2.0 Misrepresentation2.1 DefinitionIn Malaysia, misrepresentation is confined to innocent misrepresentation under Section 18 CA which is an untrue statement that the speaker believes it to be accurate. Section 18(b) of the CA covers negligent misrepresentation for statements made in breach of duty, as seen in Kluang Wood Products Sdn Bhd & Anor v Hong Leong Finance Bhd & Anor.
In U.K., an innocent misrepresentation as such has conventionally been defined as “a false statement of material fact that at least in part induces entry into a contract with the maker of the statement” in Whittington v Seale-Hayne. In Nocton v Lord Ashburton, an action for negligent misrepresentation was allowed if the parties has a fiduciary relationship. Under Section 2(1) Misrepresentation Act 1967, a negligent misrepresentation is “a statement made without reasonable grounds for belief in its truth”. In the U.S.
, the Restatement (Second) of Torts uses a comparable description, although not identical, when speaking of a misrepresentation of “a material fact for the purpose of inducing the other party to act or to refrain from acting in reliance upon it”. The defendant was either unaware that the material fact was false (innocent misrepresentation), or the defendant did not bother to find out the truth of the facts (negligent misrepresentation). All the 3 countries have similar types of misrepresentation, which is innocent misrepresentation and negligent misrepresentation, other than fraudulent misrepresentation.
Thus, the concept of negligent misrepresentation based on the above 3 countries share the requirement of a lack of reasonable care (negligence) on the side of the maker of the statement. Although English law fails to mention this requirement directly, Section 2(1) of the Misrepresentation Act of 1967 rather focuses on misrepresenting a person’s belief in the truth of the statement.2.2 ApplicationIn Malaysia, Abdul Wahab J provides the requirements of misrepresentation in Chuah Tong Yeong v Kuala Lumpur Golf & Country Club as follows: (1) a representation, (2) the claimant was induced by that representation, (3) the representation is untrue, and (4) it is a suitable case for rescission.
Silence in certain situation is similar to the case of fraud and may amount to a negligent misrepresentation under Section 18(b) Contracts Act 1950 where there is an obligation to disclose as seen in Double Acres Sdn Bhd v Tiarasetia Sdn Bhd. In U.K., certain criteria must be satisfied to amount to an actionable misrepresentation in which (1) a false statement was made and (2) that it induced the contract.
The application of misrepresentation can be seen in Salt v Stratstone. In this case, Mr. Salt was offered to purchase a Cadillac described as “brand new” by Stratstone. Relying on this information, Mr Salt bought the car and find that it was actually several years old but unregistered, besides had been subjected to repairs. After the car broke down leaving him stranded, Mr.
Salt brought an action against Stratstone Ltd. As shown above, the misrepresentation was that it was described as “brand new” but in fact, the vehicle was several years old and was of extensive damage and repairs prior to its registration, causing loss to Mr. Salt. Besides, silence will not generally amount to misrepresentation, unless it is a contract of uberrimae fidei, which is one of utmost good faith where the representor is in a fiduciary position, or in an insurance contract.
A duty exists in such contracts to disclose all material facts and a failure to do so may cause an action for misrepresentation, as seen in HIH Casualty and General Insurance Ltd v Chase Manhattan Bank.In the U.S., the elements of an innocent misrepresentation claim in Karmol v Ocwen Loan Servicing, LLCunder the District Court for Michigan are: (1) the defendant made a material representation; (2) the representation was false; (3) the representation was made as part of making a contract; (4) the plaintiff relied on the representation; (5) the plaintiff suffered an injury; and (6) the injury must have inured to the defendant’s benefit. A claim of negligent misrepresentation under Michigan law in Richter v Seterus, Inc under the District Court for the Eastern District of Michigan, requires proof that: (1) the party justifiably relied to his detriment; (2) on information provided without reasonable care; and (3) by one who owed relying party duty of care. All the 3 countries share the similarities in the elements of innocent misrepresentation where the statements must be false or untrue, and it induced the other party to the contract. In terms of negligent misrepresentation, silent would not amount to misrepresentation unless there is a duty of care which applies in Malaysia, U.K.
,and U.S..2.3 EffectIn Malaysia, the effect of consent caused by misrepresentation in a contract is provided in Section 19 of the CA which render the contract voidable at the option of the innocent party. A voidable contract allows the innocent party to have the contract void or continue to perform the contract if he thinks fit. In the case of Abdul Razak bin Datuk Abu Samah v Shah Alam Properties Sdn Bhd & Anor Appeal, according to Gopal Sri Ram JCA, fraudulent misrepresentation and negligent misrepresentation entitles the representee to apply for rescission of contracts and award of damages from the court as these misrepresentations are grounded upon the tort of deceit and tort of negligence.
The damages awarded including exemplary and aggravated damages, aimed to restore the plaintiff’s position before the contract was made, and to compensate the innocent party for all expenses they incurred with the rules set out in Archer v Brown. However, the principle that a man should not be punished twice is followed, therefore the court did not allow exemplary damages in this case. Innocent misrepresentation in Malaysia is the same with common law which only allows the representee to have rescission and restitution from the contract. This was in the case of Hedley Bryney v Heller, which established the principle of duty of care to negligent misrepresentation.
