Chapter 13

Misrepresentation

13.1–13.5 Introduction

Operative Misrepresentation
13.6 Elements of Misrepresentation
Statement of Fact
13.7 (1) Puffs
13.8 (2) Opinions
13.9 (3) Intentions
13.10–13.11 (4) Law
Representation by Conduct
13.12 (1) Express representations
13.13–13.14 (2) Implied representations
13.15–13.19 (3) Silence
13.20–13.21 Ambiguity and Falsity
13.22 Materiality
13.23–13.24 Inducement
13.25–13.28 Addressed to the Other Party

Types of Misrepresentations
13.29 Introduction
13.30–13.33 Fraudulent Misrepresentation
Negligent Misrepresentation
13.34 (1) Negligence at common law
13.35 (2) Section 2(1) of the Misrepresentation Act
13.36 (3) Measure of damages
13.37–13.38 (4) Burden of proof
13.39 Innocent Misrepresentation

13.40–13.41 Representation as a Term

Rescission
13.42–13.44 General
13.45 (1) Restitution impossible
13.46 (2) Affirmation
 Principles of Singapore Business Law

13.47 (3) Lapse of time

13.48 (4) Third party rights
Section 2(2) of the Misrepresentation Act
13.49 (1) General
13.50 (2) Types of misrepresentation
13.51 (3) Where right to rescind is lost
13.52–13.53 (4) Measure of damages

13.54–13.60 Exclusion of Liability

13.61–13.62 Conclusion

400
 Chapter 13: Misrepresentation

INTRODUCTION
13.1 The aim of a business is to sell a product or a service and, sometimes, in a
bid to secure a sale, much more is said than should have been said. If an
untrue statement is part of the contract, the innocent party has his rights
for breach of contract. But if the statement is not part of the contract, the
innocent party may still have rights under the law of misrepresentation.

13.2 The law of misrepresentation is found in the common law, equity and
statute. Originally, at common law, there was liability for misrepresentation
only if the misrepresentation was fraudulent or formed part of the contract.
Subsequently, after the House of Lords decision in Hedley Byrne & Co Ltd
v Heller & Partners Ltd (1964) (referred to at para 13.34), there was also,
possibly, liability for negligent misrepresentation. Non-contractual statements
which were neither fraudulent nor negligent did not give rise to a claim
for damages although the representee could seek, in equity, rescission and,
possibly, an indemnity.

13.3 The UK Misrepresentation Act 1967 was made applicable by the Application
of English Law Act (Cap 7A, 1994 Rev Ed) and reprinted locally as Cap 390,
1994 Rev Ed. Under this Act, a representee could claim damages for negligent
misrepresentation in the same way as he could claim had the representation
been fraudulent (see para 13.35). Compared to the common law claim under
the Hedley Byrne case, this species of statutory negligence is easier to mount
as a cause of action.

13.4 It should be mentioned that the law of misrepresentation straddles the

two broad areas of contract law and tort law. As such, in a situation of
misrepresentation, the innocent party may have rights under both contract
and tort. The concurrent existence of duties in contract and tort was
confirmed by the House of Lords in Henderson v Merrett Syndicates Ltd
(1995).

13.5 As a final introductory remark, it may be observed that misrepresentation

sometimes overlaps with breach of contract. Indeed, where a representation
is or becomes part of the contract, the innocent party may have remedies
in both misrepresentation and breach, and s 1 of the Act makes it clear that
a person is not to be deprived of the right to rescind for misrepresentation

401
 Principles of Singapore Business Law

merely because the representation has become part of the contract. In

general, there are some broad similarities between the liabilities and remedies
for misrepresentation and those for breach. For example, in each area, the
innocent party generally has remedies of termination and damages. However,
as one goes into the details, there are significant differences between these
two areas of law.

OPERATIVE MISREPRESENTATION
Elements of Misrepresentation
13.6 A misrepresentation is a false statement of fact made by one party to another
party, which induced the other party to enter into the contract. The statement
must be one of a past or an existing fact, not a commendatory puff, an
opinion, a statement of intention or a statement of law (see Figure 13.1).
It has been said that a statement will be treated as true if it is substantially
correct and the difference would not have induced a reasonable person to
enter into the contract (per Rix J in the English decision of Avon Insurance
v Swire Fraser (2000)).

Statement made during negotiations

Puff Representation Term

True False

No legal effect

No problem Representee can sue if there was:

• False representation of fact
• Made by one contracting party to the
other
• Which induced the other to enter into
the contract

Figure 13.1 Classification of pre-contractual statements and elements of an

operative misrepresentation

402
 Chapter 13: Misrepresentation

Statement of Fact
(1) Puffs
13.7 It is usual for salespersons to use glowing terms to describe their product,
such as “best value money can buy”, “excellent product” or “very fast car”.
In general, such commendatory expressions or puffs are harmless and are
regarded as mere sales talk, to which the law attaches no legal liability.
However, as the statements get more detailed or precise, they are more
likely to be representations, for example, going beyond saying a car is fast to
asserting that it has a top speed of 200 kmh.

