YILI CONCEPTS (HKG) LTD. v. LEE WAI CHUEN AND ANOTHER

HCA 12911/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. A12911 OF 1997

____________

______________

J U D G M E N T

______________

1. This action arose out of an agreement dated 15 September 1997 for the sale and purchase of a residential property known as Unit B, 1st Floor, Emerald Court, No. 14 Conduit Road, Hong Kong ("the Property"). It was entered into by the Plaintiff as the purchaser, the 1st Defendant as the vendor and the 2nd Defendant as the estate agent. Mr Paul Hsu, the executive director of the Plaintiff, acted for and on behalf of the Plaintiff in the transaction and the Property was to be purchased as a residence for him. It is the Plaintiff's case that it is entitled to rescind the agreement and recover the initial deposit of HK$200,000.00 paid to the 1st Defendant on 2 grounds. Firstly, there was misrepresentation by the 2nd Defendant as to the area of the Property and that such misrepresentation was made by the 2nd Defendant either on behalf of the 1st Defendant or on its own behalf. Secondly, the Plaintiff claims that it is entitled to rescind because the 1st Defendant was and is unable to give good title of the Property due to unauthorised building works in the Property.

2. The facts and matters which are not controversial may be set out as follows.

3. In about August or September 1997, the Property was listed in the records of the 2nd Defendant as a property for sale. At about the same time, Mr Hsu had asked his secretary to contact estate agents with the view of locating a property for purchase as his residence. The 2nd Defendant was approached by Mr Hsu's secretary, and provided with these requirements of Mr Hsu, namely, that his preferred locations were Pokfulam and the Mid-levels; that the area of the property was to be about 1,000 square feet; and that his budget was HK$5-6 million.

4. Mr Hsu was contacted by two employees of the 2nd Defendant, Mr Leung Wai Ming and Mr Cheng Yuen Hing Jimmy in early September 1997. They told him about the Property and Mr Hsu was interested in seeing it. At that time, Mr Leung's position with the 2nd Defendant was senior property consultant whereas that of Mr Cheng was property consultant. Neither of them had a professional qualification.

5. Mr Hsu viewed the Property on 4 September 1997 accompanied by Mr Leung and Mr Cheng. Neither the 1st Defendant, Mr Lee Wai Chuen, nor his wife Madam Au So Fong, was present on that occasion. Mr Lee and Madam Au were engaged in running a printing business with operations in the Mainland and in a factory in Chai Wan. Consequently, they had to divide their time between Hong Kong and the Mainland.

6. What was said by Mr Leung and Mr Cheng to Mr Hsu on the first viewing of the Property regarding the size of the flat and possible illegal structures is a matter very much in contention. What is not in dispute is that Mr Hsu liked the flat and he subsequently caused enquiries to be made as to the extent of a mortgage loan he could obtain from a bank to finance the purchase. There were discussions between Mr Hsu, Mr Leung and Mr Cheng between the first and second viewing of the Property, which took place on 13 September 1997. The contents of these discussions are also in dispute.

7. Mr Hsu viewed the Property for the second time accompanied by Mr Leung, Mr Cheng and his interior decorator, who took measurements of the Property. Madam Au was present as she was notified in advance of Mr Hsu's second visit. It is in dispute whether Mr Lee was also present. There was little conversation between Mr Hsu and Madam Au or Mr Lee, if he was present.

8. Prior to the second viewing, and on 12 September 1997, the 2nd Defendant had obtained a "verbal valuation report" from 3 valuers through the SPC Bank. A copy of this report was faxed by the 2nd Defendant to Mr Hsu. It is in dispute when and why this report was faxed to Mr Hsu. It is the Plaintiff's case that representations were made by the 2nd Defendant on the area of the Property by virtue of the statements in that report. It is common ground that the report was received by Mr Hsu before he signed the agreement in question.

9. On 15 September 1997, Mr Hsu signed the agreement on behalf of the Plaintiff to purchase the Property in the sum of HK$7,250,000.00 and paid HK$200,000.00 to Mr Lee as preliminary deposit. The agreement was a standard agreement provided by the 2nd Defendant and was entitled "Provisional Agreement for Sale and Purchase ". Mr Lee and one of the employees of the 2nd Defendant also signed the agreement subsequently. This agreement is not admitted in evidence because it has not been stamped and none of the parties were prepared to provide to the court the personal undertaking of a solicitor to cause the agreement to be stamped and the penalty payable to be paid, in accordance with Section 15 of the Stamp Duty Ordinance Cap. 117. However, it is common ground that a written agreement was entered into and that the agreement contained inter alia these provisions: (1) a formal agreement for sale and purchase was to be signed on or before 30 September 1997 whereupon HK$525,000.00 was to be paid towards the purchase price; and (2) the 2nd Defendant was entitled to a commission of HK$145,000.00 payable one-half by the vendor and one-half by the purchaser.

