MISREPRESENTATION

Operative Misrepresentation
The 4 elements of an Operative Misrepresentation are
There must be a false statement.
The statement must be of past or existing fact (i.e. not a puff,
opinion, statement of intention or statement of law)
It must have been addressed to the party misled.
It must have induced the contract.
Forms of Representation
1) Express Representation the spoken or written word.
2) Conduct
There must be some positive conduct to actively mislead the
other party. A nod, a wink, or a nudge may suffice as active
conduct. So long as it is intended to induce the other party to
believe in a certain state of facts, the gesture/ conduct can
amount to a representation (Walters v Morgan (1861))
3) Silence
General rule: Mere Silence does not constitute false statement
(not amounting to misrepresentation) except in situations where:
- The law imposes a duty of utmost good faith (e.g. Insurance
policies) where the parties are in a fiduciary (with regard to
the relationship between a trustee and a beneficiary)
relationship.
- There was a change in circumstances before the contract is
concluded and the representor fails to inform the representee.
- A statement is made by the representee which the
representor knows to be false but merely listens in silence =
seen as tacit confirmation.
- The silence makes what has been said a half-truth or untruth.
There must be a False Statement
1) Half-Truths
False Statement if it distorts the overall picture given to the
innocent party. (Dimmock v Hallett (1866))
2) Continuing Representation
A statement, truthful when made, would be rendered false by
changing circumstances before the contract is entered into. (With
v OFlanagan (1936))
3) Active Concealment
False Statement by conduct; the concealment must have been
the deciding factor in misleading the representee. (Horsfall v
Thomas (1862))

The Statement must be of Past or Existing Fact

The statement must not be one of the following :

1) Expression of Opinion
A mere expression of opinion does not constitute a
misrepresentation (Bisset v Wilkinson (1927))
In determining whether the statement was an expression of opinion,
it was important whether the giver had, or professed to have any
special knowledge or skill on the matter stated. (Esso Petroleum v
Mardon (1978)
If the facts are not equally well known to both sides, then a
statement of opinion by one who knows the facts best involves very
often a statement of material fact, for he impliedly states that he
knows facts which justify his opinion. Smith v Land & House
Property Corporation (1884)
2) Expression of Intent
A mere statement of future intent followed by a change of mind
does not constitute misrepresentation.(Wales v Wadham (1977))
3) Commendatory Puff
Advertisements using promotional phrases generally do not
constitute misrepresentations, but mere commendatory puff.
However, the more specific a statement, the less likely it will be
treated as a mere commendatory puff.) Carlill v Carbolic Smoke
Ball Company (1893) 1 QB 256
4) Statement of Law
A statement of law does not give rise to a misrepresentation,
only a statement of fact.
Statement must have been Addressed to the Party Misled
Statement generally must be addressed directly to party misled.
Misrepresentation generally has to be communicated directly to
the mistaken party. Peek v Gurney (1873)
However, Treital argues that where A makes a misrepresentation
to B and on the faith of this, C contracts with A, if A can
reasonably expect C to accept and intends C to act upon this
misrepresentation, C can show that this misrepresentation was
not exhausted on B and A is liable.
Statement must have induced the contract
The misrepresentation must have affected the representees
judgment

Notion of actual / subjective reliance by the representee on

the misrep; contra objective test of materiality whether a
reasonable man would have been influenced by it to enter into
the contract
The representee must have relied on the representation, not
possible if representee was:
o Unaware of the representation
o Aware of it but knew it was untrue/ did not believe it to be
true
o Was simply not influenced by it; would have entered into
the contract even without this representation.
If the innocent party is unaware/ignorant of the
misrepresentation, the representor is not liable unless he actively
concealed it (Horsfall v Thomas (1862)

Mere fact that innocent party was given opportunity to investigate

and verify a representation does not deprive him of his right to
resist specific performance or to sue for rescission. (still
misrepresentation) Redgrave v Hurd (1881)/ A representee who
chooses to act carefully but fails, through negligence or
otherwise to discover the fraud, is nonetheless, regarded as having
been induced. JTC v Wishing Star (No 2) (2005)
(JTC v Wishing Star (No 2) (2005) Although there was
misrepresentation, representee had relied not upon the
misrepresentation but on his own inquiry.
Exclude liability of Misrepresentation
Section 3 Misrepresentation Act (read with Section 8 UCTA)
representor may rely on the Exclusion Clause to exclude liability
only if he can show that the EC meets the test of reasonableness
in Section 11(1) UCTA
[Avoidance of provision excluding liability for
misrepresentation.
3. If a contract contains a term which would exclude or restrict
(a) any liability (whatsoever) 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 (e.g. damages or the right of rescission) 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 11(1) of the
Unfair Contract Terms Act, and it is for those claiming that the term
satisfies that requirement to show that it does.]

