SUNION DEVELOPMENT LTD v. NAM HOI BUS SERVICES CO LTD

DCCJ 4935/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4935 OF 2009

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JUDGMENT

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Introduction

1.  The Plaintiff by original action and the 1^st Defendant by Counterclaim (“Sunion”) is the registered owner of property known as all those pieces or parcels of land registered in the Land Registry as Lot No. 1928 and the Remaining Portion of Lot No. 1930 both in Demarcation District No 76, New Territories, Hong Kong (“the Property”).

2.  By an agreement in writing dated 28 April 2009 (“the Tenancy”) and made between Sunion as the landlord and Nam Hoi Bus Services Company Ltd, the Defendant in the main action and the Plaintiff in the Counterclaim (“Nam Hoi”) as the tenant, Sunion let the Property to Nam Hoi for the term from 1 June 2009 to 31 May 2012 at the monthly rental of $10,000, payable in advance on 1^st day of each month.

3.  Sunion in their Statement of Claim pleaded that under the Tenancy, Nam Hoi had covenanted not to contravene and/or breach the Town Planning Ordinance and/or any laws of Hong Kong. Sunion alleged that Nam Hoi had breached the covenant as they had used the Property for parking of vehicles and therefore Sunion was entitled to exercise their right of re-entry, pursuant to the Tenancy.

4.  Sunion said that they were served with notice under section 23(1) by Planning Department dated 31 July 2009 whereby they were informed that unauthorized development, namely parking of vehicles were found on the Property and that they are required to discontinue the same by 31 October 2009, failing which they might be prosecuted.

5.  Sunion said despite their requests, Nam Hoi refused to discontinue the unauthorized development and therefore they were entitled to forfeit the Tenancy which they said they did.

6.  Sunion initially claims vacant possession of the Property and also mesne profits at the rate of $10,000 per month from date of writ until vacant possession of the Property was delivered up to Sunion.

7.  At trial, Sunion informed the Court that on 19 October 2011, Nam Hoi had already vacated from the Property. They therefore now abandoned their claim for vacant possession.

Nam Hoi’s case

8.  It was not in dispute that the Planning Department (Central Enforcement and Prosecution Section) had on 23 December 2009 issued a notice under section 23(1) of Town Planning Ordinance Cap 113 to Nam Hoi requiring them to discontinue vehicle parking activity by 23 December 2010.

9.  Nam Hoi in their re-re-amended Defence and Counterclaim pleaded that at all material times, they carried on business of letting coaches and drivers, including performing repair and maintenance works and installing bodyworks of coaches (“intended use”)

10.  Nam Hoi alleged that through Leung Lai Chu Judy (“Leung”) trading as Polyunit Property Agency Co, 2^nd Defendant in the Counterclaim (“Polyunit”), an estate agency, looked for suitable locations for their business, as aforesaid.

11.  Nam Hoi pleaded that in order to induce Nam Hoi to enter into the Tenancy, Sunion and/or Polyunit as agent of Sunion had covenanted and represented to Nam Hoi that -

(a)     land use of the Property was “storage”;

(b)    the said land use of Property was fit for Nam Hoi’s said intended purpose of parking coaches, performing repair and maintenance works to the coaches and installing bodyworks of coaches; and

(c)     the aforesaid use at the Property would not breach or contravene the Town Planning Ordinance and/or any laws of Hong Kong.

12.  Nam Hoi said these were in fact misrepresentations and that Polyunit had made the same under the express or implied authority of Sunion in the course of and within the scope of engagement of Polyunit by Sunion or alternatively they were ratified by Sunion on 28 April 2009 before Nam Hoi entered into the Tenancy.

13.  Nam Hoi pleaded that the misrepresentations were made:-

a.     by Mr. Ho Chung Yin (“Ho”) of Polyunit on or about 20 April 2009 before and at the site visit to the Property;

b.     on telephone by a member of Polyunit, later clarified to be Leung on or about 25 April 2009;

c.    on 28 April 2009 just before execution of the Tenancy by Alfred Lam (“Lam”) of Sunion at Polyunit office and also by Ho and Leung.

14.  It was not in dispute that in fact the Property was at the material times agricultural land, not open storage land.

15.  Nam Hoi said it was contemplated by all at the time of the Tenancy that the permitted use of the Property under the Tenancy was as open storage land use (Clause 7 of the Tenancy) and intended construction of building structures and facilities (Clause 8 of the Tenancy).

16.  Nam Hoi argued that in reliance of the said misrepresentations, they were induced to enter into the Tenancy on 28 April 2009.

17.  Nam Hoi said later, it turned out that the Property was not in fact open storage land but agricultural land and the representations aforesaid were not true as vehicle parking etc was not allowed on the Property.

18.  Nam Hoi said as Sunion all along was aware of and had agreed to the intended business use by Nam Hoi of the Property, they were not entitled to exercise right of re-entry or to recover possession of the Property on the ground that the Property was put to such use.

19.  Nam Hoi said that even if Nam Hoi was held liable to Sunion, it would seek to set off Sunion’s claim against their Counterclaim so as to reduce or extinguish it altogether.

