LINK FOLK LTD v. GLORIOUS MOTORS LTD

DCCJ 552/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 552 OF 2010

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BETWEEN

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JUDGMENT

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BACKGROUND

1.  By virtue of a Vehicle Sale and Purchase Agreement (No.A3069) dated 8^th November 2009 (“the Agreement”), Madam Li Lai Kuen (“Li”) of the plaintiff purchased a second hand car (“the BMW Car”) under the name of the plaintiff from the defendant company (東榮汽車) which is a used car dealer.

2.  At all material times, Li was served by Mr. Samuel Leung (“Leung”) who worked as a senior consultant of the defendant.

3.  After the BMW Car was delivered to Li, she discovered that:

(a) The mileage of the BMW Car was not 54,000km as represented by Leung but at least 87,000km (which was the mileage of the BMW Car as at 2007 according to the record of BMW Concessionaires (HK) Limited (“the BMW Company”)); and

(b) The BMW Car has oil leakage problems.

4.  Having complained to the defendant but to no avail, the plaintiff initiated the present action against the defendant and claimed reliefs for misrepresentation and breach of contract.

CREDIBILITY OF THE WITNESSES

5.  Li and Leung were called by the plaintiff and the defendant respectively to give evidence in the trial.

6.  In so far as there are any discrepancies between their evidence, I would prefer the evidence given by Li because she has impressed me to be a reliable and credible witness. She was able to give evidence in a very detailed way, and she was unshaken in cross-examination. Her evidence was also consistent with the contemporaneous documents.

7.  Mr. Lam for the defendant attacked Li’s credibility on a number of fronts. He argued that she had made unwarranted allegations of fraud against the defendant. He said she was totally incredible in alleging that she did not notice the red words appearing on the Agreement (which reminded her about the terms printed on the reverse side of the Agreement: see paragraph 40 below). He also submitted that while Li maintained that she trusted Leung in the whole transaction, the objective fact shows that she did not, because (it was said) she had taken various steps in verifying the condition of the BMW Car.

8.  I will deal with these points separately later on when I deal with the particular issues. Suffice for me to state here that I do not accept Mr. Lam’s argument in this regard.

9.  On the other hand, I find that Leung is not a reliable witness. As Leung admitted, he did not have any strong impression in relation to Li because from his recollection, Li did not behave very differently from the other customers. As a result, his evidence was given on the basis of what he described as his “usual practice” and he just assumed that his encounters with Li were not too different from the other “usual” cases.

10.  My finding that Leung is not a reliable witness is also supported by the followings:

(a) In his witness statement, Leung stated that the defendant company had inspected and repaired the BMW Car sometime after June 2009 and he referred therein to the documents listed as item No.7 of the defendant’s list of documents. However, during cross-examination, he accepted that in fact he had never seen those documents before the trial;

(b) He stated in his witness statement that Li had had a test-drive of the BMW Car for around 30 minutes on 8^th November 2009. However, he accepted in court that judging from the length of the route (from Laguna City to Trademart Drive in Kowloon Bay), he must be wrong on this and the test-drive should only last for something over 10 minutes (he could no longer recall the exact time taken on 8^th November 2009);

(c) While he initially stated in his oral evidence that he knew the content of Li’s 1^st witness statement, he revealed subsequently that in fact no one had ever explained the content of such a witness statement to him and he had never read it himself;

(d) In his witness statement, he stated categorically that he faxed a Vehicle Inspection Report prepared by the Hong Kong Automobile Association dated 16^th November 2009 (“the HKAA Report”) on that same day to the plaintiff. However, it is shown by documentary evidence that the plaintiff was still chasing for a copy of the same on 24^th November 2009. The fax record appearing at the top of a copy of the HKAA Report shows that it was in fact faxed by the defendant to the plaintiff on 27^th November 2009;

(e) He tended to change his evidence from time to time while he was in the witness box.

11.  There were other times when Leung’s evidence did not accord to common sense. For example:

(a) He maintained that Li only asked him about the mileage of the BMW Car during the test-drive. This does not make any sense because mileage must be one of the important factors which affects the price of second hand cars (he also accepted this to be the case) and it is common ground that by the time of the test-drive, they had already agreed on the price of the BMW Car.

(b) While he agreed he had told Li that the defendant had its own maintenance department which would make sure that all used cars had passed stringent tests before being put on sale in the market, he insisted that he did not tell Li that the BMW Car was in good working condition. I wonder what useful purpose could be served by informing Li about the maintenance department of the defendant if he is correct.

(c) Further, I find it most surprising if he, as a sales representative of the defendant whose job was to promote the defendant’s cars to customers, had not said a single word to the effect that the BMW Car was in good working condition.

REPRESENTATION ON MILEAGE

12.  There is no dispute that Leung had told Li that the mileage of the BMW Car was 54,000km.

13.  Neither was it disputed that such a representation must be a misrepresentation of fact. Mr. Lam fairly accepted that the documents produced by the BMW Company show that the mileage of the BMW Car as at 2007 was 87,000km.

