2 MISREPRESENTATION

What is misrepresentation?
Definition
A statement made during pre-contractual negotiations,which induces the party to enter the contract.

Misrepresentation vs Mistake
Mistake at common law:
 Focus: resulting unfairness which does not depend on any wrongdoing
 Consequence: contract void
Misrepresentation:
 Focus: a party’s wrongdoing which disturbs the balance in arms-length negotiation
 Consequence: contract voidable and possibly damages in tort
Representation vs Term
If the term/statement is a misrepresentation, remedies become available to the parties by breach,

 Whether a term/statement would be seen as a misrepresentation it is dependent upon whether a

reasonable person would perceive it as such.

Test: parties’ true intention deducible from such factors as ‘relative expertise’
Courts look at the more knowledgeable party in the case
 Oscar Chess v Williams (customer’s misstatement to dealer as to car’s age)
o Seller (D) was a layperson, passing information from external source
o Statement was not a term of the contract  Misrep.
 Dick Bentley v Harold Smith (dealer’s misstatement to customer as to car’s mileage)
o Seller (D) was prestigious car dealer, he ought to know more
o Representation incorporated  Breach
Remedial differences
 Misrepresentation: rescission, reliance damages (possible)
 Breach of contract: termination (possible), expectation damages (generally), specific relief
Representation incorporated as contract term: MO sec. 2
 Where a person has entered into a contract after a misrepresentation has been made to him, and—
o (a) the misrepresentation has become a term of the contract; or
o (b) the contract has been performed,
 or both, then, if otherwise he would be entitled to rescind the contract without alleging fraud, he shall be so
entitled, subject to the provisions of this Ordinance, notwithstanding the matters mentioned in paragraphs
(a) and (b).
Misrepresentation is the more realistic approach to exiting a contract, ordinance allows for recission even after
incorporation.

ELEMENTS OF ACTIONABLE MISREPRESENTATION

1. Statement of an existing fact
2. Statement must be:
o Unambiguous and false
o Addressed to the party misled
3. Inducement

I STATEMENT OF EXISTING FACT

Unless made fraudulently, an actionable misrepresentation cannot generally be a misstatement of (1) opinion or
(2) intention as to future act.
The once-maintained distinction between fact and law is, however, now obsolete (Pankhania v Hackney London
BC, EWHC 2002; Brennan v Bolt Burden, EWCA, 2004)
 Prior: misstatement of fact is actionable, while misstatement of law is not
 Now: no such distinction as the effect of the misstatement is the same

Opinion
Bisset v Wilkinson
KEY POINT: A statement of mere opinion on the subject matter of a sale is not an actionable misrepresentation,
provided that the parties understand it to not be made on any factual basis.
Facts:
 Bisset (C), the land owner, represented to Wilkinson (D), who wanted to purchase the land for sheep
farming, that if the land were properly worked they had a carrying capacity of 2000 sheep.
 Both parties knew that C had not previously carried on sheep-farming on the land.
 D bought the land but only paid the first installment and refused to pay the rest.
 When C brought an action for the money, D sought to have contract rescinded on the ground of
misrepresentation.
Held: No actionable misrepresentation
 Estimate ‘a carrying capacity of 2000 sheep’ (Opinion: lack of prior use as sheep-farm; equal knowledge)
 Lord Merrivale:
o Both parties were aware that the land had never been used as a sheep farm actual capacity of the
land had never been practically ascertained.
o In any case it was not proven that the land could not have a farming capacity of 2000 sheep.
 As both parties knew it was an opinion, this should not be reasonably relied upon.

