LEE FU WING AND ANOTHER v. YAN PAUL PO TING AND ANOTHER

HCA 31 / 2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 31 OF 2008

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BETWEEN

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J U D G M E N T

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A. Introduction

1.  On 7 December 2007, Mr Lee (the 1^st Plaintiff) signed a provisional sale and purchase agreement (“the provisional agreement”) to purchase Flat 15B (“Flat 15B”) of 15 Homantin Hill from the Defendants, Mr Yan and Ms Chan. Upon signing, Mr Yan received a cheque of HK$1,000,000 as the initial deposit payable under the provisional agreement.

2.  The purchase price was HK$28.5 million and completion date was scheduled to be 7 April 2008. The completion however did not take place.

3.  As usually expected in this type of cases, the Plaintiffs now claim against the Defendants for breach of the agreement and damages. The Defendants on the other hand say it was Mr Lee who was in breach of the agreement and counterclaim, inter alia, for forfeiture of the initial deposit of HK$1,000,000.

4.  The gist of the factual contentions between the parties is within a narrow compass, which can be summarized as follows.

5.  It is the Plaintiffs’ case that, before Mr Yan signed the provisional agreement on 7 December 2007, he already knew and agreed, through the estate agent Ms Sze, that Mr Lee was entering into the agreement as an agent for an unnamed limited company, and that later changes would have to be made to the provisional agreement to reflect that when the name of the principal (which was the 2^nd Plaintiff) became available. Thus, on 15 or 16 December 2007, Mr Lee through Ms Sze presented the signed provisional agreement to Mr Yan to initial certain changes made thereof, which included the change whereby Mr Lee’s name was crossed out and substituted by the name of the 2^nd Plaintiff, Well Port Limited.

6.  However, Mr Yan refused to initial that change as he said he had never agreed to the substitution of Mr Lee’s name by a limited company. He further said the attempted substitution of the purchaser by Well Port amounted to a breach of the provisional agreement, and therefore the Defendants were entitled to accept the breach and refuse to proceed to completion[1]. Since then, the Defendants had sought to return (although unsuccessfully) the initial deposit to Mr Lee for at least 3 times.

7.  The Plaintiffs of course say there was no breach on their part, and that it was the Defendants who were in breach of the provisional agreement by refusing to complete the sale.

8.  Given the above, and in light of the various legal arguments put forward by the parties (which I will elaborate below), the central issues that call for the determination at trial are as follows:

(1)  Whether, before Mr Yan signed the Agreement, Ms Sze had already obtained Mr Yan’s consent that Mr Lee’s name as the purchaser could be subsequently substituted by a limited company.

(2)  Whether Mr Yan was told by Ms Sze that Mr Lee was a very wealthy man, and this constituted one of Mr Yan’s material considerations in entering into the provisional agreement.

(3)  If the answer to (1) is affirmative:

(a)  whether Mr Lee had the necessary authority to enter into provisional agreement as Well Port’s agent.

(b)  whether the entire agreement clause in the provisional agreement excludes any collateral contract to that effect or the evidence showing that Mr Lee was only acting as an agent for an unnamed principal.

(4)  Whether the attempted substitution of Mr Lee as purchaser by Well Port amounted to a repudiatory breach of the provisional agreement, whereby the Defendants were entitled to accept and terminate the same.

(5)  If Mr Lee was not in breach of the Agreement by reason of the substitution of his name by Well Port:

(a)  what is the measure of damages for the Plaintiffs’ loss  of a bargain by reason of the Defendants’ breach of the agreement in refusing to complete.

(b)  whether the Plaintiffs are entitled to an equitable lien on Flat 15B for the damages recoverable.

(c)  whether the Plaintiffs are entitled to other ancillary reliefs.

(6)  If however Mr Lee was in breach, whether the Defendants are no longer entitled to forfeit the initial deposit as they have waived their right by repeatedly seeking to return the initial deposit to Mr Lee.

9.  Before I deal with these issues substantively, I need to set out the background leading to the dispute first.

B. Background

10.  Unless otherwise stated, the uncontroversial or unchallenged relevant background facts are as follows.

11.  Mr Lee and Ms Chan are husband and wife. They have two sons.

12.  Sometime in July 2007, Mr Lee through an estate agent, one Ms Amy Yeung of Midland Realty International Ltd (“Midland”), inspected flats 15A and 15B of 15 Homantin Hill. He was happy with the flats and signed the provisional agreements to purchase both of them from the developers. The two flats were purchased in the joint names of the Defendants. The purchase price of Flat 15B was HK$26,688,000.

13.  The sale of Flat 15A and 15B to the Defendants was completed on 15 October 2007.

14.  About 10 days later, on 24 October 2007, the Defendants engaged Midland through Ms Amy Yeung to put Flat 15B on the market for sale. The asking price was HK$28,500,00.

15.  Ms Sze also worked for Midland although apparently at a different branch from that of Ms Amy Yeung. However, all its agents shared the information of what properties had been put up on sale through Midland.

16.  In later 2007, Mr Lee and his brother, Mr Lee Fu Chuen both wanted to respectively buy a property to accommodate their respective families. They had therefore started to engage estate agents to look for suitable properties. Ms Sze was one of such agents engaged by Mr Lee.

17.  On the evening of 6 December 2007, Ms Sze took Mr Lee to view Flat 15B. Mr Lee was interested to purchase it.

18.  In the early afternoon on 7 December 2007, Ms Sze confirmed to Mr Lee that the Defendants insisted on asking for HK$28.5 million to sell Flat 15B. Mr Lee told Ms Sze that he was agreeable to this purchase price, provided that the Defendants would allow 4 months for completion.

19.  Later in that afternoon, Ms Sze attended Mr Lee’s office with Midland’s pre-printed standard form provisional sale and purchase agreement (i.e., the provisional agreement), trying to procure Mr Lee to make a written offer with that form to be backed up by a cheque for the initial deposit which she could show them to the Defendants.

