JOYTEX DEVELOPMENT LTD v. SUPER HOMES LTD

HCA 18/2012

[2018] HKCFI 2286

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 18 OF 2012

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JUDGMENT

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A. INTRODUCTION

1.  The trial of this action before me took place over five days ranging from 13 to 22 June 2018.  The plaintiff (“Joytex”) was represented by Mr Mike S K Lui, and the defendant (“SHL”) was represented by Mr Kenneth K M Ho.

2.  Joytex claims against SHL for misrepresentation.  The alleged misrepresentations relate to Joytex’s purchase from SHL of a flat in a residential development known as “The Icon”, located at No 38 Conduit Road, Mid-levels.

3.  Joytex is a Hong Kong company incorporated on 27 March 2009, which purchased Flat 25A of The Icon (“Flat 25A”).  In June 2009, Joytex was acquired by Mr Cheung Keng-ching (“Mr Cheung”) as a corporate vehicle for the purchase of that flat, with Mr Cheung as its sole director and shareholder, and Mr Cheung’s wife Madam Chou Mei (“Madam Chou”) as its secretary.  

4.  The defendant is a Hong Kong company, which was the developer of The Icon[1].

5.  The alleged misrepresentations relate to the question whether an open kitchen layout, as opposed to a closed kitchen layout, could be constructed at Flat 25A: see further below.

6.  The misrepresentations are alleged to have arisen by implication from a number of different sources, principally: (i) certain brochures and other documents provided by an agent (“Ms Wong”) of Centaline Property Agency Limited (“Centaline”) to Mr Cheung and Madam Chou on 29 June 2009; (ii) Ms Wong’s statements and conduct on that date; (iii) statements made by a conveyancing clerk (“Mr Liu”) of a firm of solicitors (“the Solicitors”) on 8 July 2009; and (iv) a visit to a Centaline showroom in August 2009.

7.  Joytex seeks: (i) rescission of the provisional sale and purchase agreement and formal sale and purchase agreement, including return of the purchase price paid for Flat 25A; and (ii) damages for fraudulent misrepresentation or under section 3 of the Misrepresentation Ordinance (Cap 284)[2]. 

A1.   The Enclosed Kitchen Layout, the Open Kitchen Layout, and the Alleged Representations

8.  The alleged representations are defined by reference to two different layouts for Flat 25A.  The first layout (the “Enclosed Kitchen Layout”) features an enclosed kitchen which faces towards the main entrance door to the flat.  The second layout (the “Open Kitchen Layout”) features an open kitchen in a different location, namely to the left of the main entrance door as a person enters the flat.

9.  Although this point was not relied on or emphasised, the Enclosed Kitchen Layout is for a one-bedroom flat, whilst the Open Kitchen Layout is for a two-bedroom flat. 

10.  There are attached to this Judgment as Annexes I and II, plans depicting the Enclosed Kitchen Layout and Open Kitchen Layout, respectively[3]. 

11.  The representations which Joytex alleges to have been made, are as follows:

(1)   SHL intended to construct The Icon by adopting the Open Kitchen Layout for the smaller units;

(2)   the Open Kitchen Layout complies with all applicable regulations, including the Building Regulations and Fire Safety Regulations;

(3)   SHL had obtained or intended and would be able to obtain all necessary approval from the relevant government departments, including the Buildings Department (“BD”) and the Fire ServicesDepartment (“FSD”), for implementing the Open Kitchen Layout in the smaller units;

(4)   to the knowledge of SHL, no legal or regulatory impediment existed which would prohibit or impede the implementation of the Open Kitchen Layout in the smaller units.

(the “Alleged Representations”)

12.  The first of these has been referred to as the “Intention Representation”, and the second to fourth as the “Compliance Representations”.  During submissions, Mr Lui clarified that Joytex only alleged falsity of the Compliance Representations, not the Intention Representation.  However, the fact of the Intention Representation formed part of Joytex’s case that that the Compliance Representations had been made.  

A2.   Issues

13.  The key issues can be characterised as follows:

(1)   Whether the Alleged Representations (particularly the Compliance Representations) were made by SHL to Joytex.  This includes sub-issues as to whether certain statements of Ms Wong and Mr Liu were made on SHL’s behalf.

(2)   Reliance, including: (i) whether the Compliance Representationshad the character of representations on which Joytex was intendedand entitled to rely; and (ii) whether Joytex in fact relied on them as a material inducement to purchase Flat 25A.  

(3)   Whether the Compliance Representations, if made, were false.

(4)   Whether the Compliance Representations, if false, were made fraudulently.

(5)   Alleged settlement, waiver, affirmation and/or estoppel.

(6)   Relief, if any.

B.   EVIDENCE: GENERAL

B1.   Factual witness

14.  Only one factual witness was called, namely Mr Cheung, for Joytex.  Mr Cheung gave evidence on central events including of 29 June and 8 July 2009, and what was said by Ms Wong (of Centaline) and Mr Liu (the conveyancing clerk) on those occasions.

15.  SHL called no factual witness.  I heard no evidence from any witness from SHL or Centaline.  Notably, neither Ms Wong nor Mr Liu wascalled.  Accordingly, there was no witness to controvert Mr Cheung’s evidence including as to what occurred and was said orally on 29 June and 8 July 2009.

B2.   Mr Cheung’s credibility as a witness

16.  The parties disagree as to Mr Cheung’s credibility.

17.  However, during cross-examination, Mr Cheung’s factual account of what was said by Ms Wong on 29 June 2009 and by Mr Liu on 8 July 2009, was not challenged (or hardly challenged).

18.  On these factual points, there is simply no serious evidence to controvert Mr Cheung’s.  SHL filed a hearsay notice in relation to a letter dated 24 May 2012 from Centaline to SHL’s then solicitors.  That letter (inter alia) denies that the Alleged Representations were made by Ms Wong or Centaline.  However, it is simply a letter, on which I place no weight in Ms Wong’s absence.  

19.  Similarly, SHL filed a witness statement from Mr Liu, but he was not called.  The parties agreed that the statement be expunged from the trial bundles.  In any event, I would have placed no weight on the statement in Mr Liu’s absence.

20.  On these factual points, Joytex invited me to draw inferences against SHL, from its failure to procure evidence from Ms Wong, Mr Liu or any other witness.  The parties made detailed submissions on the drawing of inferences.

21.  I do not consider it necessary to draw inferences, since even without so doing, I accept Mr Cheung’s evidence.  I would record collaterally, however, that I do consider that the circumstances warrant the drawing of factual inferences against SHL.

22.  The cross-examination of Mr Cheung was directed at other aspects of his evidence, notably: (i) his alleged trust of Ms Wong and reliance on her statements and presentation, in preference to reading the details of documents (such as qualifying wording in the brochures, and the detail of legal contracts); (ii) his evidence that the Open Kitchen Layout was a matter of significance to him in deciding to purchase Flat 25A; and (iii) his motivation for bringing these proceedings. 

23.  In essence, SHL argued that it was inherently incredible that a person with Mr Cheung’s business experience and sophistication would have relied on oral statements of a sales agent and/or a conveyancing clerk, when purchasing Flat 25A. 

24.  In short, I accept Mr Cheung’s evidence on these points also.  I do not find the factual scenario to be as inherently incredible as SHL suggested, given the full factual context and status of the representers. This is discussed further below under Issue 2 on reliance.  

25.  Indeed, I found Mr Cheung to be a rather straight-forward witnesswhose credibility was not substantially shaken under cross-examination.  Assubmitted by Mr Lui, there was at least one occasion on which he volunteered a concession against his interest.

26.  Mr Cheung was cross-examined in respect of certain disqualification proceedings taken by the Securities and Futures Commission (“SFC”) against him and Madam Chou (see further footnote 5 below).  Mr Ho, for SHL, did not address me in any detail on this topic, nor direct me to the relevant judgments and documents, though some appear in the trial bundles.  Suffice it to say that in assessing whether to accept Mr Cheung’s evidence, I have taken this material into account, but it does not alter my conclusions.  I note, for example, that there was no allegation of dishonesty in those proceedings. 

