MONTRIO LTD AND ANOTHER v. TSE PING SHUN DAVID

CACV 291/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 291 OF 2011

(ON APPEAL FROM HCA NO. 757 OF 2009)

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BETWEEN

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J U D G M E N T

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Hon Yuen JA:

1.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

2.  This is the defendant’s appeal against the judgment of Poon J on 29 November 2011 in a conveyancing dispute.  The subject matter of the transaction was Workshop Unit 6C and Unit 6D on the Ground Floor of Hoi Luen Industrial Centre, No. 55 Hoi Yuen Road, Kwun Tong, Kowloon (“Unit 6C”, “Unit 6D” and collectively “the Units”).  The 1^st and 2^nd plaintiffs were the vendors and the defendant the purchaser.  The defendant alleged there was misrepresentation about the gross area of the Units (“the Gross Area”) and claimed he was entitled to rescind the agreements for sale and purchase, whereas the plaintiffs asserted that he had repudiated the agreements and forfeited the deposits.  The judge found in favour of the plaintiffs and dismissed the counterclaim.  The defendant appealed against the judgment contending that the plaintiffs’ claim should be dismissed and judgment entered on his counterclaim.  The plaintiffs cross-appealed contending that the monetary judgment for the 1^st plaintiff of $3,800,450 (with interest) should be varied; instead, there should be monetary judgment for the 1^st and 2^nd plaintiffs in the respective sums of $5,287,000 and $727,000 (with interest).

The background

3.  The relevant background facts and findings, taken largely from the judgment, may first be stated as follows.

4.  Hoi Luen Industrial Centre was completed in 1985.  The gross area of Workshop Unit 6 on the Ground Floor was measured and calculated by the developer as 21,021 sq ft and stated as such in the sales brochure.  In 1986, Workshop Unit 6 was sub-divided into Units A, B, C and D and a sub-deed of mutual covenant was registered in the Land Registry in November 1986.

5.  The two plaintiff companies were owned by Wong Hon Hing (“Mr Wong”) and his wife and they used the companies to hold the Units. Unit 6D was assigned to the 2^nd plaintiff in 1991 and Unit 6C was assigned to the 1^st plaintiff in 2000 after it was acquired in an auction sale.  Mr Wong has a machinery import business.  The defendant, Tse Ping Shun David, runs a restaurant business.  Both Mr Wong and the defendant were experienced property investors and both had used the services of an estate agent, Ada Lam (“Ms Lam”) for some time before the present proceedings began.  In all the negotiations relating to the Units, Mr Wong and the defendant made no direct contact with each other and each had liaised through Ms Lam.  Ms Lam was not called to give evidence although she was in contact with the defendant at the time of the trial.

6.  Ms Lam used to work at Centaline (C.I.S.) Property Agency (“Centaline”).  Between 10 October 2007 and 18 February 2008, the plaintiffs appointed Centaline as their sole agent to sell the Units, whether by private contract or public auction.  No sale was concluded through Centaline as the sole agent.  Even before Centaline was appointed as the sole agent, to promote the marketing of the Units, Centaline had prepared and distributed a leaflet dated 24 February 2007 (“the 2007 Centaline Leaflet”), in which the Gross Area was stated as “12,254 sq ft approx” and the net area as “7,815 sq ft approx”.  The asking price was stated to be calculated on the basis of the Gross Area at $2,757 per sq ft.  At the bottom of the 2007 Centaline Leaflet was a remark in these terms (“the Remark”):

“The property is offered subject to contract and availability. Interested parties should satisfy themselves as to the accuracy of the particulars contained herein which are provided by us for information only. No warranty for accuracy is given or implied by the owners or us. Meanwhile interested parties should be aware that we are also acting as agent for the owners.”

7.  The defendant did not receive a copy of the 2007 Centaline Leaflet.  Hence, the judge held that the defendant could not have relied on any representation in this leaflet at all[1].  There is no appeal against this finding.  The judge did not make any finding if Mr Wong had instructed or authorised, expressly or otherwise, Ms Lam or Centaline to market the Units or to state that the Gross Area was 12,254 sq ft approximately by way of the 2007 Centaline Leaflet, as it was not necessary to do so[2].

8.  On or about 10 March 2008, the defendant received by fax from Ms Lam a “For sale” leaflet of Centaline relating to the Units (“the 2008 Centaline Leaflet”).  There was a statement of the Gross Area as “12,254 sq ft approx” but no reference to the net area this time.  The asking price was stated as $3,101 per sq ft.  The Remarks in the same terms appeared at the bottom.

