CITILITE PROPERTIES LTD v. INNOVATIVE DEVELOPMENT CO LTD

1992, No.A8407

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. This is a claim for damages and/or breach of warranty brought by the Plaintiff, the purchaser under a sale and purchase agreement dated 25 August 1992 ("the Agreement") against the Defendant, the vendor of the property known as Unit 1402 on the 14th Floor of Convention Plaza in Wanchai. Clause 14A of the Agreement contained a warranty by the Vendor that "the saleable area of the property is 7,864 sq.ft.". The purchase price of the property was $48,520,880, calculated on the basis of $6,170 per sq.ft.

The issues

2. During the course of a 7-day hearing, the parties were able to narrow their differences. Several reports had been filed by the respective surveyors for the parties relating to the measurement of the saleable area as well as the gross floor area of the property. The parties were able to agree that the saleable area of the property is 6,596.50 sq.ft. and that its gross floor area ascertained in accordance with Building (Planning) Regulations 23(3)(a) (on certain assumptions relating to the exercise of the discretion vested in the Building Authority) is 7,959.30 sq.ft. without having to call their respective experts.

3. Initially there was also an issue as to the proper construction of the expression "saleable area". Each side adduced expert evidence as to the meaning of those words in a conveyancing contract : Mr Robert Lynn gave evidence for the Plaintiff and Mr S.H. Leung gave evidence for the Defendant. In his closing submissions, counsel for the Defendant accepted that the words "saleable area" used in a conveyancing contract even without a definition in the contract itself would be understood by a conveyancing solicitor or conveyancing expert in Hong Kong as referring to what is known as the advisory method of measurement for saleable area published by the Royal Institute of Chartered Surveyors (Hong Kong Branch), the Hong Kong Institute of Surveyors and the Consumer Council. This method has been adopted by the Registrar General in the definition of saleable area in agreements for sale and purchase under the Government's Consent Scheme as well as by the Law Society under its Non-Consent Scheme. No issue now arises to the meaning of the expression "saleable area". As to "gross floor area" it is common ground that there is no established or standard definition of gross floor area for property transaction purposes. Although the Building (Planning) Regulations (Reg.23(3)) contains a statutory definition for gross floor area, it is inexact or uncertain in that there is a discretion vested in the Building Authority to disregard certain floor space.

4. The Defendant has also abandoned the issue as to whether the Plaintiff and the Defendant made a common mistake in inserting the words "saleable area" for something else.

5. By the close of the evidence, it emerged that the mistake relied on by the Defendant was a unilateral mistake. The issue which arises is whether, in the circumstances, the Defendant ought to be given relief. This necessarily involves issues relating to the Plaintiff's state of knowledge as to the Defendant's mistake and its conduct relating to it. If no relief is given, the measure of damages will arise.

6. Having regard to the narrowing of the issues between the parties, I will only set out such parts of the evidence that are relevant to the issues that remain alive.

The facts

The site visit

7. In July 1992, Mr Paul Wong Lai Por, the beneficial owner of the Plaintiff, went to Convention Plaza to look at certain premises accompanied by an estate agent. Also present were Mr Peter Man, the manager of Kiu Lok Service Management Co. Ltd. ("Kiu Lok") and a Mr Antonio Au from the Defendant. They visited, inter alia, the 15th Floor where Kiu Lok's offices were as well as the lift lobby area of the 14th Floor. It was not possible to inspect the 14th floor as the entire floor had been let to a tenant. Mr Wong's evidence was that he asked Mr Man about the efficiency ratio of the building and was told that it was very high, over 90%. This is corroborated by Mr Man although Mr Au denied that any such conversation took place in his presence.

Meetings with the Defendant prior to mid-July 1992

8. Some time after the site visit, Mr Wong met with representatives of the Defendant. According to Mr Wong, the first meeting was with Mr Au and a Mr Fung, that he was supplied with a plan of the 15th Floor as well as a rental information sheet ("the information sheet"). The information sheet stated the gross floor area of the 14th Floor which was 16,518 sq.ft. and a breakdown in terms of area of the various units of the 15th Floor. When aggregated, the total area for the 15th Floor was 1 sq.ft. less than the 14th Floor. Units 1507-1513 was shown to have a gross floor area of 8,619 sq.ft.

