GLORIOUS MOTORS LTD v. ZHOU MEILING

DCCJ 3830/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 3830 OF 2014

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JUDGMENT

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THE PARTIES

1.  At all material times, the plaintiff is a limited company incorporated in Hong Kong carrying on the business of buying and selling motor vehicles and accessories.

2.  The defendant was the registered owner of a Porsche G11 Carrera S Coupe vehicle bearing registration number 911 YZ (“the Vehicle”).

3.  The present dispute arose out of a sale and purchase of the Vehicle in June 2014 between the plaintiff and the defendant.

PARTIES INVOLVED IN THE SALE OF THE VEHICLE AND FACTS NOT IN DISPUTE

4.  Mr Lau Wai Ki (“Mr Lau”) was and is the sales manager of the plaintiff.  Mr Edwin Tai (“Mr Tai”) was a subordinate of Mr Lau in June 2014.  Glorious Motors Services Limited was and is an associated company of the plaintiff (“Glorious Motors”).

5.  Mr Chan Kam Leung Michael (“Mr Chan”) is the husband of the defendant.  He was a director and sole shareholder of Legend Interiors Limited (“Legend Interiors”) in June 2014. 

6.  Sometime before 19 June 2014, an advertisement for the sale of the Vehicle as a second hand car was posted at the website of 28car.com by Mr Chan’s secretary stating that the Vehicle was available for purchase at the price of HK$1,300,000.

7.  Mr Seto Kin Kwan Franco (“Mr Seto”) was at the material time the chauffeur for Legend Interiors.  He was responsible to drive the Vehicle to the plaintiff’s office to complete the sale and purchase of the Vehicle.

8.  Mr Lau was aware of the advertisement and instructed Mr Tai to follow up.  Sometime before 19 June 2014, Mr Tai was able to contact Mr Seto, who held himself out as the agent for the owner of the Vehicle.

9.  Mr Tai learnt from Mr Seto that the Vehicle’s owner was agreeable to sell the Vehicle at a price of HK$850,000.  The price was also agreed by Mr Lau on behalf of the plaintiff.  Mr Seto subsequently drove the Vehicle to the plaintiff’s office on 19 June 2014. Mr Seto brought along with him the Vehicle Registration Document duly signed by the defendant and a set of original car keys.  The Vehicle was inspected by the staff of the plaintiff at the plaintiff’s car service room.

10.  At the plaintiff’s office, a bank draft that was procured by the plaintiff in favour of the defendant in the sum of HK$850,000 was shown to Mr Seto by Mr Tai.

11.  In the course of the transaction, Mr Seto provided a copy of his Hong Kong Identity Card to the plaintiff.

12.  Subsequently on 19 June 2014, Mr Tai on behalf of the plaintiff and Mr Seto signed the Purchase Agreement (“the Agreement”).

13.  Mr Seto also provided the Vehicle’s transfer document pre-signed by the defendant to Mr Tai when both of them were processing the transfer of the Vehicle title from the defendant to the plaintiff at the Transport Department.

14.  The aforesaid bank draft was passed onto Mr Seto.  Mr Seto signed a Payment Received Form for the bank draft.  It was not disputed throughout the proceedings that Mr Seto signed the receipt for the bank draft.

15.  The bank draft was duly presented to the defendant and payment was honoured.

16.  It was a common ground between the parties that a vehicle which had been driven to China would have a red mark impressed on the vehicle chassis number by the mainland authority.

THE DISPUTE THAT GAVE RISE OF THE PLAINTIFF’S CLAIM

17.  A major and important concern of the plaintiff was whether the Vehicle had been travelled in China because if it had, it would reduce its value in the market.

18.  The plaintiff contended that on Mr Lau’s instructions, Mr Tai expressly asked Mr Seto whether the Vehicle had ever travelled in China.  Mr Seto, as the agent of the Vehicle owner (ie the defendant), expressly represented and confirmed that the Vehicle had never been driven in China.  Relying on the said representation, the plaintiff decided to purchase the Vehicle at the price of HK$850,000 offered by Mr Seto on behalf of the defendant.  The plaintiff contended that had the plaintiff known that the Vehicle had been driven in China, the plaintiff would offer a much reduced price instead of HK$850,000, ie by 20% lower than the agreed price of HK$850,000.

19.  The plaintiff contended that on 19 June 2014, the Agreement was executed by the plaintiff’s authorised representatives as purchaser and Mr Seto on behalf of the defendant as seller.  Clause 3.1 of the Agreement contained a clause about record of travelling in China (是否有中港行走記錄). It was expressly specified that the Vehicle had no record of travelling to China.

20.  Further, upon inspection by staff of the plaintiff, there were no extra drilling holes or even traits found on the Vehicle bumper.  The plaintiff contended that this indicated no other licence plate had ever been fixed on to the Vehicle or the Hong Kong vehicle number plate.

21.  Also on 19 June 2014, a Trade-in Vehicle Condition Form (Trade-in車收車時狀況表) (“the Form”) provided by the plaintiff was also signed by Mr Seto on behalf of the defendant.  It was recorded in necessary repair item column of the Form (所需維修事項) that both rear tyres required repairing work.  It was the plaintiff’s case that Glorious Motors acquired a set of tyres from Mr Seto and paid him HK$10,000.

22.  Subsequently, the plaintiff sold the Vehicle to a customer, namely Hui Ka Ming (“Mr Hui”) at the price of HK$1,230,000.  Both parties executed a Vehicle Sale and Purchase Agreement on 13 August 2014 (“the SP Agreement”).  Mr Hui paid an initial deposit of HK$110,000.  Clause 6 of the SP Agreement stated that the Vehicle had no Hong Kong China cross border driving record (中港行走記錄：沒有).  The plaintiff contended that if the Vehicle had ever travelled in China, the sale price would be less than HK$1,230,000.

23.  Mr Hui engaged Hong Kong Automobile Association (“HKAA”) to inspect the condition of the Vehicle.  On 15 August 2014, HKAA prepared a report and concluded that the Vehicle had been travelled in China because red mark was found on the Vehicle’s chassis.

24.  As the plaintiff was in breach of the SP Agreement, the plaintiff and Mr Hui agreed to rescind the SP Agreement and the initial deposit was returned to Mr Hui on 26 August 2014.

25.  On 26 September 2014, the plaintiff eventually sold the Vehicle to one Mr Falkiner John Derek Nelson (“Falkiner”) at a price of HK$980,000 by entering into a Vehicle Sale and Purchase Agreement.  The plaintiff contended that the plaintiff has suffered a loss of profit of HK$250,000 (HK$1,230,000 - HK$980,000).

THE PLAINTIFF’S CLAIM

26.  The plaintiff claimed against the defendant on the grounds of fraudulent/negligent misrepresentation and/or breach of Agreement made by the defendant and/or her agent, i.e. Mr Seto, the plaintiff suffered financial loss and damage caused and occasioned by the cancellation of the SP Agreement with Mr Hui. In the Statement of Claim, the plaintiff claimed against the defendant:-

(a)  A declaration that the Written Agreement is void and be terminated due to misrepresentation by the defendant;

(b)  HK$250,000 being loss of profits by the plaintiff;

(c)  HK$20,750 being extra costs and expenses incurred by the plaintiff;

(d)  Interest pursuant to section 49 of the District Court Ordinance;

(e)  Costs; and

(f)  Any other reliefs as the Honourable Court deems just and fit.

27.  In the hearing, the plaintiff’s counsel confirmed that the plaintiff abandoned the claim for a declaration that the Written Agreement was void and should be terminated due to misrepresentation by the defendant since the Vehicle had been sold and there was no need to pursue this relief.

THE DEFENDANT’S CASE

28.  The defendant claimed that she had authorized her husband, namely Mr Chan, to act on her behalf in respect of the sale of the Vehicle and all related arrangement and decision hereof.  The defendant admitted that Mr Seto was involved in the sale of the Vehicle to the plaintiff.  The defendant admitted that Mr Chan had briefed Mr Seto on the condition of the Vehicle and that the Vehicle had been used in China before.

29.  The defendant denied that Mr Seto had ever represented to Mr Tai that the Vehicle had not travelled in China.  To the contrary, the defendant claimed that Mr Chan had briefed Mr Seto on the condition of the vehicle and that the Vehicle had been used in China before.  As such, Mr Seto had expressly made known to Mr Tai that the Vehicle had travelled to China.

30.  The defendant and Mr Chan alleged that Mr Seto had no authority to sign any document on the defendant’s behalf.  The defendant alleged that Mr Seto had made known to the plaintiff’s representatives that he had no authority to sign any document on behalf of the owner of the Vehicle.

31.  It was the defendant’s case that during the inspection conducted on 19 June 2014, the plaintiff should or ought to have discovered that the Vehicle had been driven in China because the red mark was embossed at the chassis of the Vehicle.  According to the defendant’s defence, it was unreasonable for the plaintiff to rely on any alleged representation made by Mr Seto.

32.  To sum up, the defendant asserted that (1) Mr Seto had no authority to sign any documents on behalf of the defendant; (2) Mr Seto did not make any false representations in relation to the Vehicle and did in fact tell the plaintiff that the Vehicle had been driven into China before; and (3) regardless as to what representation Mr Seto had made to Mr Tai prior to the sale of the Vehicle, the plaintiff did not rely on his representations.  Instead they must have relied on their own expertise before concluding the Agreement.