20.  Nam Hoi submitted that Sunion and/or Polyunit had made the misrepresentations fraudulently and/or recklessly and in any event they will rely on provisions under the Misrepresentations Ordinance Cap. 284 for relief thereunder.

21.  Nam Hoi claimed further that Polyunit was in breach of Section 36(1) and (2) of the Estate Agents Ordinance Cap. 511 by reasons of matters aforesaid as they had failed their duty.

22.  Nam Hoi contended further that despite requests by Nam Hoi, Sunion had refused and/or failed to apply for change of use of the Property to open storage land use to fit use of Nam Hoi.

23.  Nam Hoi said as a result of the misrepresentations, they could not continue their business at the Property and had thereby suffered loss and damages.

24.  They claimed loss of profit from coach hire and installation of coach bodyworks, loss suffered by Nam Hoi on sale of coaches in mitigation of its loss, additional car parking fee, loss of wear and tear of plant and machinery, relocation costs of $80,000 and overpayment of rent being the difference between the rental under the Tenancy and that of the Property on basis of permitted “agricultural” use.

25.  Nam Hoi pleaded in their Defence and Counterclaim their willingness to pay Sunion mesne profits for the Property in sum to be assessed on basis that the permitted land use of the Property was “agricultural”.

26.  They also claimed for return of rental deposit in sum of $20,000 from Sunion and from Polyunit the sum of $10,000 being return of estate agency commission paid.

Sunion’s case

27.  Sunion however maintained that Polyunit was both estate agent for Sunion and Nam Hoi regarding the Tenancy. They claimed lack of knowledge of the misrepresentations made by Polyunit and they also pleaded that they did not authorize Polyunit making such misrepresentations and that such misrepresentations were outside the scope of their engagement.

28.  Sunion agreed that the Property was to be used as open storage land, as stipulated in Clause 7 of the Tenancy. Sunion however denied Lam had made the misrepresentations as alleged.

29.  They also pleaded, relying on Clause 6 of the Tenancy, that Nam Hoi had to vacate from the Property if there were interference from the Government and that Sunion would refund the rental deposit without interest or compensation to Nam Hoi.

30.  Sunion also said they were under no obligation to make application for change of permitted use of the Property.

31.  At the same time, they disputed loss and damages claimed by Nam Hoi was caused by alleged breach of the Tenancy by Sunion and/or they said the damages was not within reasonable contemplation of Sunion at time of Tenancy as they were too remote and not recoverable in law.

Polyunit’s case

32.  Polyunit denied on pleadings having made any misrepresentations as alleged.

33.  Initially Polyunit said in pleadings that prior to the signing of the Tenancy, Mr Lam of Sunion expressly informed Wong Chi Man (“Wong”) of Nam Hoi that the Property was agricultural land and that the District Lands Office had previously granted a waiver which allowed the Property to be used as open storage land but such waiver had since expired and that application for such waiver would be required if the Property was to be used as open storage land.

34.  Polyunit pleaded further that even if Ho had made the alleged misrepresentations, the same were made in breach of instructions given to him and Polyunit should not be liable as such was done outside his powers and duties as an employee of Polyunit.

35.  Polyunit further argued that whatever representations made by Ho was not relied upon by Nam Hoi because of the misrepresentations made by Lam before signing of the Tenancy.

36.  Leung agreed that she did, as instructed by Sunion and Nam Hoi, put open storage land “倉地” in the Tenancy but she had expressly made known to Nam Hoi that the Property was agricultural land and that Sunion had to lodge application for the Property to be used as open storage land.

37.  Leung said further she had discharged her common law duties and duty under Estate Agents Ordinance. They denied the Nam Hoi’s claim for loss and damages against them. They also denied any loss resulting from their alleged misrepresentations and further that the damages of Nam Hoi were not within their reasonable contemplation as they were too remote. Polyunit further relied on clause 6 of the Tenancy restricting the claim of Sunion to return of the deposit when Nam Hoi was forced to vacate by reason of government interference.

38.  Polyunit also criticised Nam Hoi for not renting another property in place of the Property to mitigate their loss and to continue their business at the Property after the government notice which required cessation of vehicle parking at the Property.

Issues

39.  Parties agreed issues in this case were as follows:-

1. Whether the Nam Hoi was in breach of the Tenancy by parking vehicles in the Property;

2. If answer to Issue 1 is yes, whether Sunion was entitled o terminate the Tenancy and claim against Nam Hoi for:-

(1) vacant possession of the Property; and

(2) mense profits, and for how much;

3. Whether,

(1) Sunion, and/or

(2) Polyunit;

make the Misrepresentations to induce the Defendant to enter into the Tenancy;

4. If answer to Issue 3(1) and/or (2) is yes, whether Sunion has thereby breached the Tenancy;

5. If answer to Issue 3(2) is yes, whether Polyunit was in breach of section 36(1) and (2) of the Estate Agents Ordinance, Cap. 511;

6. If answer to 4 and/or 5 is yes, whether Nam Hoi is entitled to:-

(1) rely on the said Misrepresentations to remain in possession; and

(2) Counterclaim against the Sunion and/or Polyunit for damages, and for how much;

7. Whether Nam Hoi is entitled to, by reason of Sunion’s failure and/or refusal to make application for change of land use of the Property and/or authorize Nam Hoi to make the application:-

(1) rely on the said Misrepresentations to remain in possession; and

(2) Counterclaim against the Sunion and/or Polyunit for damages, and for how much.