10. Mr Hsu left Hong Kong for a trip after the agreement and the matter was handled by his then solicitors, Messrs Deacons Graham and James. Mr Lee's solicitors sent a draft agreement for sale and purchase to Deacons on 27 September 1997. On 29 September 1997, the solicitors for the parties agreed to postpone the payment of the further deposit and the signing of the formal agreement for sale and purchase to 6 October 1997. On 3 October 1997, Deacons returned the draft agreement to Mr Lee's solicitors with amendments, whereby they deleted the exclusion of warranty in respect of unauthorised structures and added several terms relating to the giving of warranties in respect of unauthorised structures. On 6 October 1997, Deacons sent a cheque for HK$525,000.00 in favour of Mr Lee's solicitors on the undertaking of the latter to hold as stakeholder and not to release it to Mr Lee unless and until the formal agreement had been signed.

11. Also on 6 October 1997, there was a meeting between Mr Hsu, Madam Au and Mr Leung at the Property. Mr Hsu, Madam Au and Mr Leung all gave different accounts as to what was said. As a result of what was said, at some time after 3:00 p.m. that day, Madam Au caused a floor plan of the Property to be faxed by her staff in Chai Wan to the 2nd Defendant and it was marked for the attention of Mr Cheng.

12. On 7 October 1997, the Plaintiff retained its present solicitors to act on its behalf in the place of Deacons. On that day, the Plaintiff's solicitors wrote to Mr Lee's solicitors stating that the amendments to the draft formal agreement proposed by Deacons had not been accepted by the owner particularly with regard to the warranty as to no unauthorised structures. It was also stated that part of the balcony and well space had been enclosed which amounted to illegal structures, the practical effect of which was that the Plaintiff was led to believe by Mr Lee's agents that the square footage was 1,600 square feet whereas the Plaintiff's investigations showed that the gross floor area was in the region of 815 square feet. The solicitors stated that unless Mr Lee could prove good title to the enclosed areas, the Plaintiff would have little choice but to withdraw from the transaction. This letter was copied to the 2nd Defendant who also received a separate letter of the same date from the Plaintiff's solicitors alleging gross misrepresentation by the 2nd Defendant with regard to the square footage of the Property and threatening proceedings in the event that the Plaintiff was unable to recover the deposit from the owner. No reply was given by the 2nd Defendant to the letter of the Plaintiff's solicitors.

13. On 8 October 1997, Mr Lee's solicitors presented for payment the cheque of the Plaintiff for the further deposit. The cheque was not honoured as the Plaintiff had stopped payment.

14. On 9 and 14 October 1997, the Plaintiff's solicitors pressed Mr Lee's solicitors for a reply to their letter dated 7 October. A reply came on 15 October. Mr Lee's solicitors alleged that by reason of the dishonour of the Plaintiff's cheque on 8 October, the Plaintiff had repudiated the agreement and Mr Lee was entitled to forfeit the initial deposit of HK$200,000.00.

15. The writ with the Statement of Claim was issued on 8 November 1997.

The issues

16. The main issues in this action are as follows:

1) what representations were made to Mr Hsu;

2) whether the 2nd Defendant was acting as Mr Lee's agent in making the representations;

3) whether the representations amounted to misrepresentation and, if so, were the representations made negligently or fraudulently;

4) whether Mr Hsu had relied on the representations;

5) whether it was reasonably foreseeable that the sale fell through as a result of the representations;

6) whether the Plaintiff is entitled to rescind on the ground that Mr Lee was unable to give good title to the Property; and

7) whether the 2nd Defendant is entitled to recover commission from the Plaintiff or Mr Lee or from both.

The witnesses

17. Mr Hsu is the only witness of fact for the Plaintiff. The Plaintiff called a chartered surveyor, Mr Nicholas John Bennett to give expert evidence on the area of the Property and the alleged unauthorised structures in the Property.

18. I have formed a favourable view of Mr Hsu as a witness. He gave his evidence in a straightforward manner and did not embellish his evidence or give evasive answers when he was asked about matters which might not appear to be favourable to his case. He was, however, mistaken in some matters, as I gather from the evidence of his expert Mr Bennett. I accept these were honest mistakes on his part.

19. The findings of Mr Bennett are not seriously challenged by the Defendants. What they have sought to attack is his opinion that the alterations to the Property are structural and the likelihood of enforcement action by the Government for various unauthorised works.

20. Mr Lee and Madam Au gave evidence for the 1st Defendant. Mr Lee claimed he had little knowledge of the transaction or of matters relating to the Property, stating that it was Madam Au who was primarily responsible for all dealings relating to the Property. Madam Au in turn shifted responsibility for the conduct of the sale to the 2nd Defendant. She claimed to have adopted a passive role. I do not find Mr Lee and Madam Au to be reliable witnesses. Where there is no evidence from Mr Hsu and where there is conflict between the witnesses of the 1st and 2nd Defendants, the evidence of these witnesses of the Defendants would have to be examined with some care.

21. Mr Leung and Mr Cheng gave evidence for the 2nd Defendant. It is obvious that they had discussed with each other the evidence they were to present to the court. This is not necessarily a factor against them. However, I detect signs of evasiveness in their evidence, which have led me to the view that they were not prepared to tell the truth or the whole truth to the court in matters not favourable to the 2nd Defendant's case.

22. With these general observations on the credibility of the witnesses, I turn to consider the specific issues in the order I have set out above.

