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    12:35 AM Goh Yihan (Associate Professor, Singapore Management University)

    RBC Properties Pte Ltd v Defu Furniture Pte Ltd [2014] SGCA 62: Restatement of Law Relating to Misrepresentation in Singapore

        

    The recent Court of Appeal decision of RBC Properties Pte Ltd v Defu Furniture Pte Ltd [2014] SGCA 62 (“RBC Properties”) contains an invaluable restatement of the law relating to misrepresentation in Singapore. This entry aims only to summarise that restatement of law. The interested reader may find the facts of the case succinctly discussed by the Court of Appeal in its judgment here and also in this blog entry on the High Court decision.

    The Court of Appeal dealt with three important issues relating to the law of misrepresentation, namely:

    • When a representor can rely on the defence of reasonable belief under s 2(1) of the Misrepresentation Act (Cap 390, 1994 Rev Ed);
    • The type of damages recoverable under s 2(1) of the Misrepresentation Act; and
    • The remedy for an innocent misrepresentation, particularly with regard to s 2(2) of the Misrepresentation Act

    When a representor can rely on the defence of reasonable belief under s 2(1) of the Misrepresentation Act

    Assuming that a representor had made a misrepresentation, and the representee has suffered loss, the representor will be liable under the common law: the contract entered into can be rescinded, accompanied by an indemnity in favour of the representee. Section 2(1) of the Misrepresentation Act affords the representee an additional statutory remedy. It provides that:

    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 has 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.

    Section 2(1) therefore entitles the representee to damages had the misrepresentation been made fraudulently. However, the representor can escape the effects of s 2(1) by relying on the defence of reasonable belief, also provided by the subsection itself. The representor must show that “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 Court of Appeal in RBC Properties laid down several important principles relating to when a representor can rely on such a defence of reasonable belief.

    Relationship between s 2(1) of the Misrepresentation Act and the tort of negligent misstatement

    By way of background, the Court of Appeal first observed that while s 2(1) co-exists with the tort of negligent misrepresentation at common law established in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, s 2(1) is decidedly different from the common law action. The Court of Appeal adopted Professor John Cartwright’s explanation of the differences between the two actions as follows:

    … Broadly, the remedy under section 2(1) of the Misrepresentation Act 1967 is more restricted in its application, since it is only available to one contracting party against the other contracting party, whereas the tort of negligence applies to all cases where a claimant can establish a duty of care, including actions between contracting parties. But in those case where section 2(1) applies it is more attractive for the claimant since the elements of his claim are easier to establish than the elements of the tort of negligence; the burden of proving (in substance) absence of negligence lies on the defendant (rather than, as in the tort of negligence, the burden of proving breach of duty lying on the claimant); and in certain circumstances the remedy of damages under the section might be more extensive than the remedy in negligence. It is therefore clear that, where the claimant has a cause of action under section 2(1), it is unlikely to be of any benefit to him to pursue any action he may have in the tort of negligence. But the tort will be used where the Act is not available; in particular, where the claimant and the defendant are not parties to a contract. [emphasis added by the Court of Appeal in RBC Properties]

    In summary, s 2(1) is generally more advantageous to the representee if there is a contract between the representor and representee. The statutory action is more advantageous because the burden of proof is now on the representor to prove reasonable belief, and if he fails to do so, the representee may recover greater damages compared to the common law action.

    Application of the test of reasonable belief

    The Court of Appeal explained comprehensively how the test of reasonable belief is to be applied by way of a defence in a s 2(1) action. In summary, the court must ascertain the representor’s subjective state of mind based on an objective standard. This is to be done in two steps:

    • First, the court must objectively ascertain that the representor’s subjectively believed that the representation made was true.
    • Secondly, having ascertained that the representor subjectively believed that the representation made was true, the court must objectively assess whether the representor had reasonable grounds for that belief.

    As for the first step, the court must not subjectively ascertain the representor’s belief that the representation was true, for this would make it all too easy for a representor to simply assert that he had truly believed in what he had represented. The facts of the case must be objectively assessed to ascertain whether the representor did, subjectively, believe that the representation made was true. As the Court of Appeal explained, it is the element of reasonableness that constitutes the objective element in the application of s 2(1). 