9. The figure 8620 was written on the plan of the 15th Floor in manuscript by Mr Au on the portion of the floor corresponding to Units 1507-1513. Mr Au explained that this took into account the discrepancy of 1 sq.ft. between the total area of the 14th Floor as compared to aggregate area of the 15th Floor units shown on the information sheet.

10. At some point, and it is immaterial when this occurred, Mr Wong was provided with a floor plan on which he could mark out the area that he wished to purchase. It is common ground that Mr Wong was interested in Units 1507-1513, but as the date of vacant possession did not suit, the proposal came about that he should purchase the equivalent area on the 14th Floor. At that time, it was believed that the tenant of the 14th Floor would not be renewing its lease. Mr Wong duly shaded on the copy of the floor plan the area on the 14th Floor that he was interested in purchasing. Mr Wong believed the shaded area had a saleable area of 8,620 sq.ft. This belief arose from Mr Wong's understanding of the efficiency ratio of the Building coupled with the fact that according to the 15th floor plan and the information sheet, Units 1507-1513 had a gross area of 8620 sq.ft. and the shaded area was larger than Units 1507-1513 in as much as it included the common corridor and half the lift lobby.

11. Agreement was reached with Mr Chang Lien Hing, the Chairman of the Defendant as to the price expressed at a unit rate of $6,150 per sq.ft. It was Mr Wong's understanding that the unit was p.s.f. of saleable area. Other terms such as the payment of a 20% deposit and completion in two months' time were also discussed and agreed.

12. Whilst there are differences between Mr Wong on the one hand and Mr Au and Mr Chang on the other as to when and how the plans were supplied and by whom, the order in which the meetings took place as well as what was said at the meetings, what is not controversial is the following :

(i) Mr Wong was supplied with both the floor plan of the 15th Floor and the information sheet;

(ii) the information sheet showed that Units 1507-1513 had a gross floor area of 8,619 sq.ft.;

(iii) Mr Au had written onto the floor plan of the 15th floor an area of 8,620 sq.ft. for Units 1507-1513;

(iv) the purchase price was to be calculated on the basis of $6,150 p.s.f.;

(v) the Plaintiff through Mr Wong indicated the area it wished to purchase on the 14th Floor, namely the shaded portion of a plan on which the area was stated to be 8,620 sq.ft.;

(vi) the shaded area has a configuration that is somewhat different from that of Units 1507-1513 : the common corridor and half the lift area form part of the shaded area.

(vii) the purchase price was subsequently (on 13 August) revised upwards to $6,170 p.s.f.

The offer to purchase

13. On 27 July 1992, the Plaintiff's solicitors Yuen Sung & Co. ("YS") wrote to the Defendant's solicitors Liu Chan & Lam ("LCL") offering to purchase the property subject to contract. There was an accompanying plan upon which the property was shown for identification purposes as the shaded area. The price was expressed as "8,620 sq.ft x HK$6,150".

14. Mr Wong owned another company called High Palace Development Limited. Contemporaneously with the offer to the Defendant to purchase the property, a sub-sale arrangement at a price based on $6,270 p.s.f. was being put in place between the Plaintiff and High Palace. The sub-sale Agreement dated 25 August 1992 contained a warranty to the effect that the gross floor area would be 8,620 sq.ft. This warranty was inserted on Mr Wong's instructions on 12 August 1992.

The various draft Agreements

15. On 3 August 1992, LCL forwarded a draft contract to YS. This draft Agreement was amended by YS ("the 1st Amended Draft") and returned to LCL on 7 August. The amendments included a new Clause 15A which was in the following terms :

"15A. The Vendor warrants that the saleable area of the Property is 8620 square feet. The Vendor shall cause to produce a floor plan approved by an authorised person of the Property which location should resemble as closely as possible to the paper plan annexed to this Agreement. The cost for the production of the floor plan should be borne by the Vendor."

