the sole cause of the plaintiff’s actions; it is sufficient that the representation played some part, even if only a minor part. This is the case even if another reason for the plaintiff’s actions was the plaintiff’s own mistake or carelessness. Further, if the representation is made to induce the other party to enter into a contract, and the other party does enter into the contract, an inference arises (which may be rebutted) that the other party was induced to do so by the representation.

These authorities show that:

1. The representation need not be the sole cause of the plaintiff’s actions.
2. It is sufficient if the representation only played a minor part.
3. It is sufficient if another reason was the plaintiff’s own mistake or carelessness.
4. There is an inference that the other party was induced to enter into a contract by the representation.

The Deceitful Representation Caused Damage or Loss

In relation to the tort of deceit in Australia, the element of damage or loss signifies that the plaintiff must have experienced actual harm or suffered a loss due to their reliance on the false representation made by the defendant.

This element establishes a causal link between the defendant’s deceitful conduct and the resulting harm suffered by the plaintiff.

In Cargill Australia Ltd v Viterra Malt Pty Ltd (No 28) [2022] VSC 13, Elliott J discussed the elements of deceit in-depth, and said at [3235] with reference to relevant authority:

… the plaintiff suffered damage, which was caused by reliance on the false representation. Generally speaking, a causal connection is established if the plaintiff would not have sustained the loss if not for the defendant’s wrongful conduct. However, satisfaction of the “but for” test is not always necessary, or sufficient, to show causation. The “but for” test results must be tempered by value judgments and policy considerations, and ultimately determined with a common-sense approach.

The authorities show that:

1. The damage was caused by reliance on the false representation.
2. A causal connection is established if the plaintiff would not have sustained the loss if not for the defendant’s false representation.
3. Satisfaction of the “but for” test is not always necessary, or sufficient.
4. The “but for” test results must be tempered by value judgments and policy considerations.
5. The dispute must be determined with a common-sense approach.

Therefore, if you can prove that (a) there was a false representation; and (b) the defendant had knowledge of falsity; and (c) had the intention to deceive the plaintiff; and (d) the plaintiff acted in reliance of that representation; (e) which caused damage or loss – then you may have a claim in deceit.

You may also have a claim for fraudulent misrepresentation.

Fraudulent Misrepresentation

Fraudulent misrepresentation refers to a deliberate false statement made with the intention of inducing someone to enter into a contract.

While it is not considered a contractual term and cannot be treated as a breach of contract, if a party enters into a contract based on reliance on a fraudulent misrepresentation, there are remedies and relief available.

The elements of misrepresentation are:

1. The statement is a positive misrepresentation of fact.
2. The statement is false.
3. The statement induced entry into the contract.

A statement by a person is considered fraudulent if it is made with knowledge of its falsehood, lack of belief in its truthfulness, or indifference towards its accuracy.

In other words, if a person knowingly makes a false statement, without genuinely believing in its truth or without concern for its veracity, it can be categorised as fraudulent misrepresentation.

The law surrounding these elements are essentially the same as above.

What is the Difference Between Deceit and Fraudulent Misrepresentation?

In Australia, fraudulent misrepresentation and the tort of deceit share similarities but also have distinct characteristics, including:

1. The elements and standard of proof.
2. The legal consequences.
3. The scope of wrongful conduct.

We will explain these in more detail below.

Elements and Standard of Proof

While both fraudulent misrepresentation and the tort of deceit require proving false representation, knowledge of falsity, intent to deceive, reliance, and resulting harm or loss, the standard of proof may differ.

The tort of deceit often requires a higher standard of proof, such as establishing the defendant’s dishonesty or fraudulent intent, to succeed in a claim.

Legal Consequences

The legal consequences and remedies available may also differ.

Under the tort of deceit, the injured party may seek damages specifically for the intentional deceitful conduct, including punitive damages to punish the wrongdoer.

In fraudulent misrepresentation, the remedies sought may depend on the specific circumstances and can include compensatory damages, rescission, or other appropriate relief.

Scope of Wrongful Conduct

Fraudulent misrepresentation is a broader term that encompasses various forms of fraudulent conduct, including deceit.

Alternatively, the tort of deceit specifically refers to the intentional act of deceiving another party, requiring proof of specific elements related to intentional deceitful conduct.

It’s important to note that while these differences exist, the specific application and interpretation of fraudulent misrepresentation and the tort of deceit may vary based on individual cases and the jurisdiction within Australia.

Matters to be Specifically Pleaded

Rule 150 of the Uniform Civil Procedure Rules 1999 (Qld) (“the UCPR”) outlines the specific matters that must be pleaded in legal proceedings, although these examples are not exhaustive.

The underlying principle is that all relevant facts that are essential to prevent any element of surprise must be included in the pleadings.

Rule 150(1)(f) of the UCPR says:

Without limiting rule 149, the following matters must be specifically pleaded … (f) fraud.