B3.   Expert witnesses

27.  I heard expert evidence from three surveyors, namely: 

(1)   Mr Chan Kwok-wai Albert, who gave evidence for Joytex relevant to the truth or falsity of the Compliance Representations;

(2)   Mr Wong Chi Wai, who gave valuation evidence relevant to quantum, for Joytex; and

(3)   Mr Paul Varty, who gave valuation evidence relevant to quantum, for SHL.

C.   FACTUAL FINDINGS

28.  Below, I set out my key factual findings.  As to the events of 29 June and 8 July 2009, I rely principally on Mr Cheung’s evidence, which was essentially uncontroverted in this respect.

C1.   Mr Cheung and Madam Chou

29.  Mr Cheung is the founder, former Chairman and former majority shareholder of Rontex International Holdings Limited[4] (“Rontex”), a company listed on the Main Board of the Hong Kong Stock Exchange.  Madam Chou is a former executive director of Rontex.

30.  Mr Cheung’s evidence was that in 2008 he sold most of his shares in Rontex.  By the time of the relevant events, he and Madam Chou had both ceased to be executive directors of Rontex[5].

31.  Mr Cheung accepted, in essence, that he was an experienced and successful businessman, who in the course of his business had signed many legal documents.  However, he denied that he was experienced in property investment.  His evidence was that he can read and understand about 90% of a document written in English. 

32.  Mr Cheung and Madam Chou live in the vicinity of Conduit Road, where The Icon is located.

C2.   Centaline

33.  Centaline was the sole agent for SHL, for the sale of units in The Icon.

34.  Centaline’s appointment and duties as sole agent were set out in a Sole Sales Agency Appointment Agreement dated 13 February 2007 and a Supplementary Soles Sales Agency Agreement dated 25 June 2009.  By those agreements, Centaline was responsible for promoting and selling units of The Icon in accordance with the provisions therein.

C3.   Events prior to 29 June 2009

35.  At the start of 2009, Mr Cheung had spare funds having sold hisstake in Rontex.  Mr Cheung and Madam Chou considered that it was a good time to invest in property, so made inquiries with some real estate agents.

36.  This led to contact with Ms Wong of Centaline. Ms Wong showed Mr Cheung and Madam Chou certain flats which they did not buy, before introducing them to The Icon.  The Icon was the only “uncompleted”flat to which Ms Wong introduced them.

C4.   29 June 2009

37.  On 29 June 2009, Mr Cheung and Madam Chou visited the Conduit Road branch of Centaline, and met with Ms Wong.  She introduced them to The Icon, which was then under construction.  At that time, they had known Ms Wong for approximately two to three months.

38.  Ms Wong gave them each a copy of a brochure on The Icon (the “Centaline Brochure”).  She used the Centaline Brochure to introduce The Icon and explain various features, including by directing their attention to the floor plans therein. 

39.  Ms Wong said, amongst other things:

(1)   There are four units on each floor of The Icon.  Units A and D are small units with GFA of 690 square feet.  Units B and C are big units with GFA of 780 square feet.

(2)   The small units A and D have open kitchens and the floor plans of those units are as in the Centaline Brochure. 

(3)   If two connecting units are purchased (ie A and B or C and D) they can be re-constructed to become a bigger unit with a GFA of about 1,460 square feet.  Under this scenario, they can be joined with the original kitchen of unit A or D or demolished and become like the picture at the right side of the Centaline Brochure.  This could be rare in Conduit Road and would be very easy to sell or lease out.

(4)   If units A and D are not joined, they can be like the floor plan in the middle of the Centaline Brochure in which units A and D both have the open kitchen design.

(5)   Centaline was a single agency of the developer, so first-hand purchasers were not required to pay commission.

(6)   Ms Wong also made various statements promoting the merits ofConduit Road as a location and of The Icon generally, includingby reference to its club house, swimming pool and high quality property management.

40.  Mr Cheung asked Ms Wong if he could modify the layout however he wished.  Ms Wong answered that all walls could be removed except the structural wall.  She added that the developer had confirmed that the walls could be removed and there would be open kitchen and that was why the floor plans in the Centaline Brochure were designed this way.

41.  Ms Wong explained that units A and D were small units targeting families with one or two members to whom an open kitchen would be more attractive, thus the properties would be easier to sell.  Since his purchase was for the purpose of investment, Mr Cheung therefore found the open kitchen design very attractive.

42.  Mr Cheung asked if he could visit a show flat. Ms Wong replied that there was no show flat that could be visited.

43.  Mr Cheung and Madam Chou decided to buy four units on one floor of The Icon.  Ms Wong suggested buying through companies rather than in personal names, to facilitate purchasing and selling.  Centaline had already prepared shell companies, so they bought four units using four different companies supplied by Centaline.

C4.1.   Provisional Sale and Purchase Agreements

44.  Ms Wong and her colleague prepared Provisional Sale and Purchase Agreements for the four flats on the 25^th floor. The first to be signed was for Flat 25A (the “PSPA”).  Ms Wong explained the price and schedule of payments, and that the developer was represented by the Solicitors.  If Mr Cheung and Madam Chou also engaged the Solicitors, the legal fees would be borne by the developer.

45.  The PSPA is written in both English and Chinese.  Mr Cheung was cross-examined on whether he read it, by reference to one of its clauses. His evidence, which I accept, is that he did not read it in detail before signing.  

C4.2.   Free Legal Fee Letter and Warning to Purchasers

46.  Next, Ms Wong gave to Mr Cheung two documents, which he signed on behalf of Joytex, namely:  

(1)   A “Free Legal Fee Letter” in English and Chinese, which contains provisions regarding the instruction by Joytex of solicitors chosen by SHL, with solicitors’ fees borne by SHL.

(2)   A “Warning to Purchasers” in English and Chinese, containing various warnings to a purchaser regarding the instruction of solicitors[6].

47.  When explaining the Warning to Purchasers, Ms Wong said that this was a transaction for first hand property and it was impossible to have any problems.  The arrangement for joint solicitors was used by other developers, and could lead to considerable savings.  On hearing this, Mr Cheung decided to engage the developer’s solicitors.

C4.3.   The 2009 Side Letter

48.  Next, Ms Wong gave to Mr Cheung a letter (which has been referred to as the “2009 Side Letter”) which he signed on behalf of Joytex. 

49.  The 2009 Side Letter is a standard form letter addressed from the Purchaser(s) to Fairy Gold Limited.  The details of the particular flat, purchaser and date are filled in by hand.  The 2009 Side Letter states:

“ Dear Sirs,

Re: Fittings and Finishes of the Property

I/We am/are the purchaser(s) of Flat A on 25 Floor of THE ICON,No. 38 Conduit Road, Hong Kong (‘the Property’).

I/We understand that you are the contractor appointed by the developer of THE ICON, [SHL] … to furnish/install the fittings and finishes to the Property as set out in List I attached hereto (the ‘List I Fittings and Finishes’).

I/we write to confirm my/our request to you to furnish/install the fittings and finishes to the Property as set out in List II attached hereto instead of furnishing/installing the List I Fittings and Finishes to the Property at no extra costs to me/us, and I/we shall be solely and fully responsible for all consequences of such alternation and will not hold you or [SHL] liable whatsoever in relation to such alteration ….”

50.  There are two floor plans attached to the 2009 Side Letter featuring the Enclosed Kitchen Design and the Open Kitchen Design respectively, which are at Annexes I and II to this Judgment.

51.  When Ms Wong provided the 2009 Side Letter, she explained toMr Cheung that it was signed for the developer to convert the one bedroom in the original floor plan into two bedrooms and to construct an open kitchen. The developer would instruct its contractor to install fittings and finishes in accordance with List II rather than List I, at no extra cost to Mr Cheung.  Ms Wong stated that developer had already made arrangements and engaged professionals to design the open kitchen.  Therefore there would be no problems for any changes and it would be lawful.