9.  The judge found that after Centaline’s sole agency expired on 18 February 2008, Mr Wong had not instructed or authorised Ms Lam or Centaline to be the plaintiffs’ estate agent in marketing the Units at all material times[3], nor did Mr Wong have knowledge of the 2008 Centaline Leaflet[4].

10.  In early May 2008, Ms Lam was transferred to Ricacorp Properties Limited (“Ricacorp”), a company within the Centaline group.  On or about 3 May 2008, Ms Lam faxed to the defendant a copy of a “For sale” leaflet of Ricacorp relating to the Units (“the Ricacorp Leaflet”) and a plan of the Units.  As in the 2008 Centaline Leaflet, this leaflet contained a statement of the Gross Area as “12,254 sq ft approx”.  The asking price was stated as $3,003 per sq ft.  There was a “proposed price” of $2,758 per sq ft.  The Remarks also appeared at the bottom.

11.  The judge found that Mr Wong had not instructed or authorised Ms Lam or Ricacorp to be the plaintiffs’ estate agent in marketing the Units at all material times, that Mr Wong had no knowledge of the Ricacorp Leaflet and did not know Ms Lam or her then employer had marketed the Units by the use of the relevant leaflet at the time[5].

12.  On 6 May 2008, the defendant went to Hoi Luen Industrial Centre with Ms Lam to inspect the Units.  Ms Lam called Mr Wong in the afternoon to inform him of an interested purchaser and asked him about the price.  Mr Wong gave her the bottom price of $32,800,000.  About 11 pm that day, Ms Lam came to Mr Wong’s home bringing with her two provisional agreements for the sale and purchase of the Units, which had been signed by the defendant.  Mr Wong signed the provisional agreements dated 7 May 2008 for the plaintiffs (“the Provisional Agreements”).  The purchase price of Unit 6C was $19 million and that of Unit 6D was $12 million.  Completion was stipulated to take place on 6 November 2008.  The Provisional Agreements were in the standard form of Ricacorp and Ricacorp was also a party to these agreements.  Clause 14 of each of the Provisional Agreements, which had “Prior negotiations” as a heading, provided as follows:

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

13.  On 21 May 2008, the parties executed the formal agreements for sale and purchase (“the Formal Agreements”).  The defendant paid a total of $3,100,000 as deposits under these agreements.  Clause 34 of each of the Formal Agreements provided as follows:

“This agreement supersedes all previous agreement or agreements entered into by the Vendor and the Purchaser in respect of the Property.”

14.  The plaintiffs’ solicitors sent over the title deeds of Unit 6D to the defendant’s solicitors on 17 June 2008.  The defendant’s solicitors raised a requisition on 23 June and this was answered the following day.  On 24 July the title deeds of Unit 6C were sent to the defendant’s solicitors.  They raised two requisitions on 29 July and these were answered on 31 July.

15.  On 15 July 2008, the defendant received a leaflet from Khemco Properties Limited in which it was stated that the Gross Area was 9,556 sq ft.

16.  Six days before the scheduled completion date, on 30 October 2008, the defendant’s solicitors wrote to the plaintiffs’ solicitors alleging that before and throughout the Formal Agreements, the plaintiffs through their agent represented to the defendant that the Gross Area was 12,254 sq ft but on the defendant’s “recent investigation”, the Gross Area was in fact only 9,556 sq ft.  The defendant’s solicitors stated that unless this and the other discrepancies mentioned in the letter were resolved satisfactorily before completion, the defendant would consider that the plaintiffs had failed to give substantial performance of the Formal Agreements.  On 5 November, the defendant’s solicitors raised in their letter that the purchase price should be reduced because of the material misstatement on the area.

17.  Completion did not take place on 6 November 2008.  The defendant gave notice on 10 November by his solicitors’ letter that he thereby exercised his right to rescind the Formal Agreements and demanded the return of the deposits of $3,100,000.  The plaintiffs’ solicitors wrote on 11 November 2008 to determine the Formal Agreements by reason of the defendant’s breach and forfeited the deposits.

18.  The plaintiffs issued the writ on 17 March 2009.  During the course of the proceedings, and on 30 September 2009 (nearly 11 months after the transactions fell through), the plaintiffs sold the Units to another purchaser at the price of $13,600,000 for Unit 6C and $11,400,000 for Unit 6D.

The judgment below

19.  The judge identified seven principal issues which he considered essential to and sufficient for the determination of the parties’ competing claims and they are as follows:

(1)  Was the statement that the Gross Area was 12,254 sq ft approximately (“the Statement”) in the 2008 Centaline Leaflet and the Ricacorp Leaflet made on behalf of the plaintiffs?

(2)  If yes, did the Statement constitute an actionable representation?