What representations were made to Mr Hsu

23. It is pleaded in the Statement of Claim that representations were made to Mr Hsu by the employees of the 2nd Defendant on two occasions. I shall deal with them separately.

The first representation

24. This representation was made at the first viewing of the Property on 4 September 1997 and was made by Mr Leung and Mr Cheng to Mr Hsu. The Statement of Claim as eventually amended at the closing submissions of the Plaintiff alleged that the 2nd Defendant represented that "the property was approximately 1,600 square feet in area of which 1,200 square feet was enclosed space." It is denied by the 2nd Defendant that this representation was made. It is the 2nd Defendant's case that Mr Leung and Mr Cheng told Mr Hsu at the first viewing of the Property that the floor area was "about 1,200 square feet inclusive of the portion of garden which was about 400 square feet."

25. Mr Hsu gave evidence that he viewed the Property with Mr Leung and Mr Cheng for about 30 minutes on the first occasion. The agents told him the size of the Property was 1,200 square feet plus a garden. He looked at the Property and it did seem to him that it was in the range of area as quoted by the agents. He requested a floor plan but the agents told him that they were not provided with a floor plan by the owner and a floor plan was probably not available because it is an old building. The agents did not mention the square footage that they had quoted was gross or otherwise but Mr Hsu had understood them to mean gross area not net area. Not being a surveyor or a professional engaged in property dealings, Mr Hsu's understanding of "gross area" was limited to the fact that it would be bigger that the net area.

26. Mr Leung gave evidence that he learned about the Property from the database of properties for sale compiled by the 2nd Defendant. He telephoned Mr Lee at the end of August or early September 1997 to seek further information about the Property and amongst other things, Mr Lee had told him that the size was 1,200 square feet including a garden with no car parking space. He had asked Mr Lee for a floor plan but Mr Lee informed him that he did not have one. At the first viewing of the Property, Mr Leung gave Mr Hsu the information he had from Mr Lee about the size of the Property and said it was 1,200 square feet including the garden. I should mention that the computer records of the 2nd Defendant were discovered to be existing at a very late stage in the trial. However, the 2nd Defendant did not wish to produce the computer records and neither the Plaintiff nor the 1st Defendant applied for production of the records in evidence after having seen them. Mr Leung also stated that he never had any intention to check how big the Property was as it is an old building and it would be difficult to verify the size of an old property. He merely relied on the owner for information of the size and he would refer to the size as quoted by the owner when he introduced the Property to a potential buyer.

27. Mr Cheng gave similar evidence regarding the representation made to Mr Hsu. Unlike Mr Leung who was adamant that Mr Hsu did not ask for a floor plan before 6 October 1997, Mr Cheng accepted that it was possible that Mr Hsu had asked him for one at the first viewing but he could not recall this. Like Mr Leung, he said he would not verify the size of the property in an old building that was quoted by the owner and he would just convey the owner's information regarding the size to the potential buyer.

28. Mr Lee denied that he had ever told Mr Leung that the size of the Property was 1,200 square feet including the garden. He said it was his wife Madam Au who had dealt with the agents all along and he did not even have a clear idea of the size of the Property, in which he had lived intermittently since 1991. At one point of his evidence, he said that he knew the Property was 1,000 odd square feet excluding the garden. Then he retracted this evidence and said he could not recall the exact size or even an approximate figure without looking at the documents and deeds.

29. The land search record revealed that the Property was purchased in the name of Madam Au in October 1991. She bought the Property for her mother to live in. Later, her mother left for Canada. She then lived in the Property for a while and let it out for about two years. At the time of the sale of the Property to the Plaintiff, she and Mr Lee had lived in the Property for a year and a half. In 1996, Madam Au sold the Property to her husband Mr Lee. The idea was to enable Mr Lee to raise money on the Property with a bank for his business. They decided to sell the Property in 1997 because Mr Lee's business was in financial difficulty.

30. Madam Au claimed she was not told of the area of the Property when she bought it in 1991 for her mother to live there. She had only looked at the Property and she bought it in a hurry. When the Property was mortgaged to obtain facilities from a bank after Madam Au had sold it to her husband in 1996, she claimed that although a valuation was obtained by the bank, she was not provided information of the area of the Property or the value as assessed by the bank. She claimed she had no knowledge of the gross area of the Property. She only knew the "rough usable area" by counting the tiles in the flat every now and then and it was a bit more than 700 square feet excluding the garden and the maid's quarters which was an enclosed area of the garden. She said she had given this information of the rough usable area to Mr Leung and Mr Leung told her that since the usable area was 700 square feet, according to his estimate, the gross area would be higher and it would be about 1,100 to 1,200 square feet. They had this discussion when the Property was put on the market and Madam Au accepted Mr Leung's estimate of the gross area. This alleged discussion was denied by Mr Leung.