52.  Ms Wong said that signing the 2009 Side Letter was a formality.  Mr Cheung signed and the date was written in later.  He did not read it because he trusted Ms Wong.

53.  Importantly, on 29 June 2009 Mr Cheung signed on behalf of Joytex a floor plan showing four units in The Icon with the Enclosed Kitchen Layout.  Mr Cheung’s evidence was that he asked Ms Wong about this, who said that the signed plan was submitted by the developer, but when the transaction completed the developer would provide the open kitchen plan.

C4.4.   Conclusion of meeting

54.  After signing documents for Flat 25A, Mr Cheung signed documents for flats B, C and D on the same floor, though there was no 2009 Side Letter for flats B and C.

55.  Finally, Ms Wong gave to Mr Cheung two further brochures in respect of The Icon, which have been referred to as the “Joint Brochure” and the “Hong Fok Brochure”.

C5.   The Brochures

C5.1.   The Centaline Brochure

56.  The Centaline Brochure contains marketing and sales information in relation to The Icon. It includes descriptive passages as to the surrounding area and development to be completed, colour photographs, artists’ impressions of the building and flat interiors, and descriptions of features and amenities. There is a certain amount of what may be described as sales hyperbole[7].

57.  The following features are particularly notable:

(1)   One page includes a layout plan entitled “11/F-32/F Proposed layout plan”, which depicts the Open Kitchen Layout for units A and D and the Enclosed Kitchen Layout for units B and C.  The same page features “artist impressions” of a flat interior depicting an open kitchen.

(2)   Another page includes a layout plan entitled “Adjoining Units.  Proposed Furniture Layout Plan”.  This depicts a floor of The Icon in which units A and B have been joined into a larger flat, and units C and D have been joined into another larger flat; with each large unit having an enclosed kitchen.  

(3)   Under the headings for each of these layout plans appear the words:

「此為設計師筆下之單位預想圖，並不代表收樓標準，只供參考」

which was translated during the trial as:

“ This is the drawing envisaged by the designer, it does not represent the standard of the flat when the transaction is completed, it is for reference only”.

(4)   Both of these pages also feature in small print in English and Chinese:

“ The layouts of units A and D on 11/F to 32/F of The Icon have been altered as shown above to be the proposed layouts and subject to the approval from the Building Department. Please refer to the particular floor plans disclosed by the developer”.

(5)   At various places, Centaline is described as “Sole Agent”.

C5.2.   The Joint Brochure and the Hong Fok Brochure

58.  The Joint Brochure includes the following: 

(1)   A number of different floor plans, some entitled “Typical Floor”, which depict the Open Kitchen Layout for units A and D.  Some of these, but not all, contain qualifying wording similar to that in the Centaline Brochure such as:

(i)   「設計師筆下之單位預想圖，並不代表收樓標準，只供參考」

translated during the trial as:

“ sketches presented by the designer do not represent the standard when the transaction is complete, it is only for reference”;

and

(ii)   「平面圖只供參考」

translated during the trial as:

“ the floor plan is only for reference”.

(2)   A computer generated image labelled “Unit A Typical Floor” depicting an open kitchen, which has no qualifying words.

(3)   (3) A layout plan for an entire floor depicting the Enclosed Kitchen Layout for all four units, which contains some qualifying wording.

59.  The Hong Fok Brochure[8]includes the following: 

(1)   Plans of entire floors of The Icon featuring the Enclosed Kitchen Layout for all four units.

(2)   Computer generated images of The Icon and flat interiors, under which the following is written:

“ All images, pictures, drawings, perspectives of the development are drawn under the artists’ imagined impression of the development. It may not be drawn to scale may have been enhanced by computergraphics. They shall not constitute or be constructed as giving any offer, representation or warranty whether expressly or impliedly. All information shall be subject to the final approval by the Building Department, and terms of the formal Agreement for Sale and Purchase” [9].

C5.3.   SHL’s involvement in preparing the brochures

60.  I am satisfied that the content of the brochures, including various depictions of the Open Kitchen Layout, was approved by SHL.  Mr Lui referred me to certain emails between Centaline and SHL in respect of the content of brochures for The Icon.  Further, the terms of the agency agreements (see above) and the content of the Panel Minutes (see below) support this conclusion.  SHL adduced no contrary evidence.

C5.4.   Extent to which Mr Cheung read the brochures

61.  Mr Cheung was cross-examined on the various “qualifying words” in the brochures, upon which SHL relies.  His evidence was to the effect that he paid attention to the layout plans in the Centaline Brochure to which Ms Wong specifically directed him on 29 June 2009.  However, he did not read any of the brochures in detail, and did not notice or pay attention to various “small print” or qualifying wording relied on by SHL (such as “for reference only”).  I accept this evidence.

C6.   8 July 2009

62.  On 8 July 2009, Mr Cheung and Madam Chou visited the officesof the Solicitors, to execute formal Sale and Purchase Agreements for the four flats.  They dealt with Mr Liu, a conveyancing clerk of the Solicitors.

63.  During this visit, Mr Cheung was given by Mr Liu for his signature a floor planfeaturing the Enclosed Kitchen Layout.  Mr Cheung noticed that it was different to the Open Kitchen Layout and asked Mr Liu about this.  Mr Liu replied that that the floor plan was used for the formal Sale and Purchase Agreement, and he knew that the developer undertook to change the kitchens of units A and D into open kitchen.  As long as the developer had undertaken to do so, he asked Mr Cheung not to worry and there would be no problem.

64.  I will not here recite the detailed terms of the Sale and Purchase Agreement for Flat 25A (the “SPA”).  Suffice it to say that the property sold is defined by reference to a plan depicting a floor of The Icon in which all four units have the Enclosed Kitchen Layout.

65.  Mr Cheung was not cross-examined specifically as to whether he read the detail of the SPA, but I find on a balance of probabilities that he did not.

C7.   August 2009

66.  In around August 2009, Mr Cheung was taken by Ms Wong to visit a showroom (or demonstration) for The Icon at the Conduit Road branchof Centaline.  The showroom/demonstration featured an open kitchen layout for units A and D [10].

C8.   2010 Side Letter

67.  Around October 2010, Mr Cheung on behalf of Joytex signed a letter from Joytex to SHL, referred to as the “2010 Side Letter”.  It is a standard form letter, which reads:

“ Dear Sirs,

RE: Fittings and Finishes of the Property.

I/We am/are the purchaser(s) of Flat A on 25 Floor of THE ICON … (the ‘Property’) and refer to the letter dated 8^th July 2010 regarding the captioned matter, which have been accepted by us.

I/We would inform you that I/we do not require the Fittings and Finishes described in the said letter and understand that you are prepared to pay me/us a sum of HK$148,000.00 in lieu of the Fittings and Finishes.

In this regard, I/we hereby request you to pay me/us a sum of HK$148,000.00 and I/we hereby irrevocably waive all my/our rights in respect of or in connection with the Fittings and Finishes under the said letter, under law or at equity and we agree and confirm thatyou are fully discharged and released from all your obligations under the said letter and I/we shall have no further claim whatsoever against you.

Please confirm that you will pay us the said sum of HK$148,000.00 [within [14] days after completion of the purchase of the Property] …”.

68.  Mr Cheung’s evidence on the 2010 Side Letter, was unchallenged.  In October 2010, Ms Wong requested a meeting since the transactions were nearing completion.  She told Mr Cheung that the developer had a proposal for purchasers to choose, namely that the developerwould not decorate the units, but would instead offer a bare shell for units A and D and give each purchaser HK$148,000 as compensation.  Mr Cheung asked Ms Wong’s advice, who suggested that he take the compensation for one of the units but not the other.  Mr Cheung agreed and signed the letter in respect of Flat 25A[11].