Discussion

1. Whether the Nam Hoi was in breach of the Tenancy by parking vehicles in the Property

40.  Wong said on date of Tenancy, he met Lam for the first time.  Lam was informed of the intended use of Nam Hoi and he told Wong the Property was open storage land and he also warranted that the Property was fit for such purpose and that the intended use would not infringe any laws.

41.  Wong also said that prior to the signing of the Tenancy, both Ho and Leung of Polyunit were told and were aware of Nam Hoi’s intended use of the Property. He said Ho told him the Property was open storage land before and during site inspection of the Property on or about 20 April 2009 and Leung also said the same on phone on or about 25 April 2009 and she also said she had documents to show the Property was open storage land but she said the documents were voluminous and were in English, he was never shown any documents by either Polyunit or Sunion. Wong said they also told him the Property was suited for use of Nam Hoi.

42.  It is not in disputed that had the Property been open storage land, the government would not have intervened car parking on the Property.

43.  Lam of the Plaintiff denied and said he only had the chance to meet/communicate with Wong of Nam Hoi on date of signing of the Tenancy. He denied having warranted or represented to Nam Hoi that the Property was fit for the said intended purpose of Nam Hoi or that the intended use of Nam Hoi would not cause any breach of the laws. He said he had in fact told Wong the Property was agricultural land.

44.  Lam in Court said further that although Wong had told him he intended to use the Property for his bus business after giving Lam his name card which bore the name南海巴士服務有限公司, Wong did not tell him exactly what the intended use for the Property was. He denied he knew Nam Hoi intended to use it for coach parking and repair and installation of bodyworks.

45.  This contradicted the evidence of Leung and Ho, both of whom said Wong told Lam his intended use of the Property.

46.  In fact Lam in his own supplemental witness statement admitted that Wong had actually told him that he intended to use the Property for repair and maintenance of coaches and that he had been in this business for 20 odd years.

47.  In Court, he denied agreeing to vehicle parking on the Property by Nam Hoi.

48.  This Court queried how Lam could so deny when it was not disputed that vehicle parking was permitted, in the least/tolerated use for open storage land, having regard to clause 7 of the Tenancy

49.  When asked why would “open storage land” “倉地” was inserted in clause 7 of the Tenancy, Lam said because in New Territories, a lot of agricultural land was used as open storage land. He later elaborated the same was so written because Nam Hoi had intended to put it for use as open storage land. 

50.  When further asked whether at time of the Tenancy, Lam was aware that the open storage use of the Property was in breach of planning regulation, Lam answered he was not sure. He then followed and said he could not control how the Property was used and he said even if the land was agricultural land, there could be short term waiver allowing it to be used for other purpose. He said before the Tenancy, he did not enquire from government department what purpose the Property could be used for before the Tenancy. 

51.  Lam admitted however Sunion had at time prior to the Tenancy put the Property to open storage land use then as he had placed container and other materials at the Property.

52.  Clause 7 of the Tenancy reads:-

“雙方同意該地作為倉地用途，乙方不得在該地貯存違禁品或觸犯本港城市規劃條例或觸犯本港法律之事，如觸犯之一切後果將全部由乙方負責承擔。”

53.  Lam said further that had he known that the use of the Property as open storage land was in breach of the law, then he would not have so written in clause 7.

54.  I do not accept this piece of evidence.

55.  Lam was not a stranger dealing with New Territories land.

56.  It was undisputed evidence that Lam had previously engaged surveyors to apply waiver for the Property allowing it to be used for open storage purpose and that he knew at the time of the Tenancy that the waiver had already expired.Despite his denial, I find he would have been advised and was aware of the permitted use of agricultural land.

57.  There is no doubt that Lam was fully aware that to put the Property to be used as open storage land was in contravention of the law but he had agreed to it.

58.  It was of significance to note that it was ‘Leung’ who put in manually the words ‘倉地’ in clause 7 of this Tenancy which was said to be a standard form Tenancy agreement of Polyunit. 

59.  As it is agreed that the Property was to be used as open storage land, parking of vehicles was within the permitted use under the Tenancy and the samecould not be said to constitute a breach of the Tenancy.

60.  Nam Hoi therefore did not breach the Tenancy when they parked vehicles on the Property.

2. If answer to Issue 1 is yes, whether Sunion was entitled o terminate the Tenancy and claim against Nam Hoi for:-

(1) vacant possession of the Property; and

(2) mense profits, and for how much;

61.  In the circumstances, Sunion was not entitled to terminate the Tenancy to recover possession. On facts of this case, Sunion has therefore wrongfully terminated the Tenancy.

62.  Nam Hoi had all along pleaded their willingness to pay mesne profits for occupation of the Property but at a rate to be assessed on agricultural land basis.

