ADVANCE PACIFIC INVESTMENTS LTD v. ZEN CHUNG HEI HAYLEY AND OTHERS

DCCJ 5975/2005

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5975 of 2005

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Judgment

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Introduction

1.  Mr. Sean Clifford ("Clifford") is an investor in property in Hong Kong. He invests in property through limited companies. He purchases property in around the 'Soho' area on Hong Kong Island, refurbishes them and lets them out. His target market is young expatriate men. The Plaintiff is one of the corporate vehicles through which he purchases properties.

2.  The 2^nd Defendant is an estate agency of which the 3^rd Defendant is an agent. Clifford employed the services of the 2^nd Defendant usually acting through the 3^rd Defendant to source properties for his investment purposes.

3.  The 1^st Defendant is and was the owner of a flat in Soho known as Flat B on the 37^th Floor and Roof B, Dawning Height, No. 80 Staunton Street. ("the Property").

4.  On 23 September 2009, the Plaintiff entered into a Provisional Sale and Purchase Agreement to purchase the Property from the 1^st Defendant. The Provisional Sale and Purchase Agreement was followed by a Formal Sale and Purchase Agreement dated 30 September 2005.

5.  Subsequently, Clifford discovered that Roof B comprised only 87 square feet, which was not of a size sufficient for his purposes. He declined to complete the transaction. The 1^st Defendant forfeited the deposit.

6.  By this action, Clifford seeks to recover the deposit, damages and costs against the 1^st Defendant based on misrepresentation and as against the 2^nd and 3^rd Defendants based on breach of contract or breach of duties under the Estate Agents Ordinance.

7.  Judgment was reserved after a trial lasting 6 days. This is my judgment.

The Pleaded Case

The Plaintiff

8.  The Plaintiff's case against the 1^st Defendant is based on misrepresentation. Paragraph 10 of the Amended Statement of Claim pleads that the 1^st Defendant made "the following representations", going on to set out a number of matters in sub-paragraphs (a) to (f).

9.  Although the pleading alleges representations in the plural, there is in essence only one representation alleged, namely that the Property included a roof of the same or substantially the same size as Flat B.

10.  The rest of paragraphs 10 (a) to (f) are in reality particulars of the representation or from which the representation is to be inferred. These are

(1)  an affirmative reply when asked if the roof was included;

(2) failure to say or do anything to indicate that the roof forming part of the Property was not of the same or substantially the same area as Flat B;

(3) an affirmative reply when further asked to confirm if the roof was part of the Property and was included in the sale; and

(4) the inclusion of the words "Roof B is the private roof belong to this premises" (sic).

11.  The Statement of Claim goes on to say that the representation was untrue as the "roof above Flat B comprised of an area of approximately 2 metres x 4 metres, approximately 15% of the gross size of Flat B". The parties proceeded on the basis that what was meant was that the roof sold as part of the property (which for convenience sake I will refer to as Roof B) was only about 15% of the gross area of Flat B.

12.   The Plaintiff's claim against the 2^nd and 3^rd Defendants is that they were in breach of their duties in tort, contract or pursuant to the Estate Agents Ordinance, in that the 2^nd and 3^rd Defendants failed to undertake adequate due diligence to ascertain the true size of the roof and in particular failed to advise the Plaintiff that Roof B was only about 15% of the size of Flat B.

13.  The Plaintiff claims against the 1^st Defendant for a declaration that it had validly rescinded the sale and purchase agreement, alternatively, rescission; damages, return of the deposit, conveyancing costs, and a declaration that the Plaintiff has a lien on the Property for the deposit and damages.

The 1^st Defendant

14.  The 1^st Defendant says that the Plaintiff had inspected the Property beforehand with representatives of the 2^nd Defendant. More importantly, the 1^st Defendant says that the Plaintiff did not rely on any representations made, since before the Plaintiff had even inspected the Property, or before there had been any questions about Roof B, the Plaintiff had already offered to purchase the Property, such offer being made by a signed provisional sale and purchase agreement accompanied by a cheque in the sum of $86,400 as initial deposit.

15.  The 1^st Defendant also specifically denied any any representations made to the Plaintiff or its representatives, and denies specifically that the 1^st Defendant or his agent Mr. Zion Kung ("Kung") or his estate agent Ms. Kitty Fong ("Fong") indicated that Roof B was of the same size or substantially the same size as Flat B.

16.  Further, the 1^st Defendant says that the floor plans of Roof B and Flat B could be obtained at the Land Registry which plans would show the length and width of Roof B. The 1^st Defendant says that the 2^nd Defendant would have obtained the plans or correct information about Roof B. In any event, it was the duty of the 2^nd and 3^rd Defendants to ascertain the correct area of Roof B by obtaining the floor plan.

17.  The 1^st Defendant also relies on what is commonly known as an "Entire Agreement" clause, appearing in the Provisional and also the Formal Sale and Purchase Agreement, as well as a particular clause in the Formal Sale and Purchase Agreement that no warranty or representation had been given in respect of inter alia the area of the Property, and that if such representation had been given, it had been withdrawn.

18.  The 1^st Defendant also counterclaims against the Plaintiff, saying that the Plaintiff had wrongfully registered the Writ of Summons in this case as a lis pendens and that this had caused loss of any potential sale at optimum market value, together with loss of estate agency commission, stamp duty etc. The 1^st Defendant counterclaims for damages and declarations that the Sale and Purchase Agreement had been rescinded and orders for vacation of registration of the lis pendens.

