Frozen in 1872: Misrepresentation under the Contract Act and English Law Compared

Introduction:

The Contract Act of 1872 was enacted in the Indian subcontinent during British rule. The core purpose of this act was to govern all the agreements and contracts in the sub-continent. The English common law was the basis for this act. This Contract Act remained valid even after the partition of 1947 in both Pakistan and India. In today’s time and age, the legality of all contractual agreements is mandated by the same Contract Act. The doctrine of misrepresentation, which deals with the legal consequences of false statements to induce the other party to enter into a contract, holds a critical space in both jurisdictions. The formulation and application of this doctrine vary significantly across common law jurisdictions. In Pakistan, the governing statute is the Contract Act of 1872. Section 18 of this Act provides the foundational definition and scope of misrepresentation. In contrast, English law has developed a more intricate and expansive doctrine through a combination of common law evolution and statutory intervention. The Misrepresentation Act of 1967 governs misrepresentation there.

This essay argues that misrepresentation, as defined by contract act, 1872 and which is applicable in Pakistan, is indeed less refined and more restricted than the doctrine of misrepresentation which is applicable under English Contract law. This deficiency manifests in its narrower conceptual scope, underdeveloped typology, less sophisticated remedial framework, and the absence of statutory mechanisms to modernize the doctrine in response to the new realities. This essay will substantiate its claim through a thorough comparative analysis of both the statutory frameworks and judicial interpretation on the given subject.

Foundational Definitions and Conceptual Scope:

Misrepresentation is one of the vitiating elements of a contract. A contract hit by misrepresentation is spoiled. It is referred to as “an assertion or manifestation by words or conduct that is not in accord with the facts.”[1] Section 18 of the Contract Act of 1872 defines misrepresentation and includes 1) a false assertion not supported by the maker’s information, even if believed true; (2) a duty breach that, without intent to deceive, gives an advantage by misleading another; and (3) causing a party to mistake the substance of an agreement, even innocently.[2]

If we see the definition of misrepresentation, we also come to know that misrepresentation in Pakistan is inherently non- fraudulent. Fraud is treated as a separate vitiating factor under Section 17, characterized by intent to deceive. In Mercantile Fire and General Insurance Co. of Pakistan Ltd. v. Messrs Imam & Imam Ltd the court goes to differentiate between fraud and misrepresentation by observing that ‘the difference, therefore, between fraud and misrepresentation is one of intent, though the effect of either may be the same, namely, obtainment of an advantage which, but for the facts alleged, may not have been obtainable.’[3] The effect of both misrepresentation and fraud is the same. The only difference between the two is that misrepresentation is non-intentional, while fraud is the intentional act to deceive the other party.

The English Law takes a fundamentally different approach. In that misrepresentation is a broad umbrella encompassing all three different types of misrepresentation i.e. fraudulent, negligent and innocent misrepresentation. Fraud is not a separate category, but a sub-type known as “fraudulent misrepresentation”. It is defined in Derry v. Peek as a false statement made ‘knowingly, or without belief in its truth, or recklessly.’[4] In Derry vs Peek it was stated that the company was permitted to use trams powered by steam, in fact, they did not have such an approval as it was not proved by a board of trade. The court rejected the claim of stakeholders and gave the definition of fraudulent misrepresentation as well. Lord Hershell observed that ‘fraudulent misrepresentation is a false statement that is made either knowingly, or without belief in its truth or recklessly as to whether it is true or false’.[5]

Absence of Negligent Misrepresentation:

