XCHRX KIND SPREAD DEVELOPMENT LTD. v. TSUI TSZ

HCA9816/97

HEADNOTE

Order 14 proceedings. Fraudulent misrepresentation pleaded in Statement of Claim and relied on as ground of rescission of sale and purchase agreement. Important to examine Plaintiff's pleaded case and material facts relied on in support of the claim for rescission. Triable issues of fact raised which ought to be resolved at trial.

HCA 9816/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9816 OF 1997

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J U D G M E N T

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1. This is an appeal from the order of Master Jones made on 1st May 1998 whereby he ordered that the Defendant do have unconditional leave to defend this action. The Defendant had in fact filed a Defence and Counterclaim. The Plaintiff applied for summary judgment against the Defendant under Order 86, Rules of the High Court by an inter partes summons dated 11th November 1997.

2. The Plaintiff's claim against the Defendant is in respect of a breach of a sale and purchase agreement whereby the Plaintiff, as purchaser, agreed to purchase from the Defendant, as vendor, the property known as Flat B, 11th Floor, No. 112 Broadway, Mei Foo Sun Cheun, erected on the Remaining Portion of Section A of New Kowloon Marine Lot No. 25, Kowloon, Hong Kong ("the Property"). A provisional agreement for sale and purchase dated 9th June 1997 was entered into whereby the Defendant, as vendor, agreed to sell the Property to the Plaintiff, as purchaser, for $13,800,000.00.

3. The parties subsequently entered into a Sale and Purchase agreement dated 19th June 1997 ("the Sale and Purchase Agreement"). It was agreed, inter alia, that completion should take place on or before 15th August 1997 and that time should in every respect be of the essence of the Sales and Purchase Agreement. Pursuant to the Sale and Purchase Agreement, the Plaintiff paid a total of $1,380,000.00 as deposit and on 12th July 1997, the Plaintiff also paid stamp duty in respect of the purchase of the Property in the sum of $379,500.00.

4. It is important to examine the Plaintiff's claim as pleaded in the Statement of Claim. Paragraph 8 of the Statement of Claim pleads that the Defendant made representations to the Plaintiff. This is pleaded as follows:

"In order to induce the Plaintiff to purchase the Property, the Defendant and the Estate Agent acting as the Defendant's agent specifically identified to the Plaintiff in a site inspection of the Property on 9th June 1997, the enclosure of the kitchen balcony and the drying rack on the railing in the sitting room balcony to be the strong selling point of the Property. In the premises, the Defendant expressly or impliedly represented to the Plaintiff that the aforesaid structures were authorized structures (hereinafter referred to as "the said representation").

5. Paragraph 9 of the Statement of Claim pleads as follows:

"Upon the faith of the said representation and in reliance thereon and in the belief that the same was true but not otherwise, the Plaintiff was induced to enter into the Provisional Agreement on 9th June 1997."

6. Thus, it is clear from those two paragraphs that the Plaintiff's case is, inter alia, that it was induced to enter into the Provisional Agreement by reason of the representation pleaded in Paragraph 8 and in the belief that it was true.

7. The Statement of Claim goes on to plead that there were unauthorized structures in the Property namely:

a) the authorized enclosure of the kitchen balcony; and

b) the unauthorized erection of metal drying rack on the railing in the sitting room balcony ("the unauthorized structures").

8. It also pleaded that the Defendant knew or ought to have known of the existence of the unauthorized structures in the Property before entering into the Sale and Purchase Agreement and hence the representation pleaded in paragraph 8 of the Statement of Claim was made by the Defendant fraudulently in that the Defendant knew that it was false or recklessly, not caring whether it was true or false.

9. It was submitted, inter alia, that the Defendant had a duty to show good title to the Property and to answer requisitions satisfactorily before completion. The law in this regard is clear and is not disputed by counsel for the Defendant. It was also submitted that because of the existence of the unauthorized structures, the Defendant failed to show good title and also failed to answer the requisitions satisfactorily before completion.

10. As I have said above, it is important to examine the Plaintiff's claim as pleaded in the Statement of Claim. The allegation of fraudulent misrepresentation is very much relied on by the Plaintiff as the material facts in support of his claim for rescission of the Sale and Purchase Agreement. Indeed, the Plaintiff's counsel has confirmed to me that the Plaintiff does not abandon such allegation. The Defendant has denied that there was any misrepresentation. Obviously, this cannot be resolved at this stage. There are issues of fact which ought to be resolved at trial.

11. It is pertinent also to see the letter sent by the Plaintiff's solicitors giving notice of rescission which is dated 11th August 1997. This was in reply to the Defendant's solicitors' letter dated 7th August 1997 which stated in the paragraph numbered 3:

"Without the admissions of any liabilities by our client, we are instructed that our client had made full and frank disclosure of the alleged enclosure of kitchen balcony and laundry rack to the representatives of your client Mr. Ng and Madam Chan during the inspection of the Property in the presence of the estate agent Madam Tang on 9th June 1997 prior to the signing of the Provisional Agreement for Sale and Purchase."

12. The letter from the Plaintiff's solicitors dated 11th August 1997 stated in the paragraph numbered 3 as follows:

"We are instructed by our clients that at time where our clients first inspected the subject premises on 9th June 1997, the enclosure of the kitchen balcony and the laundry rack was specifically identified by your clients as your client's agent as being the strong selling point of the subject premises. By reason thereof your clients expressly or by necessary implication represented to our clients those erections were authorised structures. With full knowledge of the illegality of the subject structures, your client fraudulently misrepresented to our clients that those structures were authorised and thereby induced our clients to enter into the agreement for sale and purchase of the subject premises."

In the same letter, it is stated as follows:

"By reason of the failure to disclose latent defects in title and the fraudulent misrepresentation of your client as aforesaid, our clients are entitled to rescission of the agreement for sale and purchase.

Notice is hereby given to your client that our clients hereby rescind the Agreement for Sale and Purchase dated 19th June 1997 in respect of the above Property. Unless the deposit paid under the said Agreement in the sum of $1,380,000.00 is returned to our clients within the next 7 days, legal proceedings will be taken against your client for rescission of the said Agreement, return of the said deposit and damages without further notice."

13. Looking at that letter, it is clear that the reasons given for rescission are failure to disclose latent defects in title and the fraudulent misrepresentation of the Defendant. No reliance is placed there as a ground for rescission a failure to answer requisitions satisfactorily before completion.

14. The Defendant, of course, denied that there was any latent defect as alleged by the Plaintiff. In the Defendant's solicitors' letter dated 13th August 1997 in the paragraph numbered 2, it is stated as follows:

"Save that it is admitted that your client did inspect the Property in the morning on 9th June, 1997, the allegations under item 3 of your letter of 11th August, 1997 is strongly denied by our client. In particular, our client denies that she has made any fraudulent misrepresentation to your client at all material times. On the contrary, our client repeats her stand under item 3 of our letter of 7th August 1997 and in addition, our client had during the said inspection told the representatives of your client Mr. Ng and Madam Chan that the management company of the building, of which the Property forms part, did object the enclosure of the alleged enclosure of kitchen balcony and laundry rack. Despite of the aforesaid, your client had in the evening on 9th June 1997 entered into the Provisional Agreement for Sale and Purchase with our client."

15. Those are matters which raise disputes of fact and in my judgment that is sufficient for the matter to go to trial.

16. In view of my decision that there are triable issues raised, I do not think that I should express any further views on the strength or otherwise of the Plaintiff's other submissions on the question of whether good title has been shown and whether the Defendant has satisfactorily answered the requisition before completion.

17. In the circumstances, the appeal is dismissed with costs to the Defendant in any event.