However, the passing of Misrepresentation Act 1967 has made the position different. Section 2(1) Misrepresentation Act 1967 allows the innocent party to claim damages with proof that the statement was believed to be true on reasonable grounds, while Section 2(2) of Misrepresentation Act 1967 provides that innocent misrepresentation means an untrue statement was made with belief that it is true, and the burden of proof lies upon the representor as illustrated in Howard Marine and Dredging Co Ltd v A Ogden and Sons (Excavations) Ltd, where the Court of Appeal held that as the defendants had failed to prove that they had not been negligent, they are liable under Section 2(1) of Misrepresentation Act 1967. Another case involving the same provision is Spice Girls Ltd v Aprilia World Service, where the court held that as the group knew that there will be a member intended to leave the group nevertheless they promised to participate in filming a television commercial, it was a misrepresentation.2.4 ExceptionThere are certain exceptions that can lose the effect of misrepresentation as in Section 19(1) of CA.
One of the exceptions is that if the innocent party had the chance to discover the truth of a matter by using ordinary diligence and he did not act to find out the truth, the contract is thus not voidable. However, this is not applicable to fraudulent misrepresentation as established in Weber v Brown, the exception is not applied to the appellant’s fraudulent assertion here. The exception applies in Tan Cliye Chew & Anor v Eastern Mining and Metals Co Ltd, where the respondent did not use the facilities he has to discover the position of land within the four days before the agreement was signed, therefore the contract was not voidable. In English contracts law, there is an exclusion or limitation of liability for misrepresentation.
In AXA Sun Life Services plc v Campbell Martin, the court established various techniques in attempting to avoid liability for misrepresentation, at which no representations were made or relied upon (non-reliance clause) before the parties enter into a contract, liability is excluded or limited or it contains an entire agreement clause. In Springwell Navigation Corp v JP Morgan Chase Bank, the court held that the parties were estopped from asserting the true facts were different after they agree that a certain state of affairs form the basis of the transaction. Exclusion of liability is not available for fraudulent misrepresentation under common law, while it is governed by Section 3 of Misrepresentation Act 1967. The law was amended by Section 8 of the Unfair Contract Terms Act 1977, and to rely on this clause, the test of reasonableness laid down under Section 11 of the Unfair Contract Terms Act must be satisfied. In Avrora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd, the courts considered the criteria set out in Schedule 2 of the Unfair Contract Terms Act 1977 in order to determine the reasonableness under Section 3 of the Misrepresentation Act 1967. However, in Walker v Boyle, broad attempts to exclude liability was found to be unreasonable as Mrs Boyle had not satisfied Section 11 of the Unfair Contract Terms Act 1977. In HIH Casualty & General Insurance Ltd v Chase Manhattan Bank, the House of Lords held that exclusion of damages in innocent and negligent misrepresentation did not extend to fraudulent misrepresentation, as the deceived party still retain both of the rights to rescind the contract and claim for damages.
2.5 RemedyThe remedy of rescission applies to all types of misrepresentation. In Malaysia, this was considered in Sim Thong Realty Sdn Bhd v Teh Kim Dar @ Teh Kim, where the court held that rescission and restitution is allowed to help the representee to return to their initial position.
Similarly, rescission of English law is governed by Section 2(2) Misrepresentation Act 1967, which is to set aside the contract both retrospectively and prospectively. It is aimed to restore the parties position before the contract was entered. However, there are bars to rescission. Firstly, lapse of time can prevent a contract from rescinded as in Leaf v International Galleries, the equitable remedy of rescission cannot be awarded after the lapse of five years. In Zanzibar v British Aerospace (Lancaster House) Ltd, the court held that the delay in bringing the proceedings has make Zanzibar Government lost their right to rescission.
Secondly, affirmation by the innocent party can forfeit the right to rescind the contract. In Long v Lloyd, the court ruled that after the contract had been affirmed by the plaintiff by accepting the deal, despite the defendant’s claim that the lorry is in ‘exceptional condition’, the contract is no longer allowed to be rescinded. However in Habib Bank Ltd v Nasira Tufail, the bank had not shown that they relied on Nasira’s conduct to its detriment. It was seen that doing nothing about a contract does not mean affirmation, unless there is a knowledge of the misrepresentation as evidence. Thirdly, when there exists third party rights intervening the contract, rescission cannot be done. In Car and Universal Finance v Caldwell, the court held that the defendant had taken reasonable action to indicate the intention to rescind the contract before the car was bought by the plaintiff from the fraudster. Lastly, rescission cannot be ordered if it is impossible to return to the original position. In Vigers v Pike, rescission cannot be awarded when there was nothing left to mine.
In Florida of U.S., fraudulent misrepresentation which is also known as intentional misrepresentation is to be considered with a few aspects by the judge or jury. The issues that the courts look into are whether the false statement made are of material fact, knowingly they are false, intended to be relied when it was made and was relied by the party in entering a contract. In Moriber v Dreiling, there was a dispute between Ms. Moriber and Decedent where Decedent decided to sever their business and financial relationship by causing Mr Dreilling’s trusts, DMM to stop paying premiums for three life insurance policies.
Ms Moriber claimed that she was fraudulently misrepresented into forfeiting her DMM stock in exchange for DMM’s interest in the Split Dollar Agreement, which was worthless as the life insurance policies had long been cancelled by Decedent. However, as the court held that she had made the choice to forego insisting on the accounting in order to settle the litigation, her claims failed. Another category of misrepresentation in Florida is the unintentional misrepresentation, which includes negligent misrepresentation. It is commonly seen in relationship between an agent or broker who failed to fulfill their duty of care and caused damage to the person he owed such duty. In Baldoria v Security Realty Inv.
Inc., the buyer, Margaret Baldoria entered into a contract to buy a condominium with the defendant acting as the broker. However, it was later known that the unit was subjected to a recreation leases. The plaintiff alleged that she has been induced by the negligent misrepresentation made by the defendant. The jury agreed with her.
She was awarded rescission of the contract but the award of attorney’s fees and cost against the seller and Security was denied by the court.