(2) Opinions
13.8 In general, a statement of opinion which turns out to be unfounded does
not give rise to liability. But there are exceptions. First, a statement of
opinion can be a statement of fact in that the representor impliedly stated
that he held the opinion. If he did not hold the opinion or could not, as a
reasonable man having his knowledge, honestly have held it, there would be
a misrepresentation. The misrepresentation here would be one concerning
his state of mind, and it has been said that the state of a person’s mind is
“as much a fact as the state of his digestion” (per Bowen LJ in Edgington
v Fitzmaurice (1885)). Likewise, a statement of another person’s opinion
involves an assertion that the latter holds that opinion. Secondly, a statement
of opinion may carry with it the implication that the representor had an
objectively reasonable basis for his opinion, for example, that he had the
handbook which contained the information.

(3) Intentions
13.9 A statement of intention is an expression as to the future and does not
involve any past or existing fact. However, as with opinions, if the intention
was not so held, there would be a false statement of fact. Likewise also, a
person who states his intention to do something may be impliedly asserting
that he has reasonable grounds for thinking that he has the capacity to do it.

(4) Law
13.10 The traditional view is that a statement of law cannot be a misrepresentation.
As with opinions and intentions, a statement of law can be a misrepresentation

403
 Principles of Singapore Business Law

if the representor did not hold that opinion or belief of the law, or if the
statement carries an implication of fact which is untrue. Where the statement
involves both fact and law, the tendency of the courts is to regard it as a
statement of fact.

13.11 The House of Lords in Kleinwort Benson v Glasgow City Council (No 2)
(1997) allowed a restitutionary claim for money paid under a mistake of
law, jettisoning the traditional distinction between payments made under a
mistake of fact and those made under a mistake of law. One can expect
that in the near future, the distinction may also be abandoned as regards
misrepresentation.

Representation by Conduct
(1) Express representations
13.12 The most obvious form of express representation is the spoken or written
word. But expression can also be through a picture, a photograph, a drawing,
a chart or any other visual media.

(2) Implied representations

13.13 An express statement may also contain an implied representation. For
example, it was argued in Cassa di Risparmio della Repubblica di San Marino
SpA v Barclays Bank Ltd (2011) that a statement that a financial product
carried an “AAA” rating contained an implied representation that the product
was of low risk. The test is whether a reasonable person in the position of
the representee would have understood that an implied representation was
being made.

13.14 Representation can also be through a person’s conduct. For example, a person
who sits down in a restaurant and orders a meal impliedly represents that he
has the ability to pay for the meal. Likewise, a nod of the head may signify
agreement, just as a shake of the head may show disapproval. So long as it is
intended to induce the other party to believe in a certain state of facts, the
gesture or conduct can amount to a representation (see Walters v Morgan
(1861)). In the situations just discussed, the conduct is intended to convey a
certain message. Sometimes, the conduct may be intended to conceal certain
facts. A very simple example is where a fruit seller deliberately sticks the
label on the part of the fruit that is damaged. In principle, such conduct

404
 Chapter 13: Misrepresentation

would also amount to a representation. In the case of the fruit seller, the
implied representation is that the fruit is undamaged.

(3) Silence
13.15 The general rule is that silence in itself does not amount to a representation;
some active conduct is required. Under general contract law, one party does
not have a duty to disclose to the other party material facts which the former
knows may influence the latter’s decision whether or not to enter into the
contract. This rule is subject to several exceptions.

13.16 The first is where the silence makes what has been said a half-truth or
an untruth. For example, to say that a pop group currently comprises five
named individuals without going on to say that one of them will be leaving,
is a misrepresentation (see Spice Girls v Aprilia World Service (2002)). While
a contracting party has no duty to make statements, once he begins, he must
make full and frank disclosure.

13.17 Secondly, where a statement (which the representor knows is false) is

made by the representor or by a third party to the representee while the
representor listens in silence, his reticence may amount to tacit confirmation
of the truth of the statement (see Pilmore v Hood (1838)). By keeping silent,
he is impliedly representing that the statement is true.

13.18 The law regards a representation as having a continuing effect until the
contract is concluded. For this reason, if a statement, which though true
when made to the representor’s knowledge, ceases to be true before the
contract is concluded, the representor is required to inform the representee
of the change in circumstances. The representor has a duty to ensure that his
representation remains true up to the time of the contract (see, eg, With v
O’Flanagan (1936) and Spice Girls v Aprilia World Service (2002)).

