postimage

    03:51 PM Shaun Pereira (Justices' Law Clerk, Supreme Court of Singapore)

    Liability for Misrepresentation: Defu Furniture Pte Ltd v RBC Properties Pte Ltd [2014] SGHC 01

        

    In Defu Furniture Pte Ltd v RBC Properties Pte Ltd [2014] SGHC 01, the Singapore High Court was confronted with a frequently occurring situation at the intersection of the law of contract and torts: what are the remedial consequences where a misrepresentation induces a party to enter into a contract, and the terms of that contract purport to exclude liability for misrepresentation? Coomaraswamy J struck a decidedly affirmative note in favour of the representee’s entitlement to damages despite the existence of an exclusionary clause.

    This case comment will discuss three points raised by the court: (a)The reasonableness (under the Unfair Contract Terms Act (Cap. 396, 1994 Rev Ed) ("the UCTA”)) of clauses excluding misrepresentation liability; (b)The relationship between a claim in misrepresentation and entire agreement clauses; (c)The measure of damages for negligent misrepresentation under the Misrepresentation Act (Cap. 390, 1994 Rev Ed) ("the Misrepresentation Act”).

    The dispute centred largely over findings of fact. But the clarifications made by the court on these three points of law are, nonetheless, welcome. They are of great practical significance. The case has clarified uncertainty in these rudimentary areas of the law, which one would have expected to be long well settled.

    Facts and decision

    Defu entered into a sub-lease with RBC for the use of certain premises as a showroom. RBC was the lessee of the premises under a chain of leases, with the SLA as the head landlord (in all material respects).

    In the discussions leading up to the sub-lease, Defu expressed its concern about impediments to the use of the premises as a showroom. RBC represented to Defu that it had obtained all necessary approvals for the use of the premises as a showroom.

    Both parties were labouring under the misconception that only regulatory approval from the URA was required. The URA had indeed given such approval. Neither party knew, nor suspected, that the SLA’s approval was also required. There was a contractual provision in the head lease (of which SLA was the landlord) that prevented the use of the premises as a showroom.

    The SLA discovered RBC had leased the premises to Defu for use as a showroom. The SLA considered this a breach of the terms of the head lease. It consequently attempted to impose a differential premium on its lessee for the breach. The sub-lessees attempted to pass the differential premium down the chain of sub-leases, which fell ultimately on Defu. The result was an approximately 30% increase in rent for Defu.

    Defu refused to pay the increased rent. Defu stopped fitting-out works, which had already begun. It reinstated the premises, and returned possession of them to RBC. Defu claimed it was entitled to rescind the sub-lease as a consequence of RBC's misrepresentation. Defu also claimed damages.

    The court found that RBC made false representations that it obtained all approvals necessary for use of the premises as a showroom. Under s 2(1) of the Misrepresentation Act, the burden of proof is reversed; it is for the representor to prove that the misrepresentation was made innocently. The court found that RBC had not discharged its burden of showing that the misrepresentations were made honestly and with reasonable belief. As a result, RBC was held liable under s 2(1) of the Misrepresentation Act as if it had made a fraudulent misrepresentation.

    Reasonableness of clauses excluding misrepresentation liability

    First, the court’s guidance on the reasonableness of clauses purporting to exclude misrepresentation liability is instructive. RBC relied on a term in the sub-lease, which it claimed excluded liability for misrepresentation:

    "[RBC] shall not be bound by any representations or promises with respect to the Building and its appurtenances, or in respect of the Demised Premises ... [RBC] does not expressly or impliedly warrant that the Demised Premises are now or will remain suitable or adequate for all or any of the purposes of [Defu] and all warranties (if any) as to the suitability and adequacy of the Demised Premises implied by law are hereby expressly negated."

    The court held that the clause was one that purported to exclude misrepresentation liability. It was accordingly subject to the requirement of reasonableness under s 3 of the UCTA. The term was found to be unreasonable and, therefore, of no effect.

    The court laid down a few guidelines which will help give shape to the concept of reasonableness, at least in the context of leases: (a)A clause which purports to exclude liability for misrepresentations about the premises going to the root of the lease will not be reasonable, if it includes latent features of the premises; (b)A clause which purports to exclude liability for misrepresentations about the premises going to the root of the lease could be reasonable if restricted to patent defects; (c) A clause which purports to exclude liability for misrepresentations about the premises in relation to incidental features could be reasonable, whether patent or latent.

    These guidelines are helpful in both their simplicity and their clarity. It might not, however, always be easy to determine when a feature of the premises goes to the root of the lease, or when it is merely incidental. In a way, this is somewhat reminiscent of the difficult dichotomy between conditions and warranties in the law of contract. The facts of this case were, however, admittedly extreme. Defu asked RBC to confirm repeatedly that the premises could be used as a showroom. The premises were leased for use as a showroom. Defu undertook a contractual obligation not to use the premises as anything other than a showroom. The representation was clearly one that went to the root of the lease.