19.  As against the 2^nd and 3^rd Defendants, the 1^st Defendant claims for contribution by a Contribution Notice dated 20 November 2008, the 4^th day of trial. However, it was filed late by consent of the 2^nd and 3^rd Defendants who similarly filed a contribution notice against the 1^st Defendant well into trial. The 1^st Defendant claims for an indemnity in respect of the 1^st Defendant’s liability to the Plaintiff, contribution, damages, interest and costs.

The 2^nd and 3^rd Defendants

20.  The 2^nd and 3^rd Defendants say that the Plaintiff was an experienced and active speculator in real property, and that Clifford visited the 2^nd Defendant's office from time to time to check out the prevailing property market information.

21.  As to Roof B, the 2^nd and 3^rd Defendants say that the Plaintiff had not at the material times asked about the size of Roof B. The 2^nd and 3^rd Defendants say that they reasonably and naturally assumed that the size of Roof B was the same or substantially the same as Flat B. On the other hand, they denied that the 3^rd Defendant had expressly or impliedly represented to the Plaintiff that Roof B was the same or substantially the same size as Roof B. They further say that the Plaintiff did not consider the size of Roof B was an issue.

22.  Further, the 2^nd and 3^rd Defendants say that they are not liable for the Plaintiff's claim because of a settlement agreement reached with the Plaintiff whereby the Plaintiff agreed not to pursue the 2^nd and 3^rd Defendants for damages or other relief arising from the purchase of the Property and in return the 2^nd Defendant waived $123,700 worth of outstanding agency fees due from the Plaintiff.

23.  The 2^nd and 3^rd Defendants counterclaim against the Plaintiff the payment of the outstanding agency fees in the event that the settlement agreement is found to have no effect.

24.  The 2^nd and 3^rd Defendants also claim contribution against the 1^st Defendant on account of misrepresentations made by the 1^st Defendant relying on the allegations made in the Statement of Claim and on failure of the 1^st Defendant or its agent to provide relevant information under s. 36 of the Estate's Agents Ordinance.

The Issues

25.  The issues can be grouped under the following heads : Misrepresentation, Entire Agreement Clauses, Duties of the 2^nd and 3^rd Defendants to the Plaintiff, Settlement Agreement; Contribution between the Defendants and the proper relief and orders to be made.

26.  Under the first heading of Misrepresentation, I will have to decide what representations were made, and whether any such representations made were untrue. The 2 issues are intimately connected, since the question of what exactly had been represented would be decisive as to whether the representation was untrue. There is also a question of the authority of Fong to make any such representation.  I would also have to decide whether the Plaintiff relied on those representations.

27.  Under the heading of Entire Agreement Clause, I will have to decide firstly which contract term is applicable, the construction of the relevant contractual term, and the effect thereof.

28.  Under the heading of duties of the 2^nd and 3^rd Defendants to the Plaintiff, I will have to consider what duties were owed by the 2^nd and 3^rd Defendants to the Plaintiff whether under contract, tort or pursuant to the Estate Agents Ordinance, and whether they were breached.

29.  Under the heading of Settlement Agreement, I will have to decide whether a binding Settlement Agreement had been reached between the 2^nd and 3^rd Defendants of the one part and the Plaintiff on the other part.

30.  Under the heading of Contribution between Defendants, on the basis that the Plaintiff has made out his claim , I will have to consider whether any contribution should be made between defendants, and the extent of such contribution, if any.

31.  Finally, I will have to deal with the proper relief in this case.

The Witnesses

32.  I will here set out a brief outline of the evidence of each witness, and my general impressions from their testimony. More detailed discussion of their evidence will be given later in relation to specific issues of the case.

Sean Clifford

33.  Sean Clifford is an experienced businessman, who had lived in Hong Kong for 15 years before he started to invest in property in Hong Kong. He identified a niche market, namely rental properties for male expatriates. He started buying properties in December 2004.

34.  The Plaintiff was incorporated and served as the corporate vehicle for Clifford’s investments. By September 2005, he had through the Plaintiff purchased some 10 properties.

35.  Clifford explained that his main interest was in buying properties with a roof which he would decorate in such a way that the properties appealed to his target market. The addition of a roof with the outdoor space tastefully decorated and access through an internal staircase made the properties distinctive, therefore substantially more attractive and able to command significantly higher rental than other similar properties.

36.  In September 2005, he was relatively inexperienced in terms of purchase of property. He relied on estate agents to identify and help him with negotiations for potential purchases. One of the estate agents he used was the 2^nd Defendant, and the 3^rd Defendant was the individual agent of the 2^nd Defendant that he mostly dealt with. 

37.  In about August 2005, the 3^rd Defendant identified the Property as a suitable investment for Clifford. Clifford had on certain occasions viewed other units in the building, and had even at least once gone up to the roof of the building. On September 2005, he had signed a provisional sale and purchase agreement together with a cheque for a deposit, which constituted an offer to purchase the Property at $2.88M.

38.  He viewed the Property on 17 September 2005. He was accompanied by Tony Keung, brother of the 3^rd Defendant because the 3^rd Defendant was out of Hong Kong on that day. Tony Keung asked Fong if the roof was included, Fong answered in the affirmative and  invited them to inspect the roof. Fong then made a telephone call and did not accompany them up the roof. On the roof, he discussed with Tony Keung various possible layouts for the roof. 