EXCEPTION: Smith v Land House Property Corporation (1884) 28 Ch D 7

(Actual/honest opinion)
KEY POINT: Statements of opinion are statements of fact if they fall within the knowledge of the representor but
not the representee.
Facts:
 Land House Property Corporation (D) entered into a contract with Smith (C) to buy from C a hotel.
 The hotel is rented by Fleck (F) whom C advertised was ‘a most desirable tenant’ when in reality, F was 6
months behind on his rent.
 F later went bankrupt and as a result, D refused to complete the transaction.
 C sought specific performance of the contract.
Held: Specific performance denied, contract rescinded (Bowen LJ):
 Statement of opinion as statement of fact
o Where the facts are equally well known to both parties, what one of them says is often nothing but
opinion.
o But if the facts are not equally known, then a statement of opinion by the one who knows the facts
best involves often a statement of fact, for he impliedly states that he knows facts which justify his
opinion.
o Therefore, a statement of opinion can contain an actionable statement of fact.
 Current case
o What the landlord knows between himself and his tenant, others either do not know at all or not
equally well.
o While there is no guarantee that F will pay his rent, there is a guarantee that nothing has occurred in
his relations with the F that will make F to be considered unsatisfactory – that is an assertion of fact.
Esso Petrol v Mardon
KEY POINT: A forecast made with special knowledge amounts to a statement of fact that can be actionable.
Facts:
  Mardon (D) was induced to lease a petrol station by Esso (C) based on representation that the estimated
annual throughput was 200,000 gallons
 C did not revise their estimate to take account of the fact the decision of the planning authority not to allow
access to the station from the main street
 When D could not make the payments for rent, C sought possession
 D counterclaimed for breach of collateral warranty and misrepresentation under Hedley Byrne
Held: Actionable misrepresentation, damages for either negligent misrepresentation or breach of warranty (Lord
Denning MR):
 Collateral warranty
o If a person with special knowledge makes a forecast intending that the other should act on it, and he
does act upon it, it can be interpreted as a warranty that the forecast is made with reasonable care
and skill: p. 818
o C had special knowledge and skill
 They knew the traffic, throughput of comparable stations and had experience and expertise
 C were in a much better position than D to make a forecast
o In the current case, there was a warranty not the through put would be 200,000 gallons but that
reasonable care and skill is used to make the forecast
o Reliance (not expectation) damages awarded although statement also a term (warranty)
 Negligent misrepresentation
o If a man who has or professes to have special knowledge or skill makes a representation to another
with the intention of inducing him to enter into a contract with him, he is under a duty to use
reasonable care to see that representation is correct: p. 820
o Since C did in fact have special knowledge or skill in making a forecast on throughput and had made
the forecast intending to induce D to enter into a tenancy negligently, C is also liable for damages for
the tort of negligence

Lessor’s special knowledge and skill + failure of a duty of reasonable care and skill = negligent misrepresentation
 Ko Ching Fung v Fulltin Investment: P wants to open a Japanese restaurant, D (real estate administrator) said
premises are suitable and permissible under law to operate. In reality, it did not comply with the building
ordinance, unknown to D.
o Misstatement of the law; D should have taken care before making the statement (negligence also
applicable)

Intention as to future act

If the statement-maker had no real intention to do what he stated he would do, thus would amount to a
misrepresentation.
 This is because a present intention is a fact and is therefore capable of being falsely stated.

Edgington v Fitzmaurice: Company directors (D) issued a prospectus as to the future intended use of funds for
improving business, when in reality it was to repay debts.
 Held for P - misrepresentation of future intention.
o ‘The state of a man’s mind is as much a fact as anything else’ per Bowen LJ
 Purchaser of share also induced by the existence of a charge on company property, believing that his money
was secured by property money

Also, ‘sham contract’ cases: Misrepresents one’s present intention not to enforce the contract
 Chiu Wai Shing v Lau Chi Wai: Statement to sell sister-in-law’s house; intention false
 Kwai Tak Ming v KS Capital One Ltd: P entered contract with D on agreement for sale but previously
indicated other intention. Held for P (D misrepresented their intention to sell).
TL;DR Where the opinion is not actually held, the forecast is not actually believed in, or the declared future
conduct is not actually intended at the time of the representation, the representation will be a false statement of
existing fact.
 The existing fact is the true state of the representor’s mind at the time of the representation. A change of
intention may turn a representation of the intention previously held into a misrepresentation if the
change is not disclosed.

II NATURE OF STATEMENT
Must be (1) unambiguous and false; and (2) addressed to the party misled
 Silence: No general duty to disclose
 Conduct: Conduct sometimes speaks louder than words

Mere silence
Generally not actionable (even if fraudulent) and more is required:
 Contracts uberrimae fidei (‘of utmost good faith’), e.g. insurance contracts
 Changed circumstances: With v O’Flanagan
 Half-truths/partial non-disclosure

Bank of China (Hong Kong) Ltd v Fu Kit Keung:

 Solicitor’s clerk failed to explain the contents of mortgage documents  not misrepresentation
 Mere silence or inaction does not constitute a representation unless the person concerned has a duty to
disclose in law or he knowingly withholds a material part of a representation.