C9.   Completion

69.  The sale and purchase of Flat 25A completed on 17 December 2010, on which date Joytex paid to SHL the balance of the purchase price which was outstanding, and SHL executed an Assignment of Flat 25A to Joytex.  The Assignment defined the property conveyed by reference to the same floor plan as annexed to the SPA, ie depicting the Enclosed Kitchen Layout.

70.  In January 2011, Joytex received HK$148,000 from SHL, pursuant to the 2010 Side Letter.

C10.   Events Following Completion

71.  Mr Cheung’s evidence was that at the start of January 2011, issues began to surface with The Icon.  Purchasers discovered problems in the units and it was ultimately revealed that the BD had not approved the Open Kitchen Layout.

72.  Joytex submitted a hearsay notice in respect of: (i) a contemporaneous news report; and (ii) minutes of a Special Meeting of the Panel on Housing of the Legislative Council held on 28 January 2011 (the “Panel Minutes”).

73.  The Panel Minutes are significant, particularly in the absence of any witness from SHL or Centaline.  The Panel on Housing discussed potential measures to regulate sales of first-hand private residential properties, with reference to issues which had recently arisen in relation to The Icon.  Representatives of Centaline attended, including its Group Chairman[12].

74.  The Panel Minutes include the following:

(1)   Centaline explained that it was the sole agent for sales of The Iconuntil late 2009.  Centaline had prepared promotional leaflets for buyers, based on information provided by the developer.

(2)   Centaline was questioned on why open kitchens were shown in promotional brochures, whilst plans approved by the Building Authority (“BA”) were for an enclosed kitchen layout.  Centaline replied that the layout plan in the promotional leaflets was based on information provided by the registered architects appointed by the developer.  Floor plans for one and two bedroom flats provided to Centaline in 2006 and 2007 containedopen kitchens, but the Group Chairman was not certain whether they had been approved by the BA.  As sale and purchase agreements for The Icon made clear that floor plans would be subject to change, Centaline had proceeded to distribute the promotional leaflets based on floor plans with open kitchens.

(3)   Centaline said that buyers were provided with two floor plans, one with enclosed kitchen approved by the BA and the other with open kitchen to be provided on delivery.  There was no indication that the conversion works for open kitchen were illegal.  Centaline was an estate agency and could not tell from plans provided by registered architects whether conversion would be lawful.  It was duty of solicitors to explain the sale and purchase agreements to buyers.  Centaline had disseminated information based on what was provided by developer.

(4)   Since issuance of the Occupation Permit in November 2010, promotional leaflets had been amended to reflect one-room design with enclosed kitchen.  The developer and buyers could still seek approval for the conversion of enclosed kitchens to open kitchens.

(5)   As some buyers were not satisfied with the unfinished condition of flats, Centaline had negotiated and offered some buy-back options.

75.  Subsequently in 2011, Mr Cheung and solicitors acting for Joytex made written complaints to SHL, including of misrepresentation.  Mr Cheung’s evidence was that he received compensation in respect of Flat D on 25/F but not in respect of Flat A, on the basis that he had signed the 2010 Side Letter for Flat A but not Flat D.

D.   LAW OF MISRREPRESENTATION: GENERAL

76.  Though it encompasses several distinct causes of action, there are certain common elements to the law of misrepresentation, which were uncontroversial between the parties.

77.  I consider it helpful to outline a few core principles, for which see eg Yang Dandan v Hong Kong Resort Company LtdCACV 247/2015,9 August 2016 per Kwan JA at §§52 – 55 and 67 – 74, and Misrepresentation, Mistake and Non-Disclosure by Cartwright (4^th ed) Chapter 3:

(1)   Generally, an actionable misrepresentation requires a false statement of past or present fact, as distinct from a statement of opinion or intention; though a statement of opinion/intention or as to the future may entail an implied statement of fact.

(2)   Where there is a dispute as to the meaning conveyed, the court interprets the relevant words or conduct.  The approach is objective, viewing the communication from the perspective of a reasonable person in the position of the representee.  The test is whether: (a) the words or conduct in fact led the representee to believe the alleged false fact; and (b) it was reasonable for the representee to believe it from the words or conduct as he perceived them. In applying the test, the characteristics of the representee, including level of sophistication, are taken into account.

(3)   Where an implied representation is alleged, the question is what a reasonable person would have inferred was being impliedly represented by the representor’s words and conduct in their context.  

(4)   The statement must have the character of one upon which the representee was intended and entitled to rely.

(5)   The representee must have in fact relied on the statement; though this can sometimes be inferred.  The representation need not be the only or main cause of the decision to contract.  It is generally sufficient that it be a cause (in other words, a material inducement).

E.   ANALYSIS OF THE ISSUES

E1.   Issue 1: Whether the Compliance Representations were made by SHL to Joytex

78.  Mr Lui, for Joytex, argued that the Compliance Representations were made by implication from the whole course of SHL’s conduct.  He relied principally on events of 29 June 2009, namely: (i) what Ms Wong said in conjunction with her presentation of the Centaline Brochure; and (ii) the 2009 Side Letter.  The Compliance Representations were, he argued, repeated and reinforced by subsequent events, including Mr Liu’s words on 8 July 2009.  Mr Lui also argued that the Compliance Representations flowed by necessary implication from the Intention Representation.

79.  As Mr Lui accepted, events after 8 July 2009 (such as the showroom visit) could not have been operative in terms of misrepresentation at the time of the PSPA or the SPA.  However, Mr Lui relied on those subsequent events as corroborative of his client’s case that the earlier representations were in fact made; and illustrative of a continuing representation which was not corrected. 

80.  I accept Mr Lui’s submission that in assessing whether the alleged representations were made, regard can be had to the cumulative effect of a series of events: Spice Girls Ltd v Aprilia World Service BV [2002] EMLR 27 per Morritt VC at §63.

81.  However, it is helpful in this case to give some separate consideration to the key factual features relied on by Joytex.

E1.1.   The Brochures

82.  The most significant brochure is the Centaline Brochure, since Ms Wong used it when presenting The Icon on 29 June 2009 [13]. 

83.  In my view, if one were to consider only that brochure in isolation, Joytex would face difficulties in establishing that the Compliance Representations were made, or that it was entitled to rely on them. That is because of the various qualifying statements contained therein: see §57 above.  These include express statements (albeit in small print) that the depicted layout did not represent the standard of the flat when completed, and was only for reference; and further that the proposed layouts had been altered and were subject to approval from the BD.  These statements, in particular the latter, are inconsistent with at least some of the Compliance Representations.

84.  In the context of misrepresentation, the relevance of qualifying wording in a property sales brochure was considered by the Court of Appealin Yang Dandan v Hong Kong Resort Company Limited (supra) at §§67 – 74; see also the first instance Judgment of Deputy High Court Judge Kent Yee [2015] 6 HKC 126 at §§44 – 48.  The Court of Appeal held that a qualifying statement of this nature may indicate to a reasonable representee that the representor does not assume responsibility for the accuracy or completeness of the statement, or that a representee is not entitled to rely on the statement.

85.  However, Joytex does not rely solely on the content of the Centaline Brochure per se, and it is necessary to consider the other relevant facts.

E1.2.   The 2009 Side Letter

86.  The text of the 2009 Side Letter is set out at §49 above.

87.  I accept Joytex’s submission that the provision of the 2009 Side Letter to Joytex, carried the implication that the Open Kitchen Layout could be constructed at Flat 25A.

88.  SHL disagreed, highlighting that the 2009 Side Letter was a document from Joytex which was addressed to SHL’s contractor rather than SHL itself.  However, this ignores the realities of the situation.  The letter was in standard form and provided by Ms Wong (SHL’s agent) to Mr Cheung for his signature, for the purpose of selecting fittings and finishes for an Open Kitchen Layout rather than an Enclosed Kitchen Layout.  In my view, a reasonable recipient of the letter in that context would understand its provision to entail an implicit representation that an open kitchen would and could be built. 