39.  Subsequently, Clifford increased his offer to $2.95M which was acceptable to the 1^st Defendant (or Kung). A Provisional Sale and Purchase Agreement was prepared, and brought over to the airport express station for Clifford to sign as he was going away on a trip. Prior to signing the Provisional Sale and Purchase Agreement, Clifford telephoned another agent to get a second opinion. That agent expressed some concern about the roof, not as to the size, but whether it was included as part of the Property.  Clifford therefore asked the 3^rd Defendant to check this with the 3^rd Defendant who confirmed that it was. Clifford further asked if there were any restrictions in the Deed of Mutual Covenant (“DMC”) as to the use of the roof, and the answer was also in the negative. Clifford was so concerned as to the roof and its inclusion in the Property he was purchasing that he sought an additional clause 18(2) to be inserted to the standard form provisional agreement to the effect that “Roof B is the private roof belong to this premise”(sic).

40.  Clifford later discovered that the size of Roof B was much smaller than he believed, only 87 square feet. He did not want to proceed with the sale, and did not complete the agreement. On the day before the scheduled completion, he had a meeting with the 3^rd Defendant and Fong. At the meeting, Fong said a number of times that she had told the 3^rd Defendant about the size of the roof. This was not immediately refuted by the 3^rd Defendant.

41.  The 3^rd Defendant tried to buy the Property and negotiations were entered into. Eventually nothing came of it. The Plaintiff commenced proceedings initially against the 1^st Defendant, but subsequently also against the 2^nd and 3^rd Defendants.

42.  Clifford struck me as a straightforward and honest witness. He gave credit to the 3rd Defendant for his expertise and professionalism in previous transactions. He was quick to admit that Fong’s account of what happened at the inspection of the Property was accurate.

43.  I find that Clifford was doing his best to tell the truth about what happened, although sometimes that may have been expressed through the filter of someone who feels that he has been deceived into buying something other than what he thought he was paying for.

Zen Chung Hei Hayley (“the 1^st Defendant”)

44.  The 1^st Defendant is the Chief Financial Officer of a property development company in the PRC. He purchased the Property in 1999 when it was still being built. The building was completed in March 2001 after which he moved into the Property.

45.  He stayed there with Mr. Zion Kung (“Kung”) until around March 2002 after which he let the property out for 2 years. Upon expiry of that lease, he did not let it out further and decided to sell the Property.

46.  He was often away on business and left the matter of sale to Kung, appointing Kung to be his attorney.

47.  He had been on the roof a few times to watch the fireworks. Apart from doing so, he had not made use of the roof. He was aware of the size of the roof since he was shown a brochure with the size of the flats.

48.  I find the 1^st Defendant to be an honest witness. However, his evidence did not take the matter very far, as he was not personally involved in the negotiations.

Zion Kung

49.  Kung was a proprietor of a restaurant in Hong Kong and appointed by the 1^st Defendant as his attorney to deal with matters concerning sale of the Property as the 1^st Defendant was often not in Hong Kong.

50.  He had instructed Fong as the 1^st Defendant’s estate agent to deal with the matter. He himself had taken no part in the negotiations.

51.  Like the 1^st Defendant, I also find Kung to be an honest witness, but whose evidence again does not provide much assistance in deciding the matters in issue.

Kitty Fong

52.  Fong was also a witness who struck me as an honest person, and who was caught up in events without really knowing why.

53.  She first received instructions to put the Property up for sale in around June or July. A base price of around $2.95M was agreed with Kung.

54.  In September, the 3^rd Defendant contacted her about the Property and made an offer on behalf of his client at a price of $2.88M. This offer was not accepted. Instead, Fong suggested that the prospective purchaser should first view the Property. The offer was repeated a few days later with a signed provisional sale and purchase agreement and cheque for $86,400. This offer was passed to Kung, whose answer was still in the negative.

55.  On 17 September 2005, a property inspection was carried out. This took place around 3:00pm. Tony Keung and Clifford arrived to view the property. Clifford gave a quick glance around and asked for a lower price. Fong told Clifford that the 1^st Defendant would not go lower than $3M. Shortly thereafter, Fong’s mobile telephone rang. Tony Keung indicated by gestures and expressions that they would like to inspect the roof and that they knew the way. Fong invited them to go.

56.  After a few telephone calls during the course of which Tony Keung and Clifford did not return to the Property, Fong telephoned Tony Keung who said that they had already left. Fong had the feeling that Clifford was not interested in the Property – a feeling which Clifford on his own evidence wanted to encourage.

57.  Fong was surprised when the 3^rd Defendant renewed the offer on 20 September 2005. Further negotiations ensued with the parties coming to an agreement of the price of $2.95M at about 11:10am on 23 September 2005, at which time the 3^rd Defendant asked Fong to meet himself and Clifford at the Airport Express Station, Hong Kong at 12 noon for execution of the Provisional Sale and Purchase Agreement.

58.  Clifford signed on the Provisional Sale and Purchase Agreement at the Airport Express Station. He had also asked words to the effect of “the apartment has a roof”, to which Fong replied in the affirmative, pointing out to him the description of the Property on the Land Search record which she had brought along.

59.  Fong said that as experienced estate agents, she would have expected the 2^nd and 3^rd Defendants to be familiar with the building in question, as the showroom of the building when flats of the development were first offered for sale  was on the same road as the 2^nd Defendant’s offices.