(3)  Did Ms Lam make an oral representation to the defendant on 6 May 2008 that the Gross Area was 12,254 sq ft when they went to Hoi Luen Industrial Centre to inspect the Units (“the Oral Representation”)?

(4)  If yes, did Ms Lam make the Oral Representation on behalf of the plaintiffs?

(5)  Were the Statement (if actionable) and the Oral Representation (if made), on the basis that they had been made on behalf of the plaintiffs, false?

(6)  If the Statement and the Oral Representation were false, did the defendant rely on them in entering the Provisional and Formal Agreements?

(7)  If yes, was it reasonable for the defendant to do so?

20.  Mr Wong and the defendant gave evidence at the trial.  The parties’ joint expert, an architect Ho Man Yiu Ivan (“the Expert”), gave evidence on the Gross Area.  The judge found Mr Wong to be an honest and truthful witness and the defendant not a truthful or honest witness generally.

21.  Of the seven principal issues, the judge held against the defendant on all of them save for issue (5).  On issue (5), he accepted the evidence of the Expert and held that the Gross Area is 9,968 sq ft.  But as issues (1) and (4) are determinative and as they were answered against the defendant, his case must fail irrespective of how the other issues were resolved.

The issues in the appeal and cross-appeal

22.  A number of issues were raised in the appeal and the cross-appeal.  The principal issue was whether the Statement in the 2008 Centaline Leaflet and the Ricacorp Leaflet was published on behalf of the plaintiffs.  The parties also addressed us on the effect of clause 14 of the Provisional Agreements, whether the plaintiffs could rely on it to exclude liability for misrepresentation assuming that a case of misrepresentation were made out by the defendant.  This was raised in the court below but the Judge did not find it necessary to deal with it. Lastly, we heard arguments on the cross-appeal relating to the appropriate measure of damages.

23.  Other subsidiary issues were raised by the parties in the Notice of Appeal and the Respondent’s notice.  They include the following: if the Oral Representation was made by Ms Lam; if the representation in the Statement was actionable and whether the representation on gross floor area was a matter of fact or opinion; if the defendant’s reliance on the Statement was established and whether his reliance was reasonable; if the representation in the Statement was false; and whether the order on costs made by the judge on 17 February 2012 should be varied.

If the Statement was published on behalf of the plaintiffs

24.  This issue must be considered with regard to the evidence accepted by the judge.  The findings of fact in this regard were not challenged on appeal.  In the written submissions of both parties, they have referred us to the relevant parts of the transcript of the evidence of Mr Wong and the defendant.  Having read those parts of the transcript, I am satisfied that the judge has made an adequate and accurate summary of the material parts of the evidence in his judgment, which I will quote below:

“43. During a casual conversation in early 2007, Mr Wong told Ms Lam that he was considering selling the Units as much of his business had moved to the Mainland. He told her that he was selling for about HK$28 to 29 million. He was not in a hurry to sell the Units as he was still using part of them for his own purpose and the tenancy of the parts which had been let out was still ongoing. He had no intention to actively market the Units until he was ready. However, if in the meantime a very attractive offer came about, he would not refuse to sell. Ms Lam then asked Mr Wong what the area of the Units was. She needed the information for marketing purposes. Mr Wong said he did not know.

44. Mr Wong said he had given no firm instruction to Ms Lam to proceed to sell the Units for him. He gathered that she had on her own accord started to market the Units, which was quite usual for estate agents to do. Whenever they knew that an owner was open to the idea of selling his property, the estate agents would go ahead to market the property and they could secure an interested purchaser, they could always start the negotiation process. This gave them the chance to do a deal successfully. After all, that would not cost them much.

45. Mr Wong knew that Ms Lam had proceeded to market the Units because she showed him the 2007 Centaline Leaflet at the end of February 2007. However, he had instructed neither Ms Lam nor Centaline to prepare the 2007 Centaline Leaflet or to market the Units at the stated price of HK$33,784,278, which is an odd figure. He was only asking for HK$28 to 29 million. Nor had he instructed Ms Lam or Centaline to represent that the Gross Area was about 12,254 square feet as he himself did not know what they were. He simply had no information to confirm the size of the Gross Area.

46. Mr Wong asked Ms Lam how she arrived at the figures of 12,254 square feet for the Gross Area and 7,815 square feet for the net area. She said she had obtained the building plans of the Units from the Buildings Department and she had asked the architectural draftsman of Centaline to calculate them, which he did. Mr Wong did not protest about the figurers as he had no information to confirm or dispute their accuracy. In any event, it was already too late for him to make any protest because advertisements by way of the 2007 Centaline Leaflet had already been made. …

47. Turning to his appointing Centaline as sole agent for marketing the Units between 10 October 2007 and 18 February 2008, Mr Wong said he had not discussed with Centaline about the Gross Area. In fact, no figure on the Gross Area was even mentioned in the appointment agreement. He thought that Centaline would possibly provide 12,254 square feet to interested buyers as reference only.