20.  It is the unchallenged evidence that, at that meeting, Mr Lee told Ms Sze that he intended to use a limited company to purchase Flat 15B, but he could not confirm the exact name of that company until a few days later. Ms Sze told Mr Lee that he could use his own name to be filled in as the purchaser on the provisional agreement first, which was to be replaced later by a limited company when he had the name. Ms Sze further told Mr Lee that she would make sure that the Defendants were aware of, and had no problem with, this arrangement.

21.  It was also written on the provisional agreement that the purchaser would have to pay an initial deposit of HK$1,000,000 upon singing the agreement, and a further deposit of HK$1,850,000 on 21 December 2007 (the time for signing the formal agreement).

22.  Mr Lee then signed on the provisional agreement, with his name stated as the purchaser, and gave Ms Sze a cheque in the sum of HK$1,000,000 as the initial deposit. The space on provisional agreement for filling in the address of the purchaser was however left blank.

23.  In that afternoon, Ms Sze went to meet Mr Yan at the McDonald located at the mall of Harbour Plaza in Hung Hum. At that time, Mr Yan and his family lived at Harbour Plaza. Ms Sze went there together with Amy Yeung and was introduced to Mr Yan.

24.  Ms Sze showed Mr Yan the provisional agreement already signed by Mr Lee.

25.  Mr Yan was happy with it except the 4 months period asked for completion. He told Ms Sze that it was a bit too long, and demanded for (a) an additional deposit of 5% of the purchase price to be paid during the period, and (b) a reduction of the commission payable by the Defendants to the estate agent.

26.  Ms Sze then called and told Mr Lee about Mr Yan’s request for a further deposit. Mr Lee agreed. She also obtained approval from her supervisor to reduce the commission payable by the Defendants.

27.  As a result, it was further written in the provisional agreement that the purchaser had to pay a further deposit of HK$1,425,000.00 on 4 January 2008, with the balance of the purchase price correspondingly amended from HK$25,650,000 to HK$24,225,00.00. She also made the amendments to reflect the reduction of the commissions payable to Midland by the Defendants from HK$285,000 to HK$200,000.

28.  Mr Yan initialled against all these additional changes and signed the provisional agreement both for himself and on behalf of Ms Chan. Mr Yan also signed to acknowledge the receipt of the cheque for the initial deposit.

29.  The provisional agreement in its original form is in triplicate. The usual practice is that after signing the same by the purchaser, the vendor and the estate agent, each party would keep one original copy of the same.

30.  However, in relation to the present transaction, after Mr Yan had signed the provisional agreement, Mr Sze did not sign it. She went to a branch office of Midland located at Harbour Plaza to make a photocopy of the provisional agreement and gave the photocopy to Mr Yan. They then parted.

31.  On about 12 December 2007, Mr Lee informed Ms Sze that the name of the limited company he wanted to use to purchase Flat 15B was Well Port.

32.  Ms Sze then attended Mr Lee again with the signed provisional agreement, where Mr Lee initialled the following changes made thereto:

(1)  The newly made deletion of Mr Lee’s name and the substitution thereof by Well Port as the purchaser and the insertion of Well Port’s business registration number and office address.

(2)  The previous amendments made to the provisional agreement which Mr Yan had already initialled against.

33.  Moreover, Well Port’s company chop was appended to Mr Lee’s signature previously put on the provisional agreement, making it that the he signed for and on behalf of Well Port.

34.  After repeatedly calling Mr Yan without any success, it was only until 15 or 16 December 2007[2] that Ms Sze was able to meet Mr Yan again at the McDonald at Harbour Plaza. She presented to him the amended provisional agreement and asked him to initial against the new changes in relation to the substitution of Mr Lee’s name by Well Port as the purchaser.

35.  Mr Yan refused. He said he had never agreed to any change of the purchaser’s name. He then tried to return the cheque for the initial deposit to Ms Sze indicating that he would not sell the property. Ms Sze refused to take back the cheque. They then left with each other.

36.  Ms Sze later gave the original provisional agreement in triplicate to Mr Lee’s solicitors Messrs Zebra H Y Kwan & Partners (“ZHYK”). Thereafter, there were correspondences between ZH and the Defendants’ solicitors Messrs Hau Lau Li & Yeung (“HLLY”) between 18 December 2007 and 7 January 2008.

37.  During this period, although no draft formal agreement was provided by HLLY, ZHYK continued to send the cheques for the 1^st and 2^nd further deposits to HLLY in purported compliance with the terms under the provisional agreement, while HLLY repeatedly returned these cheques together with the cheque for the initial deposit to ZHYK, saying that Mr Lee had been in breach of the agreement by changing the name of the purchaser, and the Defendants were entitled not to sell the property.

38.  In their letter dated 5 January 2008, in again returning the 3 cheques to ZHYK, HLLY stated that they had prepared a vendor and purchaser summons and would serve the same on ZHYK shortly. They also asked ZHYK not to return those cheques anymore.

39.  In reply on the same date, ZHKY maintained the position that it was the Defendants who were in breach of the provisional agreement by returning the cheques and in refusing to complete the sale of the property.

40.  On 8 January 2008, Mr Yan and Ms Chan took out a VP Summons under HCMP 52/2008 against Mr Lee seeking, inter alia, declarations that Mr Lee was in breach of the provisional agreement and that they were entitled to forfeit the initial deposit. The parties then filed affirmations in support and in opposition of the application.

41.  At the same time, on 28 January 2008, Mr Lee and Well Port took out the present action against Mr Yan and Ms Chan, seeking specific performance of the provisional agreement, and alternatively damages for breach of the agreement in lieu of specific performance.

42.  By their letter dated 9 July 2008 sent to HLLY, the Plaintiffs through ZHYK purported to accept the Defendants’ repudiation of the provisional agreement and terminate the same. They have later also amended their Statement of Claim in this action to abandon the claim for specific performance.

43.  On 18 February 2008, Yam J ordered, inter alia, that the VP Summons taken out by the Defendants be stayed sine dine, leaving only this action to proceed to trial.

C. The issues

C1. Before signing the provisional agreement, did Mr Yan knew and accept the purchaser’s name could later be substituted by the name of a limited company

C1.1 The Plaintiffs’ case and evidence

44.  The Plaintiffs’ case is simply that, before signing the agreement, Mr Yan was told by Ms Sze that Mr Lee would use a limited company to purchase Flat 15B, and that subsequent amendments would have to be made to the provisional agreement to reflect that when the name of the limited company became available. Mr Yan consented to this arrangement.