Rule 150(1)(j) of the UCPR says:

Without limiting rule 149, the following matters must be specifically pleaded … (j) misrepresentation.

Therefore, in relation to these causes of action, they must be specifically pleaded in accordance with rule 150 of the UCPR.

Deceit and Fraudulent Misrepresentation are Very Serious

The finding of fraud is a serious one such that strict evidentiary requirements must be met and must be clearly proven, albeit on the balance of probabilities.

In Briginshaw v Briginshaw (1938) 60 CLR 336, Dixon J made the often-quoted statement which has become known as the “Briginshaw Principle”, as follows:

The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal. In such matters “reasonable satisfaction” should not be produced by inexact proofs, indefinite testimony, or indirect inferences. Everyone must feel that, when, for instance, the issue is on which of two dates an admitted occurrence took place, a satisfactory conclusion may be reached on materials of a kind that would not satisfy any sound and prudent judgment if the question was whether some act had been done involving grave moral delinquency.

The Briginshaw principle essentially states that when serious allegations are made, the evidence must be of a sufficiently convincing nature to satisfy the court to a high degree of probability.

This principle ensures that the gravity of the allegations matches the strength of the evidence needed for a finding in favour of the party making the allegations.

There is also a discussion on this issue in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd [1992] HCA 66 where the High Court states that “clear or cogent or strict proof“ is necessary.

Misleading and Deceptive Conduct in Australia

Misleading and deceptive conduct refers to a legal concept that prohibits individuals or businesses from engaging in actions that are likely to mislead or deceive consumers or other parties in trade or commerce.

Section 18(1) of Schedule 2 of the Competition and Consumer Act 2010 (Cth) states:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

The word (in trade or commerce) applies to commercial activities, such as advertising, marketing, product descriptions, pricing, representations about goods or services, and any other statements or actions that may create a false impression or lead to misunderstanding.

The prohibition on misleading and deceptive conduct aims to promote fair and transparent business practices, protect consumers from false or misleading information, and maintain the integrity of the marketplace.

Remedies for breaches of this provision may include compensation for affected parties, injunctions, corrective advertising, and civil penalties.

The difference between deceit & fraudulent misrepresentation and misleading and deceptive conduct under the ACL, is the commercial element of “in trade or commerce”.

If you are the victim of deceit and/or fraudulent misrepresentation then it is vital that you get suitably qualified legal advice by profession commercial litigation solicitor.

Deceit and Fraudulent Misrepresentation FAQ

Deceit and fraudulent misrepresentation are important areas of civil law that deal with situations where false representations or intentional deception lead to harm or loss for the affected parties. Understanding these concepts is crucial for individuals, businesses, and legal professionals involved in contractual agreements, negotiations, or any circumstances where truthful information and trust are essential.

This FAQ section seeks to clarify key aspects of deceit and fraudulent misrepresentation.

Can silence amount to a misrepresentation?

Generally, silence is not a misrepresentation, subject to some exceptions. For example, if a person sells engines to a car manufacturer, the party selling the engines could well found liable for fraudulent misrepresentation, if the seller failed to disclose that the engines were not new, despite the manufacturer’s reasonable expectation that they would be – Bristow v Moffat-Virtue (Qld) Pty Ltd [1962] Qd R 377.

Can conduct be misrepresentation?

Yes, conduct can be misrepresentation – for example, the reading on the car’s odometer (indicating mileage usage), and smiles, winks, head shakes, and nods can all be misrepresentation by conduct.

What makes a misrepresentation fraudulent?

A statement by a person is considered fraudulent if it is made with knowledge of its falsehood, lack of belief in its truthfulness, or indifference towards its accuracy.  In other words, if a person knowingly makes a false statement, without genuinely believing in its truth or without concern for its veracity, it can be categorised as fraudulent misrepresentation.

What is the law of misrepresentation in Australia?

Fraudulent misrepresentation refers to a deliberate false statement made with the intention of inducing someone to enter into a contract.  While it is not considered a contractual term and cannot be treated as a breach of contract, if a party enters into a contract based on reliance on a fraudulent misrepresentation, there are remedies and relief available.

How do you prove misrepresentation?

The finding of fraud is a serious one such that strict evidentiary requirements must be met and must be clearly proven, albeit on the balance of probabilities.  The Briginshaw principle essentially states that when serious allegations are made, the evidence must be of a sufficiently convincing nature to satisfy the court to a high degree of probability.  This principle ensures that the gravity of the allegations matches the strength of the evidence needed for a finding in favour of the party making the allegations.

What is misleading and deceptive conduct Australia?

Misleading and deceptive conduct refers to a legal concept that prohibits individuals or businesses from engaging in actions that are likely to mislead or deceive consumers or other parties in trade or commerce. Section 18(1) of Schedule 2 of the Competition and Consumer Act 2010 (Cth) states: A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.