Archive for the ‘Misrepresentation’ Category

Representation: agent’s ostensible authority. When damages for purchaser’s repudiation to be assessed

January 4, 2013

In Montrio Ltd v Tse Ping Shun David ([2012] HKEC 1781, CA) P entered into provisional and formal agreements for the sale of property to D. D alleged that certain representations had been made to him by P’s agent concerning the size of the property and that these were false. P sought damages for D’s repudiatory breach and to forfeit the deposits he had received. D sought to rescind. P argued that damages should be measured by looking at the difference between the contract price and the market value at the time of breach. P succeeded.

It was accepted that P had not actually authorised the making of any representations as to the size of the property. He accepted that he had always known that it was likely that the agents would be taking some steps to market the property (even at times when he was not actively seeking to sell). D argued that the agents therefore had ostensible authority to make the relevant representations. This failed:

‘The mere expectation that an estate agent might try to market a property cannot be treated as any kind of permission or authority for the agent to do so. Nor was there any obligation on the owner’s part to stop or prevent an agent in attempting to find potential buyers as a broker …  In no way could the plaintiffs be regarded as having in some way instigated or permitted Ms Lam to make the Statement as their agent, nor had they put her in a position where she appeared to be authorised to make the Statement as their agent.’ (Kwan JA at [31])

The normal rule for assessing the damages would be to look at the difference between the contract price and the market value at the time of the breach ([58]). There was no reason to depart from that approach in the present case ([65]).

Rescission: misrepresentation and presence of unauthorised structures

December 5, 2012

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.

Was an agreement for lease binding?

September 14, 2012

In Tang Wai Man v Fotosky Investment Ltd ([2006] HKEC 2358, CFI) F owned the basement of a commercial building. It sent T a letter of agreement containing the terms of a proposed letting of the basement to T for use for the parking of motor vehicles (not headed ‘subject to contract’ but providing for a later formal tenancy agreement). When T then advertised for customers for the car park, F argued that the agreement was that the basement was to be used as a vehicle showroom and not for parking vehicles. F ran a vehicle parking business on other basement floors of the same building and T’s rates undercut its rates. F argued that T’s agent had misrepresented the use to which the property would be put, that in any event there was no binding agreement or (if there was) T’s use amounted to a repudiatory breach which F had accepted.

F succeeded. Although a preliminary agreement could be binding (even if a later formal agreement was envisaged) this was not the parties’ intention in this case ([69]). If there was an agreement then, despite the wording of the agreement, the parties’ shared intention was that the property was only to be used as a showroom ([62]). F had accepted a repudiatory breach.  of this term. The agreement did not properly identify the intended tenant ([72]). Although the agreement was not subject to contract, the phrase had been used by T’s agent at the outset and never been expunged ([76]). Alternatively, if there were an agreement, it had been induced by a misrepresentation ([81]).

Seller seeking specific performance

June 20, 2012

New Dennis Arthur v Greesh Gai Monty ([2012] SGHC 122) is a Singaporean case. N agreed to sell an apartment to G. Before completion, G discovered that there was a significant problem with water leaking into the property and refused to complete. N sought specific performance and G sought to rescind on the basis of misrepresentation. The misrepresentation claim failed. Even had there been a relevant statement of fact, a statement by N’s agent that there was no water leakage, this would not have induced the contract since G knew that the agent lacked the expertise to comment.

The claim for specific performance failed also. While acknowledging the argument that specific performance ought to be mutual, the court refused to order it to enable N to foist the property onto an unwilling buyer. Nominal general damages and fairly minor special damages were awarded.

Guarantee procured by misrepresentation can be void because of undue influence

January 6, 2012

In Beardsley Theobalds Retirement Scheme Trustees v Yardley ([2011] EWHC 1380), Y had been a director of B Ltd. M was another director and controlling shareholder and he was trusted by Y. Y left the board at M’s request but continued as an employee. B Ltd was due to take a new lease of a shop but the landlord (L) insisted on a guarantee because of B Ltd’s precarious financial position. M asked Y to join in the lease as guarantor. Y signed as a result of M’s skillful misrepresentation; he made it appear that Y was simply witnessing M’s signature as he often did. B Ltd went into administration and L sought to enforce the guarantee. It failed: the guarantee was void as against Y for an impressive range of reasons.

First, in the circumstances, M’s misrepresentation amounted to undue influence. L was affected by it since it knew of B Ltd’s precarious position and it ought to have realised that Y was not a director of B Ltd. It should have ensured that Y was independently advised as to the nature of the document and the financial risk he was running. Y should have confirmed in writing that he was signing with the benefit of full knowledge of the nature of the document and the risk. A solicitor should have been asked to certify that independent advice had been given. None of this had happened so L had constructive notice of the undue influence. The court would also have found the guarantee to be unenforceable on the grounds of non est factum and that Y had not given authority for the guarantee to be delivered in escrow.

What if a notice to quit is served by one joint tenant of a lease but was induced by a misrepresentation?

January 3, 2012

In Potter v Dyer ([2011] EWCA Civ 1417, CA (Eng)) P’s parents granted him an oral tenancy of a farm. He assigned it to himself and C. C left the country. Some years later, D, the new owner of the farm, served notices on P under the Agricultural Holdings Act 1986 requiring him to carry out repair works at the farm. P disclosed the assignment to C and himself as joint tenants. C served notice to terminate the joint tenancy (thinking that this would leave the tenancy on foot but release her from any future obligations under it). P argued that C had been induced by D’s misrepresentation. P argued that as a result, the notice did not terminate the lease but operated simply as a surrender of C’s interest under the joint tenancy. This failed. If there had been a misrepresentation C would have to elect to affirm the notice or to rescind it. There was no support in the authorities or in principle for P’s proposed ‘middle way’.