60.  Subsequently, in October 2005, the 3^rd Defendant contacted Fong saying that the Plaintiff did not want to go ahead with the purchase. Kung refused to cancel the agreement. On 22 November 2005, Fong attended the 2^nd Defendant’s offices on the 3^rd Defendant’s invitation. Clifford was there. In Fong’s witness statement, she did not say that she had previously informed the 3^rd Defendant the size of the roof. However, in Court, she said that she had done so.

61.  The 3^rd Defendant denied that she had ever told him about the size of Roof B. On this issue, I find that Fong had not previously informed the 3^rd Defendant about the size of Roof B. If she had, given the issues in this case, it is highly unlikely that she would not have included that in her witness statement. It is also highly unlikely that the 3^rd Defendant would not have passed this information to Clifford.

62.  However, apart from the above, I consider Fong to be basically an honest witness, although it would appear at times that with the benefit of hindsight, she was concerned to paint herself in a slightly better light than all the circumstances might allow. Nevertheless, there is not much of her evidence which is contradicted by the other witnesses in this case, and where there is, I have carefully considered the content of her testimony as well as her demeanour.

Albert Keung (the 3^rd Defendant)

63.  The 3^rd Defendant had been a real estate agent for 3½ years. He was trained as an accountant and had worked as an auditor for 3 years, including time spent working in Australia. His brother was a lawyer, one of the partners of the firm of solicitors acting for the 2^nd Defendant and himself.

64.  He denied that he had been told the size of the roof by Fong. He denied that Clifford had emphasized his interest in properties with a roof.

65.  The bulk of the 3^rd Defendant’s testimony was taken up by evidence concerning the settlement agreement between himself and the Plaintiff.

66.  Even though on the pleadings, liability was denied in general, he admitted in cross-examination that he should have asked about the size of the roof, that he should have checked the roof plan, which he didn’t. He agreed that his only defence was the settlement agreement.

67.  I do not find the 3^rd Defendant’s evidence to be reliable. Although I do not consider that he was telling bald-faced lies, I do think that he was putting his own subjective interpretation on the events relating to the alleged settlement agreement.

Tony Keung

68.  Tony Keung’s involvement in this case relates to his taking Clifford to view the Property on 17 September 2005. His recollection of the exact events on that day was not clear. I  did not derive much assistance from his evidence.

Sat Wai Ling

69.   Sat was a surveyor called by the 1^st Defendant. His report and evidence was that the open market value of the Property as at the date of the provisional and formal Sale and Purchase Agreements was $2.94M, falling to $2.87M on 14 October 2005 (date when Fong was informed Plaintiff did not want to complete) and further to $2.77M on 27 November 2005 (date when a further offer was made to complete with an extension of time of 45 days).

70.  The evidence was apparently tendered to support the 1^st Defendant’s case that the Plaintiff wanted to renege because of the falling property market and not because there was any misrepresentation.

71.  Sat’s opinion was not accepted by the Plaintiff, who did not rely on any expert evidence. Although I have no reason to doubt Sat’s opinion, I find that it does not assist me in coming to my view on the issues of this case.

Misrepresentation

72.  The first question that I have to consider is what was the representation made? The literal answer to the above question is easy and it is not in dispute between the parties. Clifford asked whether the roof was included and Fong answered Yes.

73.  Where the parties diverge is the interpretation to be placed upon those words in the context of the surrounding circumstances. Those circumstances include the failure of Fong to go up to the roof with Clifford and Tony Keung, the repeated questions about whether the roof was included, and the failure to provide to the Plaintiff the“Form 1”  prescribed under  the Estates Agents Ordinance.

74.  It was the Plaintiff’s case that Fong deliberately did not accompany Clifford and Tony Keung, that she only started making a telephone call after Clifford and Tony Keung had indicated that they wished to view the roof, instead of the other way round. The suggestion was that by not going up to the roof with Clifford and Tony Keung, Fong would somehow be able to keep the actual size of Roof B from Clifford.

75.  I find this suggestion far fetched and I reject it. The size of Roof B was not in any way a secret. The plans were available from the relevant government department. When the development was first sold, the brochures clearly stated the size of the roof. Even if Tony Keung were not so experienced in the trade, the 3^rd Defendant certainly was, and with the 2^nd Defendant’s office being on the same street as the sales office of Building in which the Property was situated,  Fong would have expected the 2^nd Defendant and its employees including the 3^rd Defendant and Tony Keung to know of the size. Fong could not have even suspected that the 2^nd and 3^rd Defendants did not know the size of Roof B, and there could have been no question of her deliberately avoiding showing the roof. On this issue, I prefer the evidence of Fong, that her telephone rang and she was speaking on the telephone when Tony Keung indicated that they wished to see the roof.

76.  For the same reason, I find that Fong not providing Clifford with a copy of the Form 1 was not deliberate. She did not owe any duty to Clifford. It would not normally be expected that on an initial view of a property, an estate agent would bring with her all the relevant documentation including land search records and the Form 1. More importantly, Fong considered that she should not approach Clifford since he was separately represented by an estate agent. A natural reticence and professional courtesy to not approach a fellow estate agent’s client is understandable.