13.19 Finally, in certain contracts, the law imposes a duty of utmost good faith.
The prime example of this is the insurance contract, where the law imposes
on the proposed insured the duty to disclose to the insurer all material facts
that may influence the insurer’s decision whether or not to insure. Such
non-disclosure entitles the insurer to avoid the contract of insurance. The
rationale for this is that often the special facts and risks are known to the
insured but not the insurer.

405
 Principles of Singapore Business Law

Ambiguity and Falsity

13.20 Sometimes, a statement may be ambiguous and may bear two (or more)
meanings, one of which is true and the other(s) false. Whether such a state-
ment by a contracting party amounts to a misrepresentation depends on two
things. First, the representee must prove that he understood the statement in
the sense which is in fact false. Secondly, the representor must have intended
the statement to be understood in the sense that is false; he is not liable if he
honestly intended it in the sense that is true. This is so even if the sense in
which the representee understood the statement is the one which, on its true
construction, it ought to bear (see Akerhielm v De Mare (1959)).

13.21 There has been the suggestion (see, eg J Cartwright, Misrepresentation

(2002) at para 4.18) that an ambiguous statement can amount to fraudulent
misrepresentation but not negligent or innocent misrepresentation. The
logicality of such dichotomy is not so evident. The representor’s intention is
relevant for determining the type of misrepresentation: fraudulent, negligent
or innocent. Whether or not there is falsity (as opposed to culpability) should
be an objective matter.

Materiality
13.22 There is doubt whether the law requires a misrepresentation to be material
in the sense that a reasonable man would have been influenced by it to enter
into the contract. Is there misrepresentation if the representee was induced
by a misstatement which a reasonable man would have ignored? While there
are some judicial statements which support a requirement of materiality, the
position is not settled. Certainly, a representee who is induced by an immaterial
misrepresentation will have difficulty persuading the court that he was so
induced. But it is another matter to deny a representee who was truly induced
by the misrepresentation. Commentators are divided on this issue. Edwin Peel,
Treitel: The Law of Contract (13th ed, 2011) at para 9–016 confidently asserts
that materiality is a requirement. The issue is debatable. For an alternative
viewpoint, see eg, Chitty on Contracts, Vol 1 (30th ed, 2008) at para 6–037.

Inducement
13.23 In order for a misrepresentation to be operative, it must induce the representee
to enter into the contract. Stated another way, the representee must have

406
 Chapter 13: Misrepresentation

relied on the representation. This requirement is an obvious and logical one.

There are several scenarios where the representee is not induced by the false
statement. The first is where he was not even aware of the representation.
Secondly, the representee may have been aware of the representation but
knew it was untrue or did not believe it to be true. The third situation is
that he simply was not influenced by it, as where he would have entered
into the contract even if he had known the true facts. In all these situations,
there is no inducement and therefore no operative misrepresentation. The
misrepresentation need not be the sole cause that induced the representee
to enter into the contract. It is sufficient that, in deciding whether to enter
into the contract, he was materially influenced by the misrepresentation, as
where the representee was induced by a misrepresentation as well as by his
own mistaken belief (see Edgington v Fitzmaurice (1885), followed by the
Singapore Court of Appeal in Panatron v Lee Cheow Lee (2001)).

13.24 Sometimes, the representee has the opportunity to verify or ascertain the
truth for himself. Generally, the fact that a representee had the opportunity
to discover the truth but did not use the opportunity does not disentitle
him of relief (Redgrave v Hurd (1881)). But where it is reasonable to expect
the representee to avail himself of the opportunity to discover the truth,
the legal position is less clear. In Panatron v Lee Cheow Lee (2001), Yong
CJ held (at [24]) that once inducement is proved, it is no defence that the
representee failed to take the steps which a prudent man would have taken
to verify the truth. Panatron was followed by the Court of Appeal in JTC v
Wishing Star (No 2) (2005), where it was held (at [113]) that a representee
who chooses “to act carefully but fails, through negligence or otherwise” to
discover the fraud, is nonetheless, regarded as having been induced (see Box
13.1). But the Redgrave principle is now open to doubt. In Peekay Intermark
Ltd v ANZ Banking Group Ltd (2006), the UK Court of Appeal accepted the
notion that where a representee signs a written contract inconsistent with,
and subsequent to, earlier oral representations, he may have been induced
not by the oral representation but by “his own assumption” that the subject
matter of the contract corresponded to the description that he had previously
been given. This aspect of Peekay was cited, it would seem with approval, by
the Singapore Court of Appeal in Orient Centre Investments Ltd v Societe
Generale (2007) (at [51]–[53]). Edwin Peel, Treitel: The Law of Contract
(13th ed, 2011) at para 9–024 suggests that a claim for misrepresentation,
other than for fraud, may be defeated where it is reasonable to expect the
representee to make use of the opportunity to discover the truth.

