MISREPRESENTATION

 INTRO

A misrepresentation is a false statement of fact or rule that prompts the representative to enter into a contract. If a statement made during the course of negotiations is classified as a description, rather than a word, where the statement turns out to be untrue, an action for misrepresentation might be open. Three forms of misrepresentation are available: innocent misrepresentation, negligent misrepresentation, and fraudulent misrepresentation.

The result of a finding of misrepresentation is that the agreement is voidable, i.e. the agreement exists, but the representative may set aside it. The available remedy depends on the form of misrepresentation but typically consists of rescission or harm. In certain cases, the right to rescind the contract can be lost. 

DEFINITION

The misrepresentation can be defined in section 18 of the Contracts Act 1950. A misrepresentation is a false statement of fact made by one party to another that induces the other party to enter into the contract, even if it is not a term of the contract.

In order to amount to an actionable misrepresentation certain criteria must be satisfied:

False statement

 As compared to viewing or estimating future events, a false statement of fact or law must be made:

Bisset v Wilkinson  [1927] AC 177            

Esso Petroleum v Mardon [1976] QB 801   

A statement of opinion could constitute an actionable misrepresentation in which the representative was in a position to understand the facts:

Smith v Land & House Property Corp (1884) 28 Ch D 7

A statement of future intent should not be misrepresented unless the representative has no intention of carrying out the specified intention:

Edgington v Fitzmaurice (1885) 29 Ch D 459 

A false statement of law will now amount to an actionable misrepresentation:

Pankhania v Hackney [2002] EWHC 2441

Silence will not generally amount to a misrepresentation:

Smith v Hughes (1871) LR 6 QB 597           

Walters v Morgan (1861) 3 DF & J 718   

EXCEPTION

i) Half Truth

A statement that does not present the whole truth may be regarded as a misrepresentation.

ii) Statement Which Becomes False

Where a statement was true when made out but due to a change of circumstances has become false by the time it is acted upon, there is a duty to disclose the truth:

With v O'Flanagan [1936] Ch 575

iii) Contracts Uberrimae Fidei

Such as an insurance contract or when the agent is in a fiduciary role, one of the highest good faith. There is an obligation to reveal all relevant information in such contracts and a failure to do so can give rise to an action for misrepresentation.

iv) Fiduciary Relationship

Where there is a fiduciary relationship between the parties to a contract, a duty of disclosure will arise.

POSITION OF SILENCE UNDER CONTRACTS ACT 1950

-The same general rule as applied under English Law is applicable in Malaysia. According to Section 18(b) of Contracts Act, any breach of duty which, without an intent to deceive, gives an advantage to the person committing it, or anyone claiming under him, by misleading another to his prejudice, or to the prejudice of anyone claiming under him:

Lau Hee Teah v Hargill Engineering Sdn Bhd 

INDUCEMENT

Once it has been established that a false statement has been made it is then necessary for the representee to demonstrate that the false statement induced them to enter the contract.

Requirements:

a) Materiality

In the sense that it would have induced a reasonable person to enter into the contract.

b) Reliance

 There can be no inducement or reliance if the representee was unaware of the false statement:

Horsfall v Thomas [1862] 1 H&C 90

If the representee or their agent checks out the validity of the statement they have not relied on the statement. This was also stated in illustration (b) to Section 19 of the Contracts Act  :

Attwood v Small [1838] UKHL J60 

Wei Tah Construction (B) Co Sdn Bhd v Lau Wun Ing [1981] 2 MLJ 157

If the representee is given the opportunity to check out the statement but does not, in fact, check it out, they are still able to demonstrate reliance:

Redgrave v Hurd (1881) 20 Ch D 1

INDUCEMENT UNDER CONTRACTS ACT 1950

Explanation to S.19 is basically in line with English Law. A contract in such a situation is not voidable. Hence, there is a duty of the misled party to exercise ordinary diligence. This means that Section 18 has to be read with Explanation & Exception to Section 19:

Tan Chye Chew v Eastern Mining Metals Co Ltd 

The misled party should act according to the standard of the reasonable man in his position:

Tay Tho Bok v Segar Oil Palm Estate 

The exception to Section 19 is also inapplicable for false & fraudulent misrepresentation ie positive case of an active fraudulent misrepresentation:

Weber v Brown [1908] 1 FMSLR 12

The maker addressed the statement to the party misled:

Peek v Gurney (1873) L.R. 6 H. L. 377

TYPES OF MISREPRESENTATION

Once it has been established that a false statement was made and that it induced the contract, it is necessary to determine the type of misrep in order to determine the available remedy.

1. Fraudulent misrep

 

Lord Herschell defined fraudulent misrepresentation in Derry v Peek as a statement which is made either:

 

i) knowing it to be false,

ii) without belief in its truth, or

iii) recklessly, careless as to whether it be true or false

 

The burden of proof lies on the claimant:

 

Derry v Peek (1889) 5 T.L.R. 625

2. Negligent Misrepresentation under the Misrepresentation Act 1967

 

 Under s.2(1) Misrepresentation Act 1967, negligent misrepresentation is a statement made without reasonable grounds for belief in its truth. The burden of proof being on the representor to demonstrate they had reasonable grounds for believing the statement to be true.

 

This burden of proof is difficult to discharge:

 

Howard Marine v Ogden [1978] QB 574

3. Wholly innocent Misrepresentation

 

An innocent Misrepresentation exists where the representor can demonstrate reasonable grounds for belief in the truth of the statement:

Sim Thong Realty Sdn Bhd v Teh Kim Dar (2003) 

EFFECT OF MISREPRESENTATION

According to the Section 19(1) of the Contracts Act, the effect of an actionable misrepresentation is to make the contract voidable, giving the innocent party the right to rescind the contract and/or claim damages.

REMEDIES

1. Recission

This is putting the parties back in their pre-contractual position. Each party gives back the benefit which they have received under the contract. However, it is not always possible to rescind the contract and in some circumstances, the right to rescind may be lost.

Bars to Recission

The right to rescind the contract may be lost where a third party acquires rights, where the representee affirms the contract, through lapse of time or where restitution in integrum impossible.

2. Indemnity

An order of rescission may be accompanied by the court ordering an indemnity. This is a money payment by the misrepresentor in respect of expenses necessarily created in complying with the terms of the contract and is different from damages.

3. Damages

The injured party may claim damages for fraudulent misrepresentation in the tort of deceit. Damages are available in addition to rescission:

Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd [1999] 2 MLJ 500

Remedies for negligent misrepresentation

 

The remedy of the representee lies in damages in the tort of negligence under the assumption of responsibility and reliance doctrine laid down in:

 

Hedley Byrne & Co Ltd v Heller & Partners [1964] AC 465

 

 

 

Remedies for innocent misrepresentation

 

A representee who has been induced by an innocent representation may sue for rescission and consequent restitution, but he may not recover damages.