…

51. Mr Wong went on to say that he had never seen the 2008 Centaline Leaflet at the time until it was disclosed by the defendant in these proceedings. He had never authorized Centaline to prepare it. The asking price of HK$37,999,654 was an odd figure which he would not have mentioned to Ms Lam. He also pointed out that the 2008 Centaline Leaflet was only prepared after Centaline’s sole agency had expired.

52. Under cross-examination, Mr Wong readily accepted that after the termination of the sole agency, Centaline might continue to market the Units. That was something within his expectation. Had he seen a leaflet like the 2008 Centaline Leaflet at the time, he would not be surprised. That was also within his expectation. As a broker, Centaline might need to give the market information about the area of the Units but it was something beyond his control.

53.       Mr Wong said he had never appointed Ricacorp as his agent to sell the Units.  What happened was that after her transfer to Ricacorp in April/May 2008, Ms Lam was aware that the Units were still on the market and she, for her own purpose, looked for purchasers.  Mr Wong never gave any instruction to Ricacorp as to the area of the Units or to represent to anyone about the area.  He had not seen the Ricacorp Leaflet until the defendant refused to complete the sales.  He did not know about the particulars stated therein at all.”

25.  On the above evidence, the judge found there is no factual basis whatsoever to suggest that Mr Wong had given instruction for, consented to or acquiesced in the preparation and general distribution of the 2008 Centaline Leaflet or the Ricacorp Leaflet or more specifically Ms Lam sending these leaflets to the defendant[6].  The judge further found Mr Wong had not authorised Ms Lam, Centaline or Ricacorp to publish the Statement in either the 2008 Centaline Leaflet or the Ricacorp Leaflet or to represent the same to the defendant[7].

26.  Mr Ambrose Ho, SC, who appeared for the defendant in this appeal and below[8], did not challenge on appeal that there was no express authority given to Ms Lam, Centaline or Ricacorp to publish the Statement.  He rested his case on the contention that there was implied or ostensible authority from the plaintiffs to publish the Statement.

27.  His argument went along these lines.

28.  On the evidence as accepted by the judge, even though Mr Wong did not instruct or authorise Ms Lam or Centaline to be the plaintiffs’ agent to sell the Units after the sole agency of Centaline expired and he did not instruct or authorise Ms Lam or Ricacorp to market the Units for the plaintiffs, it was within his expectation or knowledge that Ms Lam would continue to market the Units.  As he could have stopped her but did nothing, he must be treated as giving her permission to market the Units.  In so giving his permission, he had set in train the marketing process by Ms Lam and the “usual information” given by Ms Lam to potential buyers in marketing the Units, regardless of whether such information was supplied by him, must be regarded as having been given with his implied or ostensible authority.  Mr Wong had admitted that a leaflet like the 2008 Centaline Leaflet or the Ricacorp Leaflet was within his expectation.  The information contained in such leaflets, including the Statement, was within the kind of “usual information” that would be passed on by an estate agent to potential buyers.  And in each of the 2008 Centaline Leaflet and the Ricacorp Leaflet, it was stated that the estate agent was “also acting as agent for the owners”.

29.  In support of this contention, Mr Ho cited to us, among other authorities, extracts from Bowstead & Reynolds on Agency, 19^th ed, article 72 dealing with apparent or ostensible authority, in particular para 8-022.  He recognised that “the essence of apparent authority is an appearance emanating from the principal” and therefore “the representation must be made by the principal, or by another agent authorised to act for the principal”, but contended that in the present situation “the principal can be regarded as having in some way instigated or permitted it” [i.e. making a representation he has authority to act for the principal] or “put the agent in a position where he appears to be authorised to make it.”  He also prayed in aid this statement of Luxmoore J in De Tchihatchef v Salerni Coupling Ltd [1932] 1 Ch 330 at 342: “If a person authorises or permits another to make a representation for the purpose of it being acted upon and it is acted upon, that person cannot afterwards be heard to say that the representation is not true.”

30.  Mr Ho had advanced the argument of implied or ostensible authority before the judge, who rejected it for these reasons set out in the judgment:

“64. It is important to bear in mind that after Centaline’s sole agency expired, Mr Wong had not instructed or authorized Ms Lam, Centaline or Ricacorp to market the Units for the plaintiffs. He knew that Ms Lam would continue to look for interested buyers. But that was clearly not done on the plaintiffs’ behalf. He would be prepared to consider or even accept an attractive offer by an interested buyer procured by Ms Lam. But it did not amount to any authorization, expressed or implied, or holding out Ms Lam or her employer at the time as the plaintiffs’ agent.