The common law places no obligation on negotiating parties to disclose facts material to the proposed contract.
Parties are not allowed to make a statement of fact which is false, but they are entitled to remain silent.

With v O’Flanagan (changed circumstances)

*Statement true at the time, but falsified by future events
KEY POINT: Failure to correct a prior representation which has been falsified by a subsequent change of
circumstances constitutes actionable misrepresentation.
Facts:
 Vendor (D) sells his medical practice represented to the purchaser (C) that the practice earned £2000 a year.
 However, the earning dwindled due to illness of D prior to the completion of sale.
 C sought rescission of the contract.
Held: Actionable, recission granted
 Statement as to annual income of 2000 pounds ‘substantially true’ and a ‘continuing representation’
 Principal doctor subsequently absent for illness which reduced income sharply
 Duty to disclose change prior to the conclusion of the contract
 Lord Wright MR:
o If a statement has been made that is true at the time, but during the course of negotiations becomes
untrue, then the person who knows that it is untrue is under an obligation to disclose the change of
circumstances.
o A representation made as a matter of inducement to enter into a contract is to be treated as a
continuing representation.
Half-truths
An incomplete statement of fact, i.e. it represents only a part of the truth that a reasonable person in the position
of the representee would consider relevant in deciding whether to conclude a contract.

Notts Patent v Butler (‘I don’t know of any restrictive covenant’);

 Lawyer didn’t check for the restrictive covenant  Assumption lawyer would do his due diligence

Dimmock v Hallett (‘all the farms are let’);

  Several tenants gave notice to quit but while the vendor was trying to sell the property, he claimed the
tenants were still on the property

A half-truth can constitute a misrepresentation only if it gives an objectively misleading impression that falsifies
stated facts.
 If partial non-disclosure distorts message to the other party  makes literally true misstatement
misleading
 If misstatement doesn’t distort the message  not actionable (like below)

Cf ADS v Brothers: Not false or misleading to give a partial report on secured liabilities, without mentioning
unsecured liabilities of the ship-building business put up for sale
 Must look at the context of the statement to determine whether partial nondisclosure is actionable

Misrepresentation by conduct
Conduct may be perceived to be stronger than words.
 Positive concealment (positive action to hide facts to the counterparty)
o Schneider v Heath – Ship kept afloat to prevent inspection of defective bottom
o Gordon v Selico – Covering up dry rot of a flat for sale

Walters v Morgan per Lord Campbell LC:

 “A single word, or [...] a nod or a wink, or a shake of the head, or a smile from the purchaser intended to
induce the vendor to believe the existence of a non-existing fact, which might influence the price of the
subject to be sold would be sufficient ground for a Court of Equity to refuse a decree for a specific
performance of the agreement.”

Context is critical:
 Spice Girls v AWS:
o Halliwell informed the other members of the Spice Girls of her intention to withdraw from the
group, yet the group signed an agreement with AWS on 24 March and again on 30 April, and
participated in a commercial photo shoot on 4 May in Milan, eventually concluding a contract with
AWS on 6 May 1998.
o Held (CA): Circumstantial misrepresentation
 Conduct gave impression that Halliwell intended to remain part of the group in the
foreseeable future
 Implied representation that no member had already declared intention to leave
 Bank of China (Hong Kong) v Leung Wai Man:
o Bank employee’s smile and nod in response to client’s statement as to his limited financial capacity
not a misrepresentaion that the charge on his house was limited
o Held: No misrepresentation
 Context is key, failed objective test to show that conduct was misleading (smile as a matter
of politeness and/or habit)

Objective approach (Green Park v Dorku below):

 In determining whether there has been a misrepresentation by conduct, it is not necessary to establish that
the representor intended to mislead the representee.
 It is enough that the representation by conduct was, in all circumstances, objectively misleading as to a fact
which induced the representee to conclude the contract.