31. Mr Hsu did not give evidence that the agents had told him that the Property was "approximately 1,600 square feet in area of which 1,200 square feet was enclosed space", as pleaded in the Statement of Claim. What he said in evidence was 1,200 square feet plus a garden. However, as it is not in dispute that the garden is about 400 square feet (the exact area is 457 square feet as ascertained by Mr Bennett and his evidence on this is not challenged), I do not think there is any significant departure of Mr Hsu's evidence from his pleaded case. I am satisfied on the evidence that the agent had made a representation to Mr Hsu at the time of the first viewing that the enclosed area of the Property not including the garden was 1,200 square feet. As I have mentioned earlier, I am not impressed with any of the witnesses of the 1st Defendant and the 2nd Defendant. It is quite clear from the evidence they have given in this respect which I have summarized above that the two Defendants were trying to put the blame on each other as to how the area of the Property came to be quoted to Mr Hsu. What is odd is this. Leaving aside any distinction between "gross area" and "saleable floor area" for the time being, the approximate area of the Property would be about 1,200 square feet if the garden is included in the calculation. Mr Leung and Mr Cheng stated that they did not verify the area of the Property and relied solely on the owner for this information. Mr Lee and Madam Au denied any knowledge of the gross area. Madam Au accepted that she knew about the "rough usable area" but this was the enclosed space of the Property excluding the garden. She also accepted the estimate allegedly given to her by Mr Leung of the gross area of the enclosed space at about 1,000 to 1,200 square feet, but this was again excluding the garden. Thus, the very persons who had allegedly provided information to Mr Leung and Mr Cheng that the Property was 1,200 square feet including the garden denied they had this knowledge or understanding regarding the Property. Furthermore, Mr Leung and Mr Cheng claimed that the alleged information was derived from the owner and they had not taken any steps to verify it. In the circumstances, it seems clear to me that their evidence in this regard must be rejected. Accordingly, I find that Mr Leung and Mr Cheng had represented to Mr Hsu on 4 September 1997 that the enclosed space of the Property was 1,200 square feet.

The second representation

32. It is pleaded in the Statement of Claim that the second representation was to the effect that the value of the Property could be determined by reference to an enclosed area of 1,200 square feet and that this was made partly in a telephone conversation between Mr Cheng and Mr Hsu on or about 12 September 1997 and partly in the verbal valuation report sent by the 2nd Defendant to Mr Hsu containing what appeared to be telephone valuations of the Property by Vigers, Jones Lang Wootton and Chesterton Petty and representing a valuation of the Property of HK$6.5 million to HK$7 million.

33. According to Mr Hsu, the verbal valuation report came to be provided to him by the 2nd Defendant in this way. He became interested in the Property after the first viewing and made enquiries through the financial controller of his business associate with a bank as to how much he could borrow on a mortgage of the Property. He was given to understand that the Property was valued by the HSBC at HK$5.5 million, which was way below the asking price. He therefore telephoned Mr Leung and Mr Cheng and told them that he would not pursue the purchase of the Property. On being asked the reason, he told the agents that the valuation of his bank was significantly lower than what he had expected. The agents' response was that they could find other banks to provide a valuation of the Property in the range of HK$7 million or above. Subsequently, they sent him the verbal valuation report and after reading it, Mr Hsu's interest in the Property was revived because the valuation was much closer to the asking price. He therefore asked to view the Property a second time and this took place on 13 September. Thus, Mr Hsu claimed that it was with the view of trying to revive his interest in the purchase of the Property that the 2nd Defendant faxed the verbal valuation report to him.

34. The 2nd Defendant's witnesses admitted that the verbal valuation report was obtained on 12 September 1997, before the second viewing of the Property. They however stated that a copy of it was faxed to Mr Hsu only after the second viewing had taken place, and that was on about 14 or 15 September 1997. They stated that it was the standard practice of the 2nd Defendant to ask for a verbal valuation report from various surveyors through a bank and this was what had happened here. The report was sent to Mr Hsu because he asked the agents on 15 September 1997 if they had obtained any valuation and on hearing that they had a recent valuation report, he requested them to fax him a copy. Both the 2nd Defendant's witnesses denied that the report was sent to Mr Hsu after Mr Hsu had told them that he would not proceed with the purchase in an attempt to persuade Mr Hsu to renew his interest in the Property.

35. In my view, Mr Hsu's evidence as to when and how the verbal valuation report came to be provided to him is more inherently probable. Further, I note that Mr Cheng had said in evidence that one reason for providing Mr Hsu with the report was that Mr Hsu had informed him that the HSBC gave a valuation of the Property at HK$5.5 million only and Mr Cheng therefore informed Mr Hsu that he had a valuation from another bank at HK$6.5 million to 7 million. On hearing that, Mr Hsu asked Mr Cheng to fax him the report. When Mr Cheng was asked as to what did he expect Mr Hsu to do with the report on receiving it, he replied that he expected Mr Hsu to read it and "nothing special" would be done. I consider that to be a disingenuous answer. Mr Leung disagreed with the suggestion that the purpose of sending the report to Mr Hsu was to persuade him to go through with the purchase. He admitted however that the report was sent for Mr Hsu to show the HSBC to see whether they would adjust their valuation of the Property at HK$5.5 million upwards.

36. It is unnecessary for me to find whether the report was obtained by the 2nd Defendant in order to persuade Mr Hsu to go through with the purchase. I do find that a copy was provided to Mr Hsu to try to persuade him to renew his interest in the Property and that this report was faxed to him on 12 September 1997, before Mr Hsu had asked the 2nd Defendant to arrange a second viewing.