77.  The above would also explain, if explanation were needed, why Fong did not mention the size of Roof B.

78.  As mentioned above, the Plaintiff’s pleaded case is that the 1^st Defendant through Fong represented that  the Property included a roof of the same or substantially the same size as Flat B. I do not accept that an affirmative answer to the question “is the roof included”  can reasonably carry the meaning which the Plaintiff attributes to it. In the context of Hong Kong property, the right of exclusive use and possession of a roof or part of it (which is all that can be assigned) is capable of so many variations and restrictions that one cannot really read more than the plain words, ie that Roof B is included in the sale,  into such an utterance.

79.  Clifford himself alluded to this when he agreed in evidence that part of the roof may be common area, although at the time he would not have expected such a large percentage. Clifford himself was aware that a DMC may contain restrictions as to the use to which it may be put, or may grant certain rights to other co-owners, which was why he asked the specific question and insisted on Clause 18(b) in the Provisional Sale and Purchase Agreement, reproduced in the Seventh Schedule of the Formal Sale and Purchase Agreement. The form of ownership of a multi-storey building in the Hong Kong context must be borne in mind. All owners of a building and the land on which it is built are co-owners of the whole of the building and land. An individual owner is then granted rights of exclusive use and possession over certain parts of the building or land by virtue of the DMC. No one owner physically “owns” the roof.

80.  One only needs to consider the various services which serve the whole building and which are usually placed on the roof like water tanks and television antennae in order to see that it is not reasonable to assume that the whole of the area immediately above a particular top floor flat would ‘belong’ to the top floor flat owner.

81.  I therefore find that the representation made was that Roof B was included in the Property, with no warranty or representation as to what Roof B included. It follows that the representation was true, and therefore there was no misrepresentation.

82.  That effectively disposes of the Plaintiff’s claim against the 1^st Defendant. However, for completeness’ sake, I will go on to deal with the other issues of the claim of the Plaintiff against the 1^st Defendant.

83.  As to the authority of Fong to make a misrepresentation as to the area of the roof, (assuming that a misrepresentation had been made) I consider that the question is not whether Fong had authority to make a misrepresentation, but whether she had authority to make a representation. I find that she did have ostensible authority to make a representation as to the area of a property she was tasked to sell on behalf of the vendor,  especially in the context of forms being prescribed under the Estate Agents Ordinance which includes the area of the property being sold.

84.  On the question of reliance, I am satisfied that the Plaintiff in the person of Clifford did rely on the representation made by Fong in making up his mind to purchase the Property, This is despite the previous offer and cheque. The previous offer at most shows that the Plaintiff was not relying on any representation when he made the previous offer. That cannot show that the Plaintiff did not rely on the representation when a subsequent offer was made.

Entire Agreement Clause

85.  Again, although I have decided that there was no misrepresentation and the Plaintiff is unsuccessful against the 1^st Defendant, I will deal with this issue briefly for completeness’ sake.

86.  The first question I have to decide is whether the provisions under the Provisional Sale and Purchase Agreement apply, or the lengthier provisions under the Formal Sale and Purchase Agreement apply. The Amended Statement of Claim pleads that the misrepresentation induced the entering into of the Provisional Sale and Purchase Agreement, the Formal Sale and Purchase Agreement and the payment of the deposit.

87.  The payment of the deposit is not an event which can be looked at independently of the contract. It was paid pursuant to the Sale and Purchase agreements.

88.  The question is whether I need to look at the Provisional Sale and Purchase Agreement at all. I am of the view that I do not. The Provisional Sale and Purchase Agreement was replaced by the Formal Sale and Purchase Agreement. Once the Formal Sale and Purchase Agreement came into existence, the Provisional Sale and Purchase Agreement is no longer binding on the parties and the parties look only to the terms of the Formal Sale and Purchase Agreement to govern their rights and obligations in this sale.

89.  Clause 23 of the Formal Sale and Purchase Agreement provides :

The Purchaser hereby declares and confirms that the Purchaser has inspected the Property and is satisfied with and accepts in all respects the existing physical state, condition and finishes of the Property and the fixtures and fittings therein and the said furniture and fittings and is fully aware that he is purchasing the Property in its present state and condition. The Property is and will be sold on an “as is” basis, and in the physical state and condition as they stand and no warranty or representation whatsover has been given or is made by the Vendor or his agents regarding the physical state and condition thereof or of the building of which the Property forms part. In particular and without limiting the generality fo the foregoing, no warranty or representation is given or made by the Vendor or his agents on any of the following matters namely :-

   ...

   (c)     The area of the Property

  ...

Clause 26 of the Formal Sale and Purchase Agreement provides :

This Agreement comprises all the terms agreed between the parties hereto and no warranties or representations express or implied which are or have been made or given by the Vendor or anybody on his behalf relating to the Property prior to the signing hereof and if any such warranty or representation express or implied has been made the same is withdrawn or deemed to have been withdrawn immediately before the parties entered into this Agreement.

90.  On the face of these clauses, the 1^st Defendant disclaims any representation as to area such that the Plaintiff cannot rely on any representation made in the course of negotiations. However, it is accepted by the 1^st Defendant that the provisions of s. 4 of the Misrepresentation Ordinance incorporating the requirement of reasonableness under the Control of Exemption Clauses Ordinance apply. Therefore, these clauses can only have effect insofar as they are reasonable, ie that they were “fair and reasonable ones to be included having regard 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”.