14.  In resisting the plaintiff’s claim regarding mileage, the defendant relies on the following arguments:

(a) The misrepresentation was not made fraudulently nor negligently;

(b) There was no reliance on the part of the plaintiff on Leung’s representation on mileage; and

(c) Even if there were any misrepresentation, the defendant’s liability is excluded by virtue of clause 19 of the Agreement.

15.  I shall examine these grounds in turn.

Fraudulent misrepresentation

16.  In my view, it is clear that the plaintiff has failed to prove its case that the misrepresentation on mileage was made fraudulently. There is simply no evidence to substantiate such a serious allegation.

17.  When the plaintiff was asked to provide Further and Better Particulars on the allegation of fraudulent misrepresentation, it was answered, among other things, that:

“…during checking the Vehicle, the Defendant could have adjusted the mileage of the Vehicle to 54,000 km which was appeared (sic) on the control panel of the Vehicle…” (emphasis added)

18.  The plaintiff’s case on fraudulent ground still fails even if it can be proved that the defendant “could have” made the adjustment, let alone no evidence has been adduced in this respect.

19.  In Li’s witness statement, she stated that since the defendant has an experienced team and instruments, it is able to adjust the milometer to a lower mileage so as to make the BMW Car “more attractive to customers”. While I accept that this was what she honestly thought, it certainly is not a valid basis to lay a claim on fraudulent ground in court.

Negligent misrepresentation

20.  The issue here is whether the defendant should be required to verify the mileage of the BMW Car before it made any representation to the plaintiff on mileage.

21.  Counsel for the defendant submitted that it was natural for the defendant to make the representation on the basis of the milometer reading of the BMW Car and there was nothing which suggested that the milometer had been adjusted. He further submitted that since we are only concerned with reasonable standard but not perfect standard here, the defendant should not be required to take the step in calling the BMW Company for verification of the mileage reading.

22.  I do not agree with these submissions.

23.  As counsel for the defendant accepted during closing submissions, the defendant must have been aware of past incidents where it was discovered that milometers of second hand cars had been tampered with, otherwise there is no reason why the defendant saw fit to specifically insert clauses 19 and 20 (see paragraphs 24 and 25 below) into its standard sale and purchase agreements (the Agreement is one of those) in an attempt to protect its interest. Moreover, clause 20 shows that the defendant considered that “mileage” is a very crucial factor affecting its decision to accept a trade-in vehicle.

24.  Clause 19 of the Agreement provides that:

“For all 2^nd hand Vehicles acquired from the market, the traveled distance of such Vehicles are for reference only and the Vendor [i.e. the defendant] do not give any warranty or at all. The purchaser shall not use such reason refusing any completion to take place, or otherwise, it shall treat as repudiation on the part of the Purchaser.”

25.  Clause 20 of the Agreement further stipulates that:

“In respect of the Purchaser’s used or unused vehicle for trade-in purpose, the Purchaser agrees and warrants that:

i) […];

ii) if the Seller [i.e. the defendant] shall discover after the date of this Agreement that the statement in respect of ‘Number of Previous Owners’ and mileage of the trade-in vehicle overleaf is incorrect or false, the Seller has the right to adjust the price for the trade-in price (sic);

iii) […];

iv) In the event that any of the events in clauses 20(i), (ii) and (iii) above happens, the Seller has the right to reject the trade-in vehicle without affecting the validity of the other terms in relation of the Sale and Purchase of vehicle and/or miscellaneous items.”

26.  Hence, it certainly cannot be said that it was natural or reasonable for the defendant to simply rely on the reading of the milometer of the BMW Car. I do not accept that the defendant should not doubt the accuracy of the milometer of the BMW Car.

27.  I agree that the defendant should only be required to take reasonable steps in the verification of the reading of the milometer of the BMW Car. However, it is undisputed that the defendant has taken no such step at all in the present case.

28.  The defendant argued that even according to Li’s evidence, the service centre of the BMW Company would not release the record of mileage to any persons other than the registered owner of the BMW Car at the material time. Since the defendant was not registered as such, it was said that it was reasonable for the defendant not to do anything apart from relying on the milometer.

29.  This argument ignores Li’s unchallenged evidence that while the BMW Company refused to release any documentary service records to her, BMW Company was willing to and as a matter of fact did inform her orally about the latest mileage record of the BMW Car in its possession. It is also clear from the witness statement given by Mr. Wu Wai Ming (“Wu”) (the car mechanic engaged by Li) to the Police that he was also able to get the mileage figure orally from the BMW Company by making a phone call to its service centre.

30.  I consider that it is reasonable to require the defendant as a second hand car dealer to make a simple phone call to the BMW Company and verify the mileage of the BMW Car. In the present case, if this simple step was taken, the defendant would have discovered immediately that the milometer of the BMW Car had been tampered with. I do not agree with the defendant that it was useless to make verbal enquiry with the BMW Company without getting any documentary support.