37. I turn to consider the report to see what representation was made in it and whether the representation was made by the 2nd Defendant or by the 3 or any of the 3 surveyors named in the report.

38. According to the evidence of the 2nd Defendant's witnesses, Mr Cheng requested the SPC Bank to provide the report in accordance with the usual practice of the 2nd Defendant. The report was provided by the SPC Bank and marked for the attention of Mr Cheng. Normally, a report of this kind was provided by the bank within the same day of the request. The report is in 3 sections with one section for each valuer. The blanks in each section were completed in the same hand by someone from the SPC Bank. Each section contains blanks to be filled in for the following particulars: contact person, reference number, property, age of property, gross and net area, asking/purchase price and the estimate being the valuation of the property. On the report obtained for the Property, the first section which purported to be a valuation from Vigers, contained the most detailed information. The address of the Property was filled in the blank for particulars of the property with additional information that it is plus a garden of 500 square feet with lift. "N/A" was written in each of the blanks for the age of the property, the gross area of the property and the net area. However, information was subsequently written in respect of each of these matters so that the age of the Property was given as 30 years, the gross area was given as 1,200 square feet and the net area was stated as "assume 75% of gross area". For the asking/purchase price, the figure of 7.3 million was inserted. The estimate or valuation given by Vigers was HK$7 million and against this figure were written the words "unit rate 6,800 if net area".

39. Mr Leung agreed with the method of how the valuation of HK$7 million was arrived at using a unit rate of HK$6,800.00 per square foot, as put to him by Mr Neil Thomson who appeared on behalf of the Plaintiff. The arithmetic is as follows. Taking 1,200 square feet as the gross area, and assuming the net area is 75% of gross, one would arrive at 900 square feet as the net area. Applying the unit rate of HK$6,800 per square foot to the net area of 900 square feet, this would give a value of HK$6,120,000.00. This figure was then rounded up to HK$7 million to take into account there is a garden of about 500 square feet. On this analysis, I accept that there was a representation in the report to the effect that the value of the Property could be determined by reference to an enclosed area of 1,200 square feet, as pleaded in the Statement of Claim.

40. The question is whether this representation was made by the 2nd Defendant or by Vigers. As to this, I would need to look at the evidence and I have taken these matters into account in making the finding that the representation was made by the 2nd Defendant's employee Mr Cheng:

41. 1) Mr Cheng gave evidence as to what information he had provided to the SPC Bank for the purpose of obtaining the report. Initially, he said that he provided the bank with these particulars: the address, the age of the Property, the asking price and the "rough footage". In respect of the "rough footage", he said he had told the bank it was "1,200, garden inclusive." He late changed his evidence and said that the area and details of the Property were not provided by the 2nd Defendant to the bank. Mr Leung also said in his evidence that only the address was supplied by Mr Cheng to the bank for the purpose of obtaining a report. There is a serious conflict in the evidence of the 2 witnesses for the 2nd Defendant as well as in Mr Cheng's own evidence on the kind of information he had provided to the bank for this purpose.

42. 2) It seems to me inherently unlikely that Mr Cheng could only have informed the bank the address of the Property and nothing else having regard to the particulars of the kind of information that were actually provided in the report. In all 3 sections of the report, the asking/purchase price was given as HK$7.3 million, which was in fact the asking price of the Property at about the time when the report was sought from the bank. This information could only have come from the 2nd Defendant. The gross area was initially given as non-available in the first section and information was then added that it was 1,200 square feet. It is clear from the arithmetic analysis of the valuation and the manner in which the particulars were given in the first section that the 1,200 square feet was exclusive of the garden which had an area of 500 square feet. This is the same as the verbal representation made by Mr Leung and Mr Cheng to Mr Hsu on the first viewing of the Property, as I have found. In the subsequent part of this judgment, I will deal with the expert evidence of Mr Bennett which is to the effect that the enclosed space is not 1,200 square feet. It would be a very strange coincidence that the SPC Bank or Vigers could have made a mistake on the area of the Property that was identical to the mistake in the verbal representation made by the 2nd Defendant's employees to Mr Hsu. The inherent probability must be that the mistake as to the area could only have originated from the same source, i.e. the 2nd Defendant and more precisely, Mr Cheng.

43. 3) As stated earlier, when Mr Cheng informed the SPC Bank of the "rough footage", he said it was 1,200 square feet including the garden. The area of the Property stated in the first section of the report provided by the bank was a gross area of 1,200 square feet plus a garden of 500 square feet. If Mr Cheng had indeed told the bank the area of the Property in the way as he had alleged, the gross area would have been over-stated by 500 square feet. It is unlikely that this could have escaped his attention, even though he claimed that he was not capable of doing the arithmetic on the valuation of HK$7 million, unlike his colleague Mr Leung. It seems to me that the reason why Mr Cheng did not raise any query with the SPC Bank on the area of the Property as stated in the report was because it accorded with the information he had provided to the bank regarding the area.