Green Park v Dorku

Facts:
 P was shown a property and was given the impression that there is a yard attached to the property.
 D did not tell P the truth that the yard did not belong to the property but rather the common area.
Held: Actionable misrepresentation despite no actual statement
 Misrepresentation as to a material fact:
o Yard did not form part of the property to be sold and
o This affected the overall size and value of the property
o The size of the property was an important factor to consider when buying the property.
 Misrepresentation by conduct:
o Physical layout (Yard accessed via the shops, gave impression that yard belonged to shops)
o Tenancy plan (Yard included in shaded area)
 Objective approach: intention to induce not required

Context is critical, compare:

 Shum Kong v Chui Ting Lin:
o Estate agent showing house, garden, and garage to purchaser (property was only the house) 
misrepresentation
 Bright Gold v Mega Well:
o During three viewings of the property by the purchaser, the estate agent made misrepresentations
to the purchaser that the roof area of the property included a much larger part of the roof
immediately outside the stairwell.
o In fact, such roof area was part of the development’s common areas instead. However, the
purchaser discovered after completion that only a narrow strip of the roof area belonged to the
property. It was later revealed that the roof plan annexed to the formal agreement erroneously
included the roof area of another duplex flat as part of the property.
o Held: For purchaser
 Based on facts, estate agent (who were merely paid commission) trying to market or
promote a property cannot be generally treated as any permission to provide information
relating to a property and shall not constitute as an ‘agent’ on behalf of vendor without any
express assent.

III INDUCEMENT
Misrepresentation must have induced P to enter into the contract.

Multiple inducements
 Edgington v Fitzmaurice: Misrepresentation can be operative due to multiple inducements to conclude the
contract.
o Only need to be AN inducement, presence of other inducements not fatal to the claim
o It is enough that the misrepresentation provided the representee one of the reasons
for concluding the agreement.
 Welltech v Easy Fair Industries: Misrepresentation was not negated by the fact that P had other reasons to
buy the property.

Materiality and reasonable reliance

A misrepresentation will not be material (or operative) unless it was one of the inducements causing a reasonable
person in the position of the representee to conclude the contract.
 To rebut the presumption, the representor must prove either that:
o The representee knew the statement was false; or that
o He otherwise placed no reliance on it in concluding a contract
 If representation is material, onus on representor to prove no reliance (County NatWest v Barton)
 If representation is immaterial, onus on representee to prove reliance (Dadourian v Simms)
 Materiality irrelevant where representation fraudulent (Ross River v Cambridge City FC)
Redgrave v Hurd
KEY POINTS:
 Contributory negligence is not a bar to rescission as long as there is reliance on the misrepresentation
 Purely innocent misrepresentation can give rise to rescission
 Suggests that statement must be material
Facts:
 D was induced to buy C (elderly solicitor)’s house and practice by a misrepresentation that the practice
brought in £300 rather than the actual £200 per annum
 During the course of negotiations, C received financial summaries indicating the actual value to be £200 and
queried D when they met
 In response, C pointed to some papers in his office saying they made up the difference, but D did not inspect
the papers, which only amounted to trifling amounts of business
 When C sued to enforce the contract, D counterclaimed for recission due to misrepresentation
Held: Actionable misrepresentation (induced contract) despite opportunity to discover truth, recission granted
 Statement that annual income of legal practice was 300-400 pounds while financial books show only 200
pounds
 Held that opportunity of discovering the truth did not negate inducement
 Material representation raising an inference of law rebutted only by actual knowledge of truth or lack of
reliance (Jessel MR)
o D did not learn the truth when given opportunity by C, but showed reliance by not looking at the
papers (no duty to do so)
Sir Jessel MR:
 Right to rescission
o An innocent misrepresentation can give a right to rescission on the basis that no man ought to take
advantage of his own false statements
o The effect of a misrepresentation is not prevented by negligence on the part of the representee,
Attwood v Small does not stand for that proposition
o It was sufficient for rescission that D had relied on the misrepresentation
 Reliance is presumed
o When a material representation is made to induce another to enter into a contract, it is an inference
of law that he was thus induced
o To displace the presumption, it must be shown that either the representee had knowledge of facts
contrary to the representation or that he showed by conduct that he did not rely on the
representation

Followed and applied in Welltech v Easy Fair Industries:

 Vendor stated sale comprised of exclusive access to certain areas in the same building
 It is not a defence that if the representee checked the veracity of a representation he would have discovered
the falsity of the representation.
 TL;DR No defence, no duty to verify representation

Contra: Attwood v Small: Reliance on misrepresentation about the capacity of mines superseded by buyer’s own
investigation that verified misrepresentation. (OVERRULED)
 Now: Misrepresentee’s carelessness in not verifying may still result in rescission and damages.

