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Chapter III
Consumers Protection: Misrepresentation
- 3.0 Introduction Content of this Chapter
- 3.1 Definition
- 3.2 Elements
- 3.2.1 Statement of Fact
- 3.2.1.1 Form of Statement
- 3.2.1.2 Of Fact
- 3.2.2 False
- 3.2.3 Addressed to the Representee
- 3.2.4 Inducement
- 3.3 Types of Misrepresentation
- 3.3.1 Fraudulent Misrepresentation
- 3.3.2 Common Law Negligent Misrepresentation
- 3.3.3 Statutory Negligent Misrepresentation
- 3.3.4 Innocent Misrepresentation
- 3.4 Remedy: Rescission
- 3.4.1 Nature
- 3.4.2 Statutory Interference
- 3.4.3 Barred to rescind
- 3.5 Remedy: Damages
- 3.5.1 Fraudulent Misrepresentation - Misrepresentation 3.5.2 Common Law and Statutory Negligent
- 3.5.3 Innocent Misrepresentation
- 3.5.4 Double damages
- 3.6 Exclusion of Liability
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
Misrepresentation can be two-parties’ situation or third-parties’ situation (see 5.4 below)
Nottingham Brick & Tile Co v Butler (1889) 16 QBD 778 : Without reading the documents, the seller’s solicitor replied to the buyer that there was not restrictive covenant on the land that he was aware of (2) Change of circumstances With v O’Flanagan [1936] Ch 575 (CA): The seller failed to inform the buyer of the reduced value for a medical practice when he, a doctor, became seriously ill during the course of negotiation (3) Contracts uberrimae fidei (one that imposes a duty on one party to disclose all material facts to the other party) Contract of insurance ( St. Paul Fire and Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd [1995] 2 Lloyd’s Rep 116 (CA)) Family settlement (4) There is fiduciary relationship between parties By agent So long as the agent acted within his principal’s express or ostensible authority, the principal shall be liable for any misrepresentation made by the agent ( Pepsi-Cola International Ltd v Charles Lee [1973-1976] HKC 82) Estate agents in HK are not necessarily the vendor’s agents for they act as brokers rather than under agency ( Cheng Kwok Fai v Mok Yiu Wah Peter [1990] 2 HKLR 440 (HC)) 3.2.1.2 Of Fact Statement must be a statement of fact, not opinion or intention Can be a mistake of law ( Kleinwort Benson v Lincoln CC [1999] 2 AC 349 (HL)) Statement of opinion A statement of a belief based on view incapable of actual proof
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.)
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))
Statement is not fraudulent if: the representor genuinely believes its truth ( Derry v Peek (1889) 14 App Cas 337 (HL)); or the statement is merely of negligence or even gross negligence ( Angus v Clifford [1891] 2 Ch 449 (CA)) No defence of contributory negligence but the rules of mitigation of loss are still applicable ( Standard Chartered Bank v Pakistan National Shipping Corporation [2001] QB 167) 3.3.2 Common Law Negligent Misrepresentation Negligent misstatement is a tort of negligence ( Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 HL) arising from duty of care established by following elements (1) Reasonable foreseeability; (2) Special relationship between claimant and defendant; and (3) Reasonable reliance by the claimant on the defendant 3.3.3 Statutory Negligent Misrepresentation As opposed to common law, to establish statutory negligent misrepresentation under s.3(1) MO, it is unnecessary to show a “special relation” that gives rise to a duty of care. Once false statement is proven by the representee, the burden shifts to the representor to prove that he had reasonable ground to believe and did believe that the facts represented were true. ( s.3(1) MO ) 3.3.4 Innocent Misrepresentation Innocent misrepresentation exists when the misrepresentation is neither fraudulent nor negligent Where the representor can prove that he believed the facts were true or he had reasonable grounds for believing those statements
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 ).
◼ 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 )
Exclusion clause applied to misrepresentation is regulated by CECO ( s.4 MO ) and subject to the reasonableness test in s.3 and Sch. CECO ( Walker v Boyle [1982] 1 WLR 495) Walker v Boyle (1982) : Clause of “no error, misstatement or omission in any preliminary answer concerning the property…shall annul the sale” in a standard form was held an exemption clause fallen within [s.4 MO] and subject to the reasonableness test. The court also held that the mere fact that the provision is in a standard form will not make it reasonable but this particular clause was unreasonable. CECO governs exclusion or restriction of liability for misrepresentation whether or not the liability is business liability ( Sch.3 CECO ) When an “entire agreement” clause is attempting to exclude liability for misrepresentation, it is subject to s.4 MO ( Cremdean Properties Ltd v Nash (1977) 244 EG 547 (CA)) The entire agreement clause stipulated that the contract contains all terms and parties have not relied to any representations made prior to or during negotiation.