44. A point was taken by Mr Alfred Liang, who appeared on behalf of the 2nd Defendant, that in view of the varying information as to area given in the 3 sections of the report, one cannot say that there was actually a representation to the effect that the value of the property could be determined by reference to an enclosed area of 1,200 square feet. I have set out the particulars that appeared in the first section of the report. The second section is a valuation purportedly given by Jones Lang Wootton. "N/A" was inserted in each of the blanks for gross and net area. The third section of the report purported to be a valuation from Chesterton Petty. The blank for gross area was not completed. In the space for net area, the figure of 1,600 was given but with an arrow indicating that this was in relation to a property at "6 B", which is a property on a different floor. I do not agree with Mr Liang that the information as to the area of the Property in the report is unclear.

45. I find that the Plaintiff has established on the evidence that a representation was made by the 2nd Defendant to the Plaintiff in the verbal valuation report to the effect that the value of the Property could be determined by reference to an enclosed area of 1,200 square feet.

Whether the 2nd Defendant was acting as the1st Defendant's agent in making the representations

The first representation

46. It is common ground that under the provisional agreement signed by all 3 parties, the 2nd Defendant would be entitled to a commission, half of which would be paid by the Plaintiff and the other half by the 1st Defendant. It is submitted by Mr Kong Kok Lung, who appeared on behalf of the 1st Defendant, that the second representation was not made by the 2nd Defendant on behalf of the 1st Defendant. Mr Kong made no submission whether the first representation was made on behalf of the 1st Defendant or otherwise. It is denied in the Defence of the 1st Defendant that he had authorised the 2nd Defendant to make the alleged representations. It would appear to be the 2nd Defendant's case that the first and second representations were made on behalf of the 1st Defendant, as pleaded in the Notice of contribution by the 2nd Defendant against the 1st Defendant.

47. I was referred by counsel to Cheng Kwok Fai v. Mok Yiu Wah [1990] 2 HKLR 440 and But Chung Yin v. Billion Extension Development Ltd [1997] 1 HKC 531. In addition, I have considered Welltech Investment Ltd v. Easy Fair Industries Ltd [1996] 4 HKC 711 and Green Park Properties Ltd v. Dorku Ltd HCA No. 8564 of 1998, Cheung J, 13 June 2000. It is a question of fact in each case whether an estate agent is authorised by and therefore acting for a particular party in providing information relating to a property to another party. Although an estate agent in Hong Kong usually acts as a broker taking commission from both sides, he may assume different roles at different stages of the negotiation leading to the transaction.

48. I find that the gist of the first representation, i.e. that the enclosed space of the Property was 1,200 square feet excluding the garden, was known to Madam Au, who was authorised by her husband Mr Lee to engage the 2nd Defendant to find a buyer for the Property. Madam Au did not inform the 2nd Defendant at any time that that was not the correct area of the Property, notwithstanding that she had a floor plan which would have enabled her to work out the area by simple arithmetic. Madam Au knew or must have known that what the 2nd Defendant had informed her as to the area of the Property would be passed onto potential buyers such as Mr Hsu. I hold that the first representation was made with the authority and on behalf of the 1st Defendant.

The second representation

49. The second representation is more problematic. According to Mr Cheng's evidence, a copy of the report was only faxed to Mr Hsu. He did not provide Madam Au with a copy and he said he normally would not do so because the report was an "internal document". As I have stated earlier, according to the 2nd Defendant's witnesses, the report was obtained in accordance with the usual practice of the 2nd Defendant. It was not because the 2nd Defendant was asked by the vendor, in this case Mr Lee or Madam Au, to do so. Mr Cheng stated that he had informed Madam Au of the valuation given by the surveyors in the report although he did not send her a copy of it.

50. Mr Leung gave evidence that it was not a must that a verbal valuation report would be obtained in every case. It was only when the purchaser's offer differed too much from the asking price that the 2nd Defendant would provide a report to one party or both parties to provide a balance or a reference to one or both of them.

51. It was submitted by the 1st Defendant's counsel that in providing a copy of the report to Mr Hsu, the 2nd Defendant must have been acting on behalf of the Plaintiff. Mr Kong prayed in aid the judgment of Godfrey J (as he then was) in Cheng Kwok- Fai, supra. at 445F to I. I do not think Godfrey J was laying down any proposition of law that is generally applicable in that part of his judgment. As I have stated, it is a question of fact whether an estate agent was acting for a particular party at a particular stage of the negotiating process. Counsel for the 2nd Defendant did not appear to have dealt with the point specifically whether the 2nd Defendant was acting as the 1st Defendant's agent or otherwise in providing the report to Mr Hsu. Mr Liang's submission was to the effect that the 2nd Defendant did not make any representation in providing the report (a point which I find against him) and that the 2nd Defendant had merely passed on information provided by the 3 valuers through the SPC Bank (a point which I have also found against him).

52. In my judgment, on the evidence of the 2nd Defendant's witnesses, the verbal valuation report was obtained on the initiative of the 2nd Defendant, not on the instructions of either the vendor or the purchaser. It was up to the 2nd Defendant to decide whether to provide a copy of the report it had obtained to the vendor or the purchaser or both. In this instance, a copy was provided by the 2nd Defendant to Mr Hsu after the 2nd Defendant had learned that Mr Hsu would not pursue the purchase of the Property on account of the low valuation given by the HSBC. As I have found, the report was provided by the 2nd Defendant to persuade Mr Hsu to renew his interest in the Property. In my judgment, the 2nd Defendant was acting on its own initiative in so doing. It was not acting on behalf of the Plaintiff as the report was not obtained for or provided to Mr Hsu at his request. I would also say that in so doing, the 2nd Defendant was clearly not acting on behalf of the 1st Defendant.