IV REMEDIES FOR MISREPRESENTATION

 Rescission of contract  Available to all
 Damages at common law (in tort)  (Fraudulent and Negligent)
 Damages according to the Misrepresentation Ordinance (Cap. 284) (Negligent and Innocent)
Rescission
Meaning and effect
Rescession is when a contract is rendered null and void, and so is no longer recognised as legally binding. The
courts can free non-liable parties from their agreed obligations and, when possible, will effectively seek to restore
them to the position they were in before the contract was signed.
 Different from termination, ends both prospectively and retrospectively
 Cancels the contract, as if it never existed  no actionable damages

Rescession is a remedy available for all types of misrepresentation: fraudulent, negligent and innocent (assuming
the induced contract is between the representer and the representee) (Redgrave: the right to recission)
 An innocent misrepresentation can give a right to rescission on the basis that no man ought to take
advantage of his own false statements
 The effect of a misrepresentation is not prevented by negligence on the part of the representee. (Attwood v
Small overruled)
o It was sufficient for rescission that D had relied on the misrepresentation

Requirements
The representee must give notice as to the intent to rescind to representor.
 Effective time is when it is communicated to the other contracting party.
 If representor is unable to be traced, communication can be waived (Caldwell below)
Exception to communication: Car and Universal Finance v Caldwell
KEY POINTS:
 Rescission is barred where the subject matter of the contract is sold to third-party bona fide purchaser
without notice of the misrepresentation, before any intention to rescind is communicated to representor
 However, it is possible to rescind without communication to the representor where such communication
is impossible
Facts:
 Caldwell (owner of a Jaguar, C) was fraudulently induced to sell to a rogue who disappeared.
 Once the cheque was rejected C immediately notified the police and asked them for help for recovery.
 Rogue then sold to a buyer, and it was exchanged through sale until reaching the hands of C&U (D).
Legal issue: Is recission barred since communication of the recission is impossible?
Decision and reasoning:
 Notification to the other party (fraudster/representor) is exempted where s/he deliberately evades
communication.
 Victim (misrepresentee) still required to take all reasonable steps to show a clear intention to bring the
contract to an end.
Seller LJ:
 The general rule is that where a party is entitled to rescind a contract and wishes to do so the contract
subsists until the opposing party is informed that the contract has been terminated.
 However, where it is impossible to give communicate intention to rescind due to the other party being a
fraudulent rogue and absconding, expression of intention to rescind short of communication or repossession
is enough
 The fact that ‘another innocent party or parties may suffer does not in my view of the matter justify
imposing on a defrauded seller an impossible task.’
Bars to recission
Affirmation
An unequivocal manifestation of an intention to continue with the contract and not to bring it to an end (e.g. use
of goods knowing the right to reject them).

Long v Lloyd [1958]: C bought lorry from D in ‘exceptional condition’, but was defective. Lorry broke down, D offered
repairs for half price and C accepted. Broke down again during a long trip.
  C affirmed the contract by using the lorry on a long trip after D repaired. (Pearce LJ)
o Amounted to “a final acceptance of the lorry by the plaintiff for better or for worse”.
o This “conclusively extinguished any right of rescission remaining”.
Bona fide third party acquires title before recission
If a third party in good faith has acquired rights under the contract for value, rescission is not possible. (Caldwell)
Lapse of time
Inequity resulting from lapse of a reasonable time
 Fraudulent  Timer starts when fraud could be reasonably discovered.
 Innocent/Negligent  Timer starts when the contract is formed.