45.  Mr Lee and Ms Sze gave evidence in support of the Plaintiffs’ case.

46.  In addition to the undisputed background set out above, Mr Lee’s relevant evidence can be summarized as follows:

(1)  When he and his brother started looking for properties, it had been their intention to purchase them through limited companies.

(2)  Before entering into the provisional agreement, on or about 6 December 2007, he asked the accounting staff of his company to look for limited companies to enable him and his brother to use them for purchasing properties.

(3)  He accepted under cross-examination that he would like to find a company with a good name, either by buying it from the shelf or setting one up.

(4)  By the time he was asked to sign the provisional agreement by Ms Sze, he had not yet identified which limited company he would use for the purpose of buying Flat 15B.

(5)  Eventually, he decided to use Well Port, and the procedures for acquiring it were completed a few days before 12 December 2007.

47.  Ms Sze’s evidence is that before Mr Yan signed the provisional agreement, she had already informed Mr Yan that Mr Lee would use a limited company to purchase Flat 15B, and the name of the limited company would be supplied later. She also said that corresponding changes in relation to the purchaser’s name of the provisional agreement would then have to be made. Mr Yan agreed with this arrangement before he signed the provisional agreement.

C1.2 The Defendants’ case and evidence

48.  In relation to this issue, only Mr Yan gave evidence in support of his case, which could be summarized as follows.

49.  The provisional agreement was presented to him by Ms Sze for signing. It was only after he had signed it that Ms Sze then told him that Mr Lee might later wanted to add a limited company to it as a purchaser, but she did not tell her the name of the company.

50.  After hearing that, Mr Yan replied and said he would have to think about it, as he did not know what was the legal implications of adding a limited company as an additional purchaser.

51.  Mr Yan emphasized in his evidence that he had never consented to any arrangement that Mr Lee’s name as a purchaser would be later substituted by the name of a limited company.

C1.3 Discussion

52.  The resolution of the conflict of the evidence under this issue is principally a question of credibility of the witnesses.

53.  In assessing the credibility of a party’s case on a particular issue, I accept the submissions of Ms Lisa Wong (leading counsel for the Plaintiffs) that the Court should take into considerations the following:

(1)  Whether the party’s case is inherently plausible or implausible.

(2)  Whether the party’s case is, in a material way, contradicted by other evidence (documentary or otherwise) which is undisputed or indisputable.

(3)  Where it is shown that a witness has been discredited over one or more matters to which he has given evidence using the above tests. This is relevant to the assessment of his overall credibility.

(4)  The demeanour of the witnesses.

See:  R v Ng Wing Ming^[3], per Litton JA at 465, 467; Four Seas Fish Balls Co Ltd v Yeung Hung Sin^[4], per Chung J at para 20; Profit Boat Development Ltd v Craft Projects (HK) Co Ltd^[5], per Recorder R Yuen SC at para 16.

54.  Adopting the above approach, and looking at the evidence as a whole, I find Mr Yan’s evidence in this regard incredible and unreliable for the following reasons.

55.  First, I find Mr Yan’s case and evidence inherently incredible in light of the objective and unchallenged evidence:

(1)  There was no challenge to Mr Lee’s evidence that (a) before Ms Sze took the provisional agreement to see Mr Yan for signing, he had told Ms Sze that he wanted to purchase Flat 15B with a limited company and asked Ms Sze to obtain Mr Lee’s consent to do so, and (b) Ms Sze confirmed that she would do so.

(2)  In light of this, there is no good reason why Ms Sze would not have carried out Mr Lee’s instructions and told Mr Yan the same before Mr Yan signed the provisional agreement.  This is particularly so as there is no evidence to suggest that Ms Sze somehow was concerned or worried that if she had told Mr Yan about Mr Lee’s said intention, Mr Yan might not agree to sign the provisional agreement^[6].

(3)  In the circumstances, it is inherently incredible that Ms Sze would have (a) somehow decided only to inform Mr Yan about Mr Lee’s intention to use a limited company to purchase the property after Mr Yan had signed the agreement, and (b) changed Mr Lee’s instructions from using a limited company to purchase the property instead of his own name to adding a limited company as an additional purchaser.

(4)  Mr Yan’s case that he was not told that a limited company would be used to replace Mr Lee’s name later is inconsistent with the fact that the address of the purchaser was left blank when he signed the provisional agreement.  There is again no good reason why the address was left blank if it was always understood that Mr Lee would be the purchaser or one of the purchasers.

56.  Secondly, I also find Mr Lee generally an unreliable witness:

(1)  He was from time to time evasive and vague in answering questions under cross-examination.

(2)  Further, various parts of his evidence are incredible. For example:

(a)  Notwithstanding that he was an experienced businessman conversant in both English and Chinese^[7], Mr Yan claimed (unconvincingly in my view) that he did not pay much attention to the various written terms and conditions provided in the provisional agreement.  He said this was the first time he sold a landed property in Hong Kong.  If that was the case, he should have been more careful in reading the terms of the agreement, instead of adopting a cursory attitude as he alleged he did.

(b)  When further asked he must have had experience in reading and signing other written contracts and agreements throughout his experience as a CEO of a business and later businessman himself, he even said that he seldom had any such experience, as this would have been done by other personnel of the business.  I find this simply incredible and beyond any commercial common sense.

(c)  It was expressly provided in the provisional agreement that if the purchaser was in breach of it, the vendors were entitled to forfeit the deposit.  In relation to this, under cross-examination, he was asked as to why he kept trying to return the cheque for the initial deposit to Mr Lee, if he thought Mr Lee was in breach of the provisional agreement.  Mr Yan said he was not aware of the right to forfeit the deposit until the commencement of this action.  This is similarly incredible.  First, it is absurd to suggest that even after he had engaged solicitors on about 18 or 19 December 2007[8], he still had not been advised of the right of forfeiture under the provisional agreement.  Secondly, this is contradictory to the fact that in the Originating Summons commenced by him under HCMP 52/2008, he already claimed for the declaration to forfeit the initial deposit.