    It is also noteworthy that the sub-lease was the product of commercial negotiations between two parties dealing at arms’ length. Relatively equal bargaining power between the parties notwithstanding, the exclusion of liability clause was found to be unreasonable. The court held that the clause sought to exclude liability for a misrepresentation about latent features of the premises that went to the root of the lease. This perhaps signals the cautious attitude of the court towards such exclusion clauses, even in commercial agreements.

    Misrepresentation and entire agreement clauses

    Second, the court clarified the interplay between entire agreement clauses and misrepresentation. In the past, Singapore courts have been tentative in holding that entire-agreement clauses will not preclude a claim in misrepresentation. The Court of Appeal in Lee Chee Wei v Tan Hor Peow Victor [2007] 3 SLR(R) 537 seemed to think so, but it did not rule on the point. The High Court in PT Panasonic Globel Indonesia v Stratech Systems Ltd [2009] 1 SLR(R) 470 thought that the argument was "a strong one” but declined to express a conclusive view.

    The court in Defu Furniture v RBC Properties has put it beyond doubt that while an entire agreement clause may defeat a claim in contract, it does not do so for a claim in misrepresentation. It held that a clause in the sub-lease to that effect did not affect Defu’s claim. It is significant that this conclusion was stated categorically, as a rule of law, as opposed to a result stemming from a restrictive construction of the entire agreement clause. Importantly, this is regardless of how tightly drafted and comprehensive the entire agreement clause is. But if the clause, properly construed, is one that purports to exclude misrepresentation liability, then it would be subject to the requirement of reasonableness.

    Measure of damages for negligent misrepresentation

    Finally, the court addressed the appropriate measure of damages for a negligent misrepresentation under s 2(1) of the Misrepresentation Act. This question has been one of some controversy, with two divergent views. The first, that the "fiction of fraud” under s 2(1) of the Misrepresentation Act applies to both liability and quantum. On this view, the more generous measure of damages for a claim in fraud similarly applies to a claim in negligent misrepresentation by virtue of s 2(1) of the Misrepresentation Act.

    The second view is that s 2(1) of the Misrepresentation Act only had the effect of creating liability for negligent misrepresentations, where previously (under the common law), none existed. Accordingly, the Misrepresentation Act does not change the quantum of damages claimable, which would be restricted to the usual negligence measure.

    The court supported the first view.  Following the English Court of Appeal’s decision in Royscot Trust Ltd v Rogerson [1991] 2 QB 297 ("Royscot Trust”), it held that the "plain meaning of the words used in s 2(1)” of the Act cannot be confined only to the test of liability. Section 2(1) of the Act states that where a person making a misrepresentation would be liable if "the misrepresentation had been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently” [emphasis added]. Notably, the position in Royscot Trust had been previously adopted by the Singapore High Court in Ng Buay Hock v Tan Keng Huat and another [1997] 1 SLR(R) 507.

    The Royscot Trust view has been described as unfair: the upshot is "to treat the foolish but honest man as if he were dishonest” (Hooley, Damages and the Misrepresentation Act 1967 (1991) Law Quarterly Review 547).  Other commentators have also pointed out that the wording of s 2(1) of the Misrepresentation Act is not as plain and unambiguous as it seems. McGregor on Damages (Sweet & Maxwell, 18th Ed, 2012) suggests that "all [s] 2(1) is purporting to say is this: before the Act the person induced by misrepresentation not forming part of the contract had only an action for fraudulent misrepresentation, now he has one also for negligent misrepresentation.” To the extent that Royscot Trust was based on the "[clear] wording of the subsection", one wonders if there is any room for the prevailing purposive approach to statutory interpretation. 

    That said, the court's justification based on the wording of s 2(1) of the Misrepresentation Act is still a persuasive one; particularly so with a previous decision in that direction by a court of the same level. It was a difficult decision between two alternatives. Principle and fairness would have tugged in one direction. The constraints on a court when faced with a plainly-worded statutory provision would have tugged in the other.

    Defu Furniture Pte Ltd v RBC Properties Pte Ltd is going on appeal.  

    * This blog entry may be cited as: Shaun Pereira, "Liability for Misrepresentation: Defu Furniture Pte Ltd v RBC Properties Pte Ltd [2014] SGHC 01" Singapore Law Blog (25 May 2014)

    ** The opinions contained in the commentary reflect the author’s own views and are not to be understood as reflecting the views of the author’s employer.

    *** A PDF version of this entry may be downloaded here

Comment Section