Hong Kong Foods: Royal Court Clarifies Law on Misrepresentation

  1. The decision of the Royal Court in Hong Kong Foods Limited and Another v Robin Hood Curry Limited and Another[1] has brought much needed clarity to the law of misrepresentation, which had previously languished in a rather confused state. The principal reason for this was the way in which the Royal Court had, over a number of years, elided a concept of misrepresentation rooted in English principles with the French law concept of erreur (mistake).

 

  1. In spite of this uncertainty, before 2005 there existed a line of authorities[2] which made the position tolerably clear, and from which the following test could be distilled:
    1. Were factual representations made?
    2. Were they false?
    3. Did they induce the claimant to enter the contract?

 

  1. In order to succeed, the plaintiff had to establish that the false statement in question was factual rather than description or opinion, and that it was a material factor in their decision to enter the contract. If established, the plaintiff was entitled to seek rescission of the contract and/or damages.

 

  1. This approach was unsettled by Steelux Holdings Limited v Edmonstone[3] in which Sir Philip Bailhache, Bailiff, observed that an innocent misrepresentation was capable of forming a defect of consent (vice du consentement) as a species of erreur because the other party entered the contract under the mistaken impression that the statement or representation was true. As a result, the aggrieved party was entitled to treat the contract as void[4]. Steelux was subsequently cited by the Court of Appeal in Marett v O’Brien[5] as authority for the proposition that a vice du consentement will render a contract void ab initio (i.e. it never existed).

 

  1. Innocent misrepresentation was revisited in Sutton v Insurance Corporation of the Channel Islands Limited[6] in which William Bailhache, Deputy Bailiff (as he then was) summarised the position as follows:

 

“In our view, cases in Contract which have been brought before the Royal Court upon the basis of misrepresentation, where the claim is that an innocent misrepresentation did not become part of the contract terms but did induce the making of a contract which would otherwise not have been made, can sometimes be properly understood by reference to the Law on Erreur; the most recent exposition of which is to be found in the decision of the Court of Appeal in Marett v O’Brien [2008] JLR 384. A fraudulent misrepresentation clearly allows the contract to be avoided. But we go further and hold that Jersey’s contract cases show that, depending on the facts, including, in particular, the materiality of the alleged misrepresentation to the contract and its actual impact on the party to whom it was made, an innocent misrepresentation which induces a contract can be another form of vice du consentement just as erreur or dol” [Emphasis added].

 

  1. This approach indicated the coexistence of two distinct concepts of innocent misrepresentation: one capable of being a vice du consentement and thus rendering a contract void ab initio, the other (presumably) still affording the opportunity to seek rescission and/or damages. The consequence of this disjunction was that the remedies available in the latter case would be potentially more attractive than the former, because a contract which is void ab initio has (in theory) never existed[7].

 

  1. In Hong Kong Foods, Sir Michael Birt, Commissioner, addressed the issue in the context of a counterclaim that the defendants were entitled to rescind or terminate a sublease, and claim for losses suffered as a result on the basis of misrepresentation. Having considered the difficulties posed by the previous authorities, the Court held that[8]:

 

“In our judgment, the Court should, so far as consistent with legal principle and precedent, develop the Jersey law of contract so as to be suitable for the requirements of commercial life in the 21st century and to be as easily ascertainable and understandable as possible. In our judgment, to hold that a contract induced by an innocent (i.e. non-fraudulent) misrepresentation is void ab initio (nul) would be an undesirable outcome and, furthermore, is not required by precedent”.                          

 

  1. The judgment makes clear that the law has now retreated to the firm ground it occupied prior to Steelux and Sutton[9] and that this framework applies to both innocent and negligent misrepresentation[10] – a point which will (hopefully) obviate the need for the distinction to be argued in a later case. The Court left open the possibility that a future court may wish to redefine innocent (and, presumably, negligent) misrepresentation as a vice du consentement while retaining scope for the contract to be held voidable rather than void[11]. It is hard to find much appeal in this proposition, which would surely reopen the door to uncertainty.

 

  1. The Court made careful reference to modern French law as well as the works of Domat and Le Geyt which, along with those of other early commentators, had a profound impact on the development of Jersey contract law[12]. This having been said, while the law is civilian in origin, the confusion post Steelux and Sutton illustrates the difficulties caused as these founding tenets have been conflated with common law principles more familiar to the modern practitioner. Misrepresentation is not an especially complicated concept and should never have fallen into such disrepair. In this sense, Hong Kong Foods represents a small but important step towards legal certainty. The theoretical conflict between France and England will no doubt endure for years to come, however, if Jersey is to develop a body of contract law fit for the demands of the 21st century, then coherence and certainty must take precedence, even if it means departing from legal tradition.

 

Charles Sorensen, Senior Associate

May 2017

[1] [2017] JRC050

[2] McIlroy v Hustler (1969) JJ 1181, Channel Hotels & Properties Ltd v Rice (1977) JJ 111, Kwanza Hotels Ltd v Sogeo Co Ltd (1981) JJ 59 and (1983) JJ 105 (appeal) and Newman v Marks 1985-86 JLR 338.

[3] [2005[ JLR 152

[4] Ibid at para 10

[5] [2008] JLR 384 at para 59.

[6] [2011] JRC 027

[7] See Hong Kong Foods at para 140.

[8] Ibid at para 141

[9] Ibid at para 145

[10] Ibid at para 149

[11] Ibid at para 150

[12] Ibid at paras 144-148

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