Salt v Stratstone [2015]:

Seller misrepresented a ‘brand new’ car that had defects and sold it on 29 Sept 2007. Claim brought 16 Sept 2008. D
argued that delay barred rescission
 Held: Delay not inequitable. C only discovered misrepresentation during the pre-trial disclosure.
o Roth LJ said delay only bars rescission if there is a ‘lapse of a reasonable time such that it would be
inequitable in all the circumstances to grant rescission’.
Restitutio in integrum impossible
Meaning “returning parties to their original positions/status quo”
 Party seeking rescission cannot restore to the other party the benefits obtained under the contract.

There is a difference between rescission at common law and in equity.

 Common law  P must restore to D the very benefit which he has obtained from D.
 Equity  Slightly more flexible position to the notion of restitution in integrum.
o Precise restitution is not needed, and the court can use its power to do what is ‘practically just’.
Erlanger v New Sombrero
KEY POINT: It is no bar to restitution where the thing purchased depreciated in value. Monetary compensation can
be used to supplement the decrease in value.
Facts:
 D sold an island for phosphate mining to C for £110,000, but failed to disclose that they bought it just days
before for £55,000 in breach of their fiduciary duty.
Issue: If the purchased item in the contract depreciated in value, does it bar recission?
Held: C was entitled to rescission and restitution of the contract price in return for counter-restitution of the mine
and accounting for profits made from it.
 The rationale for counter-restitution is that the party seeking rescission must not itself be unjustly enriched.
 The correct approach is not to insist on precise specific counter-restitution but by enabling ‘practical justice’
by making use of monetary counter restitution for benefits that cannot be directly returned.
Partial rescission unacceptable
Bank of China (Hong Kong) Ltd v Well Look Printing Ltd (CFI) Recorder Chan SC:
 “The English authorities are to the effect that recession is an “all or nothing” remedy. TSB Bank plc v
Camfield, CA is the leading English authority on this area.
 On the other hand, the High Court of Australia in Vadasz v Pioneer Concrete (SA) Pty Ltd held that there
could be partial recession.”

HK judge rejected Australian position of partial rescission. Relied on Coleman J in De Molestina v Ponton (English
case)
 “The present state of English law is not in any doubt at all and nothing Vadasz renders it doubtful, whatever
may be the position in Australia.... The scope of the equitable discretion in a rescission claim does not extend
to the general reconstruction of the bargain to achieve an objectively overall fair result”.
 TL;DR Partial rescission rejected because rescinding one part but upholding another is essentially remaking
the contract, which is outside the scope of the court.
Damages at common law (in tort)
The right to damages differs according to whether the misrepresentation is fraudulent, negligent or innocent.
 Only fraud and negligence allow damages in tort.
Tort of deceit (Fraudulent misrepresentation)
The representor must have lacked an honest belief in the truth of the statement; the innocent party can obtain
damages for the tort of deceit.
 Example: Polaroid Far East Ltd v Bel Trade Co Ltd: D said to export to PRC, but instead to US  Fraud

Requirements for fraudulent misrepresentation (Derry v Peek):

 D knows his statement is untrue
 D has no belief in the truth of his statement
 D was reckless as to whether the statement was true or false (i.e. he doesn’t care)
o Mere carelessness, or absence of a reasonable basis for the erroneous belief, does not suffice.

If fraud is proven, the motive is irrelevant, it does not matter if there was no intention to cheat or injure.
 Fraud can be disproved by an honest belief in the truth even if the representation was made without
reasonable care.

Remoteness
Foreseeability of loss is irrelevant. P can recover all losses flowing from the transaction entered into as a result of
the fraudulent misrepresentation, including consequential losses.

Doyle v Olby (Ironmongers) Ltd (Lord Denning), affirmed by House of Lords in Smith New Court Securities Ltd v
Citibank NA
 “The defendant is bound to make reparation for all the actual damages directly flowing from the fraudulent
inducement.”
 All such damages can be recovered: and it does not lie in the mouth of the fraudulent person to say that
they could not reasonably have been foreseen."
Calculation of damages
The representee can claim for a fall in value of the subject matter after the time of contract formation if any of the
following are met (Smith New Court Securities Ltd v Citibank NA):
 The misrepresentation continued to operate after formation to induce representee to retain subject matter.
 Circumstances lock representee into the subject matter by fraud.
 Hidden flaw unknown to the market during formation that doesn’t reflect true value of subject matter.
o In Citibank NA, D made fraudulent misrepresentations to Ps, inducing them to buy shares of a
company as a long-term investment.
o Price of company fell as a result of fraud by 3rd party  P sold shares, incurring loss of about £11
million.