53. My finding here is that the 2nd Defendant was acting on its own behalf in making the second representation to the Plaintiff by providing Mr Hsu with a copy of the verbal valuation report.

Whether the representations amounted to misrepresentation and, if so, were the representations made negligently or fraudulently

54. The Plaintiff's case on the representations as initially pleaded is that the representations as to area were to the effect that there was 1,200 square feet of "legally" enclosed space. As I have mentioned earlier, the Plaintiff obtained leave to amend its pleading after the close of evidence to delete the word "legally". Hence, in deciding whether the representations as to area are correct or not, it is not necessary for me to go into the question whether any part of the enclosed space constituted an unauthorised building work and should be disregarded for the calculation of the floor area, although I would have to go into this when I come to consider the separate issue whether the 1st Defendant can give good title to the Property.

55. I would like to dispose of a point argued by Mr Liang first. It was submitted that the representation made by the 2nd Defendant was not a statement of fact but of opinion. Mr Liang's submission was premised on the representation as initially pleaded by the Plaintiff, i.e. that the "legally" enclosed space of the Property was 1,200 square feet. This is no longer the Plaintiff's case. I reject the submission that the representation as to the area of the Property is a statement of opinion. If I am wrong about this, this seems to me to be a situation where the facts as to the area were not equally known to both sides in that the 2nd Defendant had received information about this from the owner of the Property whereas Mr Hsu had not. As stated by Bowen LJ in Smith v. Land & House Property Corporation (1884) 28 Ch D 7 at 15, "But if the facts are not equally known to both sides, then a statement of opinion by the one who knows the facts best involves very often a statement of a material fact, for he impliedly states that he knows facts which justify his opinion". Lord Evershed, MR in Brown v. Raphael [1958] Ch 636 had explained the dicta of Bowen LJ and stated that it is not necessary that one party must know all the facts, "it suffices for the application of the principle if it appears that, between the two parties, one is better equipped with information or the means of information than the other is." This seems to me to apply to the present fact situation.

56. I turn to consider whether the Plaintiff has established that the enclosed space of the Property of 1,200 square feet as represented is incorrect. Mr Hsu has stated in his evidence that the agents did not mean net area when they quoted this figure to him and that he had understood this to mean the "gross area". The Plaintiff's expert Mr Bennett gave evidence of the area of the Property measured by him on the basis of "saleable floor area". It was submitted by Mr Kong and Mr Liang that as there is no evidence before the court as to what the "gross area" is, the Plaintiff has not proved its case that the representation as to area, which was understood by Mr Hsu to mean "gross area", is untrue. I need to consider what exactly is the evidence on area given by Mr Bennett.

57. In his expert report dated 3 May 1999, Mr Bennett gave his opinion from scaling off the approved plan and by verification of on site measurements that the "saleable floor area" of the legal portion of the Property (i.e. excluding the unauthorised extensions) and excluding the garden at 457 square feet is in the order of 750 square feet. The unauthorised extensions he mentioned are the extension to a balcony which had been extended to the full width of the Property and fully enclosed to form an integrated extension to the living room and one bedroom of the premises with an enclosed storage area (used as maid's quarters) below the balcony and the extended part of the balcony.

58. It is important to note the meaning of "saleable floor area" as understood and applied by Mr Bennett in arriving at the figure of 750 square feet. According to him, this is the measurement of enclosed area to the exterior of external walls and common area walls and to the centre line of party walls. Additions to the saleable floor area, such as balcony, bay window, storage area, are ancillary and should be stated separately. Mr Bennett stated that this was in accordance with the recommendation of the Hong Kong Institute of Surveyors. On this definition as given by Mr Bennett, it would appear that the area of the balcony, which is an ancillary addition, would not be included in the saleable floor area of 750 square feet. Mr Bennett also gave evidence that he had obtained information on the "saleable area" of the Property from the information hotline service of the Rating and Valuation Department and that this is 70 square metres, equivalent to 753.48 square feet, which is close to his figure of 750 square feet.

59. It is unfortunate that Mr Bennett did not submit to the court the relevant documentary evidence regarding the recommendation of the Hong Kong Institute of Surveyors on the measurement of saleable area or the information provided by the Rating and Valuation Department hotline service. It was only after he had completed his evidence that the relevant documents were produced as evidence, without objection from the other parties. Mr Bennett was not re-called to explain the discrepancy between his understanding of "saleable floor area" and the definition of saleable area in the documents produced subsequently.

60. According to the extract from "Saleable Area" published by The Royal Institution of Chartered Surveyors (Hong Kong Branch), Hong Kong Institute of Surveyors and The Consumer Council in January 1994, the 3 bodies had advised the adoption of the following method of measurement of "saleable area" of premises when dealing with property matters in Hong Kong:

"SALEABLE AREA

This shall mean the floor area exclusively allocated to the unit including balconies and verandahs but excluding common areas such as stairs, lift shafts, lobbies and communal toilets.