407
 Principles of Singapore Business Law

Box 13.1

Reflecting
Misrepresentation and the representee’s own inquiry
on the law

It is quite often asserted by the representor that the representee was not induced
by the representation but rather by his own inquiry. In JTC v Wishing Star (No 2)
(2005), JTC was a developer of the Biopolis, a large research complex, and was
assisted by JCPL, its consultant. The tender for façade works for the complex was
awarded to WSL. Three months later, the contract was terminated for inter alia,
misrepresentation as to the satisfaction of the tender evaluation criteria. The trial
court found that although there had been misrepresentation, JTC had relied not
upon the misrepresentation but on JCPL’s own evaluation.
The Court of Appeal allowed the appeal and held that JTC was induced by the
misrepresentation even though it partly relied on JCPL’s evaluation and expertise.
Woo Bih Li J was of the view (at [113]) that a person who has made a false
representation cannot escape its consequences just because the innocent party has
made his own inquiry or due diligence but failed, whether due to negligence or
otherwise, to discover the fraud. So long as the innocent party does not learn of the
misrepresentation, the misrepresentation remains operative.
The Court of Appeal’s stance reinforces the position taken in earlier English
and Singapore cases. From the policy standpoint, the position makes sense — the
representee should not be penalised for choosing to make an inquiry; neither
should a contracting party be encouraged to make false statements. It should
be noted, however, that the representations in Wishing Star were fraudulent.
Where the misrepresentation is a negligent one, the case becomes less compelling.
After all, in principle, contributory negligence is a partial defence to a negligence
claim.

Addressed to the Other Party

13.25 Generally speaking, it is the direct addressee or recipient of a representation
who may bring an action for misrepresentation. It should be noted that a direct
recipient can be a person who is a member of a class of persons to whom
the representation is addressed, such as through a media announcement.
There are situations, however, where one who is not a direct recipient may
have recourse.

13.26 The first is where the representation is made to the representee’s authorised
agent. Here, there are two possible scenarios. In the first scenario, the
recipient, to the representor’s knowledge, is only an agent for passing on
the representation to his principal. In the second, the representor intends

408
 Chapter 13: Misrepresentation

that both the agent and principal will be influenced by the representation,
as in the case of partners of a firm. In the first, the principal is the
representee, while in the latter, both the principal and the agent are
representees.

13.27 The second situation is where, even though there is no agency between
the direct recipient and the indirect recipient, the representor intended
or reasonably expected the representation to be passed on to the indirect
recipient. Thus, where A by a misrepresentation induces B to buy an item
and B later induces C by a similar misrepresentation to buy it from B, C
could rely on the misrepresentation as against A if A knew that B intended
to resell and was likely to repeat the misrepresentation (see Gross v Lewis
Hillman (1970)).

13.28 It should be noted that an indirect misrepresentation arises either through

agency or through the intention or knowledge of the representor. In the past
two decades, there has been, in the context of guarantees and mortgages
by spouses, substantial development on the issue of the extent of a bank’s
liability for misrepresentation (and other misconduct) of the principal
debtor. In essence, the position is that the bank is affected by the principal
debtor’s misrepresentation to the guarantor if either the principal debtor may
be regarded as the bank’s agent or the bank had constructive notice of the
misrepresentation. For the detailed rules as to when a bank would be put on
inquiry and the reasonable steps it would then have to take, see the House
of Lords decision in Royal Bank of Scotland plc v Etridge (No 2) (2002).

TYPES OF MISREPRESENTATION
Introduction
13.29 As mentioned above, it is now clear that there can be three types of
misrepresentation and that they are, on a scale of diminishing culpability,
fraudulent misrepresentation, negligent misrepresentation and innocent
misrepresentation. Broadly speaking, the remedies of rescission and damages
(indemnity, in the case of innocent misrepresentation) are available for
all three. As we shall see, however, there are differences in the respec-
tive legal positions insofar as the recovery of damages is concerned (see
Figure 13.2).

409
 Principles of Singapore Business Law

Fraudulent Negligent Innocent

Statement made: Statement made: Statement made:

• knowing it is untrue • with no reasonable • honestly, and
• not believing it to be true ground to believe it • with reason to
• recklessly, not caring is true (s 2(1) MA) believe it is true
if it is true or not