65. As to how Ms Lam or her then employer were to market the Units, Mr Wong simply had no idea or control whatsoever. It was entirely a matter for them as broker. Mr Wong accepted that it was within his expectation that Ms Lam or her then employer might well use sale leaflets similar to the 2008 Centaline Leaflet or the Ricacorp Leaflet to market the Units and that Ms Lam might well state the Gross Area to be 12,254 square feet. But such subjective expectation hardly amounts, objectively, to any authorization, expressed or implied, or holding them out as the plaintiffs’ agent. Not even acquiescence in Ms Lam’s conduct in marketing the Units as contended by the defendant.

66. The reliance on the statement that “[the agent was] also acting as agent for the owner” in both leaflets is misconceived. It was how Ms Lam and her employers described their role. Absent any knowledge, actual or otherwise, or acquiescence on Mr Wong’s part that they had so described themselves, Mr Wong had not hold [sic] them out as the plaintiffs’ agent.

67.       … I find that neither Ms Lam nor any of her then employers was the plaintiffs’ agent when Ms Lam sent the 2008 Centaline Leaflet and the Ricacorp Leaflet to the defendant or when she allegedly made the Oral Representation to him on 6 May 2008.  The Statement and the Oral Representation (if made) were all made by Ms Lam on behalf of her respective employer for the purpose of marketing the Units and no more.”

31.  I agree entirely with the judge’s reasoning and conclusion.  The startling propositions advanced by Mr Ho were not good law and not supported by authorities.  The mere expectation that an estate agent might try to market a property cannot be treated as any kind of permission or authority for the agent to do so.  Nor was there any obligation on the owner’s part to stop or prevent an agent in attempting to find potential buyers as a broker.  On Mr Wong’s evidence, it was quite usual for estate agents in Hong Kong to market a property on their own initiative, whenever they knew that an owner was open to the idea of selling his property.  Whether the information given out by the estate agent as a broker to potential purchasers was usual or otherwise, the owner would have no control over this.  In no way could the plaintiffs be regarded as having in some way instigated or permitted Ms Lam to make the Statement as their agent, nor had they put her in a position where she appeared to be authorised to make the Statement as their agent.  As held by the judge, the Statement was made by Ms Lam on behalf of her respective employer for the purpose of marketing the Units and no more.

32.  After the hearing, Mr Ho provided to this court an extract of certain provisions in the Practice Guide for Hong Kong Estate Agency Practitioners and drew our attention specifically to paras 1.6.1 (that estate agencies should establish detailed guidelines to ensure the written consent of a vendor has been obtained prior to the issuance of any form of advertisement, and the advertisement issued does not contain any false or misleading statement that are different from those instructed by the client), 1.6.3 (that estate agencies must as soon as possible withdraw the advertisement and cease the dissemination of information of the property when the agency agreement has terminated) and 1.8.1 (that an agent must obtain the consent of the vendor before arranging an inspection of the property by a prospective purchaser).

33.  We do not know and Mr Ho has not indicated in his submissions to what extent these provisions of the Practice Guide for Hong Kong Estate Agency Practitioners had been canvassed before the judge.  What is clear on the evidence of Mr Wong, as accepted by the judge, is that neither Ms Lam nor her employers at the time had complied with these provisions with regard to the marketing of the Units.  I do not think these provisions would assist the defendant’s case in view of the evidence to the contrary.

34.  For all the above reasons, I reject Mr Ho’s submissions on this issue.  On this ground alone, the appeal should be dismissed.

The effect of clause 14 of the Provisional Agreements

35.  Having come to the view that the case on misrepresentation was not made out, it is strictly unnecessary to resolve if clause 14 of the Provisional Agreements would have the effect of excluding liability for misrepresentation, as contended by Mr C Y Li, SC for the plaintiffs.  It is also inappropriate for this court to determine this question as one of the issues involved is fact sensitive and there was no relevant finding made by the court below.  So I will merely set out succinctly the arguments addressed to us in this respect.

36.  Three issues are raised here.  The first is whether the plaintiffs could rely on clause 14 of the Provisional Agreements at all in view of clause 34 of the Formal Agreements.  If the answer to this is yes, the next issue is whether, as a matter of construction of the contract, clause 14 would have the effect of excluding liability for misrepresentation as to the Gross Area.  If the answer to the second issue is yes, the third issue is whether clause 14 would satisfy the test that this term was fair and reasonable having regard to the circumstances which were, or ought reasonably to have been known to the parties when the Provisional Agreements were made, having regard to section 4 of the Misrepresentation Ordinance, Cap 284 which imports the requirement in section 3(1) of the Control of Exemption Clauses Ordinance, Cap 71.