The representee can also claim for the loss of profits from a fraudulent misrepresentation (East v Maurer).

Tort of negligence (Negligent misrepresentation)

Hedley Byrne v Heller: Compensatory damages for pure economic loss resulting from negligence.
Requirements:
1. A fiduciary relationship of trust & confidence arises/exists between the parties;
2. The party preparing the advice/information has voluntarily assumed the risk;
3. There has been reliance on the advice/info by the other party, and
4. Such reliance was reasonable in the circumstances.
Damages under Section 3(1) of the Misrepresentation
Ordinance (Cap. 284)
Where a person has entered into a contract after a misrepresentation has been made to him by another party
thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable
to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable
notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable
grounds to believe and did believe up to the time the contract was made that the facts represented were true.
 Damages are available for non-fraudulent misrepresentations that induce the contract as if they were
fraudulent (fiction of fraud).
 Reversing onus of proof: To escape liability under MO s3(1), the representor must prove that he
o Had reasonable grounds to believe his statements and,
o Believed his statements were true.
Long Year Development v Tse Fuk Man
Facts:
 Seller sold to buyer, buyer sold to sub-buyer
 Before selling to initial buyer, seller committed misrepresentation regarding the car space
o Talked about the wrong carpark space (uncovered and difficult to use, rather than the covered one
owned by another)
Legal issue: Was there fraudulent misrepresentation?
Decision and reasoning: Liable for damages despite no actual fraud
 D had no reasonable ground for the belief
o Howard Marine v Ogden: Reliance on erroneous statement an authoritative source of information,
that is Lloyd’s Register  held no reasonable ground as D also had the ship’s documents
 Tortious measure of damages in deceit:
o Deposit and damages payable to the sub-buyer, but not profits under the contract
o (‘fiction of fraud’ in Royscot v Rogerson followed and applied)
o Damages under s3(1) the same as deceit.
 Remoteness rule applicable to deceit:
o No reasonable foreseeability required (Doyle v Olby; Smith New Court v Scrimgeour Vikers)
Qualifications over the statutory claim
 Contract with representor required  not applicable where 3P makes misrepresentation
 Defence of contributory negligence available (Gran Gelato v Richcliff)
o Inapplicable where misstatement contained in contract (‘term’) since the contract was not entered
into ‘after’ it.
 Inapplicable to misrepresentaion by silence since it must be ‘made’ (Banque Keyser v Skandia)
 Only losses ‘as a result’ of the person having entered into a contract with the representor are recoverable
(Taberna v Selskabet)

Damages under Section 3(2) of the Misrepresentations

Ordinance (Cap. 284)
Where a person has entered into a contract after a misrepresentation has been made to him otherwise than
fraudulently, and he would be entitled, by reason of the misrepresentation, to rescind the contract, then, if it is
claimed, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded the court
or arbitrator may declare the contract subsisting and award damages in lieu of rescission, if of opinion that it would
be equitable to do so, having regard to the nature of the misrepresentation and the loss that would be caused by it if
the contract were upheld, as well as to the loss that rescission would cause to the other party.
 Note s3(3) suggests that damages under s3(2) are measured differently from, and possibly lower than,
damages under s3(1).

TL;DR s3(2) enables a substitute of damages for rescission accounting for three things:
  Nature of misrepresentation
o Matters such as degree of carelessness in making the representation, the degree of importance of
the false statement to the representee, and whether the representor deflected attempts by the
representee to verify/clarify the misrepresentation.
 Disproportion of representee’s loss and damages
o If the contract rescinded, the representee’s loss is small relative to the representor’s loss, court is
likely to award damages under s3(2). (William Sindall v Cambridgeshire CC)
 Ineffectiveness of damages
o If damages are not an adequate remedy to restore what the representee contracted for, court is
unlikely to award damages. (Balchita Ltd v Kan Yuck Investment Co. Ltd)