3. Whether,

(1) Sunion, and/or

(2) Polyunit;

make the Misrepresentations to induce the Defendant to enter into the Tenancy

63.  Wong said prior to the Tenancy, he told Lam, Leung and Ho clearly the intended use of Nam Hoi on the Property. He said all along, Ho, Leung and Lam said the Property was open storage land and was suited for the purpose and further that it was lawful to put the Property to the intended use of Nam Hoi.

64.  Wong said it was his first time dealing with New Territories land and he was told that one can lawfully use open storage land for the intended purpose of Nam Hoi without the need to apply waiver from Planning Department.

65.  Wong said Ho and Leung had told him earlier that the Property was open storage land and that the same was suitable for his intended use and that Lam did also say the same things on date of signing of the Tenancy.

66.  Lam denied and said he told Wong the Property was agricultural land. He admitted however that in his witness statements, he never mentioned he had told Wong the Property was agricultural land. He said reason for this omission was because he thought this was irrelevant to the present case. 

67.  It is noted however that in fact, by the time of his supplemental witness statement, the Defendant had already filed their Defence and Counterclaim which expressly made allegations of misrepresentations.  There was no reason for Lam not to mention that he had in fact told Wong the Property were agricultural land, if true.

68.  In Court, Lam admitted the Property actually was agricultural land. He said at time of the Tenancy, he did tell Wong the Property was agricultural land. Wong denied and said Lam then told him this was open storage land.

69.  When asked in Court when he put the Property on the market, what land use did he tell Ho that the Property could be used for, Lam said he did not tell. 

70.  I find the evidence of Lam inherently improbable. Obviously any landlord would volunteer to the estate agent the type of land to be let and if he did not do so, the estate agent would have asked and he would have to tell. Lam denied having described the Property to Ho. This piece of evidence could not have been true.

71.  Wong said Lam further pointed out to Wong that generally Lands Department would on application approve erecting a cover over the Property and that pending such approval, Wong could use canvas covering instead.

72.  Lam denied this. He admitted however there was discussion between Lam and Wong regarding erecting cover over the Property. He said he never agreed to this.

73.  At one time in Court, Ho admitted by nodding that Lam did tell Wong the Property was open storage land, then he paused and said he was not too sure.

74.  Leung said Lam did, during the meeting, show Wong the relevant papers for the previous approved application and that Lam expressly told Wong that the waiver had expired and that Sunion would not apply for change of use for Nam Hoi that Nam Hoi needed to apply themselves.

75.  Leung said Lam further expressly said that he could not warrant that Nam Hoi as a tenant could use the Property for the intended use.

76.  Wong also disagreed to the suggestion that under the Tenancy, Nam Hoi was responsible to make application for change of use of the Property.

77.  Wong said later he was informed by on 13 May 2009 Mr Kwok of North District Office that the Property was in fact agricultural land and therefore vehicle parking, car repair were not permitted, let alone building a cover.

78.  He said therefore he rang Lam confronting him with the complaint from Kwok, Lam said ‘who said you cannot?  I said yes and it is yes.’  He therefore followed up with the Planning Department and was told that Sunion as owner of the Property needed to apply for modification of land use or alternatively, Nam Hoi could, if so authorized by Sunion, made such application. He therefore sought the assistance of Leung on or about 22 June 2009 to ask Lam to make the application. Following that, Wong said he repeatedly chased Leung for progress of the application. As no news was forthcoming, Wong said he instructed Leung to ask Lam for authorization so that Nam Hoi could make the application direct.

79.  Wong said throughout this period, he chased Leung many times for progress of Sunion’s application until October 2009 when Leung asked Wong to ask Lam direct instead. Wong said he then rang Lam. Lam then told him to vacate from the Property temporarily to hide from the authorities and to avoid further action by Planning Department. In reply to Wong’s enquiry concerning the status of the application for modification of land use, Lam admitted that actually previously when the waiver expired, he had made a fresh application both was not successful.   This happened before the Tenancy. He even said that had he been successful, he would not have rented the Property to Wong but instead would have kept the Property for self use. Lam told Wong he did not file any new application.

80.  Ho said Lam did tell him the Property was open storage land and that there was an expired waiver.

81.  Ho also admitted he did tell Wong that the 4 pieces of land he inspected with him, including the Property was open storage land (倉地).

82.  Ho said in his witness statement that when Wong asked him whether the Property was fit for intended use of Nam Hoi, he replied he was not sure. He said he told Wong however that Sunion’s previous application for change of use had been approved. He therefore arranged a meeting between Wong and Lam and asked Lam also to bring the approval documents with him.

83.  Ho confirmed that at the meeting on 28 April 2009, Wong had told Lam of the intended use of the Property by Nam Hoi. He said Lam showed Wong the previous approval document. He also told Wong that he would not make application for change of use for Nam Hoi though the previous approval for change of use had expired. He said Lam did not warrant the suitability of the Property for Nam Hoi and that they agreed that should government interfere the use by Nam Hoi, the parties will cancel the Tenancy and refund the deposit without compensation.