37.  On the first issue, Mr Ho submitted that the effect of clause 14 of the Provisional Agreements was spent, once the Formal Agreements were entered into, as clause 34 of each of the Formal Agreements provided that the Formal Agreement “supersedes all previous agreement or agreements entered into by the Vendor and the Purchaser in respect of the Property” and, unlike clause 14, clause 34 made no mention of any “representation” having been superseded by the Formal Agreement.

38.  Mr Li argued to the contrary and submitted that if clause 14 is effective in excluding reliance on representation, liability on representation cannot be revived simply because the Provisional Agreements were replaced by the Formal Agreements.

39.  On the second issue, which is the construction point, Mr Ho relied principally on the English Court of Appeal decision in AXA Sun Life Services plc v Campbell Martin Ltd & Ors [2011] EWCA Civ 133, in which Rix LJ reviewed the authorities on “entire agreement” clauses[9] and identified certain themes which deserve recognition in para 94:

“Among them is that the exclusion of liability for misrepresentation has to be clearly stated. It can be done by clauses which state the parties’ agreement that there have been no representations made; or that there has been no reliance on any representations; or by an express exclusion of liability for misrepresentation. However, save in such contexts, and particularly where the word “representations” takes its place alongside other words expressive of contractual obligation, talk of the parties’ contract superseding such prior agreement will not by itself absolve a party of misrepresentation where its ingredients can be proved.” (italics supplied)

40.  The provision in Clause 14 of the Provisional Agreements was that “this Agreement supersedes all prior negotiations, representation, understanding and agreements of the parties hereto.”

41.  Mr Ho also relied on other parts of the judgment in AXA Sun Life Services plc (paras 35 to 37 and para 92) in support of his contention that the language of “representation” and “supersede” in Clause 14 is the language of defining contractual obligations rather than the language of excluding liability in misrepresentation.  Of similar effect is the decision of this court in an appeal in a striking out application in Glory Gold Ltd v Star Play Development Ltd [2008] 2 HKLRD 416 at paras 18 and 19.

42.  Mr Li sought to distinguish the “entire agreement” clause construed in AXA Sun Life Services plc.  He submitted that clause 14 in the present case should not be read narrowly as an “entire agreement” clause and relied on the heading of clause 14 which was “Prior negotiations”.  He argued that clause 14 was wider in ambit and the word “supersede” in that provision should not be construed as narrowly as in the English decision.  The word “representation” in clause 14 must include misrepresentation; otherwise there is no point in providing for representation to be superseded.

43.  As to the third issue whether the reasonableness test was satisfied, Mr Li drew our attention to the judgment of Litton NPJ in Green Park Properties Ltd v Dorku Ltd (2001) 4 HKCFAR 448 at para 27.  The clause in that case was identical to clause 14.  It was a term in a standard form of provisional agreement used by estate agents.  He submitted that the test of reasonableness was satisfied here as there was no difference in the bargaining position of the plaintiffs and the defendant.

44.  Mr Ho informed us that submissions were made to the judge on the reasonableness test in section 4 of the Misrepresentation Ordinance but the judge made no findings as to the circumstances which were, or ought reasonably to have been known to or in the contemplation of the parties when the contract was made that would have a bearing on the reasonableness test.  This is a fact-sensitive issue that this court is unable to deal with due to the lack of relevant findings.

45.  This deals with the main arguments on the appeal.  I will consider briefly the subsidiary issues raised before I deal with damages which is the subject of the cross-appeal.  Lastly, I will deal with the costs order made by the judge which is challenged by the defendant.

If the Oral Representation was made

46.  This issue is dependent on the credibility of the defendant.  The judge rejected his evidence and found that Ms Lam had not made the Oral Representation to him on 6 May 2008[10].

47.  It was submitted on his behalf that the judge erred in so finding in that the plaintiffs did not adduce evidence to contradict his evidence and it was not suggested to him in cross-examination that Ms Lam did not make the Oral Representation to him.  Further, as the judge had said “a more believable version would be that [Ms Lam] said the Gross Area was about 12,254 sq ft”, he should have found that was what Ms Lam said, even though he rejected the defendant’s evidence Ms Lam would say that the Gross Area was 12,254 sq ft exactly.