THE PLAINTIFF’S PLEADINGS AND CAUSES OF ACTION

33.  The plaintiff claimed against the defendant on the grounds of fraudulent/negligent misrepresentation and/or breach of Agreement. paragraphs 3 to 7 of the Statement of Claim is set out as follows:-

“3.  During the course of negotiations between Tai on behalf of the plaintiff on one side, and the defendant herself and Mr Seto Kin Kwan Franco on behalf of the defendant on the another side on or about 19^th June 2014, the defendant orally represented to Tai that the Vehicle had not been to China (the “Representation”).  The defendant at all material time knew that the Representation was false.  By that Representation, the defendant induced Tai/the plaintiff to enter into the Agreement.

4.  Acting in reliance on the Representation, the parties eventually reached a deal.  The plaintiff agreed to purchase the Vehicle from the defendant in the consideration of HK$850,000.

5.  Both parties then reduced their understandings and verbal agreements into writing by executing a written purchase agreement dated 19^th June 2014 (“the Written Agreement”).  The Written Agreement states, inter alia, that the Vehicle has had no records of travelling in China i.e. it had not been taken to China.  It was also agreed that the defendant would cause to change the Vehicle’s registration record and assign all her interests to the plaintiff forthwith upon completion of the transaction.

6.  Thereafter, the plaintiff via its representative and agent, Mr Alfred Chan, sold the Vehicle to Mr Hui Ka Ming (“Hui”) in the consideration of HK$1,230,000, pursuant to a sale and purchase agreement dated 13^th August 2014 (the “Sale & Purchase Agreement”).

7.  It a term of condition of the Sale & Purchase Agreement that the Vehicle has no record of travelling in China (i.e. it had not been to China). It is also a term of condition that Hui could, in his own monies, hire an independent third party to inspect the condition of the Vehicle.”

34.  The defendant submitted in the closing submission that in the Statement of Claim, the plaintiff had all along pleaded the term “false representation”.  However, the pleadings did not reveal whether the claim was founded upon negligent misrepresentation or fraudulent misrepresentation.  One could only speculate by further reading into the Statement of Claim when the plaintiff asserted that the defendant “knew it was false” that it had really meant to plead for fraudulent misrepresentation.  Even so the particulars for fraud were sufficiently lacking and there was an abundance of case law to indicate that fraud must be specifically pleaded.

35.  The defendant submitted that such speculation was later only confirmed upon further pressing during the pre-trial review before Deputy District Judge Winnie Tsui on 3 October 2016 where counsel for the plaintiff confirmed that the claim would be based on fraudulent misrepresentation.

36.  However, it was noticed from the plaintiff’s list of authorities that was filed at the beginning of trial that the plaintiff had referred the court to the concept of negligent misrepresentation.  Even if the plaintiff had originally meant to plead for an alternative case of negligent misrepresentation, the defendant submitted that the statement of claim never mentioned what exactly the negligence was complained of.  The defendant also took issue that “breach of contract” was also mentioned during the oral opening submissions as well to indicate that the plaintiff might rely on another new cause of action after plaintiff’s counsel had informed the court that the plaintiff no longer sought for the first item of relief in their prayer for relief namely a declaration that the written agreement was to be void and terminated due to misrepresentation by the defendant. 

37.  The use of pleadings has been succinctly emphasised in the judgment for Aktieselskabet Dansk Skibsfinansiering v Wheelock Marden & Co Ltd and Others [1994] 2 HKC 264.  The defendant relied on this authority to reiterate the trite principle that a party was not permitted to run a case that is not pleaded.  

38.  I reject the contention of the defendant that the nature of misrepresentation i.e. negligent or fraudulent misrepresentation needed to be specifically pleaded in this case.  In my judgment, it is trite that a party needs only to plead the material facts and not law in his pleadings: see for example the following passage in Atkin’s Court Forms in Civil Proceedings, Vol 32 1996 issue p 16 §15:-

“The court’s duty at trial is to determine the legal effect of the facts proved. It is usually neither necessary nor appropriate to plead law or legal argument or to assert the legal effect of the facts pleaded, for it is the duty of the court to take judicial notice of what the law is in determining whether the facts pleaded and proved establish the case of the plaintiff or defendant in law.”

39.  Although a party may by his pleading raise any point of law, this is not always required: see §18/11/1 of Hong Kong Civil Procedure 2017.  In my judgment, throughout the trial, the defendant was well aware of the issues and had all along been aware that the plaintiff had been running the case that the claim was made against the defendant on the grounds of fraudulent/negligent misrepresentation and that the Agreement was signed by Seto on 19 June 2014 in which one of the terms stated that the Vehicle had had no record of travelling in China.  There was no real prejudice on the part of the defendant.  The purported misrepresentation tied in with the said term in the Agreement which would amount to a breach of the Agreement if the term turned out to be false.  Such contention was well known to the defendant since in the Joint Agreed Statement of Issues filed by the parties on 18 October 2016, the parties had agreed and asked the court to rule on whether the representation of Mr Seto to Mr Tai was false in that it amounted to a negligent or fraudulent misrepresentation and whether Tai's representation to Mr Seto was false when inducing Mr Seto to sign the Agreement which amounted to a negligent or fraudulent misrepresentation.

WITNESSES OF THE TRIAL

40.  The plaintiff had one witness, namely Mr Lau who was the sale manager of the plaintiff at the material time.

41.  The defence side had two witnesses, namely the defendant and Mr Chan who is the defendant’s husband.

42.  Neither Mr Tai nor Mr Seto had made any witness statement for the purpose of the trial.  They did not attend court to testify.

EVIDENCE OF MR LAU

43.  Mr Lau had adopted his witness statement and his affirmation dated 31 May 2016. Under cross-examination, Mr Lau explained that the plaintiff did not have the necessary mechanical equipment and technical knowhow of staff to inspect the chassis number of the Vehicle.  The plaintiff relied on the representation of Mr Seto on behalf of the defendant.

44.  Mr Lau also gave the following major evidence under cross-examination:-

(a)  he (acting on behalf of the plaintiff) had not been told by Mr Seto or anyone that the defendant did not authorise Mr Seto as an agent in the transaction of the Vehicle

(b)  he had no knowledge that Mr Chan was the agent of the defendant

(c)  from Mr Seto’s conduct, it was reasonably clear to him that Mr Seto was the agent of the defendant because:-

(i) Mr Seto was the driver of the Vehicle;

(ii) he carried with him the set of original keys of the Vehicle;

(iii) he had with him the Vehicle Registration Document;

(iv) the defendant’s signature appeared on the Vehicle Registration Document;

(v) the Vehicle was brand new at the time it was purchased by the defendant;

(vi) Mr Seto executed the Agreement on behalf of the owner of the Vehicle;

(vii) Mr Seto was able to procure the Vehicle transfer document duly signed by the defendant.

(d)  It was of utmost importance that the Vehicle had not been into China, as it would affect the value of the car.  As a point of reference, he stated that super cars like the Vehicle would lose 20% of their value if they had been into China.  Mr Lau admitted that not only was it his practice not to wholly rely on the seller when purchasing second hand cars for the plaintiff, he would also always require his colleagues at the inspection, maintenance and repair centre to inspect the car before purchase.  He had instructed Mr Tai to have the Vehicle inspected by their colleagues on 19 June 2014.

(e)  He admitted that competition in the second hand car market was very keen, which was why he had instructed Mr Tai to make immediate negotiations as soon as he found the Vehicle and its purchase price appealing.  He admitted that he has never contacted, seen or conversed with the defendant or Mr Seto.

(f)  He stated that his team had used a special computer to analyse the data of the Vehicle.  From that analysis Mr Lau’s team would already be able to see what the chassis number of the Vehicle was in that there was no need to go to the back of the car, open the rear cover and check with their own eyes.  Thus, Mr Lau’s team did not physically see the chassis number on the day in question. The special computer would not be able to check whether there were scratches on the Vehicle, whether rust had formed or whether the Vehicle had been driven back to China.  Software errors might render analysis results inaccurate.

(g)  Mr Lau said that his colleagues on the material day was only able to check whether there was any china license plate installed in the front or the back of the Vehicle and whether there were extra drilling holes or even traits on the Vehicle’s bumper.  His colleagues also looked for traces of glue that was used to stick on a sensor as required by the Chinese immigration authorities at the border.  These matters his views are also important evidence to show if the Vehicle had been to China.

(h)  He admitted that the Agreement was a standardised form for the sales and purchase of all cars created by the plaintiff whereby all of the plaintiff’s employees ought to know how to fill in the information as required on the form. He agreed that it was Mr Tai who filled in the Agreement.  He did not agree that the Agreement had deficiencies which reflected that it was not a document to be relied upon by the plaintiff in proving its case.  All missing particulars in the Agreement were not material.

45.  When combing through the Agreement at cross examination, Mr Lau admitted, inter alia, to the following:-

(a)  The seller’s address was left blank.

(b)  The seller’s name was written down in full whereas the name of the contact person for the seller was not.