(3)  In order to boast his case, he was also capable of telling in Court something which is clearly untrue.  He insisted under cross-examination that after he had signed the provisional agreement on 7 December 2007, Ms Sze gave him one of the three original copies of the provisional agreement.  When asked whether he had the original copy in his possession, he even said that he had given it to his solicitors.  This proved to be entirely incorrect as all the 3 original copies of the provisional agreement are in the Plaintiffs’ possession.  It is now accepted that Mr Yan only had a photocopy of the signed provisional agreement, which has always been the Plaintiffs’ case.

57.  For the above reasons, I reject Mr Yan’s evidence.

58.  Quite to the contrary, I find Mr Lee and Ms Sze both reliable and honest witnesses. They both gave evidence in a straightforward, direct, consistent and unshaken manner. Moreover, the evidence is inherently more probable and consistent with the objective and unchallenged evidence as set out in the background above and for same reasons given at paragraph 55 above. I therefore accept their evidence.

59.  Mr Anthony Chan, SC for the Defendants submits that Ms Sze’s evidence is incredible as if Mr Yan had in fact agreed to the arrangement, Ms Sze should have written this down in the provisional agreement as a term. It would only be reasonable for her to do so (further submitted by Mr Chan), as she knew that there was an entire agreement clause in the provisional agreement which stated clearly that only those terms set out in it became part of the agreement.

60.  Ms Sze under cross-examination explained that she did not write this down in the provisional agreement because (a) she did not think it was necessary, as Mr Yan had already agreed to make the necessary amendments to the agreement later, and (b) there was in any event not enough space provided in the provisional agreement for that purpose, as the space entitled “remarks” in the provisional agreement was usually used to put in matters concerning furniture and kitchen equipments to be sold together with the property.

61.  In light of the fact that Ms Sze is not a legally trained person, I accept Ms Sze’s explanations and find that it was not unreasonable for her to regard it as unnecessary to write down this understanding in the provisional agreement. This is particularly so as she was told by Mr Lee that the name of the limited company would be available shortly, and that it was clear that further amendments would have to made to the agreement, and when amended, this would become the written term of the agreement.

62.  For the above reasons, in case of any conflict, I prefer the evidence of Mr Lee and Ms Sze to that of Mr Yan.

63.  Under this issue, I therefore find that before Mr Yan signed the provisional agreement:

(1)  Mr Sze had told Mr Yan (for the Defendants) to the effect that Mr Lee intended to purchase Flat 15B with a limited company, and when Mr Lee later provided the name of the company to replace his name, corresponding amendments to the provisional agreement would then have to be made to reflect the change.

(2)  Mr Yan agreed or consented to this arrangement.

(3)  In the circumstances, Mr Lee had through Ms Sze disclosed to the Defendants (through Mr Yan) that he was signing the provisional agreement as an agent for an unknown principal.

C2.  Whether the identify of Mr Lee was a material consideration for Mr Yan to enter into the provisional agreement

C2.1  The Defendant’s case and evidence

64.  Mr Yan’s evidence is that when he found out from the provisional agreement that the purchaser wanted 4 months to complete the transaction, he raised it with Ms Sze that it was in his view too long.

65.  Ms Sze then replied and reassured him that the purchaser was not a property speculator and was to purchase the property for self-use. She also said that Mr Lee was a very wealthy person.

66.  Mr Yan says he took all these into consideration, and upon the purchaser further agreeing through Ms Sze to make the additional interim deposit payment, he finally agreed to sign the provisional agreement.

67.  It is thus Mr Yan’s case that the fact that Mr Lee was a very wealthy person was a material consideration he took into account in entering into the agreement, and therefore he would not have agreed to the substitution of Mr Lee’s name by a limited company as the purchaser.

C2.2 The Plaintiffs’ case and evidence

68.  Insofar as the Plaintiffs’ case is concerned, only Ms Sze’s evidence is relevant under this issue, which is in gist as follows.

69.  She says Mr Yan did raise the concern about the 4 months completion period asked for by the purchaser. In relation to this, Mr Yan then asked for (a) an additional interim deposit of 5% of the purchase price to be paid by the purchaser, and (b) a reduction of the estate agent’s commission. The issue was resolved by Mr Lee agreeing to make the additional interim deposit payment and Midland agreeing to reduce the commission payable by the Defendants.

70.  The effect of her evidence is that she had not told Mr Yan that Mr Lee was a very wealthy person.

C2.3 Discussion

71.  Without the need of first deciding whether Ms Sze had told Mr Yan that Mr Lee was a very wealthy person, I have come to the clear conclusion that as a matter of fact, the financial position of Mr Lee did not constitute a material consideration for Mr Yan in deciding to enter into the agreement. This is so because it was Mr Yan’s own evidence under cross-examination that:

(1)  The most important thing that mattered to him at that time was for the purchaser to agree to give a further interim deposit.

(2)  It was irrelevant to his decision and was of no concern to him as to who Mr Lee was.

(3)  It was also irrelevant to his decision and was of no concern to him whether Mr Lee purchased the property for self-use or not.

72.  Further, and insofar as necessary, I also do not accept Mr Yan’s evidence that Ms Sze had told him that Mr Lee was a very wealthy person.

(1)  This is inherently incredible.  This is no evidence to suggest that Ms Sze in fact knew that Mr Lee was a very wealthy person.  Thus, there is simply no evidential basis to support the likelihood that she would have been able to say so.  There is also nothing to suggest that Ms Sze was under the impression from Mr Yan that the financial position of Mr Lee was somehow material or relevant to Mr Yan’s decision, and thus there was an incentive for Ms Sze to say that.  Mr Yan’s evidence, as I have set out above, is to the contrary.

(2)  This is contrary to the common sense that a contract of sale of land is not generally a contract of which the personal quality of the parties forms a material ingredient of the contract[9].  There is nothing in the evidence that I accept in the present case which shows otherwise.

(3)  Moreover, it was not even put to Ms Sze that she had told Mr Yan that Mr Lee was a very wealthy person.