48.  None of these grounds is of substance.  There is no basis to interfere with the finding of fact of the judge.

If there was actionable representation

49.  The judge held that the Statement was not an actionable representation as it was not a representation of fact.  The Statement must be understood in the entire context of the 2008 Centaline Leaflet and the Ricacorp Leaflet.  The Remark in these leaflets made it abundantly clear that the Statement was for reference only and no warranty was given on its accuracy.  Properly understood, the Statement was not a representation of fact on which a case of misrepresentation could be mounted[11].  Furthermore, the defendant admitted in cross-examination that as an experienced investor, he had seen similar sale leaflets and knew that they were for marketing only and he could not take the information there to be accurate.  He accepted that the information about the Gross Area in the Statement was “for reference only”[12].

50.  Mr Ho attacked this finding by arguing that even if the judge should decide to attach no weight to the defendant’s answer in re-examination, he was wrong to ignore other parts of the defendant’s evidence which indicated that when the defendant understood the information about the Gross Area in the Statement was “for reference only”, the defendant had expected only a small disparity of about 1 to 2% and not as substantial a shortfall as 28%.

51.  This is not a valid basis to impugn the judge’s finding.  The judge is entitled to hold, looking at the matter objectively, and by reason of the Remark, the Statement was for reference only and no warranty was given on its accuracy.

52.  It is unnecessary to express a view on Mr Li’s contention that the judge should also find the Statement was a representation of opinion on the ground that the gross area figure must be a matter of opinion depending on how a developer should decide to include or exclude common area and facilities in the calculation of the building common area.

If there was reliance and whether it was reasonable

53.  The judge rejected the defendant’s evidence that he relied on the Statement when he entered into the Provisional and Formal Agreements, and even if he did, the judge found his reliance was unreasonable as he had full knowledge that the Statement was for reference only[13].

54.  Mr Ho submitted the judge was in error in that the statements as to gross area undoubtedly affected the defendant’s decision to enter into the agreements.

55.  I am not persuaded that the judge was wrong to come to the view he did on the evidence.

If the representation was false

56.  The judge accepted the evidence of the Expert that the Gross Area is 9,968 sq ft and hence the representation in the Statement was false[14].

57.  Mr Li submitted that as the figure of 9,968 sq ft was only one of the possible calculations of the Gross Area, falsehood of the Statement was not made out.  It is unnecessary for the disposal of this appeal to determine this and I would express no view on this.

The measure of damages

58.  I come to the cross-appeal.  The judge recognised that in assessing the loss and damage suffered by the plaintiffs, the general rule is that a plaintiff is entitled to recover the difference in value between the contract price and the value of the property taken usually, but not invariably, at the time of the breach.  The value of the property at the time of the breach is determined by the price obtained, or obtainable, on a resale within a reasonable time of the breach, but excluding any inflated price which the property might fetch by nursing it (Barnsley’s Conveyancing Law and Practice, 4^th ed, p 654).

59.  A joint valuation report was obtained on the Units as at the time of the breach in November 2008.  According to this report, the value of Unit 6C was $11,813,000 and that of Unit 6D was $10,073,000.  Mr Li urged the judge to take the valuation in November 2008 as the basis for assessing the loss and damage.  The judge however declined to do so and used instead the resale price of the Units on 30 September 2009, nearly 11 months after the breach, which was $13,600,000 for Unit 6C and $11,400,000 for Unit 6D.  The reason the judge gave was that “they reflect the actual loss and damage suffered by the plaintiffs more accurately.”[15]

60.  Mr Li submitted that the judge was in error in departing from the general rule for no valid reason.  Contrary to the judge’s thinking, the resale price obtained 11 months after the breach did not accurately reflect the market price of the Units at the time of the breach.  For the rationale behind the general rule, Mr Li cited the judgment of Lord Wrenbury in Jamal v Moolla Dawood, Sons & Co [1916] 1 AC 175 at 179:

“In a contract for sale of negotiable securities, is the measure of damages for breach the difference between the contract price and the market price at the date of the breach – with an obligation on the part of the seller to mitigate the damages by getting the best price he can at the date of the breach – or is the seller bound to reduce the damages, if he can, by subsequent sales at better prices? If he is, and if the purchaser is entitled to the benefit of subsequent sales, it must also be true that he must bear the burden of subsequent losses. The latter proposition is in their Lordships’ opinion impossible, and the former opinion is equally unsound. If the seller retains the shares after the breach, the speculation as to the way the market will subsequently go is the speculation of the seller, not of the buyer; the seller cannot recover from the buyer the loss below the market price at the date of the breach if the market falls, nor is he liable to the purchaser for the profit if the market rises.”

61.  The above passage was cited with approval by this court in Wang Ruiyun v Gem Global Yied Fund Ltd [2011] 3 HKLRD 785 at paras 18 and 19 and Cheung JA said in para 20 that “as the normal measure is to be decided at the time of the breach, any subsequent increase in the price should be ignored.”