Remedy: innocent party may rescind or affirm contract

Court may order damages instead of

rescission (s 2(2) MA)
+ + +

Damages Damages Indemnity

Figure 13.2 Types of misrepresentations and remedies

Fraudulent Misrepresentation
13.30 At common law, fraud is defined quite narrowly, as a charge of fraud “is
such a terrible thing as to bring against a man that it cannot be maintained
unless it is shown that he had a wicked mind” (per Lord Esher in Le Lievre v
Gould (1893) at p 498). In Derry v Peek (1889), the House of Lords held that
a fraudulent statement is one made knowingly, without belief of its truth, or
recklessly — not caring whether it is true or false. A person who deliberately
shuts his eyes to the facts or purposely abstains from investigating the facts
does not have an honest belief in its truth. Where there has been a fraudulent
misrepresentation, the representee may recover damages in an action under
the tort of deceit. Damages are awarded to compensate the representee for
all the losses which can properly be said to have been caused by his reliance
on the fraudulent misrepresentation (as contrasted with the contract measure
of expectation loss). (See the House of Lords decision in Smith New Court
Securities v Scrimgeor Vickers (Asset Management) (1997)). Further, in such

410
 Chapter 13: Misrepresentation

an action, contributory negligence is not a defence (see Standard Chartered

Bank v Pakistan National Shipping (No 2) (2002)).

13.31 The motive of the representor is irrelevant. It is not necessary that he had a
bad motive or intended to cause loss to the representee; it suffices that the
false statement was made knowingly with the intention that the representee
should act upon it (see Standard Chartered Bank v Pakistan National
Shipping (No 2) (2002)). It is also immaterial that the representor thought
the statement irrelevant or unimportant.

13.32 Where the responsibility for a statement is shared between a principal and
an agent, or between two agents, the position is more complex. If an agent
knowingly makes a false statement within the scope of his authority, the
principal is liable for fraudulent misrepresentation. Likewise, if an agent
knowingly makes a false statement to another agent intending that agent to
pass the statement on to a third party, the first agent is liable to the third
party for the misrepresentation of the second agent.

13.33 If the agent makes a statement which he honestly believes is true but which
the principal knows is untrue, then the position depends on the culpability
of the principal. If the principal was aware that the statement will be or
had been made and did not intervene, the principal is liable for fraudulent
misrepresentation. If he was not aware that the statement will be or had been
made, he is not liable (see Armstrong v Strain (1952)).

Negligent Misrepresentation
(1) Negligence at common law
13.34 A negligent misrepresentation is one which is made carelessly or without
reasonable grounds for believing it to be true. Prior to and apart from
the Misrepresentation Act, a misrepresentation would not be considered
negligent unless the representor owed a duty of care to the representee. A
“special relationship” must have existed between the parties before such duty
of care can arise (Hedley Byrne & Co Ltd v Heller & Partners Ltd (1964)).
The law on negligent misstatements was further developed and qualified by
subsequent cases (see, generally, Chapter 6, para 6.36 onwards). So far as
negligent misrepresentation is concerned, the importance of these refinements
is largely eclipsed by the Misrepresentation Act.

411
 Principles of Singapore Business Law

(2) Section 2(1) of the Misrepresentation Act

13.35 Section 2(1) Misrepresentation Act (Cap 390, 1994 Rev Ed) (“MA”) provides
as follows:
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
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 ground to believe and did believe up to the time the
contract was made that the facts represented were true.

The uninitiated reader may find the above paragraph at best awkward and at
worst incomprehensible. Adopting what has been termed a “fiction of fraud”,
the provision first says indirectly that a non-fraudulent misrepresentation
carries the same liability as a fraudulent misrepresentation. It then gives the
qualification that the representor will not be liable if he proves that he had
reasonable grounds to believe that his statement was true. In effect, what the
section does is to provide that a negligent misrepresentation (ie, one where
the representor does not have reasonable grounds to believe his statement is
true) attracts the same liability as a fraudulent misrepresentation.

(3) Measure of damages

13.36 There is much debate as to the correct basis for measuring damages for
negligent misrepresentation. One view is that the contract measure — to put
the representee into the position he would have been had the representation
been true — should apply. Another view is that the tort measure is the
appropriate one. In tort, the claimant is to be put in a position he would
have been if the tort (the misrepresentation) had not been committed. If the
tort measure is the correct one, there is a further complication: should the
deceit (fraud) measure or the negligence measure be applied? In cases of
fraud, losses may be recoverable even though they were not of a foreseeable
kind; this is not the case for negligence. There are no easy answers to this
problem. For further discussion of these issues, see A Phang, Cheshire, Fifoot
& Furmston’s Law of Contract (2nd ed, 1998) at pp 488–489 and Edwin
Peel, Treitel: The Law of Contract (13th ed, 2011) at paras 9–059 to 9–060.
It was recently said that the words of s 2(1) MA do not necessarily compel
the conclusion that the liability in damages for negligent misrepresentation

412
 Chapter 13: Misrepresentation

under s 2(1) is to be the same as that for fraud (see Cassa di Risparmio della
Repubblica di San Marino SpA v Barclays Bank Ltd (2011) at [223]).

