Hong Kong Foods: Royal Court Clarifies Law On Misrepresentation

The decision of the Royal Court in Hong Kong Foods Limited and Another v Robin Hood Curry Limited and Another1 has brought much needed clarity to the law on 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). In spite of this uncertainty, before 2005 there existed a line of authorities2 which made the position tolerably clear, and from which the following test could be distilled: Were factual representations made? Were they false? Did they induce the claimant to enter the contract? 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. This approach was unsettled by Steelux Holdings Limited v Edmonstone3 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 void4. Steelux was subsequently cited by the Court of Appeal in Marett v O'Brien5 as authority for the proposition that a vice du consentement will render a contract void ab initio (i.e. it never existed). Innocent misrepresentation was revisited in Sutton v Insurance Corporation of the Channel Islands Limited6 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...