(c)  Contrary to the practice as observed in the 13 August 2014 sales and purchase agreement and the 26 September 2014 sales and purchase agreement, there were no signatories next to the items that were marked with a [*] in the Agreement to indicate that the parties did confirm and agree with the contents therein and that it was not done after the conclusion of the Agreement.

(d)  Clause 4.1 had a blank space to fill in the name of the authorized person for the sale - “I/The Company, _____________ is the registered owner/authorized person”

(e)  Pursuant to Clause 5.3 of the Agreement, if an authorized person were to deal with the transaction on behalf of the true vehicle owner, the authorized person should be named as the seller of the Agreement and as the authorized person in Clause 4.1 of the Agreement.

(f)  Mr Seto was not named as the seller or the authorized person in the Agreement.

(g)  Despite the fact that Mr Seto was neither named as the seller or the authorized person, it was Mr Seto who signed as “Zhou Mei Ling” at the bottom of the Agreement.

46.  Mr Lau was then asked to turn to the page which showed the trade in information form. Mr Lau also admitted that despite the fact that Mr Seto was neither named as the seller or the authorized person, it was Mr Seto who signed as “Zhou Mei Ling” at the bottom of the trade in information form.

47.  It was therefore put to Mr Lau by the defendant’s counsel that if Mr Tai honestly believed that Mr Seto was the authorised person to sign this particular document, Mr Tai could have simply written Mr Seto’s name down as the seller and/or the authorised person in the Agreement as he should have according to the blanks provided.  Furthermore, Mr Seto would not need to and should not sign as Zhou Mei Ling when he was clearly not Zhou Mei Ling.  Mr Lau agreed to the aforesaid and stated that even though Mr Seto appeared to be the authorized agent to deal with the Vehicle for he was able to provide all necessary documents to facilitate the completion of the Agreement despite the absence of a written letter of authorization from the defendant, he did not understand why Mr Tai had failed to put Mr Seto’s name as the authorized person on the Agreement and had Mr Seto to sign on the Agreement as the defendant instead. In his own words he said「我都唔明點解咁」.

48.  When combing through the trade in information form, Mr Lau admitted, inter alia, to the following:-

(a)  This was also a standardized form prepared by the plaintiff for their employees to fill in and no information ought to be omitted.

(b)  The first registration date was filled in as “22-3-2010” which was incorrect as the first registration date of the Vehicle was 23 March 2010.

(c)  An entire part of the trade in information form (i.e. the part stating車輛設備 (選擇並圈上)) was left blank.

(d)  Mr Seto was not named as the seller or the authorized person. It was Mr Seto who signed as “Zhou Mei Ling” at the bottom of the trade in information form

49.  Mr Lau was also asked about the HK$10,000 payment that was issued to Mr Seto to which the defendant asserted that there was no good reason for such other than it being a bribe.  Mr Lau denied this and asserted that the payment was for a genuine transaction whereby Mr Seto had sold a set of tyres to the plaintiff for the sum of HK$10,000.

50.  Mr Lau who oversaw the sale and purchase of the Vehicle also admitted that Mr Seto was a driver.  He did not receive any written verification to prove Mr Seto’s scope of authority in the matter.  He had read the Agreement after it was executed and brought back to the plaintiff’s office.

EVIDENCE OF THE DEFENDANT (UNDER CROSS-EXAMINATION)

51.  Under cross-examination, the defendant admitted, inter alia,  the following:-

(a)  she knew Mr Seto was a driver of Mr Chan’s company (Legend Interiors);

(b)  she knew Mr Seto assisted Mr Chan in the transaction;

(c)  she knew that, being a company director of a company incorporated in Hong Kong, her personal particulars are in the public domain;

(d)  she was a director and shareholder of a number of companies including View International Holdings Limited at the material time;

(e)  View International Holdings Limited shares the same office with Legend Interiors;

(f)  she knew a vehicle that had been driven to China would fetch a lower price than one which had not been driven to China.

52.  The defendant did not authorize/appoint Mr Seto as her agent.

53.  The defendant denied that Mr Seto had ever presented the Agreement to her.  She was only aware of the existence of the Agreement after she had notice of the letter before action from the plaintiff’ solicitors.  The defendant was under the impression that there was no definite need to sign any sale and purchase documents when selling a car in the second hand market.  Such knowledge came from her own experience.

EVIDENCE OF MR CHAN (UNDER CROSS-EXAMINATION)

54.  Mr Chan told the court that he had only employed Mr Seto as his company driver on 3 June 2014, which was 16 days before the sale of the Vehicle.  Mr Seto’s job was mainly to drive him to attend his personal appointments and/or errands.

55.  Under cross-examination, Mr Chan stated that he had told Mr Seto to inform the purchaser that the Vehicle had been used in China.

56.  He knew that the Vehicle would fetch a lower price because it had been driven to China.

57.  Mr Seto was not his agent, nor the agent of the defendant.  He denied that he had authorised Mr Seto as his agent.

58.  He was not aware that Mr Seto had signed the Agreement because Mr Seto did not present a copy to him.  He was only told by Mr Seto about this Agreement after he had notice of the letter before action from the plaintiff’ solicitors.

59.  He admitted that he might have mixed up the dates as to when exactly did he and the plaintiff come to an agreement that the purchase price for the Vehicle would be for $850,000.  He had only asked the defendant to sign the vehicle registration document and the transfer document after the plaintiff agreed to the purchase price of the Vehicle in preparation for completion.

60.  He was under the impression that there was no definite need to sign any sale and purchase documents when selling a car in the second hand market.  Such knowledge came from his own experience.  He was not asked to sign any sales and purchase documents when he sold another one of his cars just a few days before he sold the Vehicle.

61.  Mr Chan told the court in his cross examination and re-examination, all one needed was a L-shape bracket to screw into the original drilling holes that came with the Vehicle for one to slot in the China License Plate inside the bracket that would place it underneath the Hong Kong License Plate. 

62.  Mr Chan told the court that since he knew that he was about to sell the car to a Hong Kong car dealership, he had volunteered to take off the sensor before completion.  However, since he had thought that no one would want traces of glue left on the Vehicle, he had asked someone to clean it up. 

EVIDENTIAL VALUE OF MR SETO’S HANDWRITTEN NOTE AND AFFIRMATION

63.  In Mr Chan’s witness statement filed on 17 November 2015, it was annexed with an affirmation of Mr Seto affirmed on 24 April 2015.  Mr Chan requested Mr Seto to explain the entire incident by way of an affirmation before Mr Seto tendered his registration in or about April 2015.  Mr Seto’s affirmation (which was not filed into court) was only a typed up version of the handwritten note made by him.  It is however important to note that Mr Seto was not called to give evidence in the trial.

64.  As regards the evidential value of Mr Seto’s handwritten note and affirmation, the defendant drew the court’s attention to section J1/46/3 of the Hong Kong Civil Procedure (2017).  It says:-

“The classical definitions (Subramaniam v. Public Prosecutor [1956] 1 W.L.R. 956 at 970, characterised as the classic statement of the rule against hearsay in S-J v. Lui Kin Hong (1999) 2 H.K.C.F.A.R. 510) of hearsay distinguish between inadmissible hearsay and admissible hearsay.  “It is hearsay and inadmissible when the object is to establish the truth of what is contained in the statement.  It is not hearsay and is admissible when it is proposed to establish by the evidence, not the truth of the statement, but the fact that it was made.”  (Subramaniam v. Public Prosecutor [1956] 1 W.L.R. 956 at 970)

65.  In other words, in considering whether Mr Seto’s handwritten note or affirmation is admissible or not will depend on what it is being used for.

66.  The defendant’s counsel explained that Mr Seto’s affirmation (which was not filed into court) was only a typed up version of the handwritten note.  This was done so for the ease of reading and so for Mr Seto to sign and confirm that the contents of the handwritten note had been properly reduced into typing.  It was not intended to be used in these proceedings as a formal witness statement (so that it would stand as Mr Seto’s evidence in chief if he were to be called as a witness) as the defendant knew that she would not be able to call upon him in these proceedings due to the criminal charge that had been laid upon Mr Seto where the defendant and Mr Chan were prosecution witnesses at Mr Seto’s criminal trial.

67.  As expressed in court, the defendant’s counsel confirmed that the purpose of these documents is to inform the court how Mr Chan’s knowledge to this matter was derived.  It did not aim to show the truth of what had happened which meant that it was no different than any documentary exhibit that was allowed to be annexed in a witness statement to support one’s case.

68.  These documents are admissible at this trial.  However, since Mr Seto was not called to give evidence in trial to be cross-examined by the plaintiff, I will not give any weight to these documents.

CREDIBILITY OF WITNESSES

69.  In assessing credibility, it is trite that the court takes into account, among other things, the inherent probabilities or improbabilities of one’s testimony, the contemporaneous documents or any evidence, which is undisputed or indisputable, tending to support or contradict one account or the other and the overall impression of the characters and motivations of the witnesses.  Where there exists a wealth of contemporaneous documents, credibility is to be tested by reference most particularly to them.