(4) Burden of proof

13.37 At common law, a representee who alleges fraudulent misrepresentation
bears the burden of proving fraud and the onus is a heavy one. Upon
reading s 2(1) MA, it is clear that for negligent misrepresentation, the
burden is reversed. Once the representee proves that the statement was
false, the burden shifts to the representor to prove that he had reasonable
grounds to believe that the statement was true. In effect, the representor has
to show that his misrepresentation was not negligently made. In this respect,
negligent misrepresentation is a more favourable option for the representee
than fraudulent misrepresentation.

13.38 Although the use of the words “reasonable grounds” may give rise to the
argument that negligent misrepresentation, like negligent misstatement at
common law, requires the representee to establish a duty of care and a special
relationship, it is clear from the case judgments that this is not so (see
Howard Marine & Dredging v Ogden & Sons (Excavations) (1978) and Ng
Buay Hock v Tan Keng Huat (1997)). On the contrary, it is the representor’s
responsibility to show that he was not “negligent”. Whether a representee’s
claim for damages for negligent misrepresentation in principle should be
reduced by the representee’s contributory negligence is more debatable (see
Chitty on Contracts, Vol 1 (30th ed, 2008) at para 6–074).

Innocent Misrepresentation
13.39 The least culpable type of misrepresentation is innocent misrepresentation.
Here, the false statement is made honestly and with care. The common law
provided no remedies for an innocent misrepresentation but, in equity, the
representee is entitled to rescission and, possibly, an indemnity. The latter
remedy allows the representee to be indemnified against all obligations
necessarily created by the contract (see Whittington v Seal-Hayne (1900)).

REPRESENTATION AS A TERM
13.40 A representation is a statement made before or at the time of the contract,
which induced the representee to enter into the contract. It is conceivable,

413
 Principles of Singapore Business Law

perhaps even likely, that such a statement could be a term of the contract.
There are several guidelines for determining whether a pre-contractual
statement is a term. For one, the statement is unlikely to be a term if the
representor asks the representee to verify its truth (Ecay v Godfrey (1947)).
Another consideration is the relative abilities of the parties: if the representee
is in a better position, for instance through special knowledge or experience,
to ascertain the truth, the representation is unlikely to be a term (Oscar Chess
Ltd v Williams (1957)). Finally, the importance of the statement is relevant.
If the statement is so important that the representee would not have entered
into the contract had the statement not been made, the statement is likely to
be a term of the contract (Bannerman v White (1861)).

13.41 A representation may, however, be precluded from being a term of contract

by the parol evidence rule (see Chapter 10, para 10.8 onwards). The rule
basically says that where a contract is in writing, extrinsic (including oral)
evidence cannot be used to add to, vary or contradict the terms of the written
agreement. An exception to this is the collateral contract. The argument
here is that there are two agreements: the main (written) agreement and the
collateral oral contract. A representation may amount to a collateral contract
upon which the representee may bring an action.

RESCISSION
General
13.42 An operative misrepresentation makes the contract voidable at the option
of the representee. The representee is entitled to rescind the contract, that
is, to terminate it ab initio (ie, from the beginning) as if the contract never
existed. In contrast, where a contract is rescinded for a breach of contract,
the contract is terminated as regards the future; while the parties are released
from obligations that have not fallen due, they are still liable for obligations
which had accrued before the repudiation.

13.43 The right to rescind for a misrepresentation is one which existed prior to
the MA. At common law, a representee had a right to rescind for fraudulent
misrepresentation while, in equity, rescission was available for innocent mis-
representation and, presumably, negligent misrepresentation. With s 2(1) MA,
it is now certain that rescission is available for negligent misrepresentation.

414
 Chapter 13: Misrepresentation

However, with regard to negligent and innocent misrepresentation, the right

to rescind is subject to the court’s discretion to award damages in lieu of
rescission under s 2(2) MA (see para 13.49).

13.44 As the effect of rescission can be quite severe for the representor or for
third parties, the law puts some bars or restrictions on its availability: where
restitution is impossible, where there has been affirmation or lapse of time,
where third party rights are affected, and where the court exercises its
statutory discretion under s 2(2) MA to give damages in lieu of rescission.

(1) Restitution impossible

13.45 Rescission contemplates the representee terminating the contract and
returning what he received under the contract. For example, a buyer who
wishes to rescind for misrepresentation and recover his purchase money
must return the goods to the seller. If such restoration or restitution is not
possible, it makes sense that rescission should not be permitted. However,
what is required is not precise restitution but substantial restitution; equity
allows a representee to rescind if he returns the subject matter in its altered
state and makes an allowance for any diminution in its value or accounts for
any benefit he derived from using it. Equity seeks to make such adjustments
as are necessary to do practical justice between the parties. Where substantial
restitution is not possible, the representee is not barred from rescinding if
the diminution is due either to the very defect in the subject matter which it
was represented not to have or to external causes, such as damage caused by
a third party.