91.  I was helpfully referred by Mr. Lai for the 1^st Defendant to the obiter dictum of Litton N.P.J. in Green Park Properties Ltd. v. Dorku Ltd. (2001) 4 HKCFAR 448 at 455 as to what were the circumstances in the contemplation of the parties when the contract was made, namely “the circumstances surrounding real estate dealings in Hong Kong known to both parties bearing on whether it was fair and reasonable for a term like [the above] to be included in a standard form of provisional agreement put forward by real estate agents for their parties’ signature.”

92.  Applying these comments to the present case, both parties were separately represented whether in terms of estate agents or legal representation. Such “entire agreement” clauses are common in conveyancing contracts in Hong Kong. If any special term or warranty was considered to be of especial importance, it could well have been made a specific term of the agreement, as was done by the addition of the Seventh Schedule which provides “Roof B is the private roof belonging to the property”.

93.  In the circumstances, I find that even if there had been such representation as pleaded by the Plaintiff, it would have been excluded and have no effect by the terms of the Formal Sale and Purchase Agreement.

Duties of the 2^nd and 3^rd Defendants

94.  The Plaintiff claims against the 2^nd and 3^rd Defendants for breach of their duties in tort, contract and under the provisions of the Estate Agents Ordinance.

95.  Taking the breach of statutory duty first, the 2^nd and 3^rd Defendants raise a fundamental objection, that in order to bring the Plaintiff within the class of persons to whom duties are owed under s. 36 of the Estate Agents Ordinance, the Plaintiff has to establish an estate agency agreement which is defined in s. 2 of the Estate Agents Ordinance as 1 or more written documents embodying the terms between the parties.

96.  Mr. Wong for the 2^nd and 3^rd Defendants says that the Plaintiff has failed to prove any written estate agency agreement in relation to this transaction, and therefore has not proved that the 2^nd and 3^rd Defendants owe the Plaintiffs the duties set out in s. 36 of the Estate Agents Ordinance. I agree.

97.  This may at first glance seem harsh. However, s. 36 of the Estate Agents Ordinance sets out specific duties under the Ordinance, but does not in any way limit duties under common law. Furthermore, the situation where an estate agent will not ask a vendor or purchaser to sign an estate agency agreement would be rare. By s. 45 of the Estate Agents Ordinance, an estate agent cannot bring an action for damages or other relief in relation to estate agency work unless there is an estate agency agreement as defined in the Ordinance.

98.  That, however, is not the end of the matter.  Mr. Wong properly conceded that an agent acting for reward is bound to exercise such skill, care and diligence in the performance of his undertaking as is usual or necessary in or for the ordinary or proper conduct of the profession or business in which he is employed, or is reasonably necessary for the proper performance of the duties undertaken by him. Mr. Wong also concedes that the contractual duty also coincides with the tortious duty.  

99.  Mr. Wong submitted that the 2^nd and 3^rd Defendant’s duty did not extend to voluntarily provide information on the area of Roof B, drawing attention to the fact that Clifford was a professional property investor who had previously bought some properties in the area, that he had offered to purchase the Property sight unseen, that he had inspected the property in presence of Fong and sought direct confirmation from her about the roof, and that the 3^rd Defendant had checked the land search records.

100.  I am afraid that despite Mr. Wong’s valiant efforts, I find that the 2^nd and 3^rd Defendant did breach their duty to the Plaintiff. The fact that the Plaintiff was an experienced professional investor does not reduce in any way the standard of care expected of the 2^nd and 3^rd Defendants. In the same way that a doctor or a lawyer when consulting another doctor or lawyer can expect the same standard of care from a fellow professional, so must a property investor, no matter how experienced, expect the same standards of an estate agent.

101.  The 2^nd and 3^rd Defendants knew of Clifford’s interest in the roof. It was incumbent upon them to make proper enquiries about the roof, enquiries which were fairly simple to make. This they did not. The 3^rd Defendant himself admitted as much when in the witness box.

102.  I find that the 2^nd and 3^rd Defendants were in breach of their contractual and tortious duties to the Plaintiff.

The Settlement Agreement

103.  As stated above, I do not find the 3^rd Defendant’s evidence concerning the alleged Settlement Agreement to be credible. It is true that Clifford had at some stage suggested a settlement. However, this did not in the end materialize.

104.  If Clifford had settled the matter with the 2^nd and 3^rd Defendants, it is unlikely that he would have gone on to start proceedings against the 1^st Defendant. The alleged time of the Settlement Agreement was around the end of October 2005. However, Clifford still asked for a meeting with Fong on 22 November 2005. The writ was only issued on 30 November 2005.

105.  More importantly, I find it unlikely that the 2 persons involved, Clifford and the 3^rd Defendant, would enter into a settlement agreement without putting it in writing. Clifford was an experienced businessman, and well used to commercial contracts. The 3^rd Defendant was an accountant, had an elder brother who was a lawyer and dealt with transactions which invariably involved written agreements. If there really was a settlement agreement, it would have been reduced into writing.

106.  I find that there was no settlement agreement between the Plaintiff and the 2^nd and 3^rd Defendants, although the 3^rd Defendant may have wished there to have been one.

Contribution Between Defendants

107.   It follows that the 2^nd and 3^rd Defendants are liable to the Plaintiff, but the 1^st Defendant is not.

Proper Relief

The Plaintiff’s Claim

108.  The Plaintiff claims the following against the Defendants :

1	Return of Deposit	$295,000.00
2	Legal and Conveyancing Costs	65,000.00
3	Indemnity for Stamp Duty	59,000.00
4	Loss of Profit	500,000.00
5	Loss of Bargain	500,000.00
	Total	1,419,000.00

The Plaintiff abandons any claim in excess of the Court’s jurisdiction.