The most significant limitation of Section 18 of the Pakistani Contract Act is its failure to explicitly recognize and give a remedy for negligent misrepresentation. There is no provision for negligent misrepresentation in Pakistani law, unlike negligence, which covers nearly all exceptions as well. The Pakistani jurisprudence, as evidenced in cases like Civil Aviation Authority v. Aer Rainta International[6], remains predominantly focused on the binary distinction between wholly innocent and deliberately fraudulent conduct. Pakistani courts have failed to develop an intermediate category for the statements made without reasonable grounds for belief. Another example of negligent misrepresentation can be seen in Zafar Ahmad vs Govt of Pakistan[7], where the petitioners had agreed to purchase shares in Pakistan Switchgear Ltd from the government. The petitioners asked to rescind the contract. The government had represented to them in the negotiations leading up to the compromise that Pakistan Switchgear Ltd had an outstanding liability to another party of approximately Rs. 16 million that was, in fact, Rs. 32 million. The court held that under section 18(3), any representation, which is not correct, though innocent and not intentional, would amount to misrepresentation and therefore the compromise agreement was voidable for misrepresentation. There was no provision of negligent misrepresentation in Pakistani law. If negligent misrepresentation were present in the statute, the judges would have applied alternate reasoning amounting to negligent misrepresentation.

In contrast, English law has developed two robust and distinct pathways to address negligent misrepresentation. Firstly, there is statutory negligence under Section 2(1) of the Misrepresentation Act 1967. This provision creates a powerful cause of action where a representor is liable for damages if a misrepresentation induces a contract, unless they can prove “that he had reasonable ground to believe and did believe up to the time the contract was made that the facts represented were true”.[8]This statutory mechanism not only explicitly recognizes negligent misrepresentation but also strategically reverses the burden of proof, placing it on the party who made the statement to justify their belief. It strongly favors the innocent party.

We can also see a historical evolution of the English law on negligent misrepresentation. After Derry v Peek, it was thought that negligent misrepresentation should not be actionable in tort. However, this view was rejected in Nocton v Lord Ashburton [1914] AC 932.[9] The courts said that negligent misrepresentation is actionable only in cases of a fiduciary relationship.[10] After this came the case of Hedley Byrne & Co Ltd v. Heller & Partners[11], which imposes liability for negligent misstatements made in the context of a “special relationship” that gives rise to a duty of care, even in the absence of a contractual nexus.[12]

On the other hand, the Pakistani jurisprudence remained static. There is no equivalent in Pakistani jurisprudence to the pivotal shift represented by Hedley Byrne. Consequently, the sophisticated, factor-based analysis that English courts now employ to determine when a duty of care in misstatement arises (oscillating between and synthesizing concepts of assumption of responsibility and incremental policy factors) is entirely absent from the Pakistani legal landscape. The English doctrine’s complexity, born of over a century of judicial grappling with commercial reality, stands in sharp relief against the static, binary, and contract-focused Pakistani model. This model has not undergone a similar evolutionary process to address the same problem of careless pre-contractual statements.

Statutory Ambiguity and Remedial Rigidity:

Vague Language and Its Consequences:

Section 18 (1) of the Contract Act uses expressions like “not warranted” which are very much ambiguous and vague. This clause should be clarified. However, if we see the British Law of Misrepresentation Act 1967, it modifies sections 11 and 35 of the Sale of Goods Act 1893 dealing with innocent misrepresentations.[13]English law also uses simpler language and has concise acts. This inherent ambiguity of such indeterminate terms causes a lot of difficulties for both the courts and the parties of the contract. In commercial and business settings, parties need to have a clear understanding of the terms and conditions of the contract. The repercussions for the breach need to be properly understood, as it regulates the behavior of the parties.

The case of Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd illustrates this challenge, where the court recognized that certain contractual promises like “innominate terms” do not neatly fit the traditional categories of conditions or warranties, as the consequences of their breach depend entirely on the nature and severity of the violation.[14] Therefore, the Pakistani contract law needs modernization in this regard. This legislative gap forces courts to adjudicate cases within a restrictive binary framework. This forces the courts to declare the false statements as either fraudulent or innocent. This all-or-nothing approach often results in remedies limited to either enforcing the contract or declaring it voidable, with no statutory avenue for awarding compensatory monetary damages for losses caused by careless, non-fraudulent statements. The statutory language should be updated for greater accessibility. This would not only help the courts but also the parties to understand the terms of the contracts and the repercussions in case of breach.