(4)  Finally, for the same reasons set out in paragraphs 56 and 58 above, I find Mr Yan an unreliable witness and Ms Sze a credible one.

73.  I therefore accept Ms Sze’s evidence and also find that, before Mr Lee signed the provisional agreement, she had not told Mr Yan that Mr Lee was a very wealthy person.

C3. Did Mr Lee has the necessary authority to enter into the provisional agreement for Well Port

74.  It is the Defendants’ contention that, even if (as I have now found) Mr Lee had disclosed his purported agency capacity to Mr Yan, given that Well Port was not yet acquired by Mr Lee and his brother on 7 December 2007, Mr Lee simply had no authority to act for Well Port to enter into the provisional agreement on that day. Well Port therefore could not have been a party to it.

75.  Ms Wong for the Plaintiffs however contends that:

(1)  Mr Lee had actual authority on that day to enter into the provisional agreement for Well Port, or

(2)  Alternatively, the said agency was subsequently ratified by Well Port through the written resolution passed on 12 December 2007 by Mr Lee and his brother, who by that time had become the directors of Well Port, to ratify and recognise the provisional agreement.

76.  In relation to the contention on actual authority, Ms Wong says on 7 December 2007, Mr Lee already had the definite intention to purchase Flat 15B through a limited company. When the procedures for the acquisition of Well Port was completed at the latest by 12 December 2007, this intention of Mr Lee (by then as Well Port’s director) was (Ms Wong further argues) imputed to Well Port as its original intention as at 7 December 2007.

77.  I disagree.

78.  It is true that it is well established that the intention of the directors could be taken as the intention of the company, since the company has to conduct its business and activities through its directors as its agents: Bolton (Engineering) Co Ltd v T J Graham & Sons Ltd^[10], at 811-813 per Denning LJ.

79.  However, this is very different from saying that the intention of A formed at say time X before becoming a director of a company, could then be regarded as the company’s intention also at time X although A only becomes its director at time Y. In my view, this is simply too artificial and unrealistic. We are concerned with actual authority given by the company that should already exist at the material time. The simple fact is at time X, the company does not have that intention through the then directors, and therefore does not and could not have given that authority at that time. In the absence of any legal authorities to support this proposition, I am unable to accept the same.

80.  I therefore conclude that there was no actual authority given by Well Port to Mr Lee on 7 December 2007 to enter into the provisional agreement on behalf of Well Port.

81.  Could the purported agency authority be validly ratified by Well Port on 12 December 2007 through the resolution?

82.  Mr Chan for the Defendants says no. Mr Chan’s argument runs as follows.

83.  It is trite law that where an agent purportedly enters into a contract for an undisclosed principal without actual authority, the undisclosed principal could not subsequently validly ratify the purported agent’s act. See: Keighley, Maxsted & Co v Durant[11]; Bowstead & Reynolds on Agency(18^th ed), paras 2-061 and 8-072.

84.  Based on this principle, Mr Chan submits that the same should similarly apply to the situation regarding unnamed principal^[12]. Leading Counsel therefore further contends that, notwithstanding the resolution, Well Port could not have validly ratified the provisional agreement as a matter of law.

85.  With respect, I do not agree. My reasons are as follows.

86.  In Keighley, one Roberts was authorized by the appellant company to buy wheat on a joint account for him and them at a certain price. Roberts did not manage to buy the wheat at the authorized price. However, he without any actual authority from the appellants, later made a contract with the respondent Durant to buy wheat at a higher price. Roberts made the contract in his own name but he intended it to be on a joint account for the appellants and himself. That intention was not disclosed to Durant when the contract was made. The next day after the contract was made, the appellants agreed with Roberts to take the wheat on a joint account with him. Neither Roberts nor the appellants took delivery of the wheat. Durant resold it at a loss and sued both of them for the amount. At first instance after trial, the judge gave judgment against Roberts but dismissed Durant’s claim against the appellants on the ground that there was no ratification in law of the contract, as the principal was not disclosed. The Court of Appeal by majority allowed Durant’s appeal against the decision relation to the appellants. The appellants appealed to the House of Lords.

87.  In unanimously allowing the appeal, all the eight Law Lords hearing the appeal were of the view that there could be no valid ratification in the situation as such. Earl of Halsbury LC explained the decision at pp 243 to 244 as follows:

“My Lords, there are here no facts really in dispute in this case.  Roberts [the purported agent] made a contract on his own behalf and without the authority of anybody else.  The contract was made and the parties to it ascertained, and I am of the opinion that upon no principle known to the law cold the present appellants be made parties to that contract.  They could, of course, make another contract in the same terms if they pleased, but it would not be this contract.  It is suggested by the judgment of the Court of Appeal as possible, that what is described as ratification might, if the parties had so pleased, make the contract, which was one made between A and B, to include C as one of the contract parties.  I think such a suggestion is contrary to all principle, and for it there is no decision which calls for your Lordship to override it, though I confess I should have no hesitation in doing so if there were.  The parties to the contract, who have already bound themselves by it, are just as much part of the contract as any other part of the contractual obligations entered into.

I confess I do not see any relevance of the argument that a contract might be made in the name of an unknown principal, and that such a principal may sue and be sued, though the name was not given at the time the contract was made.  The fact is that in such a case the contract is made by him, and the disclosure afterwards does not alter or affect the contract actually made.  Here it would alter the contract afterwards and make it a different contract.  If it is said it is an anomaly, it certainly is not the only one in our law, and if it were sought to make our laws harmonious by deciding that any proposition which our laws establish of everything that is analogous to it, the result would be very perplexing indeed…” (emphasis added)

See also:  pp. 246-247 per Lord MacNaghten, 250 per Lord Shand, 250-251 per Lord James, 253, 256-257 per Lord Davey, 258 per Lord Brampton, 259 per Lord Robertson, 261-263, 265 per Lord Lindley

88.  Thus, the rationale underlying the House of Lords’ decision in Keighley in relation to an undisclosed principal situation is that it is objectionable to the fundamental principle in contract law that any stranger could later intervene in a contract, when it is shown that the contract was only made between A and B, as A was only agreeing to enter into the contract with B, and where B when entering into the contract did not have the actual authority from the principal to act on its behalf and in any event had not disclosed the purported agency to A.