84.  In his witness statement, Ho also denied having at any time represented to Nam Hoi that the property was fit for their purpose or that it was lawful to use the Property for the intended purpose of Nam Hoi. He said he also did not hear Leung said the above.

85.  He disagreed that he had told Wong that it was alright to park vehicles and repair cars on the Property and there was no need to apply.

86.  Nevertheless he admitted all along, Wong had told him from the start that Nam Hoi seeked to rent land for the intended use.

87.  In Court when questioned, Ho admitted that if the land for rent was actually agricultural land then they should write agricultural land in the Tenancy instead of open storage land.

88.  Firstly, any application for modification of use would only be necessary had Wong been told the Property was agricultural land. If he had been told the Property was open storage land, which this Court accepts, there would be no need for any application.

89.  This Court noted also that nothing was written in the Tenancy concerning the need for Nam Hoi to make application.

90.  This suggestion further could not be true because this need to make application by Nam Hoi was not mentioned by Sunion or Polyunit in any of their witnesses statements. In Court, they were unable to explain reason for the omission.

91.  Further, why would there not be any authorization documents from Sunion to Nam Hoi if this were true at time of the Tenancy to enable Nam Hoi make such application. There was also no reason that Leung, an experienced estate agent dealing with New Territories land for 19 years was not aware of such requirement?

92.  I do not find Lam a reliable witness nor do I accept his evidence. I find as a fact that he had never told Wong that the Property was agricultural land. I also find Lam was lying when he gave the explanation as to why in his witness statement he did not mention that he told Wong the Property was agricultural land. I find the true reason being he had actually told Wong the Property was open storage land.

93.  I accept the evidence from Wong that Lam did tell him that the Property was open storage land suited for his use and that putting the same to the intended use of Nam Hoi was lawful on the Property. I find Sunion therefore had made the alleged misrepresentations to induce Nam Hoi to enter into the Tenancy. 

94.  Although Lam in his witness statement denied having received any request from Nam Hoi to make application for modification of use, in Court he changed his evidence and said he could not remember if he had seen the request letter dated 22 June 2009 from Polyunit to Sunion.

95.  The same started off by referring to the Property as open storage land “倉地”. Then it followed and said that Nam Hoi had been informed by government department that the Property was agricultural land and that consent letter from directors of Sunion and consent letter from Sunion were required so that Nam Hoi could apply for change of use of the Property.

96.  If Wong had previously been informed whether by Ho and/or Leung and/or Lam that the Property was agricultural land and Polyunit was, as said by Ho or Leung aware of this, why would the letter dated 22 June 2009 from Polyunit described the Property as open storage land “倉地”? Further, why would Polyunit mention that “Nam Hoi was informed the Property was agricultural” if it were a fact known already to Nam Hoi at time of the Tenancy.

97.  In this case, had it been true that Wong had been told the Property was actually agricultural land (as it actually was) and the Tenancy stipulated that Planning Ordinance and no law was to be breached when it was used, then Nam Hoi could not have used it for the agreed open storage land use.It is therefore illogical or unbelievable that Lam or Ho or Leung would have told Wong the Property was agricultural land. Here, the previous waiver for the Property had expired and there was no arrangement for application for waiver. Their evidence in this respect was not accepted. 

98.  Wong denied that Lam had shown him documents covering an expired waiver allowing land use of the Property to be used for open storage. He said it was only when he was confronted by the Lands Department people that it was illegal to use the Property for parking and repair of vehicles that he rang Lam to clarify.

99.  In Court when Wong was put that in fact Sunion never warranted/represented the Property was open storage land, Wong replied then what was the purpose of Nam Hoi renting the Property. He said right from the start when he searched for suitable land, he told Ho the intended purpose for the land. He said if the land was not open storage land, it could not be so used. He said Lam expressly confirmed the Property was open storage land when Wong told him of the intended use on date of the Tenancy.  He was also told erecting cover for the Property would usually be approved.

100.  Wong said he had never been informed that there had previously been a waiver for change of use regarding the Property nor was he even shown any documents concerning the Property whether by Lam at time of the Tenancy or by anyone at any time.

101.  Wong reiterated that Ho and Leung both did tell him the Property was open storage land and that the Property was suitable for his explicit intended use or else why would he pay agency commission to Polyunit.

102.  In Court, at one time Leung said she had told Wong the Property was agricultural land, in latter half of the cross-examination, she said however “but the piece of land was not agricultural land as it had previously been approved by Planning Department for it to be used as open storage land”. In this circumstance, it was not logical or believable that she did tell Wong the Property was agricultural land. She herself did not consider the Property agricultural land.

103.  Leung in Court also agreed that if the land was open storage land, then if one applied for permission to erect cover, usually approval would be given.

104.  As it is agreed that for agricultural land, no application would be approved for erection of cover, then Leung and Ho must know Wong was acting under the belief that the Property was open storage land. This would be inconsistent with any evidence that Wong was told the Property was agricultural land.