This amendment was inserted on the instructions of Mr Wong as the draft Agreement submitted by LCL did not contain any reference to the area being bought nor to the unit rate but merely stated the purchase price as a lump sum. Whilst there is a conflict of evidence as to whether as is Mr Wong's case, the oral negotiations were conducted on a saleable area basis or as in the evidence of Mr Au and Mr Chang, they were on gross area basis, the amendment introduced by the Plaintiff in the 1st Amended Draft left no room for doubt.

16. On 10 August, various events occurred :

(i) YS received a copy plan prepared by Tom Ip & Partners which differed from the plan prepared by Mr Wong which accompanied the letter of 27 July;

(ii) YS received an amended draft from LCL ("the 2nd Amended Draft") in which what had been proposed by YS in the 1st Amended Draft as new Clause 15A was incorporated as new Clause 14A but which was amended by LCL to read as follows :

"14A. The Vendor warrant that the saleable area of the Property is 7864 square feet. The Vendor shall cause to produce a floor plan approved by an authorised person of the Property which location should resemble as closely as possible to the paper plan annexed to this Agreement. The cost for the production of the floor plan should be borne by the parties hereto in equal shares."

LCL thus not only accepted YS's proposal but also introduced 2 amendments to it : it reduced the saleable area from 8,620 to 7,864 sq.ft. and altered the provision relating to the cost of producing the floor plan; and

(iii) Mr Wong received a call from Mr Au advising him that the tenant of the 14th Floor would be renewing its lease. In those circumstances, the likely rental and how it was to be divided between the two landlords became matters of interest and importance to Mr Wong.

17. A meeting (referred to below) was arranged for 11 August to discuss this new development.

18. On 13 August, YS was advised that the selling price was revised to $6,170 per sq.ft. and that the deposit would be 20% rather than 10% of the purchase price.

19. Another draft Agreement (the 3rd Amended Draft) was delivered by LCL to YS on 17 August 1992 in which the total purchase price was calculated on the basis of $6,170 per sq.ft. Clause 14A of the 2nd Amended Draft was unchanged and became Clause 14A of the 3rd Amended Draft.

The August 11 meeting

20. A meeting took place on 11 August attended by Mr Wong and his solicitor, Mr Sung Wing Kwong of YS, Mr Lum from the Defendant company and Miss Judy Lee, a conveyancing clerk from LCL. What happened at this meeting is hotly disputed. Nevertheless, it is accepted that Mr Wong raised a number of matters including the expected rental of the 14th Floor, how it was to be divided between the two landlords, whether the surveyor's plans would meet the fire and other government requirements and why the warranted net area of 8,620 sq.ft. was lessened to 7,864 sq.ft. A particularly controversial topic was whether Mr Wong and his solicitor were given the opportunity to read a letter from Kiu Lok dated 7 August addressed to LCL. There is no need to go into the differing versions of events now as it is accepted that a copy of that letter was faxed to YS on 17 August. Mr Lum went to the meeting expecting to sign the Agreement but that did not happen.

21. At the end of that day, Mr Wong received a call from Mr Au enquiring why the Agreement had not been signed. Mr Wong told him that as vacant possession was not available, it would only be as an investment and that Mr Wong was unable to arrive at the yield it would give. Mr Au told Mr Wong that the rental would be in the region of $40 p.s.f. on a net basis. In support of the view and to enable Mr Wong to calculate the yield, Mr Au faxed to Mr Wong a newspaper cutting in connection with rental return based on a saleable area basis. For Convention Plaza, a rental figure of a little under $40 p.s.f. on a saleable area basis was quoted. Mr Wong was not challenged on this part of his evidence.

22. On the following day, Mr Wong instructed the sub-purchaser's solicitors to insert a warranty that the gross floor area would be 8,620 sq.ft. Mr Wong's explanation was that having informed the bank of the area of 8,620 sq.ft. (without specifying it to be gross or saleable) and the unit rate of $6,270, he did not want to change the figures and the reduction in area could be adressed by making 8620 a gross area. It would seem that if he thought on 12 August that the gross area was only 7,864 sq.ft., those instructions would not have made any sense.