89.  There was no evidence before me as to the provenance of the 2009 Side Letter, or whether it was approved by SHL. However, on a balance of probabilities I conclude that SHL is likely to have known about and/or approved of the 2009 Side Letter. 

E1.3.   Ms Wong’s statements on 29 June 2009

90.  As set out above, Ms Wong’s statements on 29 June included that: (i) the small units A and D have open kitchens; (ii) the developer had confirmed that there would be open kitchen and that was why the floor plansin the sales brochure were designed in this way; (iii) the 2009 Side Letter wassigned for the developer to convert the one bedroom in the original floor plan into two bedrooms and to construct an open kitchen; and (iv) the developer had already made arrangements and engaged professionals to design the open kitchen, therefore there would be no problems for any changes and it would be lawful.

91.  There can be little doubt that these statements entailed, whether expressly or by implication, the Compliance Representations.

E1.4.   Authority of Ms Wong

92.  The parties disagreed as to whether, when making these oral statements, Ms Wong acted on SHL’s behalf.  SHL argued that: (i) Joytex failed to sufficiently plead Ms Wong’s actual or ostensible authority to do so; and (ii) in any event, there was no such authority.

93.  I do not accept SHL’s pleading point.  Joytex pleaded that Ms Wong’s oral representations were made as agent of SHL.  The point is shortly pleaded, but I consider it sufficient.  I do not think that SHL was takenby surprise, nor was it suggested that had agency been pleaded in more detail, SHL would have adduced additional relevant evidence.

94.  Moving to the substantive issue of authority, a number of Hong Kong cases consider the question of agency for the vendor where an estate agent makes representations to the purchaser of property[14].

95.  It is a question of fact in each case whether an estate agent is acting for a particular party in providing to another information relating to a property: Yili Concepts (HKG) Limited v Lee Wai Chueng (supra) at §48; Jopard Holdings Limited v Ladefaith Limited (supra)at §30.

96.  The present case differs, factually, from much of the Hong Kongcase law.  That case law concerns estate agents who act for both vendor andpurchaser as broker: Cheng Kwok Fai v Mok Yiu Wan, Peter (supra) at 445F; Yili Concepts at §47.  The authorities consider that such an agent may assume different roles at different times, and examine the facts to see whether at a particular point in time the agent was acting for vendor or purchaser.

97.  Here, by contrast, Centaline acted only for SHL as sole sales agent.

98.  Mr Lui, for Joytex, drew attention to various terms of the agencyagreements between Centaline and SHL (referred to above)[15].  He argued thatMs Wong’s oral representations were made whilst performing duties entrusted by SHL to Centaline under those agreements.  He further emphasised that SHL was involved in the preparation of, and gave final approval for, the Centaline Brochure which depicted the Open Kitchen Layout.

99.  Mr Ho, for SHL, argued that there was no evidence that Ms Wong had actual authority to say what she did on SHL’s behalf.  Further, her oral representations were inconsistent with the “qualifying words” in the Centaline Brochure, such that they must have exceeded her actual authority.

100.  I am inclined to accept that some of Ms Wong’s statements went beyond her actual authority as SHL’s agent.  It is Joytex’s case that the Centaline Brochure was approved by SHL, and that brochure contains “qualifying words” which do not sit well with some of her statements.

101.  However, I take the view that Ms Wong acted within her ostensible authority as SHL’s agent: 

(1)   In a similar factual context, the test for ostensible authority was set out by the Court of Appeal in Chun Sue Kwan v Sky Harvest Ltd & Anor CACV 174/2007, 6 February 2008 at §§16 – 19. Ostensible authority depends on the facts of each case.  It requires a representation, which may be by conduct, by the principal to the third party that the agent has authority of a particular kind.  The representation may be made by the principal permitting the agent to act in some way in the conduct of the principal’s business with others.  The scope of the authority is determined by the nature of the duty entrusted to the agent.

(2)   Centaline was SHL’s sole agent for the sale and promotion of The Icon.  As an “off plan” development, The Icon could not be visited by prospective buyers.  In its capacity as sole agent, Centaline had prepared a brochure which contained numerous details and depictions of The Icon, including the layouts of the flats therein.

(3)   Joytex was aware of Centaline’s role as sole agent from the Centaline Brochure and Ms Wong’s statements.

(4)   On these facts, I consider that SHL had clothed Centaline with apparent authority to make representations on its behalf as to the manner in which The Icon was intended to be built, the characteristics of the flats to be contained therein, and the feasibility/permissibility of constructing the same.  Cf Chun SueKwan v Sky Harvest Ltd (supra) at §21; Welltech Investment Ltd v Easy Fair Industries Ltd (supra).

102.  SHL relied on dicta in Cheng Kwok Fai v Mok Yiu Wan, Peter (supra)and Jopard Holdings Ltd v Ladefaith Limited (supra) §§31 – 32, to the effect that the mere appointment as an agent for selling a flat was insufficient, in those cases, to clothe the agent with authorityto make the representations complained of.  However, both cases make clearthat the question of agency is fact-sensitive; and both concerned dual agents as acting as brokers.  In other cases with different facts, the estate agent’s representation was held to be within the scope of his or her authority.

E1.5.   Mr Liu’s statements on 8 July 2009

103.  As set out above, I accept that Mr Cheung specifically asked Mr Liu about the floor plan attached to the SPA.  Mr Liu told Mr Cheung that: the floor plan was used for the formal SPA; the developer undertook to change the kitchens of units A and D into open kitchens; as long as the developer had undertaken to do so Mr Cheung should not worry and there would be no problem.

104.  In my view, again applying the approach set out at §77(2) and (3) above, these statements entailed, whether expressly or by implication, the Compliance Representations.  That is particularly so given that Mr Liu was a legal professional, who ought to be in a position to assist as to potential legal impediments to the construction of the Open Kitchen Layout.

E1.6.   Authority of Mr Liu

105.  There is again an issue as to whether Mr Liu’s statements are to be treated as representations by SHL.

106.  SHL argued not, on the basis that the Solicitors were instructed to act for both parties, and any representation was made in their capacity as Joytex’s solicitors.

107.  Joytex accepted that, strictly speaking at least, the Solicitors acted for both parties[16].  Mr Lui pointed out, however, that the SPA referred to them as solicitors for “the Vendor”, and that in various correspondence the Solicitors described themselves as acting for SHL.  In any event, Mr Lui said he did not need to rely on Mr Liu’s representations to succeed, since other events (including of 29 June) were sufficient. 

108.  In my view, Mr Liu’s representations were made on behalf of SHL:

(1)   There is English authority that, were a buyer makes inquiries in relation to conveyed property, answers given by the vendor’s solicitor are (even if incorrect) generally treated as given on the vendor’s behalf [17].

(2)   There is a complication in the present case because the Solicitors acted for both parties in the conveyance.

(3)   By analogy to the cases on estate agents acting for both parties (discussed above), I consider the question to be fact-sensitive.  One has regard to the function being performed by the jointly appointed solicitor at the relevant time, and asks whether on the detailed facts the particular representation falls to be treated as made on the vendor’s behalf. 

(4)   The query raised by Mr Cheung and Mr Liu’s response related to matters within SHL’s knowledge, namely, whether the Open Kitchen Layout would and could be provided, notwithstanding the plan attached to the SPA.  Mr Liu’s answer referred to an undertaking given by the developer.  I consider that accordingly, Mr Liu’s representation should be treated as having been made on the vendor’s behalf, or at least to include a representation made on the vendor’s behalf.

E1.7.   Conclusion on Issue 1

109.  On Issue 1, I conclude that SHL made the Compliance Representations (or representations to similar effect) to Joytex, prior to both the PSPA and the SPA.

110.  In so concluding, I rely not on one specific document or incident, but on the cumulative fact-set including: (i) Ms Wong’s oral statements on 29 June 2009 coupled with her presentation by reference to the Centaline Brochure and the plans therein; (ii) the provision to Joytex of the 2009 Side Letter; (iii) the various depictions of the Open Kitchen Layout in the Centaline Brochure; and (iv) Mr Liu’s statements on 8 July 2009.