89.  The essential element in this principle not to recognize the ratification is thus to see whether the contract when it was made can only be said to be made between A and B, but not by the purported principal. In other words, if it can be shown that A knew that he was entering into contract with a principal (though the name was unknown) through B (albeit without actual authority at the material time), there cannot be any objection to the application of the doctrine of ratification. This is merely a matter of evidence and must be decided on the facts of each case.

90.  Thus, Lord Robertson said in Keighley at 259:

“…All are agreed that there must be some special relationship between the ratifier and the contract other than and antecedent to his claiming the contract.  To hold otherwise would be to admit extravagant results.  It seems to me that the whole hypothesis of ratification is, that the ultimate ratifier is already in appearance the contractor, and that by ratifying he holds as done for him what already bore, purported or professed to be, done for him.  There is, as it seems to me, no room for ratification (unless all the world may ratify) until the credit of another than the agent had been pledged to the third party.  Whether the unauthorized agent be marked out as an agent by what he says, or by what he wears, is, of course, a mere matter of circumstance and of evidence; but an agent he must be known to be, and as agent he must act.”

91.  Lord Lindley also said at 263 as follows:

“The doctrine of ratification as hitherto applied in this country to contract has always, I believe, in fact given effect in substance to the real intentions of both contracting parties at the time of the contract, as shewn by their language or conduct.  It has never yet been extended to other cases…”

92.  Applying the above analysis, and given my findings that Mr Lee had disclosed to Mr Yan that he would use a limited company to purchase Flat 15B, I see no difficulty in the present case to find that the Defendants through Mr Yan knew that they were entering into the provisional agreement through Mr Lee with an unknown principal, which would be a limited company whose name was to be provided later. In other words, I find that Mr Lee had made it known to the Defendants that he was only acting as an agent for such a principal.

93.  Alternatively, with the evidence I have accepted above, I also find that it was the Defendants’ intention to enter into the provisional agreement with a limited company which would be later identified by Mr Lee, whatever and whoever that company was or would be.

94.  In the circumstances, the principle in Keighley does not prevent the recognition of the validity of Well Port’s ratification of the provisional agreement entered into by Mr Lee as an agent. I therefore hold that the said ratification was valid, and Well Port was a party to the provisional agreement as a principal.

C4. The effect of the entire agreement clause in the provisional agreement

95.  Clause 12 of the provisional agreement is an entire contract clause, which provides as follows:

“This agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto.”

96.  Mr Chan for the Defendants says that if (as now I have found) Mr Lee had disclosed to Mr Yan that he was acting as an agent for an unnamed principal to purchase Flat 15B, and that Mr Yan consented to the arrangement that Mr Lee’s name on the agreement would be later substituted by that of the company when the name became available, the entire contract clause has the following 2 effects.

97.  First, insofar as if the Plaintiffs are relying on Mr Yan’s consent to found a collateral contract or warranty to the provisional agreement that the Defendants had agreed to the change, it was excluded by the entire contract clause. The collateral contract is invalid or would be of no effect. See: Inntrepreneur Pub Co (GL) v East Crown Ltd^[13], at para 7 per Lightman J; Wing Siu Co Ltd v Goldquest International Ltd (No 2)^[14], at 429B-H per Ma J.

98.  However, this is a non-issue, as the Plaintiffs have not pleaded a case of collateral contract by reason of the disclosure and consent. Ms Wong for the Plaintiffs confirms in her closing submissions that she is not running a case of collateral contract. She however says that the disclosure and consent are facts relied on by the Plaintiffs only to prove that (a) Mr Lee was entering into the provisional agreement in the capacity of an agent for an unnamed principal, and (b) it was intended by the parties the contracting purchaser was the unnamed principal, which was later known to be Well Port.

99.  This leads to Mr Chan’s submissions on the second effect of the entire contract clause.

100.  Mr Chan says the entire contract clause has the same effect of the parole evidence rule which excludes the evidence concerning the said disclosure and consent, which seeks to contradict the express term of the provisional agreement. In particular, as the said disclosure amounted to a representation which was expressly stated to be superseded by the provisional agreement.

101.  I am not persuaded by Mr Chan’s submissions.

102.  I accept Ms Wong’s submissions that such a clause does not inhibit the operation of the well established exception to the parole evidence rule^[15], where:

(1)  An entire contract clause does not prevent the use of extrinsic evidence to ascertain and clarify the meaning of an express term in the contract^[16].

(2)  Extrinsic evidence may be adduced to show that one or both of the contracting parties to an agreement were agents for other persons and acted as such in making the contract so as to give the benefit or the burden of the contract to their undisclosed principals^[17].

103.  Mr Chan however argues that, applying the same reasoning and principle in Keighley, the exception to the parole evidence rule only applies to the scenario of undisclosed principal (as in the authorities cited by the Plaintiffs) but not for disclosed but unknown principal.

104.  I reject Mr Chan’s argument. I cannot see how the principle of ratification laid down in Keighley could have any application on or relevance to the rationale behind the exception to the parole evidence rule to ascertain whether a contracting party was acting as an agent.

105.  The Defendants’ contention that the disclosure and consent amounted to a representation adds nothing to the debate above. Most entire contract clauses provide, inter alia,that the written contract supersedes pre-contract representations. This does not prohibit the courts from repeatedly affirming the conclusion that the clause does not prevent the courts from hearing evidence to ascertain the agency relationship, even though that is usually contrary to or inconsistent with expressed position of the written agreements.

106.  In the premises, I hold that the entire contract clause does not prohibit me from hearing the evidence in relation to the subject matter disclosure and consent to enable this Court to ascertain whether Mr Lee was acting as an agent for Well Port (as an unknown principal) to enter into the provisional agreement. Alternatively this is to clarify the express term as to the identity of purchaser.

C5. Whether there was any breach of the provisional agreement that entitled the Defendants to terminate the same

107.  The general principle in agency law is that an agent contracting for a disclosed but unnamed principal does not generally assume personal liability unless the facts of the case shows that he is either legally otherwise liable or has separately agreed to be also personally liable thereunder: Bowstead, paras 9-001, 9-002, 9-016.