    As for the second step, the court must objectively assess whether the representor had reasonable grounds for that belief. According to the Court of Appeal in RBC Properties, “the court would have to assess the reasonableness of the representor’s alleged belief in the context of both the representation(s) made as well as all the circumstances of the case, and what is reasonable will inevitably be, in the nature of things, a fact-centric exercise”. Although the Court of Appeal rightly held that no hard and fast line can be drawn, it did hold that the general premise behind s 2(1) is that representor’s subjectively held belief has fallen short of what, in the relevant circumstances, would have been objectively reasonable for him to believe.

    The Court of Appeal added four further, specific, points flowing from the above-mentioned two-step analysis:

    • First, the representor is not entitled to claim innocence when he was wilfully blind to obvious sources of information that would have brought him to a realisation of the true position. This is entirely consistent with the Court of Appeal’s prior explanation that the assessment of reasonable belief is to be done objectively. 
    • Secondly, the representor is only entitled to rely on grounds that were actually (and hence, subjectively) present in the representor’s mind at the time he made the representation concerned. Thus, the representor is not entitled to rely on grounds that he says a reasonable person would have had in the circumstances. 
    • Thirdly, the operative timeframe for when such reasonable belief is to be subjectively held commences from the time the misrepresentation was made, up till when the contract is entered into. 
    • Fourthly, and related to the third point, the assessment of reasonable belief is a continuing one throughout the operative timeframe. Thus, even if the representor had an objectively reasonable ground at first, that would not assist him if such ground became unreasonable later on within the operative timeframe. 

    Therefore, the analysis of reasonable belief under s 2(1), under the Court of Appeal’s restatement in RBC Properties, proceeds along a two-step general framework, as supplemented by these four specific points.

    The type of damages recoverable under s 2(1) of the Misrepresentation Act

    Although not specifically raised by the facts in RBC Properties, the Court of Appeal also very helpfully discussed the controversial issue of the type of damages recoverable under s 2(1) of the Misrepresentation Act. Briefly, the controversy is whether the measure of damages is dictated by a fraudulent or negligent measure. This is practically significant: whereas the negligent measure is constrained by foreseeability, the fraudulent measure is not, and can lead to significant damages. 

    The Court of Appeal very tentatively held that the measure of damages under s 2(1) should be that awarded under the negligent measure. It thought that the substance of s 2(1) was negligence, and hence the more generous measure awarded in respect of fraud should not apply. This is decidedly against the English Court of Appeal decision of Royscot Trust Ltd v Rogerson [1991] 2 QB 297, which has been cited with apparent approval by the High Court in Singapore. However, this was not in issue in RBC Properties, and the Court of Appeal did not see it necessary to express a definitive view on the matter.

    The remedy for an innocent misrepresentation, particularly with regard to s 2(2) of the Misrepresentation Act

    A final, but no less important, point from RBC Properties concerns the remedy for an innocent misrepresentation. There are two related issues here.

    Rescission with indemnity

    The Court of Appeal found that where a misrepresentation is made innocently, that is, the reasonable belief test in s 2(1) is satisfied, the representee is entitled to both rescind the contract, and claim an indemnity. However, it is important the representee is placed in the same position before the contract was entered into in all aspects, but only as regards those obligations created by the contract entered into as a result of the misrepresentation. This is the essence of the indemnity. 

    Damages in lieu of rescission

    Moreover, the Court of Appeal in RBC Properties explained the application of ss 2(2) and 2(3) of the Misrepresentation Act, which give the court the discretion to award damages in lieu of rescission:

    (2)  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, in any proceedings arising out of the contract, that the contract ought to be or has been rescinded, the court or arbitrator 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.

    (3)  Damages may be awarded against a person under subsection (2) whether or not he is liable to damages under subsection (1), but where he is so liable any award under subsection (2) shall be taken into account in assessing his liability under subsection (1).

    The Court of Appeal held that the discretion conferred by s 2(2) is to be exercised only in accordance with established principles. An important consideration is whether rescission is a disproportionately harsh remedy on the representor, in the event that the representation was relatively slight or unimportant. In such a case, damages might be the more appropriately remedy.

    * This blog entry may be cited as Goh Yihan, "RBC Properties Pte Ltd v Defu Furniture Pte Ltd [2014] SGCA 62: Restatement of Law Relating to Misrepresentation in Singapore", Singapore Law Blog (23 December 2014) (http://www.singaporelawblog.sg/blog/article/71)

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

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