111.  I am fortified in reaching this conclusion by Joytex’s argument that the Compliance Representations flowed as a natural and reasonable inference from the Intention Representation.  Mr Cheung was effectively informed from various sources prior to the PSPA and SPA that the Open Kitchen Layout would be provided on completion.  The securing of the requisite approvals for that layout is a matter which falls naturally within the province of the developer.  A reasonable purchaser in receipt of such information would assume that the developer had secured such approvals or ascertained that they could be secured, and that the same was implicitly represented to him.

E2.   Issue 2: Reliance

112.  Under this heading I consider: (i) whether the representations made had the character of representations on which Joytex was intended and entitled to rely; and (ii) whether Joytex in fact relied on them as a material inducement to contract. 

113.  I am satisfied that Joytex has made good these requirements, for the following principal reasons:  

(1)   Ms Wong specifically told Mr Cheung and Madam Chou that an open kitchen was more attractive to small families, and that the properties would thus be easier to sell (see above).  Plainly, this was an inducement to buy.  Mr Cheung’s evidence was thatsince his purchase was for investment, and given what Ms Wong said, he found the open kitchen design very attractive.

(2)   The significance of the open kitchen as a selling point and an inducement to contract, is supported by the Centaline Brochure itself (and the Joint Brochure) which contain various plans and artists’ impressions depicting an open kitchen.

(3)   Mr Liu’s oral statements on 8 July were in response to Mr Cheung’s specific query on the Open Kitchen Layout, and were made by a legal professional immediately before Joytex executed an important legal document.  The very fact of Mr Cheung’s query indicates that it was a point of material significance to him.  I consider that Mr Cheung relied on what Mr Liu said, was intended and entitled to do so.

(4)   I do not think that Mr Cheung’s evidence on reliance, or as to the significance of an open kitchen to Joytex, was undermined during cross-examination.

114.  SHL relied on Mr Cheung’s sophistication as a businessman and former Chairman of a listed company.  It was not credible, SHL argued, that such a man would rely on representations by a “mere” sales person at Centaline and/or a legal clerk, in preference to the actual wording of documentation such as the PSPA and SPA; particularly given the substantial combined price of the four properties being purchased. 

115.  I have carefully considered this line of argument, but do not accept it.  The representations in question came from a number of different sources which tended to support one another. They included SHL’s sole agent for selling The Icon and a legal representative acting for (inter alia) SHL.

116.  Further, as Joytex submitted, the fact that a representee could, with reasonable diligence, have discovered the falsity of a representation, is not of itself a defence to a misrepresentation claim[18].  Thus, if the effect of a contract has been misrepresented, it is not necessarily an answer to say that had the representee read the contract, he or she would have discovered the true position.

117.  SHL also relied heavily on the “qualifying statements” in the Centaline Brochure and other brochures: see §§57 – 59 above.  I accept that these form part of the factual matrix relevant to Issues 1 and 2: see eg Yang Dandan v. Hong Kong Resort Company Ltd (supra).  However, Yang Dandan is factually distinguishable since the allegations of oral representations were rejected on the evidence, so that the misrepresentation claim turned solely on the content of the relevant sales brochure[19].  Given the other key facts of this case referred to above, I do not consider that the qualifying words in rather small print in the Centaline Brochure (and other brochures) are sufficient to defeat Joytex’s claim[20]. 

E3.   Issue 3: Falsity

118.  Joytex contended that the Compliance Representations were false, pleading the following particulars: (i) SHL had not obtained the requisite approvals from the BD or the FSD for implementing the Open Kitchen Layout; (ii) to implement the Open Kitchen Layout without such approval would breach the Building Regulations and Fire Safety Regulations; and (iii) SHL had either never submitted any application to the BD for approval of the Open Kitchen Layout in the smaller units, or if it did and was rejected, has been reckless as to whether any impediment for its implementation existed. 

119.  In its pleading, SHL admitted that it did not deliver Flat 25A with the Open Kitchen Layout, but denied (by bare denial) Joytex’s allegations of falsity.

120.  On this topic, Joytex adduced expert evidence from Mr Chan Kwok-wai Albert, a registered surveyor and Authorized Person under the Buildings Ordinance (Cap 123).  Mr Chan inspected Flat 25A in May 2013 and June 2018.

121.  Mr Chan’s evidence included the following:

(1)   On inspection, the interior layout of Flat 25A corresponded to the layout plan approved by the BD ie Enclosed Kitchen Layout.  The interior was barely finished, with no major fixtures installed. 

(2)   In order to alter the layout to include an open kitchen, approval would have to be sought from the BA. 

(3)   In Mr Chan’s view, it was very unlikely that permission would be granted to construct the Open Kitchen Layout in Flat 25A.  The chance of disapproval exceeded 90%.

(4)   Mr Chan explained his position in detail by reference to various fire safety criteria and concerns[21].

122.  Despite having leave to do so, SHL adduced no expert evidence to oppose Mr Chan’s.  Mr Chan was cross-examined on certain aspects of his report, the detail of which I will not recite.  Suffice it to say that I do not think that Mr Chan’s evidence was undermined, and I accept that evidence.

123.  Further, there was no suggestion from SHL that the BA ever approved building plans featuring the Open Kitchen Layout.  Had that been the case, SHL would surely have been in a position to so establish.  The Panel Minutes further suggest that the Open Kitchen Layout was never approved by the BA.

124.  For the above reasons I accept that the Compliance Representations were false, in at least the following respects:

(1)   SHL had not in fact obtained the approvals required from the BA in order to construct the Open Kitchen Layout in the smaller units at The Icon; and

(2)   On a balance of probabilities, it was not in fact feasible to obtain permission to construct the Open Kitchen Layout in Flat 25A.

E4.   Issue 4: Alleged Fraud

125.  It is Joytex’s case that the Compliance Representations were fraudulently made.  The pleaded particulars are that SHL well knew that the representations were false, or made them recklessly not caring whether they were true or false[22].

126.  In terms of the remedies sought, it matters little whether the fraud allegation is made good[23]. Notwithstanding this, I will deal with the point briefly. 

127.  In short, I do not consider that Joytex has established the fraudulent intent required to make good the tort of deceit:

(1)   Fraudulent intent is required to be strictly proved.  The standard of proof is the civil standard, but the evidence in support must be commensurate with the seriousness of what is alleged and its inherent improbability.  Inferences of fraud are not lightly drawn[24].

(2)   The tort of deceit requires a false representation which is made: (i) knowingly; (ii) without belief in its truth; or (iii) recklessly.  Recklessness entails not caring whether the statement is true; an indifference to the truth.  Negligence is insufficient, it does not amount to dishonesty[25].

(3)   Complications arise where a fraudulent misrepresentation is alleged to have been made through an agent: discussed in Cartwright (supra) at §5-21.  Where the principal does not know that the agent is making the statement, but knows of circumstances which render it false, and the agent does not know that the statement is false, the tort of deceit is not committed. Neither the principal nor the agent has a fraudulent state of mind.  One cannot add an innocent state of mind to an innocent state of mind and produce as a result a dishonest state of mind.

(4)   The point at (3) above appears apposite.  The misrepresentationswere made, at least in part, through the medium of SHL’s agents.  The evidence does not establish that SHL was actually aware of Ms Wong’s and Mr Liu’s relevant statements.  I do not think it can be established, to the requisite standard of proof, that SHL (through its officers) had a fraudulent state of mind. 

(5)   Joytex also argued that Centaline and/or Ms Wong were recklessin the fraudulent sense, and that SHL is vicariously liable for the tort of deceit. However, I do not think that this argument is open to Joytex since its claim was not pleaded in that way.  In any event, I am not persuaded on the evidence that Centaline or Ms Wong must have been reckless in the sense required (including dishonesty).

E5.   Issue 5: Alleged settlement, waiver, affirmation, estoppel

128.  Under Issue 5, I deal briefly with SHL’s alleged defences of settlement, waiver, affirmation and estoppel; all of which I reject. 

