Understanding Misrepresentation in Contract Law: Definition, Elements, and Remedies, Exams of Law

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III - 1 Chapter III Consumers Protection: Misrepresentation Content of this Chapter 3.0 Introduction 2 3.1 Definition 2 3.2 Elements 3 3.2.1 Statement of Fact 3 3.2.1.1 Form of Statement 3 3.2.1.2 Of Fact 4 3.2.2 False 6 3.2.3 Addressed to the Representee 6 3.2.4 Inducement 6 3.3 Types of Misrepresentation 7 3.3.1 Fraudulent Misrepresentation 7 3.3.2 Common Law Negligent Misrepresentation 8 3.3.3 Statutory Negligent Misrepresentation 8 3.3.4 Innocent Misrepresentation 8 3.4 Remedy: Rescission 9 3.4.1 Nature 9 3.4.2 Statutory Interference 9 3.4.3 Barred to rescind 9 3.5 Remedy: Damages 11 3.5.1 Fraudulent Misrepresentation 11 3.5.2 Common Law and Statutory Negligent Misrepresentation 11 3.5.3 Innocent Misrepresentation 12 3.5.4 Double damages 12 3.6 Exclusion of Liability 12 III - 2 3.0 Introduction Misrepresentation is one of the legal grounds reliable for the victim, especially vulnerable consumers, to rescind a contract as well as to claim relief and damages for loss suffered from. The concept of misrepresentation rooted from the common law principal on contract law and later tort. It is important to understand how misrepresentation is constituted at law and each type of misrepresentations. Apart from that, the interference of legislation, i.e. Misrepresentation Ordinance (Cap.284), changed position of remedies in different types of misrepresentation. The legislation also stipulates that the exclusion of liability from misrepresentation shall be subjected to reasonableness. 3.1 Definition Misrepresentation is the false statement of fact given to induce representee to enter into the contract with the presentor An actionable misrepresentation must include: (1) a statement of fact; (2) the statement of fact is false; (3) The statement has been addressed to the representee; and (4) which induced the representee to enter into the contract There is no “but for” requirement: it is not necessary to establish that a person would not have entered the contract but for the influence or misrepresentation. It is sufficient to demonstrate the party relied on the false statement (UCB v Williams [2002] EWCA Civ 555 (CA)) Contract induced by misrepresentation is voidable and thus will continue until being set aside (Clough v L & NW Rly (1871) LR 7 Ex 26) Misrepresentation can be two-parties’ situation or third-parties’ situation (see 5.4 below) III - 5  An honest opinion which the representor was not in a better position to know the truth than the representee  Bisset v Wilkinson [1927] AC 177 (PC): D sold his land and said that it would carry 2,000 sheep. Normally, any statement made by an owner who has been occupying his own farm as to its carrying capacity would be regarded as a statement of fact, but here P was not justified in regarding anything said by D as to the carrying capacity, since both parties were aware that D had not carried on sheep-farming on the land  Advertising puffs (sales pitch), except it is backed by scientific facts  Dimmock v Hallett (1866-67) LR 2 Ch App 21 (CA): The description of a land by the auctioneer as “fertile and improvable” was held a mere flourishing description  Chan Yeuk Yu v Church Body of the Hong Kong Sheng Kung Hui (Unreported, HCCT 83 / 1999) (CFI): A page in a glossy and colourful sales brochure stated a phrase of "regal surroundings for the select few" was held no more than "mere puff" or "sales pitch"  An opinion which the presenter did not actually held (Smith v Land & House Property (1884) LR 28 ChD 7: The landlord described the tenant of the flat for selling is “desirable”, in fact the rent was hard to be collected.) Statement of intention or prediction  Statement to promise to do something in the future is a statement of intention, which has no liability, unless the statement maker has no such intention at the time of making the statement (Edgington v Fitzmaurice (1885) 29 ChD 459 (CA): The statement was made with regard to the intention of using the money for finance future expansion; the real intention was meet existing liability. Held that it was a statement of fact.) III - 6 3.2.2 False False means inaccurate, even if it was made honestly and based on reasonable grounds. Whether the statement was made fraudulently, negligently or innocently is important for the determination of remedies. 3.2.3 Addressed to the Representee The statement must have been addressed to the person being misled or to his agent (Peek v Gurney (1873) LR 6 HL 377 (HL)) The requirement would be satisfied if the statement is intended or known to be passed on the class of persons whom the representee falls within (Andrews v Mockford [1896] 1 QB 372 (CA)) 3.2.4 Inducement The statement must have materially induced the contract to be entered into (Edgington v Fitzmaurice (1885) 28 ChD 459 (CA))  No inducement if the misrepresentation occurs after the contract is concluded (Tin Shui Wai Development Ltd v Polykin Ltd (Unreported, HCA 561/2004))  A claimant who relies partly on a misrepresentative statement will still have remedies (Edgington v Fitzmaurice (1885) 28 ChD 459 (CA))  False statement inducing representee to preserve pervious decision is a reliance (County Natwest Bank v Barton (1999) The Times 29 July (CA))  The representee need not prove that a reasonable man would rely on the misrepresentation - when the misrepresentation was material, it raises a presumption of it being relied upon. (Museprime Properties v Adhill Properties (1991) 61 P & CR 111 (CA): The statement was that the rent review of the properties was outstanding and still open for negotiation. In fact the new rents had already been agreed.) III - 7 Exceptions  The representee was unaware of the misrepresentation  Re Northumberland & Durham District Banking Co., ex parte Bigge (1858) 28 Ch 50: A false report of the company’s financial status was published but the claimant had not read the report when the contract was entered  Horsfall v Thomas (1862) 1 H&C 90: P purchased a gun with a concealed defect. Upon the enquiry made by P, D later wrote to the defendant stating that the gun was free from imperfection. The gun was faulty, but the misrepresentation did not induce him to enter the contract as he was unaware of it when the contracted entered.  