Question

(a) Sally is the owner of a huge bookstore in Quarry Bay. Near retirement age, she is looking for opportunities to sell her business. One day, Ricky, who was interested to buy the bookstore, was invited by Sally to visit her bookstore. Ricky was excited to see that there was a small tea shop inside the bookstore selling Taiwanese style drinks. Ricky was led by Sally to visit the whole bookstore including a tea shop. Sally told Ricky that the customers enjoyed having a cup of takeaway drink from the tea shop before reading and purchasing books in the bookstore. She also mentioned that the tea shop and the bookstore together attracted many students and youngsters nearby, generating a total monthly revenue of over HK$800,000. Ricky was very satisfied with what he saw that day. Thinking that he was buying the bookstore together with the tea shop, he immediately placed a deposit with Sally for purchase of her business. However, one week later, Ricky learned from a reliable source of information that the tea shop inside the bookstore actually belonged to another owner. Sally did not share any profits from the tea shop, neither could she influence the tea shop’s operation.

Required:

(a) Discuss whether the conduct of Sally constitutes misrepresentation. You are required to cite a relevant case in your explanation but do NOT need to discuss the different types of misrepresentation.

(b) In February, Mr and Mrs Lee engaged Susan, a famous ballerina to perform a private show at their villa in the New Territories to celebrate their 30th wedding anniversary in August. At the same time, Mr and Mrs Lee paid Susan HK$10,000 as deposit for her performance. In March, Susan’s left ankle was injured badly while practising. She was told by her doctor that the injury was very serious and she would probably have difficulty walking for the rest of this year. Susan decided to take her doctor’s advice and cancel the ballet show. There is no provision in the contract between Susan and Mr and Mrs Lee in respect of Susan’s injury. When Mr and Mrs Lee were informed of Susan’s injury and the cancellation of her ballet show, they were shocked and very disappointed.

Required:

(bi) Discuss whether Susan’s contract with Mr and Mrs Lee can be discharged by frustration.

(bii) Discuss whether Mr and Mrs Lee are entitled to demand a refund of their deposit and claim for additional compensation.

Answer 1

( a) Meaning of misrepresentation

An act amounts to misrepresentation if there is a concealment of a material fact without any intention to receive the other party.

Intention to defraud was not required to be proven for establishing misrepresentation as mentioned in Supreme court judgement in case of Lakshikant V Patel vs. Chetanbhia Shah & Aur.

Facts of the case

In the given case, Sally has not informed Ricky that neither the shop belong to him nor he does not share the profit from the tea shop owner.

Thus here Sally constitute misrepresentation without a view to deceive other party.

(bi) Meaning of fustration

Where there exists a change in circumstances after entering into the contract which not the fault at the part of either of the parties, which renders the contract either impossible to perform or deprives the contract of its commercial purpose is discharge by frustration.

Facts of the case

Here the impossibility to perform the contract by Susan was due to her leg injury which she was not aware to happen at the time of entering to the contract and creates an impossibility to perform.

Thus it is evident that the case is discharge by frustration.

(bii) Discharge of fustration puts the contract to an end. Thus additional compensation cannot be claimed, but can refund any amount if already paid.