31.  Further, in my view, it is absurd for the defendant to suggest that it is up to the potential purchasers to find out more about the true mileage figure of the second hand cars which they might want to purchase.

32.  As the defendant has failed to take any step in verifying the mileage of the BMW Car, in the circumstances of the present case, I find that the defendant had no reasonable ground in believing that the representation on mileage was true. The misrepresentation on mileage was made by the defendant negligently.

Reliance

33.  Counsel for the plaintiff argued that Li must have relied on Leung’s representation on mileage when she decided to purchase the BMW Car.

34.  According to Li’s evidence (which I accept), she had specifically asked Leung for more than once about the mileage of the BMW Car. She was quite concerned about the mileage of her potential new car because she was minded to replace the plaintiff’s old car (“the plaintiff’s Old Car”) which had a mileage of around 78,000km. She was eager to find a second hand car with a travelling distance of less than that old car.

35.  As Mr. Lam for the defendant fairly accepted, “mileage” must have an important bearing on the price of the second hand car. Since the representation on mileage was a material representation calculated to induce Li (i.e. the plaintiff) to enter into the Agreement, it is an inference of law that the plaintiff was induced by the representation to enter into it (Redgrave v Hurd (1881) 20 Ch D 1 at 21, per Jessel MR).

36.  Given the fact that the defendant is in the business of selling second hand cars, it is natural that Li would have relied on any representation made by Leung on its behalf. This is particularly so here since Leung had told Li that the defendant company had obtained ISO 9000 quality management accreditation. It is also evident that when Li visited the defendant’s showroom for the second time on 8^th November 2009, she deliberately asked the defendant’s staff to look for Leung because she had confidence in him and wanted to be served by him.

37.  In order to take away the plaintiff’s right to be relieved from the Agreement on the ground that the representation was untrue, it must be shown either that Li had knowledge of the facts contrary to the representation, or that she showed clearly by her conduct that she did not rely on the representation (Redgrave v Hurd (supra), at 21). In this regard, the defendant argued that Li did not trust Leung at all because she was very careful when she checked the BMW Car and she insisted that the HKAA Report be obtained.

38.  First of all, the so-called “careful” checking was actually referring to Li’s “opening the doors and sitting on the driver’s seat, etc.” (quoted from her witness statement). These actions are plainly inadequate in supporting the defendant’s point. Secondly, the HKAA Report was obtained after the Agreement was entered into, and it is undisputed that the report does not touch on mileage of the BMW Car at all. The defendant’s argument must fail.

39.  The defendant also relied on clause 19 of the Agreement (see paragraph 24 above) and argued that Li (i.e. the plaintiff) should be taken as not having relied on the representation made by Leung on mileage because it had been provided therein that what Leung said was for reference only.

40.  Before I discuss the effect of the said clause 19, I should make it clear that I accept Li’s evidence that she was not aware of certain red words printed on the front page of the Agreement which reminded her about the terms printed on the reverse side of the Agreement (and hence she did not know there were terms printed on the reverse side of the Agreement). I am aware of the fact that the said red words were printed right next to the signature line of the Agreement. However, as Li explained, at the material time she was focusing on checking the various figures on the Agreement. Indeed, she found that there was a calculation mistake and as a result Leung had crossed out the incorrect total amount and replaced it with the correct one. It is inherently probable that Li simply did not read the other part of the Agreement carefully nor pay attention to the red words.

41.  In a slightly different context, Ribeiro PJ had also observed that:

“It is an everyday occurrence that people sign documents without reading the small (or even the large) print and therefore sign without actually knowing the terms (or all the terms) of the document signed.”

(see Ming Shiu Chung & Others v Ming Shiu Sum & Others [2006] 2 HKLRD 831 at paragraph 84)

42.  Having said that, there is no doubt that clause 19 should be regarded as part of the Agreement. Li has signed the Agreement and she only has herself to blame if she did not take time to go through the Agreement carefully. The terms and conditions of the Agreement are binding on her and she cannot complain now that she in fact had no knowledge of the existence of those terms (see Ming Shiu Chung & Others v Ming Shiu Sum & Others (supra) at paragraph 84).

43.  The defendant relied on the case of IFE Fund SA v Goldman Sachs International [2007] 1 Lloyd’s Rep 264 and argued that clause 19 is not an exclusion clause as such but is a statement as to the accuracy of the representation on mileage. It was said that clause 19 is an effective “no reliance” clause in that it shows that Li did not rely on Leung’s representation on mileage.

44.  I have no hesitation in rejecting this argument. In paragraphs 67 to 69 of IFE Fund SA (supra), Toulson J. held that:

“67. As to the claim under the Misrepresentation Act or for negligent misstatement, the question is whether the relevant paragraphs of the SIM are properly to be understood as excluding a liability for misrepresentation or as going to the question whether the alleged representation was made at all. If the latter, neither Act [the other Act being the Unfair Contract Term Act] has any relevance to them (See William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016, 1034, per Hoffmann LJ)

68. The question is one of substance and not form. If a seller of a car said to a buyer ‘I have serviced the car since it was new, it has had only one owner and the clock reading is accurate’, those statements would be representations, and they would still have that character even if the seller added the words ‘but those statements are not representations on which you can rely’. Cremdean Properties Ltd v Nash [1977] EGLR 80, which Mr. Nash cited, is authority for the principle that a party cannot by a carefully chosen form of wording circumvent the statutory controls on exclusion of liability for a representation which has on proper analysis been made.