105.  Clause 6 of the Tenancy reads:-

“租用期內，若遭政府干涉，而乙方被迫遷出，則甲方退還按金而無須附加利息或作出任何賠償，租金計算則以乙方遷出日為終止。”

106.  As to what was meant by “government interference” in the Tenancy, Wong said he was told this was put in to cater for resumption of land by government whereas Leung and Lam said that it meant situation when use of the Property was objected to by the government. Reading the Tenancy in its entirety and bearing in mind the finding of fact of this Court in accepting the evidence of Wong that both Ho and Lam did represent that the Property was open storage land “倉地”, clause 6 must have meant government interference due to reasons other than due to putting the Property to open storage land use. 

107.  Clause 7 also stipulated that Nam Hoi should not store on the Property unlawful goods or carry on activities whichwould infringe the planning ordinance or breach the law. Wong said it meant activities other than these covered by open storage land use. I agree, having regard to the representations that the Property was open storage land andthat at the time parties had intended the Property to be put to open storage land use.

108.  Based on the admissions by Ho in Court that he had told Wong that the Property was open storage land. I had no doubt that Polyunit had made such misrepresentations to Nam Hoi.

109.  Mr. Chung, counsel for Sunion cited the case of Junsa Development v. Appearance Estate Ltd and Others HCA 9036/1998 where on the facts of that case Sakhrani J found no warranty was given by the landlord to Ng and his investors because it was said that neither party applied their mind to whether the site was zoned as industrial.

110.  Mr. Chung therefore said in this case, there was again no warranty by Sunion.

111.  This Court takes the view that whether there was warranty or misrepresentations was really a question of fact.

112.  In my view, the Junsa case could be distinguished from the present case  because here, the minds of all concerned were clearly directed to whether the land were open storage land which would fit for the intended use of Nam Hoi.

113.  For reasons said, I have no hesitation to accept Wong’s evidence that Lam on behalf of Sunion did make the alleged misrepresentations.

114.  I do also find as a fact that both Ho and Leung had not told Wong that piece of land was agricultural land. In fact, Ho in Court admitted that on the 2 occasions admitted telling two times Wong the Property was open storage land.

115.  I find both Ho and Leung of Polyunit did also make the misrepresentations as alleged by Wong.

116.  I do not accept the argument by Polyunit that these representations were made by Ho outside the scope of his engagement by Polyunit as they were made whilst he was discharging his duty as an estate agent of Polyunit.

117.  Wong said in cross-examination that he relied on both representations made by Polyunit and Sunion. He said it was analogous to the used car sale situation and that both representations made by car dealer and used car owner were important and were relied on. He said he would not have believed if only one of them made such representation. He said Ho introduced the Property and other pieces of land for inspection after he informed Ho of the intended purpose, alleging that these are open storage land “倉地”.

118.  These misrepresentations made by Sunion and Nam Hoi were made, as said by Wong, to induce Nam Hoi entering into the Tenancy and according to Nam Hoi, they did rely on these misrepresentations made by both Sunion and Nam Hoi.

4. If answer to Issue 3(1) and/or (2) is yes, whether Sunion has thereby breached the Tenancy

119.  Having ruled that Sunion did make such misrepresentations. Sunion had breached the Tenancy as the Property was agricultural land and they had also wrongfully terminated the Tenancy.

5. If answer to Issue 3(2) is yes, whether Polyunit was in breach of section 36(1) and (2) of the Estate Agents Ordinance, Cap. 511

120.  Section 36(1) and (2) of the Estate Agents Ordinance, Cap. 511 reads:-

“(1)(a) Subject to section 38(3), every licensed estate agent shall, as regards every property (whether situated in Hong Kong or elsewhere) in relation to which he has entered into an estate agency agreement-

(i) if he acts for the vendor, then for so long as he so acts, have in his possession or under his control information prescribed for the purposes of this paragraph;

(ii) be reasonably satisfied as regards the accuracy of information prescribed for the purposes of this paragraph;

(iii) supply to persons who are of a class or description prescribed for the purposes of this paragraph information so prescribed;

(iv) comply with requirements prescribed for the purposes of this paragraph when supplying to others information which is required by this Ordinance to be supplied to them;”

“(vii) if as regards a particular property he acts both for the vendor and for the purchaser-

(A) inform both of such clients that he is so acting; and

(B) without affecting any of the requirements applicable to him, including those in respect of the supply of information, under any of the foregoing subparagraphs, provide to either of such clients at the request of that client any information provided by the other client as regards the property concerned, unless he has been expressly instructed by that other client not to do so.

(b) For the purposes of this subsection the fact that a licensed estate agent or a partnership carries on an estate agency business and 1 or more other businesses is immaterial.”

“(2) Without affecting the generality of subsection (1), information prescribed for the purposes of subsection (1)(a) in relation to any property situated in Hong Kong, being property in relation to which a particular licensed estate agent has entered into an estate agency agreement, or in relation to any property which is of a prescribed class or description of such properties, may include the following-”

“(d) any restrictions on the user of the relevant property which are imposed by any document which is of a class or description prescribed for the purposes of this paragraph;”

“(g) a statement, made by the vendor in a manner prescribed for the purposes of this paragraph, containing-”

121.  “Vendor” is defined under this ordinance as meaning any person by whom a property is or is to be disposed of and includes a prospective landlord.