EC Effective if

Clause is genuine (there had been no representation, or no reliance,

or no authority, clause is effective to prevent misrep liability from
arising (Government of Zanzibar v British Aerospace (Lancaster
House) (2000))
EC not effective if
Clause not held where party seeking to rely on the clause is well
aware that representations have in fact been made. The
Defendants had given their agents full authority to make the
statement and the clause excluding the Plaintiffs right to
compensation and to rescission for misrepresentation was
unreasonable in the circumstances Cremdean Properties v
Nash (1977)
Facts on which representation is based are only within knowledge
of representor/ unequal relative bargaining power clause likely
to be unreasonable
Overbrooke Estates Ltd v Glencombe Properties (1974)
Court held that clause stated auctioneers had no authority to make
representations or give warranties on the properties was not an
exemption clause but merely one to limit the authority of the
auctioneers. Since not an exemption clause, Section 3 of Misrep Act
1967 did not apply and the Defendants had to complete the
purchase.

Categories of Misrep & Remedies for Each Category

Section 2(1) Misrep Act
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 (in spite of) that the misrepresentation was
not made fraudulently, unless he proves that he had
reasonable ground to believe and did believe up to the time
the contract was made that the facts represented were true
Fraudulent Misrep

When a false statement is made by the representor knowing that

it was false, or without belief in its truth, or recklessly, not caring
whether it is true or false (per Lord Herschell in Derry v Peek, HL)
The motive of the representor is irrelevant. A half-truth may be
fraudulent because further relevant facts are suppressed.
Statements believed to be true when made but
subsequently discovered to be false will be considered
fraudulent if not communicated to the other party before he
acts upon it
As seen in Section 2(1) Misrep Act party making fraudulent
misrepresentation would be liable to damages. Representee must
show that there is an operative misrep and that he had relied on it
to his loss. Burden of proof then shifts to Df (representor) to
show that he had reasonable grounds to believe that the
statement was true
Remedy right to rescind & damages (the representee may recover
damages in an action under the tort of deceit)
Common law
Sue under tort of deceit (Derry v Peek) (No need for contractual
relationship)
Damages are awarded to compensate representee for all losses
caused by his reliance on fraudulent misrep
Burden of Proof of fraudulent misrepresentation lies with the
representee
Negligent Misrep
Where the false statement is made by the representor negligently,
i.e. without due care
According to Section 2(1) Misrep Act party making non-fraudulent
misrepresentation (negligent misrepresentation) would also be liable
to damages. Pf must show operative misrep and reliance on it
to his loss. Burden of proof then shifts to Df to show that he had
reasonable grounds to believe that the statement was true
Remedy right to rescind S 2(2); subject to courts discretion to
award damages in lieu of rescission & right to claim for damages S
2(1)
At common law tort of negligent misstatements (Hedley Byrne
v Heller)
Comparison drawn in (Ng Buay Hock v Tan Keng Huat)
Negligent Misrepresentation s
Negligent Misstatements
2(1) of Misrep Act

No need for the existence of any

special relationship
Burden of proof is reversed;
Once representee proves
statement was false, representor
has to show that he had
reasonable grounds to believe
that the fact represented was
true.