23. A copy of Kiu Lok's letter of 7 August was faxed to YS by LCL and forwarded by YS to Mr Wong by lunch time on 17 August :

"7 August 1992

Innovative Development Co Ltd	Without Prejudice
(By Fax: 362 9157)

Attn: Mr Antonio Au

Dear Sirs
Re: 14/F Office Tower, Convention Plaza
1 Harbour Road, Wanchai, Hong Kong.

Following the telephone conversation between your Mr Antonio Au and the undersigned, we are pleased to give our recommodations, on without prejudice basis, on the approximate gross floor areas as well as the number of management units and undivided shares in respect of the subdivided Units 1401 and 1402 (please see floor plans as prepared by Tom Ip and Partners) for your reference. Please note that, as per your advice, the undivided shares are allocated in proportion to the approximate gross floor areas of the respective units.

Our recommendations are:

	Approximate			Current Mgt
	Gross Floor	Undivided
Unit	Area	Shares	Mgt Units	Fee Payable
				per Month
	(sq ft)			(HK$)
	8,654	10,726	2,188	24,476.80
1401	7,864	9,747	1,988	22,246.40
1402	16,518	20,473	4,176	46,723.20

Yours faithfully
KIU LOK SERVICE MANAGEMENT CO LTD

(signed)
Peter Man
Manager (Sales and Leasing)"

Execution of the Agreement

24. On 18 August, a fresh Agreement duly amended and re-engrossed was sent to YS. This was executed by the Plaintiff on 19 August and by the Defendant on 22 August.

25. The Agreement was signed by Richard Lum Chor-wah, the managing director of the Defendant. The transaction had mostly been handled by his subordinate Mr Au and also his superior Mr Chang. Prior to the meeting of 11 August, Mr Lum had read Kiu Lok's letter of 7 August and believed that the figures appearing in that letter had been prepared by the surveyor.

26. It is Mr Lum's evidence that he was not taken through the Agreement by any solicitor from LCL. He had read Clause 14A of the Agreement before signing and saw a reference to the saleable area being 7,864 sq.ft. It was his understanding that this meant the area that the Defendant was going to sell, that it was the same as the gross floor area of 7,864 as stated in Kiu Lok's letter. At the time he signed the Agreement, he fully appreciated that Kiu Lok's letter used the term "gross floor area" whereas in Clause 14A of the Agreement, the term was "saleable area". In his own mind he thought they meant the same thing and it was on that basis that he signed the Agreement in that form. Had someone told him that legally the two terms meant different things, he would have gone back to Mr Chang and Mr Au.

27. Although Mr Au was one of the main persons involved in this transaction, he said he was not involved with the drafting of the Agreement or the amendments to those Agreements. At no time was he consulted about the terms by the Defendant's solicitors. He was not aware of Clause 14A of the Agreement until these proceedings were issued. He was consulted once by LCL as to the area to be sold. Very early on he was asked why the area was less than 8,620 sq.ft. According to Mr Au, this conversation took place before he received Kiu Lok's letter of 7 August and before he had a conversation with Mr Man mentioned in that letter. It is unclear what response if any he gave to the inquiry from LCL nor what gave rise to LCL's inquiry at this very early stage. It was also Mr Au's evidence that at no stage did he negotiate with Mr Wong on the basis of saleable or net area. He was on leave when the Agreement was signed but he called Mr Lum once or twice to ask him to read the Agreement through carefully and even suggested that he should get LCL to explain the document before signing it. Mr Lum did not accept that Mr Au made such a suggestion. All Mr Au said was that he should read the document before signing it.

Valuation of the properly as at 25 August 1992

28. Expert evidence was adduced by both sides as to the saleable value per square foot of the Property on 25 August 1992. According to Mr William Wong Wing Lam, it was $7,197 and according to the Defendant's expert Mr K.B. Wong, it was $8,000.