Rescission vs. Damages in Lieu:

The primary remedy under Section 19 of the Contract Act 1872 is rescission (voidability).[15] The aggrieved party can avoid the contract or insist on being put in the position as if the representation was true.[16] However, the Act does not grant courts the discretion to award damages instead of rescission for innocent misrepresentation. If rescission is impossible (e.g., the goods are consumed or third-party rights have intervened), the plaintiff may be left without a remedy under the Act.

Section 2(2) of the Misrepresentation Act 1967 gives English courts the discretion to award damages in lieu of rescission for non-fraudulent misrepresentation.[17] This allows for more equitable practice where voiding the entire contract would be disproportionate to the breach. Niranjan’s thesis also tells us that this measure is often viewed as the “monetary equivalent of rescission”.[18]On the other hand, Pakistani courts lack this statutory flexibility. They are very much inclined towards this all-or-nothing approach when the validity of the contract is in question.

The damages for innocent misrepresentation are not recognized under section 19 unless misrepresentation amounts to fraud under section 17 or under section 73 when the breach of contract happens. Damages are largely unavailable in Pakistani Jurisprudence. In Abdul Hafeez vs. Province of West Pakistan[19], the Court held that an innocent misrepresentation that is not a term of the contract gives a right to rescind but “does not give a right to damages. In Pakistan, because there is no statutory “damages in lieu of rescission,” the buyer in this scenario is effectively left without a remedy for innocent misrepresentation.

The position in English law is slightly different. The common practice of English courts does not allow damages for innocent misrepresentation. However, there was confusion in English jurisprudence about whether, in the cases of innocent misrepresentation, the courts can give damages in lieu of rescission or not. In Salt v Stratstone Specialist Ltd, the lower court explicitly interpreted that damages in lieu of recission are applicable to innocent misrepresentation.[20] But the Court of Appeal confirmed that damages under s2(2) of the Act are not available if there is a bar to rescission. Longmore LJ gave the majority judgment. He reviewed the conflicting case law to answer the question that if rescission is not available as a remedy, damages may be awarded for innocent misrepresentation or not.[21] In Alton House Garages (Bromley) Ltd v Monk (1981) and Atlantis Lines and Navigation Co Inc v Hallam Ltd [1983], it was held that if rescission was barred, damages were not available; but in the more recent decision of Thomas Witter Ltd v TTBP Industries Ltd [1996] it was held that the unavailability of rescission would not prevent damages. He considered these conflicting precedents and noted the wording of section 2(2):

‘If it is claimed… that the contract ought to be or has been rescinded… the court… may declare the contract subsisting and award damages in lieu of rescission’.[22]

He held that these words imply that, for damages to be awarded, the remedy of rescission was available. Therefore, if rescission was not available because the contract had been affirmed, third-party rights had intervened, an excessive time had elapsed, or restitution had become impossible, damages could not then be said to be awarded ‘in lieu of rescission’.[23]

Mistake of Law and the Duty of Diligence:

Section 21 of the Contract Act 1872 recognizes that a mistake of law makes no contract voidable.[24] This provision effectively immunizes a contract from challenge even if one or both parties entered it based on a fundamental misunderstanding of their legal rights or obligations. This creates a severe limitation on the definition of Misrepresentation. Section 18(3) defines misrepresentation as causing a party to make a mistake as to the substance of the agreement. Pakistani courts have been forced to read Section 18(3) through the lens of Section 21.

In Pakistan Industrial Credit vs. Khairpur Sugar Mills, the Sindh High Court clarified that the “mistake” referred to in Section 18 must be a mistake of fact, not law.[25] If a seller innocently misrepresents the legal status of a property rather than a physical fact, Section 21 blocks the buyer from voiding the contract. The buyer is presumed to know the law of the land. This makes the misrepresentation legally irrelevant for the purpose of rescission.