69. If, however, the seller of the car said ‘The clock reading is 20,000 miles, but I have no knowledge whether the reading is true or false’, the position would be different, because the qualifying words could not fairly be regarded as an attempt to exclude liability for a false representation arising from the first half of the sentence.”

45.  The present case falls squarely into the first example quoted by Toulson J. Leung had told Li that the mileage of the BMW Car was 54,000km. Even if Leung had added that “but what I had told you is for your reference only”, it would not take away the character of what he said as a “representation”. The position would be different if, when asked about the mileage of the BMW Car, Leung told Li that “according to the milometer, it is 54,000km, but my company has (or I have) no idea as to whether this is accurate or not”.

46.  I should add that I accept Li’s evidence that Leung answered her enquiry on mileage without making reference to the milometer of the BMW Car. I reject Leung’s evidence that when he answered Li’s enquiry on mileage, he pointed at the dashboard and informed her that according to the milometer, the mileage of the BMW Car was 54,000km. This is because it is my finding that the enquiry was raised by Li at the defendant’s showroom instead of inside the car during the test-drive. But even if I accept Leung’s evidence on this matter, without more, as demonstrated by the second example quoted by Toulson J., what Leung said still amounts to a representation.

47.  In the circumstances, I have come to the view that Li must have relied on Leung’s representation on mileage.

Clause 19 as an exemption clause

48.  The defendant sought to rely on clause 19 in an attempt to exclude its liability in the event that I do not find clause 19 to be a “no-reliance” clause.

49.  The defendant, being the party who sought to rely on an exclusion clause, has the burden to satisfy this court that clause 19 is effective in excluding its liability.

50.  In my view, the defendant has failed to discharge the said burden.

51.  My attention has been drawn to the case of Carewins Development (China) Ltd v Bright Fortune Shipping Ltd [2009] 3 HKLRD 409 in which it was held by the Court of Final Appeal that:

(1) The effectiveness or otherwise of an exemption clause, especially involving a commercial contract where there is no inequality of bargaining power, is purely a matter of its construction. (paragraph 47 thereof)

(2) If the exemption clause is to exclude liability for negligence, it must be most clearly and unambiguously expressed, with the clause being construed against the person relying on the exemption. (paragraph 48 thereof)

(3) The exempting words should be construed in the context of the contract as a whole, taking into account its nature and object. (paragraph 50 thereof)

(4) It will often be the case that an exemption clause uses very broad words which, viewed simply as a matter of language, may be thought apt to exclude all conceivable liability. But the process of construction does not stop there. Wide words of exemption will often cover a whole range of possibilities, some of which will be consistent with maintaining the contractual obligations which reflect the main purpose of the parties’ agreement, and some of which would negate those obligations and effectively deprive the contract of any compulsory content. In such cases, the clause is construed contra proferentem to ascribe the narrower meaning to it in order to sustain the purpose and legal effect of the parties’ contract. (paragraph 51 thereof)

52.  I accept the plaintiff’s argument that clause 19 should not be effective in excluding the defendant’s liability.

53.  The alleged effect of the wordings of clause 19 is that it would cover all situations including the present case where the defendant negligently failed to find out that the milometer reading of the BMW Car was inaccurate. Such a purpose can only be achieved if much clearer wordings had been used in clause 19.

54.  The words “traveled distance” in clause 19 have more than one meaning. It may mean either:

(i) The “traveled distance” as shown in the milometer of the car; or

(ii) The “traveled distance” as represented by the defendant as seller.

55.  Adopting a restrictive approach in the interpretation of clause 19 (it being a clause drafted by the defendant for its benefit), it should not cover the situation where the defendant has made a representation to Li as to the mileage of the BMW Car. If Li’s knowledge on mileage was obtained by herself by reference to the milometer only, then clause 19 may be effective in excluding the defendant’s liability. However, if the defendant had made representation on mileage as in the present case, then clause 19 would be ineffective in limiting the defendant’s liability.

56.  Furthermore, I am of the view that it is both unreasonable and unfair if the defendant is permitted to exclude its liability even if:

(a) it was negligent when it made the representation on mileage; or

(b) the discrepancy of mileage is of a large extent (in the present case, the real mileage was at least 33,000km (i.e.61%) more than the mileage as represented).

Rescission of the Agreement – a pleading point

57.  Although it was pleaded in the main body of the Statement of Claim that the plaintiff is entitled to and did rescind the Agreement, “rescission” was not included in the prayer of the Statement of Claim. Neither was it included in the agreed list of issues signed by the solicitors acting for the respective parties.