The Defendant's unilateral mistake

29. It is clear from the evidence of Mr Lum that when he executed the Agreement, he appreciated that Clause 14A contained a warranty as to saleable area and that saleable area was a different expression from gross area. The mistake was as to the proper meaning of that term. He simply misunderstood its legal effect. It is also apparent from the evidence that none of the persons involved in the transaction on behalf of the Defendant, namely Mr Au, Mr Lum and Mr Chang, ever received advice from LCL as to the meaning of that expression. The only person called to give evidence from LCL was Miss Judy Lee, a conveyancing clerk with LCL. But she was not involved with the amendments to the draft Agreement which were the responsibility of Lynn Cheuk, the solicitor handling the transaction. The person best placed to explain the source of 7864 being the person who deleted the Plaintiff's original figure of 8620 and replaced it by 7864 is Miss Cheuk, but she was never called to give evidence. What Miss Cheuk's understanding of saleable area was will thus remain a mystery although there is evidence of LCL's position as at 19 September (considered below), after the dispute had broken out between the parties.

Whether rectification is available

30. Where the mistake is unilateral, the general rule is that there can be no rectification. As explained by Lord Justice Slade in The "Nai Genova" [1984] 1 Ll.LR 353 at 360 :

"the effect of allowing rectification in [the case of a unilateral mistake] must be to impose on the [non-mistaken parties] a contract which, at the date of its execution, they did not intend to make."

31. There are three exceptions to this general rule and the only one that is of relevance to the present case is that of estoppel. In Snell's Equity, 29th Edn. at p.630-1 it is stated as follows :

"By what appears to be a species of equitable estoppel, if one party to a transaction knows that the instrument contains a mistake in his favour but does nothing to correct it, he will be precluded from resisting rectification on the ground that the mistake is unilateral and not common. Under this head the evidence of the knowledge and intention of the defendant must be such as to involve him in a degree of sharp practice, or at least 'the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognised the presence of a mistake'."

32. The three leading cases on this topic were analysed and discussed at length by Lord Justice Slade in The "Nai Genova". In A. Roberts & Co. Ltd v. Leicestershire County Council [1961] Ch.555, rectification of a contract was granted where on the evidence one party to a contract had been aware that the other party had contracted in the mistaken belief that the written contract provided for a 30-month, as opposed to an 18-month, completion period. The principle as formulated by Mr Justice Pennycuick (at p.570) is :

"... a party is entitled to rectification of a contract upon proof that he believed a particular term to be included in the contract, and that the other party concluded the contract with the omission or a variation of that term in the knowledge that the first party believed the term to be included."

33. The next case is Riverlate Properties Ltd. v. Paul [1975] Ch.133 where a lessor sought rectification of a lease on the grounds that due to a common mistake by both parties or a unilateral mistake on the part of the lessor which the lessee was aware at the time the lease was executed, the lease omitted to provide that the lessee be obliged to reimburse the lessor for half the costs of exterior and structural repairs. Rectification was refused, the Court of Appeal holding that the evidence did not justify rectification on either of those grounds. The judge was not prepared to conclude, inter alia, that the lessee's solicitor "appreciated" that the lessor's solicitor had made a mistake in omitting this provision in drafting the lease. The Court of Appeal found it impossible to differ from the judge on those points holding that (at pp.139-140) :

" There was an absence of knowledge on the part of the lessee's solicitor that the lessor's advisers were making a damaging mistake in putting forward the lease in the particular form, a form of dishonesty or sharp practice which might well require proof beyond reasonable doubt, or ... require the tribunal of fact to be 'sure'... It may be that the original conception of reformation of an instrument by rectification was based solely upon common mistake : but certainly in these days rectification may be based upon such knowledge on the part of the lessee : see, for example, A. Roberts & Co. Ltd. v. Leicestershire County Council, (1961) Ch.555. Whether there was in any particular case knowledge of the intention and mistake of the other party must be a question of fact to be decided upon the evidence. Basically it appears to us that it must be such as to involve the lessee in a degree of sharp practice."