70.  I paid close attention to the oral testimony of all the witnesses and had a good observation of them.

71.  On the whole, I find that Mr Lau appeared to be straightforward and was able to provide a clear account on the matters that were within his knowledge.  On those matters that were not within his first-hand knowledge or even works against the plaintiff, he would admit that.  Although subject to very thorough cross-examination by the defendant's counsel, his evidence in my view remained clear and intact.  I find Mr Lau to be generally forthcoming and fair under cross examination.  I accept Mr Lau’s evidence.

72.  As regards the defendant, she had little knowledge about the deal and she had delegated the task to her husband.  I accept the fact that her participation in the sale of the Vehicle was minimal.  She was trying her best to tell this court what she believed to be the truthful account of the events.

73.  I find Mr Chan a more guarded and cautious witness. Mr Chan gave me the impression that all that he was interested in the process was the sale price and to ensure that Mr Seto would only pass the transfer documents to the plaintiff after getting hold of the cashier order.  He did not care too much about the other details in the sale process and what Mr Seto had represented to the plaintiff. In my view, some of the answers he gave under cross-examination were not quite compatible with the usual commercial practice e.g. he maintained that there was no need to sign any agreement in course of sale of vehicle to a motor company based on his past experience.  I do not accept such contention.  I consider that it was rather common for a motor company requesting the customers to sign some form of written agreement or document in the course of acquisition of a vehicle.  Mr Chan knew that the purchaser was a motor company.  I find it quite unusual that Mr Chan and the defendant had never seen the Agreement and had never even asked about it after the sale of the Vehicle.

74.  Further, under cross-examination, Mr Chan claimed that he had told Mr Seto to inform the staff of the plaintiff that the Vehicle had been used in China.  Despite it was not stated in Mr Chan’s witness statement that he told Mr Seto to reveal the fact to the purchaser that the Vehicle had been travelled to China, he alleged under cross-examination that in fact he had told Mr Tai through Mr Seto to state to the staff of the plaintiff that the Vehicle had been driven to China.  This part of Mr Chan’s oral testimony was not consistent with his witness statement.  This gave me the impression that Mr Chan was making up this part of the evidence under cross examination to work in his favour.  I approach Mr Chan’s evidence with caution.

75.  The defendant denied that Mr Seto had ever represented to Mr Tai that the Vehicle had not travelled in China.  To the contrary, the defendant claimed that Mr Seto had expressly made known to Mr Tai that the Vehicle had travelled to China.  Neither Mr Tai nor Mr Seto gave oral evidence at the trial to verify Mr Chan’s contention.  All the evidence concerning whether Mr Seto had ever represented to Mr Tai that the Vehicle had travelled into China was coming from Mr Chan.  However, Mr Chan had no direct dealings with any staff member of the plaintiff at any stage.  All contacts and communications on the part of the owner of the Vehicle with the plaintiff were made by Mr Seto.  Accordingly, this is simply hearsay evidence, I do not give any weight to this part of evidence given by Mr Chan.

76.  It was the defendant’s case that during the inspection conducted on 19 June 2014, the plaintiff should or ought to have discovered the Vehicle had been driven in China because the red mark was embossed at the chassis of the Vehicle.  According to the defence, it was unreasonable for the plaintiff to rely on any alleged representation made by Mr Seto.  However, no particulars as to how easy the red mark was detectable were pleaded.  The respective witness statements of the defendant and Mr Chan also did not touch upon this matter.

77.  Both key persons, namely Mr Seto and Mr Tai were not called for to give evidence in this trial.  The plaintiff submitted that Mr Tai had left the plaintiff’s company.  As such, the plaintiff could not be able to call Mr Tai to give evidence at this trial.  The defendant submitted that due to the criminal charge that was laid upon Mr Seto, the defendant and Mr Chan were prosecution witnesses at that trial.  As such, the defendant would not be able to call Mr Seto in the present trial.  Moreover, they could not contact Mr Seto as he moved and has always been in Mainland.

78.  The consequences of a failure to call a witness is well described in the following passage from Ip Man Shan Henry v Ching Hing Construction Co Ltd (No 2) [2003] 1 HKC 256 at 307, per Lam DJHC (as he then was):-

“...... In my judgment, the relevant principles applicable to civil proceedings can be summarized as follows,

(a)  if a prima facie case is made out, and if there is evidence available to the party against whom the case is established which could displace the prima facie case, and he omits to call such evidence, an inference could be drawn;

(b)  however, the inference could be rebutted by a plausible explanation by the party who elected not to call the evidence;

(c)  if an inference is to be drawn, it would be an inference that such available evidence, even if adduced, would not displace the prima facie case;

(d)  it is also open to a tribunal of fact, upon the drawing of such an inference, to take it into account in respect of a matter with respect to which the person not called as a witness could have spoken,

(i)     in deciding whether to accept any particular evidence, which has in fact been given, either for or against that party;

(ii)    in deciding whether to draw inferences of fact, which are open to them upon evidence which has been given.”

79.  In the circumstances of this case, I accept that the parties did give plausible explanations for both Mr Tai for the plaintiff and Mr Seto for the defendant had not been called as witnesses in this trial.  Therefore, I shall not draw adverse inferences against both parties.

THE LAW

Agency

80.  Actual authority is the authority which the principal has given the agent wholly or in part by means of words or writing (i.e. express authority) or is regarded by the laws as having given him because of the interpretation put by the law on the relationship and dealings of the two parties (i.e. implied authority): see Bowstead on Agency (19^th ed) §3-003 at p 112.

81.  As a matter of general principle, when a person by words or conduct represents or permits to be represented that another has authority to act on his behalf, he may be bound by the acts (which he has not authorised and has even forbidden) of that other person with respect to anyone dealing with him as agent on the faith of such representation, to the same extent as if such other person has the authority that he is represented to have, even though he has no such actual authority.[1]  Such representation must be made to third party(ies) who must have reasonably relied on it.[2]  An act of an agent within the scope of his apparent authority does not cease to bind his principal merely because the agent was acting fraudulently and in furtherance of his own interests.[3]  Such doctrine applies to transfers of property.[4]  The burden of proof is on the person alleging apparent authority.

82.  A representation by the agent himself that he has authority cannot create apparent authority in him unless the principal can be regarded as having in some way instigated or permitted it, or put the agent in a position where he appears to be authorised to make it.[5]  One way in which courts have sought to validate unauthorised dispositions by agents in possession of goods or documents of title is to recognise apparent authority where the principal has entrusted the agent with indicia of title to property with some representation beyond mere parting with possession.[6]

83.  In Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (No 2) [7], Lord Neuberger NPJ held that once apparent authority is established, the ability to rely on the representation so made out will be lost only if the third party has actual knowledge of the lack of actual authority or if that party’s belief in the agent’s authority was dishonest or irrational.  The test of “irrationality” sets a higher hurdle than “unreasonableness” in that, in a commercial context, absent dishonesty or irrationality (which included turning a blind eye and being reckless) a person should be entitled to rely on what was told.  This might occasionally produce harsh results, but it enabled people engaged in business to know where they stood.

MISREPRESNTATION

Legal Principles

84.  The relevant principles on actionable misrepresentation had been set out Redgrave v Hurd (1881) 20 Ch D 1.  It was held therein that where one person induces another to enter into an agreement with him by a material representation which is untrue, it is no defence to an action to rescind the contract that the person to whom the representation was made had the means of discovering, and might, with reasonable diligence, have discovered, that it was untrue.  It was further held that it is no defence in such an action the defendant made a cursory and incomplete inquiry into the facts, for that if a material representation is made to him he must be taken to have entered into the contract on the faith of it, and in order to take away his right to have the contract rescinded if it is untrue, it must be shown either that he had knowledge of facts which showed it to be untrue, or that he stated in terms, or showed clearly by his conduct, that he did not rely on the representation[8].

85.  The common law relating to fraud was established by the House of Lords in Derry v Peek (1889) 14 App Cas 337.  It was decided that in order for fraud to be established, it is necessary to prove the absence of an honest belief in the truth of that which has been stated.  As Lord Herschell had said:-

“...... fraud is proved when it is shown that a false representation has been made(1) knowingly; or (2) without belief in its truth; or (3) recklessly, careless whether it be true or false[9].”

86.  As respects the alternative claim for negligent misstatement, Section 3(1) of the Misrepresentation Ordinance states:-

“3.  Damages for misrepresentation

(1)  Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.” (emphasis added)

87.  Section 3(1) of the Misrepresentation Ordinance, Cap 284 allows an action for damages for misrepresentation to lie in the absence of fraud, and imposes on a party to a contract a duty not to make representations which he could not prove he had reasonable grounds to believe.

88.  The measure of damages recoverable under s 3(1) is the same as that for deceit.  Damages for deceit is the tortious and not the contractual measure and the basis for awarding damages is to put the successful litigant in the position he would have been had the representation not been made: Long Year DevelopmentLtd v Tse Fuk man Norman & ors [1991] 2 HKC 393.

89.  It is essential to remember that the measure of damages for deceit is the tortious measure. The measure of damages is not the contractual one of putting the innocent party in the same position he would have been in if the representation had been true.  See Chitty (32^nded) 7-055 and Clerk & Lindsell on Torts (16^th ed) para 18-40, Doyle v Obly (Ironmongers) Ltd and East v Maurer (1991) 1 WLR 461.