E5.1.   2010 Side Letter: alleged settlement/waiver

129.  The text of the 2010 Side Letter is set out at §67 above.  SHL’s pleading and submissions assert that this amounted to a settlement by which Joytex accepted HK$148,000 in consideration for waiving its rights in connection with the fittings and finishes referred to in the 2009 Side Letter; including the conversion of Flat 25A from Enclosed Kitchen Layout to Open Kitchen Layout.  The argument is, apparently, that the present claim is somehow precluded.

130.  I reject this argument, without hesitation.  The 2010 Side Letter relates to the fittings and finishes in Flat 25A.  The waiver contained therein is of SHL’s prior obligation to install fittings and finishes in that flat.  However, Joytex’s present complaint is not that SHL failed to install fittings and finishes.  Rather, it is that SHL misrepresented the position as to the permissibility of constructing the Open Kitchen Layout.  I fail to see how the 2010 Side Letter or the waiver contained therein, assists SHL.

E5.2.   Affirmation

131.  SHL pleads that Joytex elected to affirm the SPA which incorporated the Enclosed Kitchen Layout, by taking an assignment of Flat 25A incorporating the Enclosed Kitchen Layout on 17 December 2010.

132.  Mr Ho’s submissions, for SHL, did not refer to this point.  In any event, I reject it.  By the time of the assignment Joytex had not discovered the falsity of the Compliance Representations, nor had they been corrected[26].

E5.3.   Contractual Estoppel

133.  In closing submissions, Mr Ho relied on contractual estoppel, citing clause 15 of the PSPA [27].

134.  However, this argument is not open to SHL, since its pleaded defence contains no reference to contractual estoppel, or indeed any species of estoppel, or to clause 15.

E6.   Issue 6: Relief

135.  Joytex seeks: (i) a declaration that the PSPA and the SPA have been rescinded; (ii) repayment of the purchase price for Flat 25A, namely HK$9,817,000; (iii) damages for fraudulent misrepresentation or under section 3(1) of the Misrepresentation Ordinance; (iv) alternatively, damages in lieu of rescission under section 3(2) of that Ordinance; (v) interest and costs.  

E6.1.   Rescission

136.  It is trite that in equity the remedy of rescission is available where an actionable misrepresentation induces a contract[28].

137.  In the case of a non-fraudulent misrepresentation, section 3(2) of the Misrepresentation Ordinance grants to the court a discretion to order damages in lieu of rescission. 

138.  Joytex’s primary position is that it seeks rescission of the PSPA and SPA.  SHL has not pleaded or argued that, if Joytex’s misrepresentation complaint is made good, rescission should be refused; nor has any basis been advanced for ordering damages in lieu of rescission.

139.  For the reasons canvassed above, I am satisfied that grounds for rescission of the PSPA and the SPA have been established.  I see no reason to refuse that remedy, which I therefore grant.

140.  It follows from rescission that Joytex is entitled to repayment of the purchase price paid for Flat 25A, namely HK$9,817,000.  It is common ground that Joytex should give credit for the HK$148,000 which it received from SHL pursuant to the 2010 Side Letter.  This produces a net figure of HK$9,669,000 payable by SHL to Joytex.

141.  On repayment of this sum with interest, SHL would be entitled to have Flat 25A conveyed back to it.  As is commonly done, I will grant liberty to apply, in case further orders are required to effect rescission. 

E6.2.   Damages under section 3(1) of the Misrepresentation Ordinance

142.  Pursuant to section 3(1) of the Misrepresentation Ordinance, damages are available in respect of a non-fraudulent misrepresentation which induces a contract, on the same basis as for the tort of deceit.  Damages are awarded so as to put the plaintiff in the position it would have been in, had the representation not been made[29].  See for example: Long Year Development Ltd v Tse Fuk Man Norman & Ors [1991] 2 HKC 393 per Deputy Judge Andrew Li QC (as he then was) at 407D – 408D; Cartwright (supra) at §7-31.

143.  Damages are not available under section 3(1) if the representorproves that he or she had reasonable grounds to believe and did believe up to the time of the contract that the facts represented were true.  However, SHL has not relied on this qualification in its pleading, evidence or argument.   

144.  I am accordingly satisfied that as a matter of principle, Joytex can claim damages under section 3(1) for losses flowing from SHL’smisrepresentations, so as to put Joytex in the position it would have occupied had those misrepresentations not been made ie had it not purchased Flat 25A.  Such damages can be claimed in conjunction with rescission[30].

145.  The damages sought by Joytex in conjunction with rescission comprise: (i) alleged loss of profits from investing in an alternative property; and (ii) various expenses incurred as a result of purchasing Flat 25A.  I consider these in turn.

E6.3.   Alleged loss of profits from alternative investment

146.  Joytex seeks damages of HK$5,150,000 for loss of profits[31] on the basis that: (i) but for the misrepresentations, Joytex (or Mr Cheung using Joytex) would have invested in an alternative property; and (ii) betweenthe dates of its acquisition and the trial, the value of that alternative property would have increased by HK$5,150,000.

147.  Joytex relied principally on the evidence of its valuation expert, Mr Wong Chi Wai.  Mr Wong identified a specific property said to be a suitable “alternative” to Flat 25A, namely Flat C on 22/F of Soho 38 at No 38 Shelley Street (“22C Soho 38”).

148.  Further, Joytex cited evidence that in 2009 Mr Cheung and Madam Chou had spare funds to invest and had visited other residential properties (though not Soho 38).  Mr Lui argued that it was unnecessary to prove that this specific alternative flat would have been bought; he had only to establish that an alternative flat would have been bought, and 22C Soho 38 served as an appropriate basis to quantify the profit which would have been earned. 

149.  Mr Paul Varty, called by SHL, gave opposing expert evidence, disputing that 22C Soho 38 was a suitable comparator for The Icon.  SHL argued that the claim for lost profits was too speculative and not made good on the evidence.  

E6.4.   Loss of profits: authorities

150.  In claims for deceit and under section 3(1) of the Misrepresentation Ordinance, it is possible to recover damages for lost profits which would, but for the misrepresentation, have been earned on an alternative investment[32].

151.  Mr Lui accepted (citing 4 Eng Ltd v Harper (supra)at §§56 – 58) that in order to establish such a claim a plaintiff must show on a balance of probabilities that it would have entered into the alternative and more profitable transaction, and a real and substantial chance (as opposed to a speculative one) that the relevant third party would have transacted.

152.  In Long Year Development Ltd v Tse Fuk Man Norman (supra), the learned Judge held the third parties liable to pay damages to the defendant under section 3(1) of the Misrepresentation Ordinance, for misrepresentation inducing the defendant to purchase a property.  At 409F to 410D, the learned Judge considered and rejected a damages claim for the lost chance to purchase a different property and re-sell at a profit.  The reasoning included the following (with emphasis added):

“ … If there were evidence that the defendants would have purchasedanother property for a similar sum and would have resold the sameat a profit, then the loss of profit could be said to be a loss directly flowing from the misrepresentation. The loss would not be the loss of profit on the resale of this property to the plaintiff, but the profit the defendants might have made on a purchase and resale of a property bought for a similar sum, ie a putative purchase and resale. Assessing this would be, essentially, a ‘jury question’.

In the present case, there must, in my judgment, be evidence that the defendants would have purchased a property with a similar sumand resold it at a profit before the property market plummeted, after 4 June 1989 …. Unless the purchase and resale were before that time, it is likely that no profits would have been made. There is no such evidence here.

Although there is evidence that the defendants were in property dealing and investment, and that Madam Yu was looking for properties below HK$2m, there is no evidence which would enableme to conclude that they would have purchased such a property, orthat they would have resold it at a profit at all (rather than keep it as an investment) or, more importantly, that they would have resold it before 4 June 1989.  Accordingly, I dismiss the claim ….”