Damages in lieu of recission not to be awarded

 Where rescission is barred (Zanzibar v British Aerospace)
 Damages could not adequately restore to the mis-representee that which s/he contracted for (Green Park:
exclusive control over access and security; Balchita v Kam Yuck: ground floor at street level)

Measure of damages is ‘damage caused by the property not being what it was represented to be’ (William Sindall
v Cambridgeshire CC, per Evans LJ)
 S3(2) damages  difference between the actual value received and the value which the property would
have had if the representation had been true.
 Tort damages  difference between the price paid by P and the actual value received

William Sindall v Cambridgeshire CC

KEY POINTS:
 Damages in lieu under 2(2) Misrepresentation Act 1967 (‘MA 1967’) should be calculated on a contractual
basis
 The discretion to award damages in lieu under s2(2) MA 1967 should have regard to the relative
importance of the misrepresentation to the transaction
Facts:
 C agreed to purchase land for development from the Country Council (D) at £5m
 D represented that they were not aware of any easements over the land
 After the sale had been completed, a private sewer was found under the site
 The value of the property also fell drastically to around £2m due to market conditions unrelated to the
private sewer
 C sought rescission for misrepresentation
Held: No misrepresentation
 Even if misrepresentation had been found, it would not have been equitable for the contract to be
rescinded, damages in lieu would be granted
 Exercise of discretion under statute:
o Evans LJ:
 It is substantially unjust to deprive D of the bargain it made; the misrepresentation was of
little importance to the contract as a whole
 C made a bad bargain and to permit them to transfer the financial consequences to D could
be described as a windfall.
o ‘Great disparity’ between the loss caused by a misrepresentation as to absence of easement (costs
£18k to fix) and the loss caused by rescission (£5m sale of land whose value has since halved)
 Statutory damages measured at £18k

Exclusion of liability
Misrepresentation Ordinance (Cap. 284) Section 4
If a contract contains a term which would exclude or restrict—
 (a) any liability to which a party to a contract may be subject by reason of any misrepresentation made by him
before the contract was made; or
(b) any remedy available to another party to the contract by reason of such a misrepresentation,

that term shall be of no effect except in so far as it satisfies the requirement of reasonableness as stated in section
3(1) of the Control of Exemption Clauses Ordinance (Cap. 71); and it is for the person claiming that the term satisfies
that requirement to show that it does.

Application of reasonableness test

The reasonableness test applies to clauses ‘preventing liability from arising’ as well as clauses ‘excluding liability’,
such as ‘no representation’ or ‘no reliance’ clauses (First Tower v CDS)
Exclusion of liability for ‘any representation or warranty’
Unreasonable since it comprises fraudulent misrepresentation (Thomas Witter v TBP).
 Should be read down to ‘any representation or warranty other than one made fraudulently’ (Zanzibar)

Comparing the Chinese law

 Chinese law does not countenance a general concept of ‘misrepresentation’
 However, misinformation by fraudulent means, including but not limited to fraudulent ‘misrepresentation’
as defined in the common law, is regulated through:
o Pre-contractual liability to pay reliance damages for deliberate concealment or misinformation
(Chinese Civil Code art 500 para 2)
o Contract induced by fraud is made voidable by deceived party (CCC arts 148, 149)
o Punitive damages under Consumer Law (2013 Consumer Protection Law, art 55)

Summary
 The law of misrepresentation has its focus on the representor’s misconduct/wrongdoing during the contract
negotiation, namely providing false or misleading information to the representee, and is thus distinguishable
from mistake.
 An actionable misrepresentation must in principle be a misstatement of existing facts. Mere silence does not
normally suffice but a misrepresentation may be deducible from one’s conduct as well as words.
 A misrepresentation needs only to be ‘an’ inducement to the representee’s entry into the contract. It is no
defence that the representee has an opportunity to discover the truth.
 A representee may rescind the contract on the basis of a misrepresentation, whether it is made fraudulently,
negligently or innocently, unless the rescission is barred. Under the Misrepresentation Ordinance, courts are
given the discretion to award damages in lieu of rescission.
 Damages can be claimed in the torts of deceit or negligence at the common law. However, damages under
the Misrepresentation Ordinance may provide a more powerful remedial option since such damages may be
awarded for an innocent misrepresentation and may be subject to a more generous measure.