90.  Bearing the above principles in mind, I now turn to consider the present case.

ISSUES TO BE DETERMINED AT THE TRIAL

91.  Both parties had prepared a Joint Agreed Statement of Issues and the issues stated therein have to be determined by the court. In making my findings in this case, I shall, as far as I could and with some necessary modifications where appropriate, follow those issues agreed by the parties. They are:-

(1)  Whether Seto, being an agent of the defendant, was at the material time the authorized agent and representative of the defendant in conducting the transaction?  What was Mr Seto's scope of authority in relation to the sales and purchase of the Vehicle ?

(2)  Whether Mr Seto delivered the Vehicle to the plaintiff’s garage for a thorough inspection by the plaintiff’s mechanics on the morning of 19June 2014?  If the aforesaid delivery was a thorough inspection, how was the thorough inspection conducted on the morning of 19June 2014 by the plaintiff’s mechanics?  Could the red mark that indicated whether the Vehicle had been driven within China be easily located by visual inspection when the Vehicle was inspected by the plaintiff’s mechanics on the morning of 19June 2014 ?

(3)  Regardless as to whether the red mark that indicated whether the Vehicle had been driven within China could be easily located by visual inspection or not, would the inspection conducted by the plaintiff’s mechanics on the morning of 19June 2014 reveal or ought to have revealed that the Vehicle had been driven to China ?

(4)  Whether Mr Seto had told Tai that the Vehicle had been previously driven to China? Whether Seto had any authority to sign any agreement with a third party herein, including the plaintiff ? Whether the representation of Seto to Tai was false in that it amounted to a negligent or fraudulent misrepresentation?

(5)  Whether the plaintiff paid the sum of HK$10,000 as secret payment? If so, whether the plaintiff paid Mr Seto the sum of HK$10,000 so to induce Mr Seto to sign the written agreement on the afternoon of 19^th June 2014 even though Mr Seto had told Tai that he was not given the authority to do so?

(6)  If Seto was an agent of the defendant, whether the defendant is liable and if so, an assessment as to the quantum of damages to which the plaintiff is entitled.”

ANALYSIS

Whether Seto, being an agent of the defendant, was at the material time the authorized agent and representative of the defendant in conducting the transaction?  What was Mr Seto's scope of authority in relation to the sales and purchase of the Vehicle ?

92.  On this issue, the plaintiff submitted that the conduct of Mr Seto clearly indicated that he was at the material time the authorized agent and representative of the defendant on 19 June 2014 in concluding the deal.

93.  The defendant submitted that Mr Seto could not have had the actual or apparent authority to bind the defendant to the Agreement. 

94.  Therefore, the central question for the plaintiff to establish was whether Mr Seto was an agent or a sub-agent of the defendant and therefore had the actual authority from the defendant to negotiate and conclude the deal and signed the Agreement on her behalf.  If Mr Seto did not have the actual authority from the defendant to do so, then whether Mr Seto had the apparent or ostensible authority to negotiate and conclude any contract on behalf of the defendant.

95.  It is trite that authority can be inferred from the conduct of the parties and the circumstances of the case: see for example Freeman & Lockyer v Buckhurst Park Properties (Mangal) Ltd [1964] 2 QB 480; Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549.

96.  Counsel for the defendant submitted that Mr Seto’s role was merely to (i) take the Vehicle to prospective buyers for inspection purposes (ii) act as a messenger for Mr Chan to relay messages to prospective buyers (e.g. negotiating the purchase price of the Vehicle) (iii) deliver the signed license transfer form to the plaintiff for completion (iv) bring the bank draft received from the plaintiff back to Mr Chan and/or the defendant. He was not clothed with the authority to commit the defendant to the Agreement nor to sign the Agreement on behalf of the defendant.  Further, even if he had been clothed with such authority, the plaintiff was irrational or dishonest in its belief that it relied on that authority.

97.  It was clear from the evidence that Mr Chan and the defendant took a hands-off approach and left the deal in the hands of Mr Seto.  Mr Chan and the defendant admitted that they had never contacted, seen or conversed with Mr Tai or any staff of the plaintiff.  Mr Chan further admitted that that he allowed Mr Seto to convey his counter offer to the plaintiff (i.e. the purchase price must be no less than HK$850,000).

98.  If it were like what Mr Chan alleged that Mr Seto was only acting as a messenger or chauffeur to drive the Vehicle to the plaintiff’s office and pass the transfer document to the plaintiff and that the decisions were solely made by Mr Chan with the direct authority from the defendant and Mr Seto was not authorised to act as the defendant’s sub-agent, it would be implausible that neither the defendant nor Mr Chan had any direct dealings with any staff of the plaintiff at any stage during the sale and that all contacts and communications on the part of the owner of the Vehicle with the plaintiff were made by Mr Seto solely without any involvement of Mr Chan nor the defendant. 

99.  I consider that from Mr Seto’s conduct, it was reasonably clear to a third party that Mr Seto was the agent of the defendant because:-

(1)  Mr Seto was the driver of the Vehicle;

(2)  he carried with him the set of original keys of the Vehicle;

(3)  he had with him the Vehicle Registration Document;

(4)  Mr Chan had allowed Mr Seto to negotiate the price of the Vehicle with the plaintiff;

(5)  the defendant’s signature appeared on the Vehicle Registration Document;

(6)  the Vehicle was brand new at the time it was purchased by the defendant;

(7)  a Trade-in Vehicle Condition Form provided by the plaintiff was also signed by Mr Seto;

(8)  Mr Seto was able to procure the Vehicle transfer document duly signed by the defendant;

(9)  the bank draft of $850,000 was passed onto Mr Seto.  He signed a Payment Received Form for the bank draft.  It was not disputed throughout the proceedings that Mr Seto signed the receipt for the bank draft.

100.  In the light of the above and the available evidence, I am of the view that the authority of Mr Seto can be inferred from the conduct of the parties, in particular the conduct of the defendant and his agent Mr Chan and the circumstances of the case, including the fact that the defendant and Mr Chan had allowed Mr Seto to negotiate the terms of the sale and purchase of the vehicle with the plaintiff.  I find the defendant’s provision of the full set of materials to Mr Seto for transfer of the Vehicle amounted to clear representation that Mr Seto was the defendant’s authorised agent for handling all aspects of the transaction, including collecting the bank draft against handing over the signed license transfer form and vehicle registration document (which should happen hand in hand).  The defendant through Mr Chan clearly held out to Mr Tai that she authorised Mr Seto to sell the Vehicle on her behalf.

101.  I am therefore of the view that Mr Chan was the defendant’s agent and Mr Seto was the defendant’s sub-agent authorised to deal with the sale of the Vehicle.  The defendant duly signed the transfer documents and gave those documents to Mr Seto for such purpose.

102.  The defendant contended that it was unnecessary for the parties to sign any sale and purchase documents when selling a car in the second hand market.  The defendant further went on to say that the defendant had never seen the purchase agreement until the defendant received all court documents from the plaintiff in relation to the present claim.  As discussed earlier, I disagree with the defendant on this point and consider that it is common for a motor company requesting the customers to sign a sale and purchase agreement in the course of acquisition of a vehicle.  The defendant and Mr Chan being mature business people had authorized Mr Seto to deal with the transaction, they therefore should expect that the purchaser, i.e. the plaintiff being a car dealer company, would require the defendant or her agent to sign a sale and purchase agreement to record the transaction.  It is inconceivable that both the defendant and Mr Chan, being person in commercial business, were unaware that there must/should be a written agreement in respect of the sale and purchase of the Vehicle and not to ask for a copy of it.

103.  I find on balance that the defendant and Mr Chan placed Mr Seto in a position, objectively viewed, carried apparent authority to sell the Vehicle to the plaintiff, to make representation about the condition of the Vehicle, to negotiate the price, to sign any necessary documents in the course and to collect the bank draft.  I find that Mr Seto had apparent authority to carry these steps.  This operated as an estoppel to prevent the defendant from asserting she was not bound by the Sale of the Vehicle between Mr Seto and the plaintiff, in particular the representation made by Mr Seto to the plaintiff.[10]  Vaughan Williams LJ in Fry & anor v Smellie explained this was an application of the rule that “when one of two innocent persons must suffer, the person who rendered it possible for the wrong-doer to do the wrong, by reason of the trust he reposed in the wrong-doer, should suffer rather than the person who suffers from the agent having that opportunity”.[11]

104.  The defendant submitted that despite Mr Seto’s authority to do certain things in relation to the sale of the Vehicle, Mr Seto did not have the apparent authority to commit the defendant to the Agreement in the sense that he was not clothed with the authority to commit the defendant to the Agreement nor to sign the Agreement on behalf of the defendant.  The defendant further submitted that despite knowing Mr Seto had no authority to sign the Agreement, Mr Tai induced Mr Seto to do so in order to purchase the Vehicle ahead of other car dealers and reminded him that he would only receive the bribe upon completion.

105.  I find the defendant’s contention in this aspect implausible.  If Mr Tai knew that Mr Seto had no authority to act as an agent or sub-agent for the defendant to sell the Vehicle to the plaintiff in the first place as claimed by the defendant, I do not see how signing the Sale and Purchase Agreement could in any way facilitate the completion of the transaction ahead of other car dealers.