The representee relied on his or his agent’s own information or judgment  Attwood v Small (1838) 6 Cl & F 232 (HL): Independent experts were hired to investigate the target mine and the purchaser relied on them instead of the vendor’s exaggerative statement. The representee knew that the statement was false (Begbie v Phosphate Sewage Co (1875) LR 10 QB 491 (CA)) A representee who had been given a chance to verify the truthfulness of the statement has no defence (Redgrave v Hurd (1881) 20 ChD 1 (CA)) 3.3 Types of Misrepresentation 3.3.1 Fraudulent Misrepresentation Fraud is proved when it can be shown that a false representation has been made, (1) knowingly, or (2) without believing its truth, or (3) recklessly, careless whether it is true or false. (Derry v Peek (1889) 14 App Cas 337 (HL))  Motive is irrelevant thus dishonesty or intention of deceive or causing loss is not required (Bradford Third Equitable Benefit Building Society v Borders [1941] 2 All ER 205 (HL)) III - 10 2 HK 86 (CA): There was a 5-year gap between the contract of sale and discovery of the truth; Even P sought rescission promptly after he discovered the innocent misrepresentation, it was not within a reasonable time. Claim dismissed.) ◼ Third-party rights  A third party has in good faith and for value acquired the rights in the subjected property (White v Garden (1851) 10 CB 919: Title of the subjected goods had been passed to D before P attempted to rescind.) ◼ Restitutio in integrum impossible  Impossible to place the representee into his pre- contract position (Clarke v Dickson (1858) EB & E 148)  Vigers v Pike (1842) 8 CI&F 562: After considerable extraction of minerals since the date of the contract, the lease of a mine which was induced by misrepresentation could not be rescinded  Where substantial restitution in integrum is still possible, rescission will not be barred  Spence v Crawford [1939] 3 All ER 271 (HL): The value of share sold due to misrepresentation had reduced but P was still allowed to claim rescission  Armstrong v Jackson [1917] 2 KB 822: D was a broker who was purported to buy shares for P, his client, but he sold his own shares to P. The shares had fallen in value, ending up almost worthless. Held that the deterioration in value or condition of property shall not be a bar in this case. P could rescind the share. It is not possible to rescind only the offending part but continue with the rest of the contract (TSB Bank plc v Camfield [1995] 1 WLR 430). III - 11 ◼ Awarding damage in lieu of rescission  Damages in lieu of rescission may be awarded instead when it is appropriate (s.3(2) MO).  The award of it is entirely at the court’s discretion  It never applies to fraudulent misrepresentation 3.5 Remedy: Damages 3.5.1 Fraudulent Misrepresentation The representee should be put back to the position where the misrepresentation had not induced him to make contract (Polaroid Far East v Bel Trade Co Ltd (Unreported, CACV 50 / 1989))  Include all losses flowing directly from the misrepresentation, regardless of whether the losses were reasonably foreseeable (Kinch v Rosling [2009] EWHC 286 (QB))  Irrespective of whether such damage was foreseeable (Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 (CA) approved in Smith & New Court Securities v Scrimgeour Vickers [1997] AC 254 (HL))  Hypothetical profits are recoverable (East v Maurer [1991] 1 WLR 461 (CA))  It was enough for P to show that he would have entered into a more profitable arrangement but for the fraudulent misrepresentation (Clef Aquitaine v Laporte Materials (Barrow) Ltd [2000] 2 All ER 493 (CA)) 3.5.2 Common Law and Statutory Negligent Misrepresentation The measure of damages recoverable under s.3(1) MO is the same as fraudulent misrepresentation (Pepsi-Cola International Ltd v Lee Charles [1973-1976] HKC 82) As a defence the representor can demonstrate that he believed that it was true and did so reasonably (s.3(1) MO) III - 12  Long Year Development Ltd v Tse Fuk Man Norman (Ho Shiu Kwan Tony & Anor, Third Parties) [1991] 2 HKC 393: D believed that the carpark being sold was a covered one, but she was failed for not having reasonable grounds for that belief. Her belief was based on the observation of her tenant parking his car at the covered space on a single occasion; and the truth could be found from the title deeds  Musharaf Din v American Airlines [1989] 1 HKC 341: Representations made by a travel agent regarding the visa of foreign country may have a defence if he was simply repeating the information as provided for by an airline. Defence of contributory negligence is available (Gran Gelato Ltd v Richcliff (Group) Ltd [1992] Ch 560 (CH)) 3.5.3 Innocent Misrepresentation Damages is recoverable under s.3(2) MO but not as of right and may be altered by indemnity of expenses damages 3.5.4 Double damages S.3(3) MO prevents the award of double damages. 3.6 Exclusion of Liability The courts will not allow a person to exclude liability of his own fraudulent misrepresentation (S Pearson & Son Ltd v Dublin Corp [1907] AC 351 (HL))  As a matter of public policy, a party cannot exclude liability for his own fraudulent misrepresentation (HIH Casualty & General Insurance Ltd v Chase Manhattan Bank [2003] UKHL 6) III - 15 III - 16