108.  However, it is the Defendants’ contention (and not disputed by the Plaintiffs) that, in order to render the provisional agreement enforceable in the way it was signed by Mr Lee as an agent (as I have found) for Well Port (but without so expressly referring to Well Port in it), Mr Lee as an agent for a disclosed but unnamed principal must also assume personal liability under the provisional agreement. This is because of the requirements under section 3 of the Conveyancing and Property Ordinance (Cap 219) and the Statute of Fraud^[18].

109.  The Defendants therefore submit that when Mr Lee sought to substitute himself by Well Port as the purchaser^[19], this amounted to a breach of the agreement as he was trying to evade liability thereunder. The Defendants, it is further submitted, were therefore entitled to accept the breach and terminate the agreement and not to proceed with completion with either Mr Lee and/or Well Port.

110.  I am unable to accept the submissions:

(1)  Given my above finding that Mr Yan consented to the arrangement that the limited company was to be used to replace Mr Lee’s name as the purchaser under the provisional agreement when the name became available, I could not see how it could now be contended that, in purporting to carry out the arrangement to replace his name, Mr Lee was in breach of the provisional agreement.  In other words, it was understood between the parties that Mr Lee’s name was to be removed from the provisional agreement at the time when the name of Well Port was provided to be filled in the agreement as the purchaser.  This, if done according to the arrangement, also would not have violated the statutory requirement under section 3 of the Conveyancing and Property Ordinance.

(2)  In any event, I accept Ms Wong’s submissions that even if Mr Lee as an agent was himself in breach of the provisional agreement, the principal Well Port was not.  As such, the Defendants were not entitled to terminate the agreement with Well Port and not to proceed to complete the sale with it.

111.  I therefore hold that neither Mr Lee nor Well Port were in breach of the provisional agreement which entitled the Defendants to terminate the same.

112.  In the premises, I further hold that the Defendants were in breach of the provisional agreement in refusing to complete the sale.

113.  Given the parties’ common ground that Mr Lee also assumed personal liability under the provisional agreement, he is also entitled to sue upon it together with Well Port for the breach.

C6. The quantum of damages

114.  There is no dispute that the measure of the Plaintiffs’ loss of bargain in the Defendants’ breach of the provisional agreement is the difference between the market price of Flat 15B at completion (i.e., 7 April 2008) and the purchase price of HK$28,500,000.

115.  The parties at trial agreed that the market value of Flat 15B as at 7 April 2008 is HK$32,300,000.

116.  The quantum of damages is thus HK$3,800,000 (HK$32,300,000 – HK$28,500,000).

C7. Whether the Plaintiffs are entitled to an equitable lien on the property for the damages

117.  The Plaintiffs seek in the relief a declaration that they are entitled to an equitable lien on Flat 15B for the damages and costs of the action.

118.  Ms Wong for the Plaintiffs says the remedy of equitable lien is discretionary and flexible, and the Court would and could grant the lien over the property for damages awarded to an innocent purchaser if it thinks it is fair and just to do so in the circumstances. Ms Wong relies on the English Court of Appeal’s decision in Whitbread & Co Ltd v Watt^[20].

119.  The Defendants however submit that the authorities show that such lien has only and should only be granted to cover any deposit paid for the purchase of the property, but not to be extended to damages. This is so because in relation to the deposit, the purchaser is in the same position of a secured creditor, while the same could not be said in relation to damages. Mr Chan relies on Wynn-Parry J’s dictum in Combe v Swaythling^[21].

120.  In Combe, the claimant purchaser was only seeking to recover the deposit paid for a defaulted land sale, and the learned judge in his judgment was addressing the question as to why an equitable lien should be granted over the subject property for the deposit almost as of right. Thus Wynn-Parry said at 839C-D:

“…The basis of the undoubted right of a purchaser who has paid a deposit to a vendor to have a lien for his deposit when the contract goes off otherwise than by the default of the purchaser seems to me to be that the purchaser is, in respect of that deposit, to be regarded as a secured creditor…”

121.  On a proper reading, I do not think Wynn-Parry J was trying to lay down a general principle in Combe v Swaythling that an equitable lien was and could only to be granted to a purchaser in relation to the deposit paid.

122.  This dictum is not, in my view, inconsistent with the proposition set out in Whitbread that the remedy of an equitable lien is for the purpose to do justice between the parties.

123.  Whitbread concerned the extent of the equitable lien of the purchaser and whether it extends to a case where the contract was terminated not due to any fault of the vendor but pursuant to a power in the contract for the vendor to rescind. For this, Vaughan Williams LJ said at p 838 as follows:

“The lien which a purchaser has for his deposit is not the result of any express contract, it is just a right which may be said to have been invented for the purpose of doing justice.  It is a fiction of a kind which is sometimes resort to at law as well as in equity … When Lord Westbury in Rose v Watson speaks of ‘transfer of the purchaser of the ownership of a part of the estate corresponding to the purchase-money paid,’ and Lord Cranworth speaks of the purchaser being exactly in the position of a mortgagee of the estate to the extent of the purchase-money which he has paid, those expressions are merely verbal vehicles to carry the right which justice demands that the purchase should have.”

See also:  Sterling LJ at p. 840 who also referred to the foundation of the doctrine of lien being the desire to do justice between the vendor and purchaser.