This stance is based on the ancient maxim ignorantia juris non excusat (ignorance of law is no excuse). This maxim makes sense in criminal law (you cannot murder someone and claim you didn’t know it was illegal), but its application in contract law is harsh. It assumes a layperson can navigate complex regulatory frameworks with the same facility as facts about the physical world. We can say that this presumption places an unreasonable burden on the representee.

Historically, English law mirrored the current Pakistani position. For over a century, money paid, or contracts entered under a mistake of law could not be recovered or voided.
This changed dramatically with the House of Lords decision in Kleinwort Benson Ltd v Lincoln City Council.[26] The Lords explicitly abrogated the rule that a mistake of law cannot ground restitution. They recognized that the distinction between “fact” and “law” is often artificial and that it is unjust to allow a party to retain a benefit derived from the other party’s genuine legal error. Consequently, in modern English law, an actionable misrepresentation can indeed be a statement of law. If a party is induced to enter a contract by a false statement regarding the legal effect of a document or a statute, English courts can grant relief (rescission or damages). Justice Munib Akhtar has explicitly said that ‘in Pakistan, of course, the position is entirely different’.[27] The rule regarding mistakes of law is statutory, being embodied in section 21.

The Exception to Section 19 is also a significant limitation on the doctrine of misrepresentation in Pakistan. It provides that a contract is not voidable if the party whose consent was caused by misrepresentation “had the means of discovering the truth with ordinary diligence.” As applied in Civil Aviation Authority, this imposes a duty of care on the victim of the misrepresentation. If they had checked the facts, they could not have claimed relief in front of the court.

In English law, the principle from Redgrave v Hurd generally allows a person to rescind for misrepresentation even if they had the means to discover the truth but did not use them.[28] The contributory negligence might reduce damages, but it does not automatically bar the remedy of rescission in the way the “ordinary diligence” exception does under Section 19 of the 1872 Act. This makes the Pakistani doctrine less refined as it offers less protection to the unwary representative.

Conclusion and Way Forward:

Based on the above analysis, the divergence between the Pakistani and English doctrines of misrepresentation is not merely one of degree but of foundational philosophy. The Pakistani framework is restricted and resistant to change. It was a snapshot of 19th-century English common law principles and consequently it is trapped in time.  On the other hand, English law has functioned as an open, adaptive system, where statutory interventions like the Misrepresentation Act 1967 responded to and catalyzed further common law evolution. In Pakistan, the path to a more equitable misrepresentation laws is not easy. The solution lies in firstly recognizing that a statute over 150 years old cannot, without judicial and legislative partnership, address modern transactional complexities.

Secondly, the judiciary must embrace a more purposive and progressive interpretative role. Pakistani courts can, within the interstices of terms like “not warranted” in Section 18(1) and the concept of a “breach of duty” in Section 18(2), develop a proto concept of negligent misrepresentation. The example of English jurisprudence is there. We must adapt it according to our own context.

Thirdly, legislative reform is indispensable. A modern misrepresentation statute for Pakistan should explicitly establish a tripartite typology: fraudulent, negligent, and innocent. This could provide more clarity and would close the current remedial gap. Crucially, it must introduce judicial discretion to award damages in lieu of rescission, as under Section 2(2) of the English Act, to prevent the injustice of a “no remedy”. The harsh, anachronistic bars of “mistake of law” (Section 21) must be repealed or severely curtailed, aligning the law with the reasonable expectations of parties in an increasingly regulated world where legal and factual representations are intertwined.