122.  Ho also admitted that he did nothing to check the permitted use of the Property himself nor did he remember performing a land search on the Property. He said most land leased by land owners were open storge land and he therefore thought the Property was suitable for Nam Hoi’s use. In Court, he admitted he was negligent but he insisted that Lam did show documents of the Property to Wong at time of the Tenancy which Wong denied.

123.  Leung also said she did nothing to check the permitted use of the Property.

124.  In my Judgment, Polyunit had clearly breached their statutory duty. They had frankly admitted having made no effort to ascertain whether the Property was in fact open storage land and yet they made such misrepresentations to Nam Hoi.

6. If answer to 4 and/or 5 is yes, whether Nam Hoi is entitled to:-

(1) rely on the said Misrepresentations to remain in possession; and

(2) Counterclaim against the Sunion and/or Polyunit for damages, and for how much

125.  Issue 6(1) no longer required the attention of the Court as Nam Hoi had already vacated from the Property. As said earlier, had Nam Hoi not moved out, Sunion was not entitled to recover possession.

126.  We now go to deal with the Counterclaim of Nam Hoi against Sunion and Polyunit.

127.  In their Counterclaim, Nam Hoi seeked for:-

1. loss of profits from the business of coach hire from 1 October 2009 averaging HK$10,000 per month;

2. loss of profits from the business of installing bodyworks of coaches from 1 January 2010 averaging HK$300,000 per quarter (3 months) on the basis that it would have taken Nam Hoi 6 months from entering into occupation of the Property to set up its operation;

3. further and/or alternatively, loss suffered from the sale of coaches which was aimed at mitigating its loss;

4. additional parking fee for coaches;

5. loss of wear and tear of plant and machinery;

6. incremental relocation expenses in the sum of HK$80,000;

7. overpayment of rent in that the Property to be assessed, given its only permitted use was “agriculture”, would only have commanded a nominal monthly rental.

128.  Section 3(1) of the Misrepresentation Ordinance, Cap. 284 (“the Ordinance”) reads:-

“(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.”

129.  In the present case, Sunion, being a party to the contract, clearly was caught by the section and was liable to Nam Hoi for damages.

130.  It was said in Chitty on Contracts, 28^th edition, chapter 6-076 that :-

“Parties liable under the subsection. The subsection only applies where the representee has entered into a contract after a misrepresentation was made to his by another party to the contract. Presumably,ordinary principles of agency will still apply, so that an action will lie under the subsection where the misrepresentation has been made by an agent of the other contracting party, acting within the scope of his authority. But an agent who makes a misrepresentation which is within his actual or ostensible authority is not personally liable under the subsection, despite the fact that the subsection, having referred to a misrepresentation having been made by a party to the contract (i.e. the principal via the agent) then goes on to refer to the liability of the person making the representation. The agent may, of course, be liable for negligence at common law but only if he has assumed personal responsibility towards the claimant.”

131.  Chapter 6-077 further reads:-

“Misrepresentation by third person. The subsection has no application where the representor is neither himself the other contracting party nor the agent of the other contracting party. Thus where B is induced to enter into a contract with C as a result of a misrepresentation made by A, and A is not C’s agent, B will have no right of action against A under the subsection. He may, however, have a remedy in damages against A on some other ground.”

132.  It follows therefore that Polyunit was not liable to Nam Hoi under the Misrepresentation Ordinance as Polyunit was not a party to the Tenancy.

133.  They also said they were not authorized by Sunion when making misrepresentations in that they were not agents.

134.  Polyunit however would be liable for damages to Nam Hoi because they should be aware that they were trusted and relied upon but they made the misrepresentations without exercising any due diligence to ascertain the truth or otherwise of these misrepresentations.

135.  In the case of Sound Industrial Limited v.Kim Yi Property Agency Limited DCCJ 3222/2008, it was said that:-

“ The cases of Jopard Holdings Ltd v Ladefaith Ltd [2005] 1 HKLRD 317 and Barrett v J R West Limited [1970] NZLR 789 show that where an inquiry was made to, or information was sought from an estate agent by his client about the property, and the estate agent, knowing that he was being relied upon, chose to answer the inquiry or provide the information, the agent owed a duty to the client to take reasonable care in his answer, even though the subject of the inquiry might not be within his own area of expertise or knowledge.”

136.  According to Chitty on Contracts, Chapter 6-069, generally damages under section 2(1) of the Misrepresentation Act 1967 (equivalent to our section 3(1) of the Misrepresentation Ordinance) will be awarded to put the representee in the position in which he would have been if he had never entered into the contract and not to put him in the position in which he would have been if the misrepresentation had been true.

137.  It was said by Polyunit that the loss and damages claimed by Nam Hoi i.e. loss of turnover or loss of profit was not within reasonable contemplation of Polyunit. In my view, these losses if proved, were within their reasonable contemplation as they knew the nature of business of Nam Hoi at the time.

138.  According to Wong, Nam Hoi had paid $20,000 rental deposit to Sunion and $10,000 commission to Polyunit.

139.  Wong also said Nam Hoi had moved to the Property 7 containers to store the tools and spare parts for maintaining and repairing the coaches, 1 folding bed, 1 metal plate cutting machine, 1 generator, 2 10-ton hydraulic lever jacks, 1 5-ton hydraulic lever jack and crane/s for the purpose of assembling the body of the coaches.