34. The third of the cases is Thomas Bates & Son Ltd. v. Wyndham's (Lingerie) Ltd. [1981] 1 WLR 505 which concerned a claim for rectification of a rent review clause. The lease, drafted by the landlords and as executed, made no provision in default of agreement between the lessor and the lessee. When executing the lease, the tenant's representative noticed that the rent review clause was defective but did not bring the defect to the landlords' attention. The Court of Appeal found that the parties had a common intention down to the time when the tenant's representative realised the mistake in the terms of the lease, a common intention that in default of agreement the rent should be fixed by an arbitrator.

35. In The "Nai Genova", Lord Justice Slade meticulously examined the principle upon which rectification was granted in those cases. In the Roberts case, the basis of the principle upon which relief was granted was left open. At p.570-571 of the report, Mr Justice Pennycuick said :

" The exact basis of the principle appears to be in some doubt. If the principle is correctly rested upon estoppel, it seems to me that it is not an essential ingredient of the right of action to establish any particular degree of obliquity to be attributed to the defendants in such circumstances. If, on the other hand, the principle is rested on fraud, obviously dishonesty must be established."

36. In the Riverlate case, the observations of Lord Justice Russell (possibly obiter) that it was based on knowledge on the part of the defendant which involved him in a degree of sharp practice also left the point open. Then in the Bates case, Lord Justice Eveleigh based the decision on estoppel whilst Lord Justice Buckley set out his view of the law as follows :

" Undoubtedly I think in any such case the conduct of the defendant must be such as to make it inequitable that he should be allowed to object to the rectification of the document. If this necessarily implies some measure of 'sharp practice', so be it; but for my part I think that the doctrine is one which depends more upon the equity of the position. The graver the character of the conduct involved, no doubt the heavier the burden of proof may be; but, in my view, the conduct must be such as to affect the conscience of the party who has suppressed the fact that he has recognized the presence of a mistake.

For this doctrine - that is to say the doctrine of A. Roberts & Co. Ltd. v. Leicestershire County Council - to apply I think it must be shown : first, that one party A erroneously believed that the document sought to be rectified contained a particular term or provision, or possibly did not contain a particular term or provision which, mistakenly, it did contain; secondly, that the other party B was aware of the omission or the inclusion and that it was due to a mistake on the part of A; thirdly, that B has omitted to draw the mistake to the notice of A. And I think there must be a fourth element involved, namely, that the mistake must be one calculated to benefit B. If these requirements are satisfied, the court may regard it as inequitable to allow B to resist rectification to give effect to A's intention on the ground that the mistake was not, at the time of execution of the document, a mutual mistake."

37. So factually, the present case is very different from either Roberts (mistake as to the length of the completion period), Riverlate (omission of provision obliging lessee to pay half the costs of repairs) and Bates (omission of provision for default of agreement), all of which involved mistakes of fact. Moreover in both Roberts and Bates, the parties had a common intention that a certain term be included in the lease. Due to a mistake known to only one of the parties, the term was omitted from the lease. In those circumstances, rectification was allowed. In the present case, the mistake was not one of fact : rather, it was one of legal effect of one of the provisions in the Agreement. It is not the case that the expression "saleable area" was somehow surreptitiously slipped into the Agreement by the Plaintiff when the parties had been negotiating on some other basis; the Defendant's solicitors were fully aware of that provision and accepted the basis upon which the Plaintiff was purchasing the property, namely on a saleable area basis. This follows from the fact that not only did LCL accept the clause containing the warranty as to saleable area that had been introduced by the Plaintiff at the time of the 1st Amended Draft, amendments were made to it. With the acceptance of the Plaintiff's amendment, the common intention was that there be a warranty of the saleable area which in fact was what the Agreement did provide. Thus, the present case is not within the principles enunciated in either Roberts or Bates.