(2) Affirmation
13.46 Upon discovery of the misrepresentation, the representee may elect either to
affirm or to rescind the contract. Upon affirmation, the right to rescission is
lost. Affirmation can be express or implied by conduct (though very clear
evidence is required). An example of the latter is where the representee
uses the goods after knowing of the misrepresentation. However, before an
election can be made, the representee must have knowledge not only of the
untruth but also that the law gives him a right to rescind; and where an
election is conditional, upon the failure of the condition, the right to rescind
re-emerges (JTC v Wishing Star (No 2) (2005)).

415
 Principles of Singapore Business Law

(3) Lapse of time

13.47 If, subsequent to the discovery of the truth, a reasonable period of time has
passed and the representee still does not exercise his right to rescind, his
inaction may be evidence of affirmation. Apparently, for innocent and, it
would appear, negligent misrepresentation, the lapse of reasonable time may
be a bar to rescission even if the representee has not discovered the truth (see
Leaf v International Galleries (1950)). Such a position is somewhat discon-
certing since there can be no affirmation without knowledge of the untruth.
So far as fraudulent misrepresentation is concerned, lapse of time without
discovery of the truth would not prevent a representee from rescinding.

(4) Third party rights

13.48 Misrepresentation makes a contract voidable, not void. If before a representee
avoids (rescinds) a contract, an innocent third party (that is, one who acts
in good faith and gave consideration) has acquired an interest in the subject
matter, the right to rescission is lost.

Section 2(2) of the Misrepresentation Act

(1) General
13.49 Section 2(2) provides as follows:
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 … that the contract ought to be or has been rescinded, the
court … 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.
Essentially, the provision fetters the representee’s right to rescission for
negligent and innocent misrepresentation. It gives the court the discretion
to declare that the contract subsists and to award damages in place
of rescission. In deciding whether to exercise the discretion and the amount
of damages, it gives regard to the nature of the contract, the loss that
upholding the contract would cause as well as the loss that rescission would
cause.

416
 Chapter 13: Misrepresentation

(2) Types of misrepresentation

13.50 The subsection does not apply to fraudulent misrepresentation; the represen-
tee’s right at common law to rescission and to damages is unaffected. As for
negligent misrepresentation, the representee’s right to rescission and damages
is affected in that the right to rescission is now subject to the court’s power
to give damages instead. Technically speaking, the representee to a negligent
misrepresentation may get two sets of damages: he may claim damages as of
right (under s 2(1)) and may also be awarded damages in lieu of rescission
(s 2(2)). As for innocent misrepresentation, the representee’s rights in equity
to rescission and indemnity are now qualified by the court’s power to award
damages in lieu of rescission.

(3) Where right to rescind is lost

13.51 There is substantial controversy as to whether s 2(2) allows a court to award
damages in lieu where the representee has lost the right to rescind. For
example, he may have affirmed the contract or third party rights may have
intervened. A purely linguistic interpretation suggests that the entitlement to
rescind must still be available in order for damages to be given in lieu (see
Government of Zanzibar v British Aerospace (Lancaster House) (2000)).

(4) Measure of damages

13.52 There is uncertainty as to how damages under s 2(2) are to be assessed. Two
possibilities are the tortious measure and the contractual measure, respectively.
The tortious measure seems inappropriate for innocent misrepresentation
since no tort has been committed. For negligent misrepresentation, the
further complication is whether the tortious measure, assuming it is to apply,
is the fraud measure or the negligence measure (see para 13.36).

13.53 Section 2(3) goes on to provide that damages may be awarded under subs (2)
whether or not the representor is liable to damages under subs (1), and that
any damages awarded under subs (2) will be taken into account in assessing
the damages under subs (1).

EXCLUSION OF LIABILITY
13.54 Contracting parties sometimes seek to exclude the consequences of
misrepresentation by inserting a clause to that effect in the contract. At

417
 Principles of Singapore Business Law

common law, apart from where the representor is fraudulent, such a

clause is valid and is subject to the normal rules of construction applicable
to exemption clauses. This freedom to include exclusion clauses is now
circumscribed by statute.

13.55 Section 3 MA, as amended by s 8 Unfair Contract Terms Act, reads:

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 s 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.
In essence, the provision invalidates exclusion clauses that exclude or restrict
any liability or remedy for misrepresentation unless they are reasonable.
It should be noted that the burden of proving that an exclusion clause is
reasonable lies with the party seeking to rely on it.

13.56 For exclusion clauses in general, a distinction can be drawn between clauses
which exclude liability and those which seek to prevent liability from arising
by negativing one or more of the elements of liability, with the former
attracting the operation of the UCTA provision but not the latter. As regards
misrepresentation, examples of the former would include one which expressly
seeks to exclude liability, such as “All liabilities for and all remedies in
respect of any misrepresentations made are excluded” and one which states
that the contract is not cancellable or voidable by either party. It should be
noted that clauses which seek to limit rather than altogether exclude liability,
for example, by limiting liability to a certain sum of money, are viewed less
stringently by the courts (Ailsa Craig Fishing v Malvern Fishing (1983)). On
exemption clauses generally, see Chapter 11.

