ADMIRAL COVE DEVELOPMENT SDN BHD vs BALAKRISHNAN DEVARAJ & ANOR

Headnote Court Copy Facts Arguments Court observation Judicial Analysis Case Map Category Hierarchy Table of Content

2011 MarsdenLR 4004

FEDERAL COURT PUTRAJAYA
ADMIRAL COVE DEVELOPMENT SDN BHD – Appellant
Versus
BALAKRISHNAN DEVARAJ & ANOR – Respondent
[Civil Appeal No: 02(F)-10-2010 (W)]

Important Points

Innocent misrepresentation does not justify rescission of a completed contract unless it affects the contract's essence; parties must be restored to their original positions.

Subject

Contract Law - Misrepresentation

Act Referred

Contracts Act 1950: S.19

Headnote

(A) Contracts Act 1950 - Section 19(1) - Innocent misrepresentation - Respondents claimed rescission of an agreement after discovering misrepresentations about the property - The trial court held no actionable misrepresentation occurred, leading to dismissal of the claim - Appeals court found misrepresentation induced the respondents to enter agreement and allowed rescission, but this view was overturned at the highest level as the respondents had elected to affirm the agreement post-delivery and could not rescind after full execution of the contract - Delay in action against the rescission claim deemed fatal as under Section 19(1) a representor’s innocently made statements may not provide grounds for annulment once completed. (Paras 1, 9, 21, 30, 32)

(B) Court’s rationale - Rescission is not available post-execution for innocent misrepresentation when all parties can be restored to their original positions and the contract is not executory - Assertion that misrepresentations rendered the property worthless failed since it did not completely differ from the contractual agreement. (Paras 15, 21, 28, 30, 32). Results: Appeal allowed. (Para 33)

Table of Content
1. background facts of property misrepresentation case. (Para 2 , 3 , 4 , 5 , 6 , 7 , 8)
2. trial court's findings on misrepresentation. (Para 9 , 10 , 11 , 12)
3. court of appeal’s reversal of trial court decision. (Para 13 , 14 , 15)
4. definition and implications of innocent misrepresentation. (Para 16 , 17 , 18 , 19)
5. requirements for rescission due to misrepresentation. (Para 20 , 21 , 22 , 23)
6. implications of completed contracts and misrepresentation. (Para 24 , 25 , 26 , 27)
7. respondents affirming the agreement by payment actions. (Para 28 , 29)
8. restriction on rescission for innocent misrepresentation. (Para 30 , 31 , 32)
9. final decision reinstating trial court ruling. (Para 33)

JUDGMENT

Mohd Ghazali Yusoff FCJ:

[1] On 5 July 2010, this court granted the appellant (the defendant in the originating action) leave to appeal on the following question of law:

What relief is applicable in a case of innocent misrepresentation?

The Background

[2] The appellant is the developer of Marina Bay Condominium in Port Dickson, Negeri Sembilan (hereafter referred to as "the project"). The respondents (the plaintiffs in the originating action) are the purchasers of a unit, namely, an apartment in the project (hereafter referred to as "the property"). The respondents entered into an agreement for the purchase of the property on 31 July 1995 (hereafter referred to as "the agreement"). The respondents have viewed a miniature model of the project displayed at the launching of the project at Shangri-La Hotel, Kuala Lumpur on 13 May 1995.

[3] Vacant possession was delivered to the respondents on 30 June 1998. The respondents put the property up for sale after delivery of vacant possession. Nothing happened until about four years later when solicitors for the respondents gave notice by letter dated 31 October 2002 intimating that the respondents are rescinding the agreement for misrepresentation.

[4] On 14 February 2003, the respondents filed this action against the appellant for misrepresentation and sought a declaration that the respondents had validly rescinded the agreement. They also sought damages and costs.

[5] In their claim, the respondents averred, inter alia, that at the launching of the project:

(a) the first respondent was shown by a servant or agent of the appellant a miniature model and a printed brochure of the proposed project "showing a sandy beach front, umbrellas, relaxing easy chairs and sail boats close to the beach"; and

(b) the appellants servant or agent represented to the first respondent that the respondents "will be able to swim directly upon exiting the said unit".

[6] The respondents then averred that they found out that the aforesaid representations were false sometime in August 2002 when they visited the property for the first time and discovered, inter alia, the following:

(a) a wall was erected "right across the sea fronting" of the property;

(b) "rocks, stones and boulders all along the front of the sea" outside the property;

(d) that the wall and rocks have affected the respondents "enjoyment of the aforesaid unit by reason of the diminished aesthetic and/or environmental conditions arising out of the seating and positioning of the wall and rocks".

[7] The respondents contended that as a consequence of the above, they suffered loss and expense and prayed for, inter alia, a declaration that the agreement was properly rescinded, the return of a sum of RM505,313.27 and damages for misrepresentation. The said sum of RM505,313.27 was the total expenditure incurred by the respondents including, inter alia, the purchase price of the property, interest paid towards a bank loan, payments for utilities, covered car-park charges, legal fees, an Admiral Marina Club membership and several miscellaneous items.

[8] In opposing the claim, the appellant denied that there was any such misrepresentation and contended, inter alia, that th