Rescission: misrepresentation and presence of unauthorised structures

In Yili Concepts (HKG) Limited v Lee Wai Chuen ([2000] HKEC 1043, CFI) the agents acting for sellers of a flat made negligent misrepresentations as to the size of the flat and that the area that they had given could be used as the basis for determining the price or valuation. The buyer entered into a provisional agreement but later refused to proceed when he learned the truth about these matters and that there were unauthorised structures. He sought to rescind and recover his deposit relying on the misrepresentations and further arguing that the presence of the unauthorised structures amounted to a defect in title.

The court decided that the agents had been acting with the seller’s authority with regard to one of these misrepresentations but not the other. The buyer had relied on them. The misrepresentations had been the cause of the collapse of the transaction. The misrepresentations entitled to the buyer to rescind.

There was a real risk of enforcement action in respect of at least some of the unauthorised structures. Even if casual mention had been made of the works that had been done, this was not enough to amount to a waiver of the contractual right to a good title. Hence they amounted to a defect in title giving the buyer a right to rescind and recover his deposit.

The agreement had not been stamped and was not admissible in evidence. The agreement was still enforceable as the defendants had acknowledged the existence of a signed, written agreement in the pleadings.

Despite the fact that they had been sole authors of one of the misrepresentations, the agents were entitled to claim their full commission from the sellers. This did not amount to such a breach of their duties as would allow the principal to refuse to pay the remuneration due under the provisional agreement.

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