Depends on the existence of

some special relationship
between the parties, such as
between solicitor and client
Burden of proof lies on the party
who founds his case on the
misstatement (representee)

Innocent Misrep
Where the Df (representor) had made the false statement
believing and having reasonable grounds to believe in its
truth (i.e. statement not made fraudulently nor negligently;
statement made without fault) see proviso (condition attached to
an agreement) to Section 2(1) Misrep Act
Remedy right to rescind & indemnity (secure (someone) against
legal responsibility for their actions) (per Whittington v SealeHayne): representee will be indemnified, not against all obligations,
but only against those necessarily created by the contract, i.e.
obligations which the Pf was required to assume by the contract as a
necessary and inevitable result
Section 2(1) Misrep Act does not provide for claim for damages for
Innocent Misrepresentation
Section 2(2) Misrep Act right to rescind (subject to courts
discretion to award damages in lieu of rescission)

Rescission as a standard remedy for all 3 types of misrep

Misrepresentation renders contract voidable, i.e. contract remains
valid and alive until the time the Pf elects to set the contract aside
A contract is rescinded when the Pf (representee) elects to
terminate or discharge himself from the contract.
Effect of rescission: Contract void ab initio (from the beginning)

Rescission if elected must be communicated to the

representor
Exception: Where representor purposely avoids the
representee, making recission impossible requirement of
communication will be satisfied if Representee records his
intention to rescind contract by some overt act that is

reasonable in the circumstances Car & Universal Finance v

Caldwell (1964)
Rescission is barred where:
(i)

The contract is affirmed by the representee

He does an act which shows his intention to continue
the contract. Long v Lloyd (1958) upon affirmation,
right to rescission is lost

(ii)

a reasonable amount of time has lapsed since the

discovery of the misrep
Even if the representee acted on the misrepresentation
but was unaware of it and thus allowed a long lapse of
time before discovering it and bringing an action, he can
be barred from rescission. Leaf v International Galleries
(1950)

(iii)

The parties cannot be restored (substantially) to their

original positions before the contract (even after making
allowance for any diminution in its value/ accounts for
benefit derived from using it) Erlanger v New Sombrero
Co (1878) had to make allowances for profits made

(iv)

There is intervention of Third Party Rights

If before a representee rescinds a contract, an innocent
third party (one who acts in good faith and gave
consideration) has acquired an interest in the subject
matter, the right to rescission is lost.

(v)

Damages in Lieu of Rescission awarded by court

Section 2(2) Misrep Act if equitable, the court may award

the Pf damages in lieu of rescission (i.e. contract still
subsists), if it would be equitable to do so, having regard to
nature of misrep 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
The right to rescind must not be barred in the first place (if
rescission is barred, s.2(2) is arguably n/a)

Relationship between Remedies for Breach of Contract and

Remedies for Misrepresentation
The question of whether the statement made prior to the formation
of the contract is a Representation or a Term determines the
remedies.
Breach of a Term involves the Remedies of Breach, while Breach
of a Representation involves the Remedies of Misrepresentation.
However, it is quite common for Breach of Contract and
Misrepresentation to be pleaded in the alternative as this
increases the innocent partys chances of success.
Misrepresentation Act S 1(a) states that even where a nonfraudulent misrepresentation has become a term of the contract,
the innocent party can still sue for misrepresentation.
Nevertheless, distinction may still be important in the following
areas :
When the contractual term is a Warranty, breach of a
contract does not allow for rescission but misrepresentation may.
The Quantum of Damages may differ between the 2.
Breach tends to put the innocent party in the position where
the contract has been fully performed (expectation loss).
Misrepresentation tends to put the innocent party in the
position where the contract has not been made.

Analytical Framework
Going through the following 4 steps virtually guarantees a
complete answer to any exam hypothetical questions on
misrepresentation :
Go through the 4 elements to decide if there is an operative
misrepresentation.
Check for an exclusion/limitation clause which acts in favour of
the representor and scrutinize this under the Misrepresentation
Act and UCTA (ie. Reasonableness Test, Section 8 & Section
11(1) Schedule II)
Decide what type of misrepresentation has been made and go
through the remedies available to the representee, eg.
Rescission, damages or indemnity.
Check if rescission is barred on the facts.

Mistake - Non est factum

(Apleathatawrittenagreementisinvalidbecausethedefendant
wasmistakenaboutitscharacterwhensigningit.)
Saunders v Anglia Building Society (1970) to successfully plead
non est factum as a defense, the party signing the document must
show that:
(i) the document signed was radically/fundamentally different in
character or nature from what the party had intended to sign; and
(ii) he had not been careless in signing the document
Examine Intention of the mistaken party as the vital factor.
Effect of an operative mistake
At common law: contract is rendered void ab initio
In equity: contract is voidable

(Equity:abranchoflawthatdevelopedalongsidecommonlaw
inordertoremedysomeofitsdefectsinfairnessandjustice)