13.57 Overbrooke Estate v Glencombe Properties (1974) provides a good example of

a clause which seeks to prevent misrepresentation liability from arising. In
that case, the defendants were successful bidders for a property. A few days
before the auction, they made enquiries with the auctioneers and received
inaccurate answers. The terms of the sale included a clause which stated that
“neither the auctioneers nor any person in the employment of the auctioneers

418
 Chapter 13: Misrepresentation

has any authority to make or give any representation or warranty”. The court
held that the provision was not an exclusion clause but a limitation on the
apparent authority of the auctioneers.

13.58 Other clauses which seek to negative the elements of misrepresentation

include clauses stating that no representation has been made or that
neither party has relied on any representation. The general approach of the
law is that if the clause is genuine, that is, that there really had been no
representation, or no reliance, or no authority (as the case may be), then
the clause is effective to prevent misrepresentation liability from arising (see,
eg, Government of Zanzibar v British Aerospace (Lancaster House) (2000)).
The clause should not avail, for example, where the party seeking to rely
on the clause is well aware that representations have in fact been made (see
Cremdean Properties Ltd v Nash (1977)). Even so, where both parties to the
contract are sophisticated, commercial entities of similar bargaining power,
courts have been willing to find that even clauses falling within the latter
category are reasonable (see, eg, Raiffeisen Zentralbank Osterreich AG v Royal
Bank of Scotland plc (2010)).

13.59 Generally, in deciding whether a clause excluding liability for misrepresen-

tation is reasonable, a relevant factor is the relative knowledge or access
to knowledge of the parties (see South Western General Property v Marton
(1982)). If, for example, the facts on which the representation is based are
only within the knowledge of the representor, the clause is likely to be
unreasonable. The guidelines set out in Second Schedule of the UCTA, such
as the relative bargaining power, are also generally applicable (see, generally,
Chapter 11, para 11.58).

13.60 In recent times, such exclusionary clauses have been challenged from another
angle — that they operate to estop (or prevent) a representee from alleging
misrepresentation. Two forms of estoppel have been pleaded — estoppel
by representation and contractual estoppel. The requirements for estoppel
by representation were laid down by Diplock J (as he was then) in Lowe v
Lombank (1960) as follows:

° there must be a clear and unambiguous statement (here, the statement

that there has been no representation, or no reliance, etc);

° the maker of the statement intended the recipient to rely on the statement;
and

° the recipient believed the statement and was induced by it.

419
 Principles of Singapore Business Law

In contrast, contractual estoppel, which is a recent doctrine, merely requires

that there was a clear and unambiguous statement. Although contractual
estoppel has gained acceptance in the English Court of Appeal (see Peekay
Intermark Ltd v ANZ Banking Group Ltd (2006) and Springwell Navigation
Corp v JP Morgan Chase Bank (2010)), the doctrinal basis of this new species
of estoppel is seriously doubted. For a discussion of the legal developments
in this important and complex area, see Raiffeisen Zentralbank Osterreich AG
v Royal Bank of Scotland plc (2010) and Low Kee Yang, “Misrepresentation
and Contractual Estoppel: The Raiffeisen Clarifications” (2011) 23 SAcLJ 390.

CONCLUSION
13.61 The law of misrepresentation performs the important function of providing
rights and remedies against false statements in the contractual context,
especially if these statements do not find their way into the written agreement.
The elements of an operative misrepresentation are clear enough, apart from
the nagging doubt regarding materiality. Although misrepresentation provides
a drastic remedy in the form of rescission, its availability is moderated by
sensible restrictions. This is especially the case for negligent and innocent
misrepresentation, where the court has discretion to award damages in lieu
of rescission. The protection which the law of misrepresentation provides is
further safeguarded by the legislative requirement that any attempt to exclude
or restrict liability for misrepresentation must be reasonable to be valid.

13.62 Fundamental to understanding the law of misrepresentation is an appreciation

of the Misrepresentation Act provisions — what they mean to say and
how they modify the previous position. The manner by which negligent
misrepresentation is established as a recognised concept is unfortunate.
Indeed, the indirect approach of using the “fiction of fraud” results in
confusion and several legal issues still remain debatable and speculative,
though in recent times courts have been challenges by the use of estoppel
to defeat misrepresentation claims. However, taking a holistic view of the
subject, one may conclude that the law of misrepresentation does provide a
reasonably satisfactory regime for ensuring accountability for the making of
pre-contractual statements.

420