58.  However, in her written Opening Submissions, the plaintiff’s counsel made clear that the plaintiff was seeking rescission of the Agreement. Mr. Lam, who acted for the defendant, not only did not object to the plaintiff’s stance, he also on his own initiative requested this court (before any evidence was called) to add the question “Whether the plaintiff is entitled to rescind the Agreement” to the list of issues. At one stage, it was the plaintiff’s counsel who opposed to such an addition, arguing that the defendant’s Amended Defence did not deal with the plaintiff’s right to rescind. However, having been reminded by Mr. Lam that the defendant did deny the plaintiff’s entitlement to “rescission” in the Amended Defence (by relying solely on clause 19 of the Agreement), counsel for the plaintiff accepted that “rescission” might be added as an issue which the court should consider. As a result, the defendant’s request was acceded to.

59.  In the defendant’s written Closing Submissions, Mr. Lam stated that:

“As the Plaintiff’s evidence comes up, it is a live issue whether the Plaintiff is entitled to rescind the S&P Agreement as prayed for.” (Mr. Lam’s emphasis)

60.  Mr. Lam referred to “rescission” as a relief “as prayed for”. Therefore it is apparent that he had assumed that “rescission” was included in the prayer of the Statement of Claim.

61.  His written submissions went on to argue that the plaintiff was not entitled to rescind the Agreement on substantive grounds including: (1) the plaintiff had affirmed the Agreement despite its discovery of the misrepresentation; (2) partial rescission is not permissible; and (3) restitutio in integrum is impossible.

62.  It is thus clear that the parties all along treated “rescission” as a live issue in the present case. If it was the defendant’s stance that “rescission” should not be ordered because it was not claimed at all, naturally it would have been mentioned in the defendant’s written Closing Submissions, but that is not the case here.

63.  In the course of the oral closing submissions, I drew counsel’s attention to the fact that “rescission” was actually omitted from the prayer of the Statement of Claim. I asked the defendant’s counsel to make his top-up submissions without regard to this technical pleading point for the time being. I subsequently invited the parties to make further written submissions as to whether this court should of its own motion amend the Statement of Claim by adding “rescission of the Agreement” in the prayer pursuant to Order 20 rule 8 of the Rules of the District Court.

64.  Having read the parties’ respective further written submissions, I am satisfied that I should make an order that the Statement of Claim be amended, of my own motion pursuant to Order 20 rule 8 of the Rules of the District Court, such that “rescission” be added as a relief claimed under the prayer thereof. I am of the opinion that this order is necessary for disposing fairly of this action and justice requires that this order be made.

65.  I note that in the defendant’s further written submissions, it was suggested that since the plaintiff did not plead “rescission” in the prayer, the defendant did not adduce evidence on its change of position in support of its argument of “impossibility of partial rescission”. With respect, bearing in mind the matters referred to above, I am of the view that this is an opportunist argument which must be rejected. I do not accept the defendant’s argument that all along it was conducting its case on the premise that “rescission” was not claimed. To the contrary, it is crystal clear from the way that the defendant’s case was conducted that “rescission” was always regarded as a live issue in the present case. The parties always assumed that “rescission” was included in the prayer, but only to discover at a very late stage that in fact it was not. Hence, I have no hesitation in rejecting the defendant’s submissions that it would be prejudiced by this amendment as alleged.

Rescission of the Agreement

66.  It was contended by the plaintiff that by reason of the misrepresentation on mileage, it is entitled to rescind the Agreement.

67.  The defendant, on the other hand, argued that no rescission of the Agreement should be ordered.

68.  Firstly, the defendant stated that there were in fact two deals included in the Agreement, one related to the BMW Car, and the other one related to the plaintiff’s Old Car which was traded-in with the defendant. It was argued that since the plaintiff is urging this court to order rescission in respect of the BMW Car only, in effect the plaintiff is asking for partial rescission which is not permissible.

69.  The defendant’s argument is misconceived because the plaintiff, in its Statement of Claim, has indeed pleaded that it was entitled to and did rescind the Agreement, without limiting itself to the BMW Car. The plaintiff also mentioned in its letter dated 12^th December 2009 to the defendant that it exercised its legal rights to rescind the “said S&P Agreement” (defined in the letter as the Vehicle Sale and Purchase Agreement No.A3069). There is no question of partial rescission here.

70.  Secondly, the defendant argued that the plaintiff had affirmed the Agreement in that the plaintiff had:

(1) replaced tyres, sealing cover of engine, gas pressure props for engine hood, battery and some other parts of the BMW Car that had nothing to do with the oil leakage problems;

(2) used the BMW Car;

(3) continued to subscribe for insurance coverage for the BMW Car for the period between 16^th November 2010 and 15^th November 2011; and

(4) continued to pay for the monthly instalments under the hire purchase agreement with Wing Hang Bank.