153.  In Yang Dandan v Hong Kong Resort Company Ltd (supra)at first instance, the learned Judge rejected the plaintiff’s complaint of misrepresentation inducing her propertypurchase.  At §§87 – 107 he went on to consider, obiter dicta, the plaintiff’s claim for damages for loss of a chance to purchase an alternative “ideal” property, indicating that in any event that head of claim would have failed.  The learned Judge’s reasoning included that: (i) it must be shown that the plaintiff had at least a reasonable chance, as opposed to a speculative chance, to purchase the “ideal” property (§95); (ii) the plaintiff should prove that theideal property existed, was available to her and within her budget (§§96 – 99); (iii) a specific alternative transaction should be identified (§§100 – 102); (iv) on the facts, the alternative transactions identified in the plaintiff’s expert evidence were either unavailable to the plaintiff or were not suitable alternatives (§§103 – 107).

154.  This portion of the first instance judgment was briefly referred to (obiter dicta) by Kwan JA in the Court of Appeal at §§82 – 85.  The Court of Appeal indicated that no error was detected in the learned Judge’s approach in finding that on the evidence before him the loss in question was not proved.

E6.5.   Loss of profits: expert evidence

155.  Mr Wong and Mr Varty addressed four expert questions directed at quantum[33].

156.  It is unnecessary to here analyse their evidence on these questions in detail.  The relevance of certain of the expert questions has fallen away due to the grant of rescission (see above) and dropping of Joytex’s contractual claim.

157.  For present purposes, the focus is on expert questions (a) and (b), regarding alternative properties.  As noted above, Mr Wong selected 22C Soho 38 as the most suitable alternative to Flat 25A, citing features including location, purchase price and open kitchen design.

158.  Mr Varty disagreed, opining that 22C Soho 38 was not comparable to Flat 25A since (inter alia) it was a secondary rather than primary sale.  In Mr Varty’s view, the most suitable alternatives were other flats in The Icon[34].

159.  Understandably, the experts approached the question of an alternative flat from the viewpoint of valuers, accustomed to considering comparables for the purposes of valuation.  Though this expert evidence assists to some extent, the court’s task is different, namely, to assess whether there is sufficient evidence to make good Joytex’s factual claim that but for the misrepresentations it would have purchased 22C Soho 38 (or a similar flat); and if so what profit would have been made.

E6.6.   Loss of profits: analysis and conclusion

160.  The burden is on Joytex to make good this head of claim, but I conclude that it has failed to do so:

(1)   Mr Cheung’s factual evidence on loss of profits, was very limited.  He did not give evidence that but for buying Flat 25A, he would necessarily have bought another property.  Rather, Joytex in effect relies on inference from evidence that Mr Cheung and Madam Chou looked at other properties and had money to invest. 

(2)   There was no suggestion that Mr Cheung and Madam Chou ever viewed or considered 22C Soho 38.  Rather, that flat was selected by Mr Wong as an example of something similar which might have been purchased.

(3)   I accept that there are some English authorities in which a lost profits claim of this nature succeeded, without evidence that the specific alternative transaction had in fact been considered (eg East v Maurer (supra), Clef Acquitante SARL (supra)).  However, the presence or absence of such evidence is at least relevant as part of the overall assessment whether the claim has been sufficiently made good or is too speculative.

(4)   Even if it were accepted that Joytex would have bought 22C Soho 38 (or a similar property), the lost profits claim depends on a supposition that Joytex would have retained the property until June 2018 rather than selling it at an earlier stage.  Mr Cheung’s evidence did not assist on this point, but Joytex pleaded that the intention was to re-sell Flat 25A “shortly after completion” [35].  This is inconsistent with the substantial loss of profits claim now pursued.  Compare also Long Year Development Ltd at 410A–D.

(5)   As a collateral point, Mr Varty noted that the HK$8.8 million sale price of 22C Soho 38 in June 2009 seems unnatural given that the same property was transacted to be sold at HK$11 million in October 2008, and that a similar unit on 33/F sold in September 2009 for HK$12.58 million.  I have some sympathy with this criticism[36].

(6)   Considering the above matters in the round, I find that Joytex’s lost profits claim is too speculative and not established. 

161.  I note, in passing, that had I awarded damages for loss of profits, I would have disallowed certain other heads of claim, namely: (i) interest on the HK$$9,817,000 purchase price paid; and (ii) expenses flowing from the purchase of Flat 25A.  I consider that to award these items in addition to lost profits on an alternative property, would entail double-counting.

E6.7.   Expenses resulting from the purchase

162.  Joytex claims damages for certain costs and expenses incurred as a result of purchasing Flat 25A including: (i) legal costs and stamp duty incurred in the purchase (pleaded at HK$398,827); (ii) interest under a mortgage loan (pleaded at HK$56,368.61 as at 15 December 2011); (iii) management fees, deposits and miscellaneous expenses incurred at completion (pleaded at HK$14,918); (iv) management fees from 17 December 2010 to 30 November 2011 at HK$19,274 and thereafter at HK$1,678 per month.

163.  Joytex is entitled to damages to place it in the position it would have occupied had it not purchased Flat 25A.  I am accordingly satisfied that expenses of this nature can, in principle, be claimed.

164.  The exception is the mortgage interest, which I decline to order.  Since Joytex is awarded interest on the purchase price for Flat 25A (below), I consider that awarding mortgage interest would entail double-counting. 

165.  During closing submissions, Mr Lui indicated that he was not in a position to provide a final quantification of these losses, and invited the court to leave them to the parties to agree[37]. Whilst it would have been preferable to have a final quantification available, I am prepared to proceed in this way rather than disallow the sums.  If the parties are unable to agree on the quantum of these items, they should seek further directions from the court in this respect. 

E6.8.   Alleged failure to mitigate losses

166.  In closing submissions, SHL argued that Joytex failed to mitigate its losses, by failing to lease out Flat 25A since taking possession[38]. SHL’s submissions on quantum were substantially based on this allegation; seeking credit for HK$28,000 monthly rent which allegedly could have been received since December 2010.

167.  However, this point is not open to SHL as it simply was not pleaded.  Mr Lui submitted that had it been pleaded, Joytex would have adduced relevant evidence.  I accept that it would be unfair to Joytex to permit SHL to run this unpleaded point.

E6.9.   Interest and costs of these proceedings: orders nisi

168.  In the exercise of my discretion, I award simple interest on the sum of HK$9,669,000 plus the amounts agreed or found due for expenses of the purchase, at the commercial rate of 1% over HSBC prime from 17 December 2010 to the date of judgment.  Thereafter, interest will accrue at the judgment rate.

169.  As to costs, I consider that Joytex has substantially succeeded.  I order that SHL pay Joytex its costs of these proceedings, to be taxed if not agreed.

170.  My orders as to interest and costs are orders nisi which will become absolute within 14 days, in the absence of any application to vary.

F.   CONCLUSION AND DISPOSITION

171.  I find for Joytex and will grant the following relief and orders:  

(1)   it be declared that Joytex is entitled to rescind and has rescinded the PSPA and the SPA;

(2)   SHL do pay to Joytex the sum of HK$9,669,000;

(3)   upon payment of the said sum with interest, Joytex do such necessary acts and execute such necessary documents as to transfer the legal and beneficial title of Flat 25A to SHL free from encumbrances;

(4)   SHL do pay damages to Joytex in respect of: (i) legal costs, stamp duty and expenses incurred in the purchase of Flat 25A; and (ii) management fees paid in respect of Flat 25A from 17 December 2010 to date;

(5)   in the absence of agreement as to the quantification of item (4), the parties are to apply to court for directions on the assessment of the same; 

(6)   there be liberty to apply;

(7)   there be an order nisi for interest on the sums at (2) and (4) above at 1% over HSBC prime from 17 December 2010 to the date of judgment and thereafter at the judgment rate; and

(8)   there be an order nisi that SHL pay Joytex its costs of these proceedings, to be taxed if not agreed.

Annex I

Annex II