62.  On the above authorities, Mr Li submitted that the increase in the resale price should be ignored and that the judge should have followed the general rule and used the price assessed by the joint valuer as at the time of the breach in November 2008. He also drew our attention to Mr Wong’s evidence that prior to the resale in September 2009, the plaintiffs had only received two concrete offers for the Units of $18,000,000 and $20,000,000, and they were less than the market price assessed by the valuer at $21,886,000.

63.  Mr Ho referred us to clause 20 of the Formal Agreements which provided that should the purchaser fail to observe or comply with any of the terms therein, the vendor may forthwith determine the agreement and upon determination of the agreement, the vendor may resell the Units and the price on resale shall belong to the vendor, and without prejudice to the vendor’s right to recover the actual loss which may flow from the purchaser’s breach, any deficiency in price on such resale shall be made good and all expenses attending such resale shall be borne by the purchaser and such deficiency and expenses shall be recoverable by the vendor as and for liquidated damages.  It was also provided that this clause shall not prevent the vendor recovering, in addition to liquidated damages, damages representing interest paid or lost by the vendor by reason of the purchaser’s failure.  Mr Ho submitted that by this clause, the judge was right to award damages based on the deficiency in price on the resale.

64.  In the amended statement of claim, the plaintiffs claimed damages pursuant to clause 20 and in the alternative damages to be assessed under the common law.  Clause 20 is not a complete code setting out all the rights of the vendor in the event of the determination of the agreement and does not exclude the vendor’s entitlement to claim damages at common law for the purchaser’s failure to complete (Woomera Co Ltd & Anr v Provident Centre Development Ltd [1985] HKLR 263 at 266J to 267C and 269B to E).  The plaintiffs elected to claim damages at common law at the trial, rather than pursuant to clause 20.

65.  Mr Ho submitted that the resale price in September 2009 should be taken as the selling price realised within a reasonable time of the breach and that the 11-month gap in this case was not outside the limit of reasonable time.  I do not agree with his submission.  The judge was wrong to depart from the general rule and he should have taken the price assessed by the joint valuer at the time of the breach as the basis for assessing damages.

66.  On that basis, damages should be awarded to the plaintiffs being the difference between the contract price and the market price at the time of the breach.  Hence, damages awarded to the 1^st plaintiff in respect of Unit 6C should be $19,000,000 – $11,813,000 – deposit of $1,900,000 = $5,287,000, and damages awarded to the 2^nd plaintiff in respect of Unit 6D should be $12,000,000 – $10,073,000 – deposit of $1,200,000 = $727,000, making a total award of $6,014,000.

67.  I would allow the cross-appeal and substitute the monetary judgment for the 1^st plaintiff of $3,800,450 with the above awards of damages to the 1^st and 2^nd plaintiffs.  I would not disturb the order of interest made by the judge, so there would be interest on the damages awarded at the judgment rate from the date of the writ until payment.

The costs order below

68.  The judge made an order nisi that the defendant should pay the plaintiffs’ costs of the entire action.  On 17 February 2012, he varied the order nisi to provide that the costs incurred before and up to 9 November 2009 are to be taxed on a party and party basis and thereafter the costs incurred are to be taxed on an indemnity basis.  He did so because he took into account an open offer made by the plaintiffs’ solicitors to the defendant’s solicitors dated 12 October 2009, which the defendant ought reasonably to have accepted.  He rejected the defendant’s argument that the exclusionary rule in Order 62 rule 5(d) applies to an open offer, having considered Ming An Insurance Co (HK) Ltd v Ritz-Carlton Ltd (No 3) (2009) 12 HKCFAR 745 at paras 16 and 18.  I agree with the judge that the exclusionary rule in Order 62 rule 5(d) does not apply here and the judge was correct to take into account the open offer in exercising his discretion on costs.

69.  I see no basis to interfere with his discretion on costs in any respect.

Conclusion and costs

70.  For the above reasons, I would dismiss the defendant’s appeal and allow the plaintiffs’ cross-appeal on the quantum of damages.  I would replace the monetary judgment for the 1^st plaintiff of with $3,800,450 with a monetary judgment to the 1^st plaintiff of $5,287,000 and a monetary judgment to the 2^nd plaintiff of $727,000, with interest at judgment rate from the date of writ to payment.

71.  I would make an order nisi that the defendant is to pay the plaintiffs’ costs of this appeal and the costs incurred by the plaintiffs in respect of the Respondents’ Notice, notwithstanding that the plaintiffs did not succeed on all of the matters raised in that notice.

Hon Lam JA:

72.  I agree with the judgment of Kwan JA.