Is estate agent’s misrepresentation a ground for first-hand property purchaser’s rescission?

February 2019

In Bright Gold Ltd v Mega Well development Ltd [2019] HKCFI 54, the court of first instance allowed a purchaser of first-hand residential property to rescind its purchase on the basis of misrepresentation of roof area by the estate agent after a lengthy court battle.

Bright Gold Limited was a subsidiary of the Henderson Group and was the developer of the subject development in Shatin. In 2011, through the estate agent Centaline Property Agency Ltd, the defendant Mega Well development Ltd purchased a duplex flat with car parking spaces from the developer at the price of HK$69.8 million.

The dispute concerns the roof area which was to be sold as part of the property. It was alleged that during three viewings of the property by the purchaser, the estate agent made misrepresentations to the purchaser that the roof area of the property included a much larger part of the roof immediately outside the stairwell. In fact, such roof area was part of the development’s common areas instead. However, the purchaser discovered after completion that only a narrow strip of the roof area belonged to the property. It was later revealed that the roof plan annexed to the formal agreement erroneously included the roof area of another duplex flat as part of the property.

After various unsuccessful meetings between the purchaser and the developer to resolve the dispute, the developer brought this action against the purchaser for rectification of the roof plan. By its counterclaim, the purchaser sought relief of rescission against the estate agent and the developer on the ground of the misrepresentation.

The central issue in this case is (1) whether the property was purchased under the estate agent’s misrepresentation; and (2) if yes, whether the developer is liable.

The first question mainly rested on factual findings. The court decided in favour of the purchaser based on the credibility of the witnesses.

The gist of the second question is whether the estate agent was acting as the developer’s agent in the sale and providing information about the property to potential purchasers. The court has highlighted the estate agent’s role in promoting the development for the developer, their common interest in attaining a higher selling price, and the fact that there was no contact between the purchaser and the developer prior to the provisional agreement. In the course of promoting the development to potential purchasers, the estate agent would, and was expected by the developer to, provide information about the properties, such as the roofs which came with the top floor duplexes. The court held that the estate agent was acting for the developer, who is liable for the misrepresentation.

It is worth noting that in the course of argument, the developer had attempted to exclude its liability on the basis of a declaration signed by the purchaser, “介紹人並無代「恒代」許下任何承諾或存在任何「恒代」須承擔之責任,而「恒代」亦無義務為介紹人履行任何承諾或責任”. The court commented that the declaration was poorly drafted in that it purported to refer to a state of affairs (that is, the absence of any responsibility on Henderson Agency’s part), but it was not clear how the state of affairs was to be applied. Given the ambiguity of the declaration, the court ruled that the developer could not rely on the declaration to exclude its liability.

The court decided in favour of the purchaser. Although the purchaser was entitled to rescission and obtained a full refund of the purchase price, the time and costs spent could have been saved if the purchaser had studied the brochures and plans carefully without relying too much on others’ representation.