71.  As aforesaid, as far as the plaintiff’s right to rescind is concerned, it was denied in the Amended Defence only on the basis of the operation of clause 19 of the Agreement. The assertion of “affirmation of the Agreement” and the facts relied on by the defendant as set out in the preceding paragraph were not pleaded in the Amended Defence at all. Therefore, technically the defendant is not permitted to rely on “affirmation” in resisting the plaintiff’s claim for rescission. However, for the sake of completeness, I will deal with the defendant’s argument as follows.

72.  Li instructed Wu on 1^st December 2009 to have the tyres replaced upon the latter’s suggestion. By then, Wu did not tell her about the oil leakage problems and the mileage discrepancy was not discovered yet. It follows that the replacement of tyres cannot be relied on by the defendant to argue that there was affirmation on the part of the plaintiff.

73.  In relation to the other items of component replacement and repair work, I accept Li’s evidence that only minimal repair and maintenance work was done for the purpose of keeping the BMW Car in a workable condition such that she would be able to drive (and deliver) the BMW Car back to the defendant when the defendant agreed to take it back. It should be noted that the total repair and component cost of the 3 invoices relied on by the defendant was less than $6,000. In my view, this is not an unequivocal act from which it may be inferred that Li intended to go on with the Agreement regardless of her discovery of the misrepresentation on mileage.

74.  As a matter of fact, it is evident that despite BMW Company’s recommendation on around 11^th December 2009 that the BMW Car should be repaired at the cost of around $77,300 (as shown in a quotation of even date), Li did not instruct BMW Company to proceed with the repair.

75.  I was invited by the defendant to find that Li must be using the BMW Car at the material time on the basis that otherwise she would not have caused the repair work be done. I am not prepared to make such a finding as I accept Li’s evidence as to the reason why she has caused the BMW Car to be repaired. Further, if Li was minded to use the BMW Car, she would have caused the oil leakage problems be solved, but she did not do that.

76.  As far as the payments of hire purchase instalments are concerned, I reject Mr. Lam’s argument that the plaintiff should have defaulted payment and allowed Wing Hang Bank to forfeit the BMW Car. Li all along was asking the defendant to take back the BMW Car and it is reasonable for her to keep it in her possession instead of allowing it to be forfeited by the bank. Hence, I do not accept that the payment of such instalments would amount to affirmation of the Agreement on the part of the plaintiff. Such payment is clearly not inconsistent with her intention to rescind the Agreement. This applies to the payment of insurance premium as well because the plaintiff was required to keep the insurance policy alive as a condition under the hire purchase agreement.

77.  Thirdly, the defendant argued that no restitutio in integrum was possible because the plaintiff had caused substantial modification work be done to the BMW Car. Again, neither this assertion nor the material facts in support thereof was pleaded in the Amended Defence.

78.  As I have mentioned above, only minimal repair and maintenance work had been done to the BMW Car. Such work, if anything, had only improved the condition of the BMW Car. In the circumstances, I do not accept the argument that the plaintiff was unable to make restitutio in integrum. In any event, this principle does not require a person be put back into exactly the same position as before. The law only requires that the person is put into as good a position as before. If the property has retained its substantial identity, restitution may be ordered even though it has deteriorated or depreciated or cannot be restored in its original state (see Chitty on Contracts, vol.1, 30^th edition (2008), at paragraphs 6-116 to 6-117 and Benjamin’s Sale of Goods, 8^th edition (2010), at paragraph 12-007).

79.  For the plaintiff’s Old Car, Mr. Lam accepted that the defendant has the burden to prove that the defendant’s position has been changed in relation thereto such that restitution is no longer possible if that is the case. He also conceded that the defendant has not put forward any evidence in this respect.

80.  By reasons of the aforesaid, it is my judgment that the plaintiff is entitled to rescind the Agreement.

REPRESENTATION ON CONDITION

81.  In the light of my judgment above, I will only deal with this aspect of the case briefly.

82.  Despite Leung’s evidence to the contrary, it is my finding that he had made the representation that the BMW Car was of good working condition before the plaintiff entered into the Agreement. I accept Li’s evidence that she had visited the defendant’s showroom on two different days and on both occasions she was served by Leung. I also accept that in the course of persuading Li to purchase the BMW Car, Leung had made reference to a leaflet of the defendant company in which it was mentioned that all second hand cars sold by the defendant had passed stringent tests so as to make sure that they were of high quality. Leung had also mentioned about the defendant company’s maintenance department (see paragraph 11 (b) and (c) above). It is thus inherently improbable that Leung, as a salesman, did not make such a representation.

83.  The plaintiff’s case is that the BMW Car was not of good working condition because it had serious oil leakage problems.

84.  As to this complaint, the defendant submitted that while there is no dispute that the BMW Car was found to have oil leakage problems in January 2010 (when it was inspected by an adjuster engaged by the plaintiff), it is unknown as to when the oil leakage problems began to occur.

85.  I am unable to accept this argument because it is evident that Wu found that there were oil leakage problems on around 1^st December 2009 when he carried out a routine inspection of the BMW Car. It was such discovery that led to Wu’s enquiry on mileage with the BMW Company.