106.  Regarding the defendant’s contention that even if Mr Seto had been clothed with authority to commit the defendant to the Agreement nor to sign the Agreement on behalf of the defendant, the plaintiff was simply irrational or dishonest in its belief that it relied on that authority.  The defendant contended that Mr Lau of the plaintiff turned a blind eye to Mr Seto’s lack of authority.  He failed to question Mr Tai why the Sale and Purchase Agreement was not filled out and signed properly when he received the same.  Instead, the focal issue should be whether the circumstances were such that any belief by the plaintiff that Mr Seto had apparent authority was dishonest or irrational.

107.  On this point, the defendant relied on Armagas Ltd v Mundogas SA (The Ocean Frost) [1986] AC 717 and Thanakharn Kasikorn Thai Chamkat (Mahachon)v Akai Holdings Ltd (No 2) [2010] 13 HKCFAR; Lee Chau Mou T/A Chau Mou Engineering & Co v The Incorporated Owners of Sunview Industrial Building DCCJ 4217/2006 (20 December 2007)to argue that the plaintiff had not justifiably relied on Mr Seto’s authority to commit the defendant.

108.  Relying on the rules set out in Thanakharn Kasikorn Thai Chamkat (Mahachon) v Akai Holdings Ltd (2010) 13 HKCFAR, in determination on whether Mr Seto had apparent authority, it depends on (a) the state of mind required on the person alleging apparent authority and the test for it is one of “irrationality”; (b) the extent, if any, to which a third party could rely on unauthorized statements made by the agent as to his authority to commit the principal: and (c) the evidence required to show that one relied on the agent’s apparent authority.

109.  For question (a) and (b), I find that the plaintiff had justifiably relied on Mr Seto’s representation. Although it had never been the plaintiff’s case that there was express statement made by the defendant that Mr Seto had the authority to represent her in the transaction of the Vehicle,in my view, it was equally clear that in giving Mr Seto the set of original keys of the Vehicle and the Vehicle Registration Document as well as signed documents for transfer of the Vehicle that constituted a full set of materials for sale of the Vehicle, the defendant meant to make representation to any third party(ies) that Mr Seto had authority to sell the Vehicle and to handle the entire transaction on the defendant’s behalf. 

110.  For question (c), I am of the view that by completing the entire sale transaction with Mr Seto, it was obvious that the plaintiff had relied on Mr Seto’s apparent authority.

111.  As discussed above, in my view, there was no evidence to show that the plaintiff’s belief in that Mr Seto had authority to sell the Vehicle and collect the payment was irrational, nor could it be said the plaintiff turned a blind eye to Mr Seto’s lack of authority.  I would even say there was nothing “obvious” in the circumstances that would lead the plaintiff as a reasonable buyer in the market to assume Mr Seto was not empowered to act as agent/sub-agent for the defendant.

112.  In the commercial context, in absence of dishonesty or irrationality, people should be entitled to rely on what he is told.  This may occasionally produce harsh results, but it enables people engaged in the business to know where they stand.

113.  In the circumstances, I find that Mr Chan was the agent of the defendant and Mr Seto, as a sub-agent for the defendant, played an instrumental role in the sale of the Vehicle and his scope of authority went beyond merely making inspection arrangements with prospective buyers or relaying information back to Mr Chan and/or the defendant.  I consider that Mr Seto was duly authorised to conduct the entire sale of the Vehicle including the signing of the purchase agreement.

Whether Mr Seto delivered the Vehicle to the plaintiff’s garage for a thorough inspection by the plaintiff’s mechanics on the morning of 19 June 2014? If the aforesaid delivery was a thorough inspection, how was the thorough inspection conducted on the morning of 19June 2014 by the plaintiff’s mechanics?  Could the red mark that indicated whether the Vehicle had been driven within China be easily located by visual inspection when the Vehicle was inspected by the plaintiff’s mechanics on the morning of 19June 2014 ?  Regardless as to whether the red mark that indicated whether the Vehicle had been driven within China could be easily located by visual inspection or not, would the inspection conducted by the plaintiffs mechanics on the morning of 19 June 2014 reveal or ought to have revealed that the Vehicle had been driven to China ?

114.  Mr Lau admitted that the plaintiff would always require his colleagues at the inspection, maintenance and repair centre to inspect the car before purchase when purchasing second hand cars for the plaintiff.  Accordingly, Mr Seto delivered the Vehicle to the plaintiff’s garage for inspection by the plaintiff’s mechanics on the morning of 19 June 2014. 

115.  Mr Lau admitted that his colleagues did indeed inspect the Vehicle by “checking the mechanical and physical conditions of the Vehicle itself”.  Mr Lau testified that the plaintiff did not have technical equipment to check chassis number easily.  The plaintiff did not have ability to do so. Mr Lau further explained that they used computer to check chassis number on that day and computer could not check whether the Vehicle had driven to China.  As such, they were not be able to check for the red mark.  According to the plaintiff’s amended reply, the plaintiff stated that one must first disassemble and remove certain parts of the Vehicle body to carry out a thorough inspection and examination, a step that was impossible to conduct on the date of transaction.

116.  The defendant submitted that this could not be true.  This was because with reference to the HKAA Report, it was clearly stated in its explanatory notes that “the inspection to which this report refers is external only and does not involve dismantling or disturbing any structure assembly, component or internal mechanism” which was in contradiction of the plaintiff’s above assertion.

117.  Mr Chan under re-examination volunteered to tell the court that the chassis number would be easily detectable because it was at the engine or close to the engine.  The plaintiff’s counsel asked the court to ignore this piece of evidence because this fact was neither revealed in his witness statement, nor the Amended Defence.  Alternatively, as the plaintiff had no chance to deal with that part of the evidence, the plaintiff’s counsel proposed the court to allow Mr Lau to explain by re-open the case by filing supplemental witness statement for rebuttal evidence.  The defendant’s counsel made submission that Mr Chan was just giving information to the court that it was not so hard to notice the mark from his own knowledge.  Mr Chan merely told the court from his own knowledge.

118.  After hearing parties’ submission, I accepted the plaintiff’s submission and ruled at the hearing that the court would not place any weight on that piece of evidence as it did not flow from cross-examination and that part of evidence was not pleaded nor covered in supplemental witness statement.

119.  Even if I was wrong on this ruling, I would not accept Mr Chan’s bare assertion at the late stage under re-examination that chassis number would be easily detectable because it was at the engine or close to the engine. If Mr Chan’s such contention were true, this important evidence would be well covered in his witness statement and in the defence.  This piece of evidence was neither revealed in his witness statement, nor the Amended Defence. Further, in my view, a simple written enquiry with the distributor of Porsche in Hong Kong (fortified by a letter and/or statement from them) are likely to elicit factual evidence on such matter. Alternatively, the Defendant could produce a copy of the Porsche Manual Book to show to the Court the location of chassis number for the Vehicle. These steps however were not carried out. Mr Chan’s bare assertion was unsupported by any supporting document or any other independent evidence. I reject to accept such bare assertion that the chassis number would be easily detectable because it was at the engine or close to the engine.  

120.  Further, if the red mark could be easily detectable and seen by naked eye as so claimed by the defendant, the purchaser, Mr Hui, would have seen it by himself at the time of the purchase. Mr Hui would not need to wait for the HKAA report to confirm whether the vehicle had any Hong Kong China cross boarder driving record.

121.  The wordings “the inspection to which this report refers is external only and does not involve dismantling or disturbing any structure assembly, component or internal mechanism” stated in the explanatory notes of the HKAA report appeared to be in standard form and might be applicable to all the vehicle inspections carried out by HKAA.  Without calling the maker of the HKAA report to address on the issue, I cannot accept the defendant’s bare assertion that those wordings stated in the Vehicle Inspection Report prepared by HKAA meant that the chassis number would be easily detectable.

122.  There was no evidence before me to prove that the red mark could be easily located by visual inspection when the Vehicle was inspected by the plaintiff’s mechanics on 19 June 2014.  Both the defendant and Mr Chan were not present at the plaintiff’s showroom at the material time. The defendant did not produce evidence to prove that the plaintiff’s mechanics who inspected the Vehicle on the material day possessed the professional skills or tools to check the red mark on the chassis at the time of the inspection.As pointed out above, a simple written enquiry with the distributor of Porsche in Hong Kong (fortified by a letter and/or statement from them) or production of produce a copy of the Porsche Manual Book to show to the Court the location of chassis number for the Vehicle are likely to elicit factual evidence on such matter. These steps however were not carried out. I do not accept the defendant’s bare assertion that the inspection conducted by the plaintiff’s mechanics on the morning of 19 June 2014 could reveal or ought to have revealed that the Vehicle had been driven to China.

Whether Mr Seto had told Tai that the Vehicle had been previously driven to China?  Whether Seto had any authority to sign any agreement with a third party herein, including the plaintiff?  Whether the representation of Seto to Tai was false in that it amounted to a negligent or fraudulent misrepresentation?

123.  The plaintiff submitted that it was self-evident from the evidence that the Vehicle that had not been driven to China was materially significant to the plaintiff.  The defendant admitted that the Vehicle would fetch a lower price because it had been driven to China.  It is therefore important to find out whether Mr Seto had told Mr Tai that the Vehicle had been previously driven to China.