38. Mr Lum who executed the Agreement on behalf of the Defendant was aware of the different phraseology, namely "saleable area" and "gross area". Mr Lum thought saleable area meant something other than what the Defendant now accepts that it means. Whether this was because Mr Lum never received advice from LCL's solicitors is another matter. It cannot therefore be said that Mr Lum and therefore the Defendant did not intend to enter into a contract that contained a warranty of "saleable" area : in fact, even at the meeting of 11 August, he was ready to sign the Agreement on the Defendant's behalf in that form. The provision as to saleable area was no different then.

39. This is reinforced by the position taken by LCL even after the dispute had arisen. On 19 September 1992, they wrote in the following terms :

"The term 'saleable area' in Clause 14A of the Agreement of Sale and Purchase dated 25 August 1992 ... in the absence of a definition and in a specific context, is vague and can mean anything. Clause 14A with the term 'saleable area' was added by you. We took the term to mean the area to be sold to your client, namely, the gross floor area." (emphasis added)

This would suggest that like Mr Lum, LCL failed to appreciate the meaning of "saleable area" in a conveyancing contract.

40. But in cases where a party is labouring under a mistake of interpretation, what is there to rectify? In cases of common mistake, there can be no rectification merely because of a misunderstanding of the meaning of the language used : there has to be a literal disparity between the language of the agreement and that of the instrument : see Snell's Equity at p.629. If a party is mistaken as to the meaning of words in their true technical sense, he is nevertheless bound by them : Bian Bee Co. v. Philipp Bros. H.K. [1980] HKC 438 at 441B. On principle, it should be no different where the mistake is merely unilateral. It would follow that rectification would be precluded.

41. Leaving that difficulty aside for the moment, as I understand it, the Defendant's case is that because the Plaintiff had enquired at the meeting of 11 August as to the reduction of the area from 8,620 to 7,864 sq.ft., that Kiu Lok's letter of 7 August was referred to, that a copy of that letter was faxed to the Plaintiff on 17 August, that therefore the Plaintiff knew or must have known (from the fact that the square footage appearing in Clause 14A is the same as that stated in Kiu Lok's letter) that LCL as well as their client, the Defendant, were labouring under a mistake. This, the Defendant submitted, was inequitable behaviour and that the Plaintiff ought not to be allowed to capitalize on it.

42. On the question of knowledge, it was noted by Lord Justice Slade (at pp.361-362) that there was one significant feature common to the three cases considered and analysed in The "Nai Genova" :

"In all the various formulations of the relevant principle in the judgments in those cases, none of the members of the respective Courts suggested that rectification can properly be granted on account of unilateral mistake unless the defendant had actual knowledge of the existence of the plaintiff's mistake at the time when the contract was signed."

43. I turn first to the meeting of 11 August. It is clear from Miss Lee's own evidence that she had nothing to do with the amendments. These were dealt with by Miss Cheuk. Miss Lee's evidence is that she did not know on what basis Miss Cheuk accepted, altered or rejected the amendments. In those circumstances, it is remarkable that the handling solicitor for the Defendant was not present at this meeting at which the Defendant was apparently expecting to sign the Agreement. Miss Lee could not have proffered and was not in a position to proffer any explanation as to why the area was reduced from 8,620 to 7,864 sq.ft. at the meeting on 11 August. It would have been nothing more than pure surmise on her part from Kiu Lok's letter which co-incidentally contained a reference to 7,864 sq.ft.

44. The meeting dealt with a number of other matters. As noted above, on 10 August Mr Wong was informed that the tenant was renewing its lease. This was a new development so far as Mr Wong was concerned. From the Plaintiff's perspective it immediately gave rise to questions such as the amount of the new rental, its apportionment between the two landlords and the apportionment of management fees. Although Miss Lee appeared to suggest that hardly anything else was discussed other than the reduction in square footage, I reject that evidence. Even on Mr Lum's evidence, Mr Wong was asking question after question which Mr Lum took as evidencing a lack of sincerity on the Plaintiff's part to purchase the property. It stands to reason that the new development would most naturally have given rise to those other questions. From Mr Wong's perspective, those matters would materially affect the rate of return and thus the decision whether or not to purchase the property as an investment. His subsequent conversation with Mr Au on 11 August leading to the latter supplying published rental data which was not challenged is consistent with what Mr Wong said were matters upon which he particularly focused.