140.  He said on or about 13 May 2009 i.e. shortly after the commencement of the Tenancy, he was informed by staff from District Lands Office that the Property was agricultural land and could not be used for coach repair and also they could not build cover over the Property. He therefore at once ceased coach repair and/or installing coach bodyworks at the Property.

141.  Wong said at the material times, Nam Hoi was operating public bus services such as services serving Tai Wai village and Central as well as coach hire business such as having contracts with client like ACF Logistics Ltd. Wong said net profit for operating such services was about $10,000 per month.

142.  Wong said they needed to have routine checks and maintenance for each coach bus once every 7 to 10 days to ensure the soundness of their buses. Wong said as from mid June 2009, they were forced to cease performing repair work on buses at the Property. He said as Nam Hoi failed to maintain these buses, they had to stop operating its buses and had to cancel the bus service contracts. The buses were also sold as a result.

143.  Wong said Nam Hoi suffered loss in the sale of coaches as the passengers service licences attached to the buses were also lost.

144.  He said previously Nam Hoi was also in business of building coach bodyworks. As a result of the misrepresentations, he had to cease such business. He said the net profit for building a bus was $300,000.

145.  He said he had tried to seek alternative locations for his business to mitigate the loss but despite his efforts, he only managed to rent a piece of land shortly before trial.

146.  Wong also claimed relocation costs in sum of $80,000.

147.  Wong said Nam Hoi had paid rent for the Property up to October 2009. He said as the Property was merely agricultural land, the rent should be adjusted downward to reflect the market rent for agricultural land which he said should be nominal only. He said therefore Nam Hoi had overpaid.

148.  Whilst I tend to agree that the market rent for agricultural land might be less than that of open storage land, Nam Hoi did not adduce evidence to assist the Court what the market rent for agricultural land was at the relevant times. This Court therefore is not assisted.

149.  Nam Hoi agrees to pay mense profits for occupation of the Property from November 2009 to 19 October 2011. In the absence of good evidence as to what the mense profits per month for the Property should be, this Court could only resort to the contractual $10,000 per month. Counsel for Sunion seeked $230,000 as mesne profits for this period. I agree, the same however should be offset against $20,000 rental deposit to be refunded by Sunion.

150.  In support of the Counterclaim, Wong did produce several contracts for sale of public buses of Nam Hoi dated 4 June 2009, 29 September 2009, 29 September 2009 and 24 April 2010.

151.  He also produced quotations for installation of bus bodyworks issued by other auto body builders and contracts for provision of bus services by Nam Hoi.

152.  Although the bus sales all occurred shortly after the discovery of the agricultural land nature of the Property, which supported Wong’s contention that the sale was related to the misrepresentations. This Court however could not compute the actual losses to Nam Hoi solely based on the documents and the evidence of Wong as Nam Hoi did not produce any profit and loss account to Court in support.

153.  On evidence, I do not find the Counterclaim items 1 to 3 proved.

154.  Nam Hoi also did not adduce any evidence for Counterclaim items 4 and 5 and I dismiss claims for these items also.

155.  As for the relocation expenses claim of $80,000, in view of the fact that Nam Hoi needed to relocate as a result of the misrepresentations and the substantial quantity of heavy machinery, as disclosed in paragraph 12 of Wong’s witness statement which was not challeged and having regard to the amount of $80,000 claimed which I consider modest, I find this item proved.

156.  As for the last Counterclaim item of “over payment of rent”, for same reasons as said earlier in paragraph 146, the claim is also dismissed.  

157.  In order to put Nam Hoi in the same position as if he had not entered into the Tenancy, it is obvious that $10,000 agency commission and the $20,000 rental deposit need be refunded.

Conclusion

158.  I order therefore that:-

i. in respect of the main action:-

a.   Nam Hoi shall pay Sunion the sum of $230,000 being mesne profits up to 19 October 2011 at rate of $10,000 per month as claimed. (paragraph 38 of Plaintiff’s closing submission); and

ii. in respect of the Counterclam:-

a.    Sunion and Polyunit shall pay $80,000 to Nam Hoi, being the relocation expenses;

b.   Sunion shall refund $20,000 rental deposit to Nam Hoi;

c.    Polyunit shall return $10,000 agency commission to Nam Hoi.

Costs

159.  Sunion was not entitled to an order for possession of the Property. Nam Hoi had all along agreed to pay mesne profits for occupation of the Property but not at the contractual rate of $10,000 per month, yet it failed to prove the mesne profits of the Property should be less than $10,000 per month. Little time was spent on this issue.

160.  Further, Nam Hoi was successful in the Counterclaim (albeit only part) against both Sunion and Polyunit.

161.  Considering the circumstances of the case, I therefore make an order nisi that Sunion shall pay Nam Hoi 80% costs of the whole proceedings and I also make an order nisi that Polyunit shall pay Nam Hoi costs of the Counterclaim. There will also be certificate for counsel.