124.  As discussed earlier, Mr Seto was not called to give evidence at the trial and I would not place any weight on Mr Chan’s evidence as to whether Mr Seto had told Tai that the Vehicle had been previously driven to China.  The plaintiff’s counsel had fairly pointed out that there was no direct evidence to prove whether there was a representation or misrepresentation from Mr Seto to Mr Tai.  All evidence given by Mr Lau and Mr Chan in respect of the actual dealings between Mr Tai and Mr Seto was hearsay evidence.  I shall decide on the weight to the relevant hearsay evidence.

125.  I agree with the plaintiff’s submission that though no direct evidence, when I weigh the totality of evidence, logical inference is in favour of the plaintiff.

126.  The important contemporaneous document before me is the Agreement entered into between Mr Tai and Mr Seto on 19 June 2014.  Pursuant to clause 3.1 of the Agreement, it was stated that “Record of travelling into China:  Yes/ No”.

127.  The defendant did not dispute that the signature appended on the Agreement was that of Mr Seto.  The plaintiff submitted that Mr Seto was authorised by the defendant to sign the Agreement and he was fully aware the contents of the SP Agreement, in particular clause 3.1 before he signed the same.  The defendant was fully aware that Mr Seto had executed transaction documents on her behalf and she was also aware of the contents of the documents when she had sight of the same.

128.  The defendant submitted that Mr Seto had no authority whatsoever to sign on behalf of the defendant in the transaction.  The defendant further submitted that there were many errors contained in the Agreement.  In view of the errors made by Mr Tai, Mr Tai could have simply made yet another mistake when he marked that the Vehicle had no record of travelling into China.

129.  In the present case, the clear evidence appeared before me is that Mr Seto had signed on the Agreement.  Since I have ruled that Seto had authority to act on behalf of the defendant in concluding the deal, I am not too concerned about whether Mr Chan nor the defendant had any knowledge of the signing of Agreement by Mr Seto.  It was an undisputed fact that there was an agreement between the plaintiff and defendant for the sale of the Vehicle and the sale had actually completed and the defendant had received full payment.  Also, as discussed above, the conduct of Mr Seto clearly indicated that by his conduct he had got the apparent authority from the defendant as her agent or sub-agent on 19 June 2014 in concluding the deal.  What we are really concerned now is the representation made by Mr Seto in the course of sale as an agent or a sub-agent of the defendant and the representation being made and recorded on the Agreement as being contemporaneous document in the sale and purchase process which I think had reflected and recorded the actual representation made by Mr Seto that the vehicle had not been driven to China.

130.  There was no evidence before me to show that the plaintiff had tricked Mr Seto in the execution of the Agreement.  The fact that Mr Seto signed on the Agreement was very telling.  The Agreement was a contemporaneous document.  If the Agreement contained anything which was not representing the parties’ intention, one should not sign on it.  If Mr Seto had signed on the Agreement, this should mean that he agreed with what was stated thereon.  Further the Agreement was a contemporaneous document, I take the view that what was stated therein should reflect most accurately what the parties had discussed and represented to each other during the course of negotiation. The Defendant submitted that there were many errors contained in the Agreement. I rule that such errors did not affect the transaction which was completed. I rule that such errors did not  make the Agreement void.

131.  I consider that in some aspects, the present case is distinguishable from the recent appeal of Lee Yuk Shing v Dianoor International Limited (In Liquidation) CACV 185/2015 (23 May 2016).  In that case, the liquidator, being the representor, did not know that the eight stones were not genuine and conveniently and boldly assumed they were diamond stones or rough diamond stones.  The agent did not have the necessary fraudulent state of mind.  However, in the present case, Mr Seto, being the representor/sub-agent, all along knew that the Vehicle had been driven into China before but misrepresented the fact to the plaintiff.

132.  Having found that Seto in reality was duly authorised to conduct the entire sale of the Vehicle including the signing of the purchase agreement, I find that on 19 June 2014, the plaintiff had relied on Mr Seto’s representation that the Vehicle had never been driven into China before and it was on that basis that they decided to purchase the Vehicle at the price of $850,000.However, contrary to Mr Seto’s representation that the Vehicle had never been driven to China before, HKAA report dated 15 August 2014 showed otherwise.

133.  I accept the plaintiff’s submission that Mr Seto had in fact represented to the plaintiff’s staff that the Vehicle had not travelled in China. Mr Seto knew that this representation was untrue or did not care whether it was true or not as Mr Chan admitted that Mr Seto knew that the Vehicle had been used in China before.

134.  The defendant contended that regardless as to what representations Mr Seto had made to Mr Tai prior to the sale of the Vehicle, the plaintiff was a professional car dealer who would not have taken a layman’s word when entering into a substantial transaction.  It would only rely on its own expertise in the matter especially when the Vehicle’s travelling record to China was a vital decision-making factor to the plaintiff when considering whether to purchase the Vehicle or not.

135.  I do not agree with this contention. According to Chitty on Contract, paragraph 7-043 and 7-044, if the representee did not know that the representation was false, it is no defence to an action for rescission that the representee might have discovered its falsity by the exercise of reasonable care.  Therefore, in my view, even if the plaintiff had time and resources to inspect the Vehicle, he relied on the representation made by Mr Seto, it would not take away the liability against Mr Seto.

136.  Thus, even without direct evidence of Mr Tai or Mr Seto, by examining veracity of witnesses of both sides and the contemporaneous documents, I find, on balance of probabilities, Mr Seto had knowingly or recklessly made false representations or did not care whether the representation was true or not when he said that the Vehicle had never been driven into China before.  The defendant is to be held vicariously liable for Mr Seto’s misrepresentation.  Moreover, such misrepresentation was recorded in the Agreement signed on 19 June 2014.  I therefore find that the defendant was guilty of fraudulent misrepresentation.

137.  In case I am wrong in finding that the defendant was guilty of fraudulent misrepresentation, I shall now find whether the defendant would be guilty of negligent misrepresentation.

138.  Under Section 3(1) of the Misrepresentation Ordinance, the burden is on the defendant to prove that it was not negligent.  It is thus for the representor to prove that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true.

139.  I find that the plaintiff has proved the elements required to support a claim for negligent misrepresentation and the defendant had failed to prove no negligence on their part.  I find that Mr Seto acting on behalf of the defendant had knowingly or recklessly made false representations or did not care whether the representation was true or not.  It is not disputed that Mr Seto knew that the Vehicle had driven into China before.  In making false representation to the plaintiff that the Vehicle had not been driven to Mainland China, Mr Seto went far beyond the realm of gross negligence and was reckless.

Whether the plaintiff paid the sum of HK$10,000 as secret payment?  If so, whether the plaintiff paid Mr Seto the sum of HK$10,000 so to induce Mr Seto to sign the written agreement on the afternoon of 19June 2014 even though Mr Seto had told Tai that he was not given the authority to do so?

140.  It was the plaintiff’s stance and evidence that the plaintiff paid HK$10,000 to Mr Seto to purchase a set of vehicle tyres from him.

141.  The defendant contended that there was no evidence whatsoever to suggest that the HK$10,000 paid to Mr Seto was to purchase a set of vehicle tyres from him.  The HK$10,000 was a secret commission given to Mr Seto for completing the sale transaction with the plaintiff and Mr Seto accepted such payment without the defendant’s approval.

142.  I agree with the plaintiff’s contention that the alleged HK$10,000 payment made by the Mr Seto as secret commission was a red herring.  There was so far no cogent evidence to prove that the plaintiff had made secret commission to Mr Seto and how such purported secret commission had affected the misrepresentation made by Mr Seto or the liability of the defendant.

If Seto was an agent of the defendant, whether the defendant is liable and if so, an assessment as to the quantum of damages to which the plaintiff is entitled.

143.  As aforesaid, I find that Mr Seto was a sub-agent of the defendant and Mr Chan was the agent of the defendant.  Accordingly, the defendant shall be held liable for her agent’s misrepresentation.  I now turn into next question concerning the quantum of damages that the plaintiff is entitled.

What damages are recoverable?

144.  The plaintiff claimed against the defendant for (1) HK$250,000 being loss of profits; and (2) HK$20,750 being extra costs and expenses incurred by the plaintiff on additional rental and storage charges for the Vehicle from 13 August 2014 to 26 September 2014 as well as additional inspection fee for the Vehicle.

145.  The defendant’s counsel did not make any submission regarding the plaintiff’s claim on quantum.

HK$20,750 being expenses incurred by the plaintiff

146.  No breakdown was set out in the Statement of Claim as to the claim of HK$20,750.  The plaintiff had disclosed the following documents to prove such claim:-

(a)  Invoice issued by HK Automobile Association dated 15 August 2014 in the sum of $950 being additional inspection fee on the Vehicle; and

(b)  Car parking space licence agreement made between the plaintiff and The Automall Limited dated 21January 2014 for 8 car parking units for the monthly licence fee in the sum of $108,000.  The period of licence ran from 1 February 2014 to 31 January 2016.  This showed that one car parking unit cost $13,500 per month.