124.  Waung J in Super Keen Investment Ltd v Global Time Investments Ltd^[22] applied and adopted Whitbread and was of the view that it was at least clearly arguable that defendant purchaser was entitled to claim against a defaulted vendor as third party for an equitable lien for damages in respect of loss of profits. He therefore refused to strike out such a claim as requested by the third party. After citing Vaughan Williams and Sterling LJJ’s dicta referred above, the learned judge continued at 360B-D as follows:

“… It seems to me that having regard to what was said by the English Court of Appeal in the Whitbread case as the basis of equitable lien of the purchaser namely to do justice to the purchaser, I see no reason in principle why equity would not recognize the defendant’s right to a lien for its damages in respect of its loss of profits.  If nothing else, the authority of Whitbread v Watt demonstrates that the point is wholly arguable and in the circumstances, my subsequent perusal of the authorities seem to confirm my original view of the equitable reach of the principle of purchaser’s lien to cover damages in respect of loss of profits.  As was said at p 456 of Snell Equity, an equitable lien arises by operation of equity from the relationship between the parties rather than by any act of theirs.  Leave should be given therefore for this heavily contested item of claim.” (emphasis added)

125.  I respectfully agree and adopt the proposition set out in Whitbread and the views expressed by Waung J[23]. Equitable lien is an equitable remedy, the fundamental basis of which is to enable the Court to do justice between the parties as it sees necessary. There are no in principle reasons to limit the remedy only to cover the purchaser’s deposit.

126.  Combe v Swaythling is but only an example of the application of the doctrine, where the Court came to the view that it must be just (and thus “the undoubted right of the purchaser”) to grant an equitable lien to the purchaser for the deposit he has paid, as he is almost in the same position of an secured creditor insofar as that deposit is concerned.

127.  I further agree with the submissions of Ms Wong (for the Plaintiffs) that:

(1)  It is now established that the purchaser’s equitable lien extends to interest paid on the unpaid balance of the purchase money, the purchaser’s costs of investigating title properly incurred by the purchaser, the costs of a claim for specific performance, the costs of an application to the court in respect of any requisitions or objections, or any claim for compensation, or any other question arising out of or connected with the contract:  Halsbury’s Laws of England, (5^th ed, 2008), vol 68, para 864; Snell’s Equity (31^st ed, 2005), para 42-32.

(2)  These are all various forms of damages awarded to an innocent purchaser which have been included under the remedy of equitable lien, and there appears to be no good reason why damages for loss of bargain or profit (if proved) should not be so covered.  This is particularly so after Bain v Fothergill^[24] (which effectively prevented the recovery of damages for loss of profits in a defaulted land sale) has now ceased to be good law^[25], and the obstacle for a purchaser to claim for damages for loss of profits is no longer there.

128.  I therefore hold that a purchaser’s equitable lien could be granted to cover damages for loss of profits if the Court finds it just to do so in all the circumstances.

129.  I equally accept Ms Wong’s submissions that it is just in the present circumstances to grant such a remedy to cover damages for loss of a bargain:

(1)  Under a sale and purchase of land contract, the equitable interest in the property contracted to be sold passes to the purchaser upon agreement.  In a rising market, the default of the vendor would invariably prevent the purchaser from obtaining, on the contract date of completion, the legal title of the property which has become more valuable since the date of contract.

(2)  Such a contract is specifically enforceable by the purchaser to compel the vendor to convey the legal title to him.

(3)  Damages in lieu of specific performance are intended to put the purchaser in the same position as he would have been under a decree of specific performance.

(4)  The purchaser’s position for such damages is better protected and fortified by an equitable lien on the very property to be sold to him under the agreement.  There is no reason why such damages should be treated differently from the other heads of damages where equitable lien has been granted to cover them.

130.  For these reasons, I grant a declaration that the Plaintiffs are entitled to an equitable lien over Flat 15B for damages to the extent of HK$3,800,000.

131.  The authorities[26] also support that the lien should also be granted to cover the Plaintiffs’ costs of this action. I will further so order.

C8. Other ancillary reliefs sought by the Plaintiffs

132.  Although apparently they are under no legal obligations to do so, the Plaintiffs also ask for a declaration to indemnify them by the Defendants if they are called upon to, and do pay for the stamp duty of the provisional agreement and the commission of the estate agent.

133.  This is not seriously opposed by Mr Chan (I think rightly so). However, I do not think the Defendants should be so required to indemnify the Plaintiffs if the Plaintiffs decide to pay these sums on a voluntarily basis. Thus, I will only grant such a declaration to the Plaintiffs if and insofar as they are legally obliged to, and do pay for the stamp duty and commission.

C9. Have the Defendants waived the right to forfeit the initial deposit

134.  If I am wrong in my finding and conclusions above, and that the Defendants were entitled to terminate the provisional agreement for the Plaintiffs’ breach, I would have however held that the Defendants have waived the right to forfeit the initial deposit.

135.  In my judgment, the Defendants would and should have been clearly aware of their right to forfeit the initial deposit by the time they engaged HLLY to advise them on or about 18 or 19 December 2007. But it is common ground that even after that time, the Defendants had still repeatedly returned the cheque for the initial deposit to the Plaintiffs. This is an act clearly inconsistent with the Defendants’ exercise of, or an intention to exercise, the right to forfeit the deposit. This was an unequivocal act of election not to exercise the right of forfeiture, which had been clearly communicated to the Plaintiffs. See: Wiken & Villiers, The Law of Waiver, Variation and Estoppel (2^nd ed, 2002), paras 4.02-4.26; Large Land Investments Ltd v Cheung Siu Wai^[27], at para 15 per Yuen JA.

136.  I therefore would have dismissed the Defendants’ claim for forfeiture of the initial deposit, even if I had held that they were entitled to terminate the provisional agreement for breach.

D. Conclusion

137.  For the above reasons, the Plaintiffs succeed in their claim against the Defendants, and I make the following orders:

(1)  There be judgment against the Defendants in favour of the Plaintiffs for damages in the sum of HK$3,800,000.

(2)  There be a declaration that the Plaintiffs are entitled to an equitable lien over Flat 15B for the damages awarded above and the costs of this action.

(3)  There be a declaration that, if the Plaintiffs are legally required or obliged to, and do pay the stamp duty in relation to the provisional agreement and/or the commission to the estate agent thereunder, the Plaintiffs shall be indemnified by the Defendants these sums.

(4)  The Defendants’ Counterclaim is dismissed.

138.  I further make a costs order nisi that costs of the action and the Counterclaim be to the Plaintiffs to be taxed if not agreed. Unless any of the parties applies by summons to vary the same, the costs order nisi shall be made absolute 14 days from today.

139.  Lastly, I would like to thank leading counsel for their helpful assistance in this matter. Their succinct and practical approach in the conduct of the trial should also be complimented.