86.  However, although there were oil leakage problems, I am not satisfied that the plaintiff has proved on the balance of probabilities that the BMW Car was not of good working condition as alleged.

87.  Li told this court that she had received a complaint of the management office of her car park in January 2010 about oil leakage and as a result, she engaged an independent adjuster to assess the situation. From the photographs taken by the adjuster, it can be seen that there was only a small amount of oil found on the ground of the car parking space on 21^st January 2010 (the adjuster stated that it was lubricant oil). The oil was then cleaned up, but on 10^th February 2010, oil stain was found at the same place again.

88.  Unfortunately, no expert evidence has been adduced by the plaintiff as to the condition of the BMW Car, without which there is no evidence to show the impact of such oil leakage on the normal operation of the BMW Car. It may be that the BMW Car could still operate normally despite such a defect. As a matter of fact, according to the evidence of Li, after the delivery of the BMW Car to her on 28^th November 2009, she had driven it for several times. She even drove it on 30^th October 2010 (nearly after a whole year) to the BMW Company for repair. However, she had not given any evidence that she found anything wrong with its operation.

89.  To say that a car is of “good working condition” is different from asserting that it is of “perfect condition”. I do not think that a second hand car can be said to be falling below the standard of “good working condition” by the mere fact that it has some minor defects, especially if those defects may be remedied at low costs. I am not saying that the BMW Car was only having minor defects, but the state of the evidence in the present case is that I cannot say one way or another.

90.  I have borne in mind Li’s evidence that she had been advised by Wu that it is “not safe” to drive the BMW Car and that she had been told by a Senior Service Advisor of the BMW Company that it is dangerous to drive the BMW Car which might break down at any time. Unfortunately, neither Wu nor the Senior Service Advisor had been called to give expert evidence for the plaintiff. I do not know on what basis they gave such advice to Li. In the case of the Senior Service Advisor, I do not even know whether he personally had knowledge of the matter or whether he was only repeating what he had been told by another person who personally inspected the BMW Car. In the circumstances, I do not think that I should rely on hearsay evidence given by Li in this aspect of the case.

91.  I have also considered a quotation issued by the BMW Company in which the cost of repair of the BMW Car was estimated to be in the sum of $77,300. This quotation was said to be relating to the “steering system, gearbox system and front active stabilizer bar oil leaking” of the BMW Car. It is not apparent as to whether that means the entire sum of $77,300 was for the purpose of the repair work of various parts of the car which had oil leakage problems or whether it was also concerned with problems other than oil leakage. In Ms Lam’s written final submissions, she highlighted the item “Renew front active stabilizer bar” which would cost $672 to repair. If indeed this is the only item which related to the oil leakage problems (this certainly is one of the ways to interpret the quotation), I doubt whether such problems might render the BMW Car not of good working condition.

92.  Since there is no adequate evidence on this point, I must find that the plaintiff has failed to prove that the BMW Car was not of good working condition.

THE PLAINTIFF’S CONTRACTUAL CLAIM

93.  In its Statement of Claim, the plaintiff further pleaded that:

“8. It is an implied term of the Agreement that:

(a) the Defendant owed the Plaintiff a duty of disclosure of all relevant information in connection with the mileage and working condition (“Implied Term on Disclosure”); and

(b) the defendant should supply the Vehicle with merchantable quality (“Implied Term on Supply of Vehicle”).

9. In breach of the Agreement, but unbeknown to the Plaintiff at the time, the mileage of the Vehicle as at October 2007 is about 87,000 km and there is serious oil leakage from the Vehicle and the Vehicle is required to be repaired.”

94.  Assuming for the time being that there is any Implied Term on Disclosure, I find that the defendant has not breached such a term because there cannot be any obligation to disclose on the part of the defendant unless it had such information in hand at the material time. However, the plaintiff has failed to prove such to be the case.

95.  Further, as far as the oil leakage problems are concerned, the plaintiff has failed to prove that the BMW Car was not of merchantable quality.

96.  In respect of the mileage of the BMW Car, even though the true mileage is much more than that presented by the defendant, it does not mean that the BMW Car was not of merchantable quality.

97.  The plaintiff’s contractual claim therefore fails.

EXPENSES INCURRED BY THE PLAINTIFF

98.  By reason of the negligent misrepresentation on mileage, apart from rescission, the plaintiff is also entitled to be indemnified by the defendant against obligations necessarily created by the Agreement, i.e. against liabilities to third parties which the Agreement required the plaintiff to incur or payments to third parties which it required the plaintiff to make (see Chitty on Contracts,vol.1, 30^th edition (2008), at paragraph 6-121). The purpose of such indemnification is to put the plaintiff back to the position it would have been in had it not entered into the Agreement.

99.  The plaintiff has claimed a number of different items of expenses which allegedly have been incurred as a result of entering into the Agreement. I will deal with them in turn below.

Refund of the purchase price of the BMW Car and licence fee

100.  Following rescission of the Agreement, the plaintiff is entitled to such refund. The defendant has made no submission otherwise.