In conclusion, the thesis that the Pakistani doctrine of misrepresentation is less refined and more restricted than its English counterpart is validated. The 1872 Act presents a doctrine that is conceptually bifurcated. It separates fraud and misrepresentation to the detriment of recognizing negligence. It is remedially rigid, offering rescission as a primary but often impractical remedy. It withholds the compensatory damages for non-fraudulent inducement. It is philosophically archaic, insulating contracts from challenges based on legal mistakes and punishing representees for a lack of diligence. English law, through its effective synergy of judge-made precedent and statutory refinement, has developed a more tripartite and equitable framework.

Countries where the rule of law is respected, it is reflected in their whole system too. The Pakistani judiciary, since 1947, has been struggling for its independence. Sometimes it was successful, but mostly it was dominated by the executive. The recent passing of the 27th Amendment marks a stain on judicial independence. Positive change is not expected where the judiciary is the tool of the executive for the exploitation of powers.

The journey forward is not one of blind transplantation, but of deliberate, context-sensitive evolution, learning from the English experience to build a doctrine that is both refined and relevant. We must make our judiciary more independent and our representatives in Parliament more educated to induce a positive change.

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BIBLIOGRAPHY

Table of Cases

Abdul Hafeez vs. Province of West Pakistan [1971] PLD 619

Alton House Garages (Bromley) Ltd v Monk [1981] 2 Lloyd’s Rep 229

Atlantis Lines and Navigation Co Inc v Hallam Ltd [1983] 1 Lloyd’s Rep 188

Civil Aviation Authority v Aer Rainta International YLR 2003 1523

Derry v Peek (1889) 14 App Cas 337

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465

Hong Kong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26

Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349

Mercantile Fire and General Insurance Co of Pakistan Ltd v Messrs Imam & Imam Ltd CLC 1989 2117

Nocton v Lord Ashburton [1914] AC 932

Pakistan Industrial Credit and Investment Corporation v Khairpur Sugar Mills PLD 2012 324

Redgrave v Hurd (1881) 20 Ch D 1

Salt v Stratstone Specialist Ltd [2015] EWCA Civ 745

Thomas Witter Ltd v TBP Industries Ltd [1996] 2 All ER 573

Zafar Ahmad v Government of Pakistan  MLD 1994 1612

Table of Legislation

Indian Contract Act 1872 (Pakistan)

Misrepresentation Act 1967 (UK)

Sale of Goods Act 1893 (UK)

Secondary Sources

Black HC, Black’s Law Dictionary (2nd edn, West Publishing Co 1910)

McKendrick E, Contract Law (11th edn, Palgrave Macmillan 2015)

Niranjan V, Damages for Misrepresentation (PhD thesis, University of Oxford 2015)

West’s Encyclopedia of American Law (2nd edn, vol 7, Thomson Gale 2005)

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1 West’s Encyclopedia of American Law (Thomson Gale, 2nd edn, Vol 7, 2005) 87.

[2]  The Contract Act 1872, s 18.

[3]  CLC 1989 2117 [12].

[4] (1889) LR 14 App Cas 337.

[5] Ibid.

[6] YLR 2003 1523.

[7] MLD 1994 1612 [9,11,12].

[8] Misrepresentation Act 1967, s 2(1)

[9]  AC 1914 932.

[10] Ibid.

[11]AC 1964 465

[12] Eoin McKendrick, Contract Law (11th edn, Palgrave Macmillan 2015) 310-311.

[13] Misrepresentation Act 1967, s 4.

[14] 1962 2 QB 26.

[15] Contract Act 1872, s 19.

[16] Ibid.

[17] Misrepresentation Act 1967, s 2.

[18] Niranjan Venkatesan, Damages for Misrepresentation (PhD thesis, University of Oxford 2015).

[19] PLD 1971 619

[20] 2015 EWCA Civ 745.

[21] Ibid.

[22] Ibid.

[23] Ibid.

[24] Contract Act 1872, s 21.

[25]  PLD 2012 324 [35,36]

[26] 1999 2 AC 349.

[27] PLD 2012 324, (per Justice Munib Akhtar).

[28] 1881 20 Ch D 1.