147.  In the hearing, the plaintiff’s counsel conceded to make a smaller claim of $14,450 instead of $20,750 being extra rental fee of $13,500 for one month plus $950 additional inspection fee.  The Vehicle was sold to Mr Hui on 13 August 2014 and the Cancellation Agreement was signed on 26 August 2014.  The plaintiff took 26 August 2014 as the date which Mr Hui returned the Vehicle to the plaintiff.  The Vehicle was sold to Falkiner on 26 September 2014.

148.  I rule that the defendant is liable for this sum as damages under section 3(1) of the Misrepresentation Ordinance.  If the misrepresentation had not been made by Mr Seto, the plaintiff would not have entered into the SP Agreement and would not have paid these sums due to cancellation of such SP agreement.

149.  I find the claim of HK$14,450 as submitted by the plaintiff’s counsel reasonable.  The defendant did not challenge such claim. I allow the claim of HK$14,450 as adjusted.

Loss of profits of HK$250,000

150.  The plaintiff submitted that if the Vehicle had never travelled in Mainland China, the Vehicle would be sold at the price of HK$1,230,000.  However, after finding the representation was untrue that the Vehicle had in fact travelled in Mainland China, the Vehicle could only be sold at the price of HK$980,000.  The plaintiff therefore claimed that the plaintiff suffered a loss of profit of HK$250,000 (HK$1,230,000 - HK$980,000).  The plaintiff’s counsel submitted that this item should be recoverable but he did not elaborate his submission further beyond pointing on Section 3 and 4 or Misrepresentation Ordinance, Cap 284 and Chitty on Contract, paragraph 7-054 and 7-055.  The defendant’s counsel also did not address me on this point.

151.  As discussed above, the proper measure of damages for fraudulent misrepresentation was discussed by the Court of Appeal in Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, noted (1969) in 32 MLR 556.  It was held that damages for fraud were not the same as damages for breach of contract in that they were not designed to place the innocent party in the position he would have been in if the representation had been true, but to put him in the position he would have been in if the representation had not been made.  The presumption seemed to be that if the misrepresentation had not been made, the claimant would not have entered into the contract.  See Esso Petroleum Ltd v Mardon [1976] QB 801, 820, 828, 833.  So the plaintiff ought to be awarded such damages as would put him back in the financial position he was in before the contract was made.  This meant that where a person was induced by fraud to buy some property, the proper measure of damages was prima facie the difference between the price paid and the fair value of the property.  SeeSmith Kline & French Laboratories Ltd v Long [1989] 1 WLR 1.

152.  In the premises, I do not accept to calculate the loss under this heading in the way as the plaintiff had suggested.  The plaintiff ought to be awarded such damages as would put it back in the financial position it was in before the contract was made, i.e. the proper measure of damages was prima facie the difference between the price paid by the plaintiff on 19 June 2014 and the fair value of the Vehicle at that time.  In other words, if the misrepresentation had not been made, the plaintiff would not buy the Vehicle at the price of HK$850,000 but at a reduced price since the Vehicle had been travelled into the Mainland China.

153.  As a point of reference, Mr Lau gave evidence in re-examination that super cars like the Vehicle would lose 20% of their value if they had been into China.

154.  In the present case, there is no independent expert evidence to show the fair value of the Vehicle at the material time.  Mr Lau testified in the hearing that super cars like the Vehicle would lose 20% of their value if they had been into China and that the plaintiff would have purchased the Vehicle at a reduced price, i.e. 80% of the paid price had the Vehicle been travelled into China.

155.  The defendant did not offer any evidence or suggestion regarding the fair market sale price or fair value of a car which had gone to Mainland China.  Mr Chan just said in his statement that HK$850,000 was a price acceptable to him in the course of the deal and had admitted that the Vehicle would fetch a lower price because it had been driven to Mainland China.

156.  In the circumstances, I accept that losing 20% of the price paid, i.e. HK$850,000 would be in a reasonable range should the Vehicle had been driven into Mainland China.  As such, I accept that the difference between the price paid and the fair value of the Vehicle would be 20% of the price paid, i.e. 20% x HK$850,000 = HK$170,000.

157.  Accordingly, I allow HK$170,000 under this claim.

OTHER MATTERS

158.  The parties’ written submissions also mentioned various other points. These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its comprehension. It does not mean those other points are thought to be irrelevant or have been overlooked.  To avoid doubt, those other points have also been duly considered.

APPLICATION BY THE DEFENDANT AFTER THE HEARING

159.  On 24 January 2017, the defendant’s solicitors wrote to this court and informed that Mr Seto Kin Kwan Franco had pleaded guilty and was convicted in the criminal proceedings against him (KTCC4866/2016).  The defendant’s solicitors informed this court that they were attempting to obtain copy of the brief facts and other relevant documents from the prosecution.  The defendant’s solicitors asked the letter be placed before me for my consideration and direction.  However, no details were given as to the criminal charge or the criminal proceedings or what directions were being asked for by the defendant’s solicitors. The defendant’s solicitors did not show nor explain the relevancy of such further evidence.

160.  I gave directions to the parties on 6 February 2017 and directed the defendant’s solicitors to write to the court to clarify what directions were being sought, if any, within 7 days.  I also directed the plaintiff’s solicitors to write to reply on such proposed directions, if any, within 7 days thereafter.

161.  The defendant’s solicitors wrote to the court on 13 February 2017 and stated that they were still waiting for the relevant documents of KTCC4866 of 2016 from the prosecution and expected that the requested documents would be available within 14 days.  As such, the defendant’s solicitors asked for the court’s indulgence for allowing them to submit their proposed directions, if any, on or before 28 February 2017. However, the defendant’s solicitors did not submit any proposed directions on or before 28 February 2017.  No explanation was ever given as to the relevancy of such further evidence.

162.  On 17 May 2017, the defendant’s solicitors wrote to this court again and informed that Mr Tai Ming Chung has been charged with the offence of offering an advantage to an agent under KTCC785/2017. The next hearing for mention has been scheduled for 1 June 2017. The defendant’s solicitors informed this court that as Mr Tai Ming Chung has been charged in the proceedings, the hearing for sentence of Mr Seto Kin Kwan under KTCC4866/2016 has been adjourned to 18 July 2017 pending the determination of the criminal proceedings against Mr Tai Ming Chung (KTCC785/2017). The defendant’s solicitors asked this court to allow more time for the retrieval of the brief facts and other relevant documents and other pertinent evidence of the present proceedings because the Kwun Tong Magistrates’ Court and the Prosecution refused their request for copies of the said brief facts and other relevant documents given that the criminal proceedings against Mr Seto and Mr Tai have yet to be determined. The defendant’s solicitors again did not submit any proposed directions nor give any explanation as to the relevancy of such further evidence to the present proceedings nor how such further evidence has any bearing on the issues in the present proceedings.

163.  The plaintiff’s solicitors wrote to the court on 22 May 2017 in reply to the said letter from the defendant’s solicitors dated 17 May 2017. The plaintiff’s solicitors opposed to the defendant’s request for more time to retrieve the relevant papers from the Kwun Tong Magistrates’ Court for the following reasons (1) this was not a proper application for leave to adduce further evidence after conclusion of trial; (2) no sufficient reasons were provided for adducing further evidence at such late stage; and (3) the alleged secret commission was just a red herring and had no bearing in respect of the proceedings.

164.  Having regard to all the circumstances of this case and the matters that I have referred to above, I consider that the court's discretion ought to be exercised against the defendant’s request for more time to be allowed for retrieval of the relevant papers from the Kwun Tong Magistrates’ Court. I agree with the plaintiff’s stance that this was not a proper application for leave to adduce further evidence after conclusion of trial and no sufficient reasons were provided for adducing further evidence at such late stage. Despite the fact that this court had invited the defendant’s solicitors to submit their proposed directions, if any, on or before 28 February 2017, the defendant’s solicitors did not submit any proposed directions before the prescribed deadline. Further, the defendant’s solicitors had never given this court explanation as to the relevancy of KTCC 4866/2016 and KTCC785/2017 with the present proceedings and the bearing of KTCC4866/2016 and KTCC785/2017 on the issues in the present proceeding. 

165.  As a matter of proper administration of justice, this court should not be asked by a party to withhold handing down judgment after trial without receiving any proper application for leave to adduce further evidence after conclusion of trial and/or without being provided with sufficient reasons as to the relevancy and bearing of the further evidence on the issues in the present proceedings.

ORDER

166.  For the above reasons, the plaintiff succeeds in the plaintiff’s claim against the defendant, albeit in a lesser amount.  

167.  Accordingly I make an order that the defendant pays the plaintiff the sum of HK$170,000 being the difference in price of the Vehicle paid had the misrepresentation not been made and the sum of HK$14,450 being extra rental and storage charges for the Vehicle and the additional inspection fee for the Vehicle incurred by the plaintiff with interest on the total sum of HK$184,450 from the date of Judgment until payment at judgment rate.

COSTS

168.  I further make a costs nisi that costs of this action including the letters issued by the defendant’s solicitors dated 24 January 2017, 13 February 2017 and 17 May 2017 and the reply letter issued by the plaintiff’s solicitors dated 22 May 2017 be paid by the defendant to the plaintiff to be taxed if not agreed with certificate of counsel.  

169.  Unless any of the parties applies by summons to vary the same, the costs order nisi shall be made absolute within 14 days from today.

170.  Finally, I thank counsel for their helpful assistance rendered in this case.