Motor insurance premium

101.  The plaintiff has paid insurance premium for the years commencing from 16^th November 2009 and 16^th November 2010 respectively. The defendant submitted that since the BMW Car was purchased to replace the plaintiff’s Old Car, the plaintiff would have to pay for motor insurance premium in any event.

102.  This argument is rejected. If the plaintiff did not purchase the BMW Car, it would not have paid the insurance premium for this car. There is no reason why the plaintiff should not recover such premium paid. As aforesaid, the defendant must indemnify the plaintiff against obligations necessarily created by the Agreement.

Inspection fees paid to HKAA and BMW Company

103.  The plaintiff should be entitled to recover these wasted costs and the defendant has not argued otherwise.

Repair costs paid for the replacement of new tyres and engine oil

104.  The plaintiff claims for $7,300 under this head which relates to the work done by Wu in early December 2009. By the time when the repair and maintenance work was instructed to be done, the full facts in relation to the mileage discrepancy were not known by Li. The defendant therefore cannot complain that the plaintiff has incurred these expenses.

105.  Furthermore, the court has wide powers as to the terms on which it would order rescission. Where a representee has improved the property, this may entitle him to a claim of damages (Benjamin’s Sales of Goods, 8^th edition (2010), at paragraph 12-007).

106.  The defendant submitted that the repair costs are unrelated to “mileage or serious oil leakage”. This argument is totally misconceived as the plaintiff is not claiming breach of contract as such.

107.  I would therefore allow the plaintiff’s claim under this head.

Caltex fuel

108.  The plaintiff claims for $972.93 being the expenses for the fuel which Li caused to be refilled on 28^th November 2009.

109.  Li has used the BMW Car since then for her own purpose (before she was informed about the mileage discrepancy on 1^st December 2009), including giving her daughter a ride on 28^th November 2009 and driving to Chai Wan on 1^st December 2009.

110.  Hence, an unknown portion of the fuel has been used for Li’s own purpose.

111.  In the premises, I find that the plaintiff has not satisfied its burden to prove its loss under this head.

Repair costs incurred on around 30^th October 2010 and 6^th January 2011

112.  The only ground on which this claim is resisted is that these costs do not relate to “mileage or serious oil leakage”. As explained in paragraph 106 above, I reject this argument.

113.  Adopting the reasoning as set out in paragraph 105 above, I will allow the repair costs incurred on these two days in full.

Replacement of battery

114.  The plaintiff has caused the battery of the BMW Car be replaced due to malfunction of the original battery and claims $1,500 herein as expenses incurred therefor.

115.  The plaintiff has improved the BMW Car and it is entitled to the cost of such improvement (see paragraph 105 above).

116.  The defendant has not argued against the allowance of this item.

117.  I will therefore allow this claim.

Towing fee

118.  The plaintiff incurred $550 towing fee on 5^th January 2011 when she sent the BMW Car to the BMW Company for inspection upon the latter’s advice. Towing service was engaged because the licence of the BMW Car had expired by then.

119.  The plaintiff is entitled to recover this amount from the defendant who has not argued otherwise.

Monthly car park rental expenses

120.  From 28^th November 2009 to 31^st August 2011, the plaintiff has incurred a total sum of $67,230 as monthly car parking fees for the purpose of the BMW Car.

121.  The monthly rental for the car park which the plaintiff is currently paying is $2,500.

122.  I reject the defendant’s argument that the plaintiff has to incur such expenses anyway and that as a result the defendant should not be liable for such expenses. The undisputed fact is that these expenses have been incurred for the purpose of the BMW Car exclusively. There is no “windfall gain” as suggested by the defendant.

123.  In the premises, the plaintiff should be entitled to the sum of $67,230 plus the monthly car parking fee of $2,500 until the BMW Car is returned to the defendant.

Towing fee of $600

124.  Li explained that she has moved home recently and as a result she has moved the BMW Car from one car park to another. This move may also take advantage of the lower monthly rental of the new car park.

125.  However, because the licence of the BMW Car has already expired, it has to be moved to the new car park by towing service.

126.  This item of expenses is reasonable and should be allowed. The defendant has not argued otherwise.

Hire purchase interest and early termination charges

127.  The only ground upon which the defendant resists this claim is made on the basis that no rescission is ordered. However, given my judgment herein, I cannot see why these items should not be allowed. If the plaintiff has not purchased the BMW Car from the defendant, it would not have been obliged to pay for these items.

CONCLUSION

128.  I order that there be rescission of the Agreement. The defendant should also be ordered to reimburse the plaintiff for expenses as explained above. The parties should work out the precise terms of the orders to be made for this court’s approval within 14 days of the Judgment.

129.  Costs should follow the event. I make a cost order nisi that the defendant do pay the plaintiff’s costs (including all reserved costs but excluding the costs of the further written submissions in respect of which I make no order) to be taxed if not agreed, with certificate for counsel. This cost order shall become absolute absent any application to vary within 14 days.