109.  Since the Plaintiff is not successful against the 1^st Defendant, there is no question of ‘return’ of the deposit. Instead, his claim against the 2^nd and 3^rd Defendants would sound in damages.

110.  It is trite law that the measure of damages in contract is to put the plaintiff as far as possible in the same position as if the contract had not been breached. The measure of damages in tort is to put the plaintiff as far as possible in the same position as if the tort had not been committed.

111.  In the present case, the result would be the same whether one takes the contractual measure or the tortious measure. If the 2^nd and 3^rd Defendants had not been negligent and therefore had properly performed their duties under the contract, Clifford would have been told that Roof B was only 87 sq. ft. If Clifford had been told that Roof B was only 87 sq. ft., he would not have entered into the transaction at all.

112.  Clifford’s loss would be the deposit which he would not have paid if he had known of the small size of Roof B.

113.  Legal and conveyancing costs are claimed in the sum of $65,000. Unfortunately, there has been no evidence at all about this sum. The burden is on the Plaintiff to establish its case, and in the absence of evidence, the Plaintiff has failed to do so.

114.  An indemnity for Stamp Duty is claimed. No payment of stamp duty has been made. By the provisions of s. 29C(5A)(a) of the Stamp Duty Ordinance, an agreement for sale which has been cancelled, annulled rescinded or otherwise not performed is not chargeable to stamp duty, and no relief is necessary under this head.

115.  As for loss of profits, the Plaintiff would not have made any profit if Clifford had been told that Roof B was only 87 sq. ft., because the Plaintiff would not have entered into that transaction. Although there was some suggestion that the Plaintiff had missed an opportunity to purchase a unit at another building on its own instead of in partnership with another company by entering into the present transaction and therefore tying up its capital, upon close examination it was revealed that the other transaction predated the present one. In any event, Clifford in evidence stated that his partner could always be relied on to loan him money.

116.  As for loss of bargain, as stated above, the Plaintiff would not have entered into the transaction if Clifford had known of the size of Roof B. There would have been no loss of bargain.

117.  Interest is claimed pursuant to sections 48 and 49 of the High Court Ordinance. Sections 48 and 49 of the High Court Ordinance does not apply to this action, being an action commenced in the District Court. Nevertheless, I am satisfied that the 2^nd and 3^rd Defendants are not prejudiced by this mistake. In any event, unlike in the High Court, pre-judgment interest can be awarded notwithstanding a failure to comply with O. 18 r. 8(4) (see Grandyield Knitters Ltd. v. MBE Engineering Ltd. [2002] 2 HKLRD 88).

118.  In the Schedule of Claim produced in Mr. Finley’s opening, interest was claimed at 10% p.a. No submissions were addressed to me as to why such a rate of interest was appropriate. I accept that Clifford has been making a fairly good return on his investments, but in the absence of details, I will award a commercial rate. I therefore award interest on the sum of $295,000 at the rate of 1% above the best lending rate as from time to time quoted by the Hongkong and Shanghai Banking Corporation Ltd. from the date of the writ to the date hereof, and thereafter at judgment rate until payment.

The 1^st Defendant’s Counterclaim

119.  The 1^st Defendant claims that the Plaintiff has wrongfully registered a sealed copy of the Writ of Summons herein as a purported incumbrance against the Property, and claims for a declaration that the Plaintiff has been in ‘fundamental breach’ of the Formal Sale and Purchase Agreement; A declaration that the 1^st Defendant is discharged from performing the sale under the Formal Sale and Purchase Agreement; an order for vacation of the registration of the Writ of summons, damages for breach of the Formal Sale and Purchase Agreement, and a declaration that the Plaintiff is liable to indemnify and keep indemnified the 1^st Defendant against all loss and damage as a result of the wrongful registration, interest, and further or other relief.

120.  Clause 16 of the Formal Sale and Purchase Agreement provides that

 If the Purchaser shall fail to complete the purchase in accordance with the terms of this Agreement (otherwise than due to the default of the Vendor) the deposit money paid hereunder shall be absolutely forfeited as liquidated damages (and not as penalty) to the Vendor who shall be at liberty if the Vendor sees fit without being obliged to tender an assignment to the Purchaser to rescind this Agreement and to retain the Property or any part or parts thereof or to resell the same either as a whole or in part and either by public auction or private contract or otherwise as the Vendor may think fit....

I am of the view that the Purchaser having forfeited the deposit as liquidated damages, is not entitled to any further damages.

121.  No evidence was adduced as to any damages caused to the 1^st Defendant, nor any potential damages caused by the wrongful registration of the Writ of Summons In fact, the evidence is that the value of the Property has increased since the date of repudiation of the Formal Sale and Purchase Agreement by the Plaintiff. I order nominal damages of $1.00 for the wrongful registration of the Writ of Summons.

122.  As to declarations that the Plaintiff was in breach of the Formal Sale and Purchase Agreement and that the 1^st Defendant is discharged from performance of the Formal Sale and Purchase Agreements, I am of the view that such declarations are unnecessary. The  Formal Agreement for Sale and Purchase has been rescinded. There has never been any claim that it is still binding. I decline to make the declarations claimed.

