## Facts

- After China’s Boxer Rebellion (1899–1901) was suppressed, foreign powers imposed a settlement that increased pressure on Chinese state-linked commercial assets.
- The Chinese Mining and Engineering Company of Tien Tsin (the Chinese company) agreed to sell its mining properties to C. A. Moreing and associated English interests (Moreing).
- The agreed consideration was shares in Moreing, represented as guaranteed to be worth at least about $375,000.
- Under the arrangements governing the mines, title could not effectively pass without the approval of Chang Yen-Mao, a senior Chinese official.
- Chang objected that the main contract did not protect the Chinese company’s right to receive the promised minimum value in shares.
- In response, Moreing’s agent signed a separate memorandum stating the protective terms Chang required.
- The agent assured Chang that this memorandum would be binding on Moreing.
- The assurance was deceitful: the agent knew, when making it, that the memorandum was not binding in the way represented.
- Relying on the assurance that the memorandum would bind Moreing, Chang gave the approval needed for the transfer of title.
- By the time the transaction proceeded, Moreing’s share capital had been “watered,” reducing the value of the Chinese company’s share interest to roughly $106,000 rather than the promised minimum.
- Chang and the Chinese company brought an action in the Chancery Division of the High Court seeking equitable relief to undo the transaction on the ground of fraud.

## Issues

1. Whether Moreing’s agent committed actionable deceit by representing, with knowledge of falsity, that the protective memorandum would be binding on Moreing, thereby inducing Chang’s approval.
2. Whether Chang’s approval, obtained by that deceit, made the mine transfer voidable in equity and justified rescission or similar relief.
3. How the severe shortfall in share value—caused by watered stock—bore on the court’s assessment of fraud and the appropriate equitable remedy.

## Decision

- The Chancery Division found that Chang’s approval was procured by deceit, because Moreing’s agent knowingly misrepresented that the protective memorandum would bind Moreing.
- The court accepted that Chang relied on the misrepresentation in giving the approval necessary for the transfer of title.
- Treating the transaction as tainted by fraud, the court held the plaintiffs were entitled to equitable relief to undo (rescind) the transfer and prevent the defendants from retaining the benefit of a transfer obtained by deceit.
- The drastic reduction in the value of the promised share consideration, resulting from watered stock, supported the conclusion that the transaction should not stand as against the defrauded Chinese interests.

## Legal Principles

- A contract or conveyance induced by fraudulent misrepresentation is voidable at the option of the party deceived, and equity may grant rescission and related relief to restore the parties, so far as practicable, to their pre-transaction positions.
- A representation about the binding effect of a document can amount to deceit when made as an assertion of fact (or authority) and made knowingly false to induce action.
- Reliance is established where the misrepresentation materially contributes to the claimant’s consent, especially when that consent is a required condition for title to pass.
- Evidence that consideration was rendered materially less valuable than represented—such as by share-watering—may corroborate the inference of fraud and support rescission.
- An English court of equity may grant relief against defendants within its jurisdiction even when the underlying assets and commercial setting are foreign, where the wrongdoing alleged is fraud by the defendants or their agents.

## Conclusion

In *Chang Yen-Mao v. Moreing*, the Chancery Division treated the transfer of Chinese mining property as voidable because Chang’s required approval was obtained through deceit: Moreing’s agent knowingly misrepresented that a protective memorandum would bind Moreing, and Chang relied on that statement in consenting to the transfer. The court held that equity would grant relief to undo the transaction and prevent the English side from keeping the benefit of a conveyance procured by fraud, with the large drop in value of the share consideration—caused by watered stock—reinforcing the case for rescission.


Chang Yen-Mao v. Moreing, London Times, March 2, 1905, p. 3; 120 L. T. Jour. 313 (1905)