45. What "knowledge" is to be attributed to the Plaintiff by reason of the fact that Kiu Lok's letter was supplied to the Plaintiff two days prior to its execution of the Agreement? The importance of Kiu Lok's letter from the Plaintiff's perspective was plainly the allocation of undivided shares and management units which determined the apportionment of rental and management charges which directly affected the rate of return on capital. Whilst that was based on Kiu Lok's estimate of the approximate gross floor area of the two units, it was the allocation itself that would have been most material from a prospective purchaser's point of view. In so far as the letter contained a reference to 7,864 being the "approximate gross area" of Unit 1402, it is evident that this was a mere "recommendation" on the part of the management company proffered on a "without prejudice" basis. It is nowhere apparent how Kiu Lok arrived at that figure : it certainly did not purport to be the result of any actual measurements taken by a surveyor.

46. It is not the responsibility of a property management company to ascertain floor area whether gross or saleable. That has to be a matter for a surveyor. This much is clear from Mr Man's evidence. No reasonable person would thus have relied on measurements taken by a management company as the basis for giving the warranty. Even Mr Au accepted that had he been told that the measurement was not done by a surveyor, he would not rely on it. In the circumstances, it would not be reasonable to attribute to the Plaintiff a belief that the vendor simply relied on Kiu Lok's letter and nothing else for the warranty. Had the letter not been from Kiu Lok but from a surveyor setting out his findings, it might be a different matter. But that was not what actually happened.

47. The evidence of the conveyancing experts was to the effect that where a vendor gives a warranty as to area, a purchaser's solicitors would not be concerned as to how the vendor came to give that warranty. That was the responsibility of the vendor's own solicitors. The Plaintiff and its solicitors were not under any duty either to advise the vendor or to ensure that it understood the nature of the warranty given. It accords with common sense that it is not for the purchaser to discharge the duty that properly falls upon the vendor's own solicitors.

48. There is no evidence that the Plaintiff actually knew or appreciated that the Defendant and, seemingly, also its solicitors, did not understand the true meaning of saleable area. That fact alone would rule out rectification : see The "Nai Genova" (supra).

49. As to equitable considerations, it is relevant that the Plaintiff in no way caused or contributed to the Defendant's mistake : the Defendant's mistake was not induced by any act of the Plaintiff. Responsibility for the mistake and its consequences lies elsewhere.

50. Given the facts of this case, to grant rectification would be "to extend the frontiers of the circumstances in which rectification may be granted on the grounds of mere unilateral mistake, beyond the frontiers established" by the cases : see per Lord Justice Slade in The "Nai Genova" (supra) at 362. No cogent or compelling arguments have been advanced for such an extension and the Defendant's claim to rectification must be refused.

Damages

51. The Plaintiff seeks damages of $7,820,475 which represents the difference between the warranted saleable area of 7,864 sq.ft. less the actual saleable area of 6,596.5 sq.ft. times a unit rate of $6,170 per sq.ft. In my judgment, that is the correct measure of damages.

52. The Defendant had contended that on the evidence, the Plaintiff had not suffered any loss because based on the valuers' evidence of the market value of the property as at 25 August 1992, the Plaintiff has not sustained a loss. But the question is not whether the Plaintiff had paid more than what the property was worth at the time of the transaction : rather, the Plaintiff did not get what he had contracted for, namely, 7,864 sq.ft. of saleable area. The diminution in the value property acquired is thus the difference in the area at the unit rate of $6,170.

Order

53. The Defendant is to pay the Plaintiff the sum of $7,820,475 together with interest pursuant to s.48 of the Supreme Court Ordinance from 22 August 1992 until payment at the rate of 10% per annum.

54. I make an order nisi that the Defendant do pay the Plaintiff the costs of this action.