123.  I will make an order that registration of the Writ of Summons be vacated.

124.  As I have made no order for substantial damages, I will make no award for interest.

The 2^nd and 3^rd Defendants

125.  The 2^nd and 3^rd Defendants counterclaim for specific performance of the Settlement Agreement, or a declaration that the Plaintiff is estopped from suing the 2^nd and 3^rd Defendants, further or alternatively, the sum of $123,700 (being the unpaid commissions which comprised consideration for the Settlement Agreement), interest, costs and further or other relief.

126.  I have already found against the 2^nd and 3^rd Defendants on the issue of the Settlement Agreement. The 2^nd and 3^rd Defendants have through Mr. Wong abandoned their counterclaim for the liquidated sum, which must encompass the claim for interest as well.

127.  I will make no order on the 2^nd and 3^rd Defendant’s Counterclaim.

Costs

128.  The Plaintiff fails against the 1^st Defendant and succeeds against the 2^nd and 3^rd Defendants. The 1^st Defendant will get his costs against the Plaintiff, and the Plaintiff will get its costs against the 2^nd and 3^rd Defendants.

129.  The matter that concerns me at this stage is whether or not it is appropriate to make a Sanderson or Bullock order, the 2^nd and 3^rd paying the 1^st Defendant’s costs direct in the former, and as part of the Plaintiff’s costs in the latter.

130.  The applicable principles have been very helpfully summarised by H.H. Judge Au in Lau Chu Wing v. Law Wai Shing & Ors DCPI 1389/2007. In gist, the question is whether it was reasonable to join both sets of defendants in the same action, and it can be shown that it was reasonable to join both sets of defendants if it could be shown that the plaintiff was uncertain which set of defendants was liable for its injuries. Further, if the causes of action against the separate defendants are distinct, the court may refuse to make such an order.

131.  I find that the causes of action were distinct. There was no confusion as to how each set of defendants was responsible. I find that the 2^nd and 3^rd Defendants should not have to pay for the decision of the Plaintiff to sue the 1^st Defendant.

132.  One matter on which I am asked to make a specific order in respect of the reasonableness of costs is the costs of preparing the documents bundle which was used at trial. The 1^st Defendant’s solicitors and the Plaintiff’s solicitors prepared separate bundles of documents for use at the trial. The bundle prepared by the 1^st Defendant’s solicitors was used at trial. The Defendants say that the Plaintiff’s solicitors were at fault for failing to properly prepare the bundles in time, and the Plaintiff should not have costs for their bundle which was not used.

133.  I was supplied with a bundle of correspondence on this issue. To cut a long story short, solicitors for the 1^st Defendant enquired of the Plaintiff’s solicitors about bundles on 3 November 2008. The Plaintiff did not respond constructively until 11 November 2008.  There followed a flurry of correspondence where objections were taken as to the draft indices, and also the extremely short time limits imposed on the defendants’ solicitors to agree them. In the end, the Plaintiff’s bundles were only lodged on 14 November 2009.

134.  Practice Direction 5.6 provides that the plaintiff’s solicitor should propose what documents should go in the agreed bundle in adequate time for the defendants to consider the proposal. The agreed bundles must be lodged at least 3 clear working days before trial. Unless the bundles were lodged on 11 November 2008, the bundles would have been late. It would have been unreasonable of the Plaintiff to expect agreement at such short notice. Further, the initial proposed index was not such as to be of any use. Even by 12 November 2008 when the Plaintiff’s solicitors produced a more comprehensive index, the Plaintiff’s solicitors were asking the 1^st Defendant’s solicitors for copies of documents in the 1^st Defendant’s list of documents. The Plaintiff’s solicitors imposed a time limit of 4:00pm for the 1^st Defendant’s solicitors to approve the index when the index was only sent to the 1^st Defendant’s solicitors at 1:13pm. This is not a reasonable time. Further arguments on the contents of the bundle ensued, resulting in the Plaintiff’s bundle being lodged only on 14 November 2008, the Friday before the trial which was to commence on Monday, 17 November 2008. It was not only late, but there were still problems with the contents.

135.  I am satisfied that in the circumstances, it was reasonable for the 1^st Defendant to prepare its own bundle of documents, and that the 2^nd and 3^rd Defendants should not bear the costs of preparing the Plaintiff’s bundle of documents.

Conclusion

136.  I make the following orders :

(1)   The Plaintiff’s claim against the 1^st Defendant is dismissed;

(2)   Judgment be entered in favour of the Plaintiff against the 2^nd and 3^rd Defendants for the sum of $295,000 with interest at the rate of 1 % above the best lending rate as from time to time quoted by the Hongkong and Shanghai Bank from the date of the writ to the date hereof, and thereafter at judgment rate until payment;

(3)  Judgment be entered in favour of the 1^st Defendant against the Plaintiff for the sum of $1.00 in respect of the 1^st Defendant’s counterclaim for damages for wrongful registration of the Writ of Summons;

(4)  Registration of the Writ of Summons at the Land Registry be vacated.

137.  I make the following orders nisi as to costs :

(1)   Costs of the 1^st Defendant to in this action to be paid by the Plaintiff to the 1^st Defendant, to be taxed if not agreed, with certificate for counsel;

(2)  Costs of the Plaintiff in this action, excluding costs in relation to the claim against the 1^st Defendant and costs of preparing the bundle of documents, to be paid by the 2^nd and 3^rd Defendants to the Plaintiff, to be taxed if not agreed.