METHOD OF MEASUREMENT

The Saleable Area shall be measured from:-

i) The exterior of the enclosing walls of the units;

ii) The middle of the party walls between two units.

It shall include the internal partitions and columns within the unit, but shall exclude the common parts outside the enclosing walls of such unit. If the enclosing wall abuts a common area, then the whole enclosing wall shall be included. If the unit abuts a light well or lift shaft, measurement shall be taken from the exterior of the enclosing walls facing the light well and/or lift.

ANCILLARY ACCOMMODATION

Cocklofts, bay windows, yards, terraces, gardens, flat roofs, carports and the like shall be measured as attachments/additions and quoted separately with their respective areas." (emphasis supplied)

61. There is a definition of "saleable area" given in the information obtained by Mr Bennett in respect of the Property from the hotline service of the Rating and Valuation Department and this is as follows:

"Saleable area is defined as the floor area exclusively allocated to the unit including balconies and other similar features but excluding common areas such as stairs, lift shafts, pipe ducts, lobbies and communal toilets. It is measured to the exterior face of the external walls and walls onto common parts or the centre of party walls. Open yards, bay windows, flower boxes, open terraces, attached roofs and carports are excluded. A maximum thickness of 230 mm is adopted as the thickness of unduly thick walls. Where space designed as an open yard or an open flat roof attached to a flat is covered and substantially enclosed and used as an integral part of the flat, it may have been included as part of the Saleable Area for rating or Government rent purposes..." (emphasis supplied)

62. It would appear that Mr Bennett was mistaken as to the definition of "saleable floor area" when he thought that his understanding was based on the definition recommended by the Hong Kong Institute of Surveyors, as the documents subsequently produced show that the area of a balcony is to be included in the saleable area, contrary to Mr Bennett's understanding. I have reservations whether the area of 750 square feet arrived at by him had excluded the area of the balcony as he had thought, because his figure is close to the saleable area provided by the Rating and Valuation Department of 753.48 square feet and the area of the balcony had been included in the saleable area on the definition adopted by the Department. It is, however, not necessary for me to make a definite finding about this and I shall assume in the Defendants' favour that Mr Bennett had excluded the area of the balcony in arriving at 750 square feet as the saleable area of the legal portion of the Property.

63. On that assumption, and on the measurements taken by Mr Bennett (which are not challenged), the saleable area including the balcony but not the unauthorised extension of it would be 750 + (128 - 56) = 822 square feet. If the extended part of the balcony is also included, the saleable area would be 750 + 128 = 878 square feet. If the enclosed part of the garden below the balcony and the extended part of the balcony is included as well, the saleable area would be 750 + 128 + 128 = 1,006 square feet. Thus, no matter which of the 3 measurements of "saleable area" is taken, this is still below the figure of 1,200 represented to Mr Hsu by the 2nd Defendant.

64. The above measurements are all on the basis of "saleable area" as defined in the manner I have set out. It was submitted by the Defendants that "saleable area" is not "gross area" and there is no evidence as to what "gross area" means or the measurement of the Property on an accepted definition of "gross area". I accept this may be the case. However, one must not overlook the method of measurement on the definition of "saleable area". It is a common feature of the definition of saleable area, whether in the publication of the Hong Kong Institute of Surveyors or as adopted by the Rating and Valuation Department or as understood by Mr Bennett, that the floor area is measured to the exterior of the external walls of the unit and from the centre line of the party wall between two units. This appears to me to be the maximum extent that the measurement of an enclosed unit could be taken. It may be that if measurements are taken on the basis of "gross area", ancillary additions such as those mentioned in the publication of the Hong Kong Institute of Surveyors and in the definition adopted by the Rating and Valuation Department could be taken into account. I have no idea whether this is the case or not. Even assuming that the "gross area" would be an area augmented by these ancillary additions, this would not assist the Defendants because none of the ancillary additions are found in the Property insofar as the enclosed part of the Property is concerned. In my judgment, even if a different method of measurement is taken to arrive at the "gross area" of the Property, I find that this is unlikely to exceed 1,006 square feet significantly, if at all, and that this would still fall below 1,200 square feet. I find that the Plaintiff has established that the representations made to Mr Hsu on the floor area are untrue.

65. The Plaintiff has pleaded a case of fraudulent misrepresentation, alternatively negligent misrepresentation. There is produced in evidence a floor plan of the Ground Floor, where the garden is located, not of the 1st Floor, where the enclosed unit of the Property is located. It is not in dispute that a copy of this plan was in Madam Au's possession at all material times and that she had caused a copy to be faxed to the 2nd Defendant in the afternoon of 6 October 1997. One cannot ascertain the area of the balcony from this plan because the area for the garden had been blackened. However, one can easily see the dimensions of the enclosed unit of the Property excluding the balcony from this plan with the measurements clearly stated. Mr Hsu said in his evidence that if he had been given a copy of this plan when he requested it on the first viewing of the Property, he would have been able to work out for himself quite easily that the area of the Property could not be 1,200 square feet as was represented to him. I accept his evidence on this.

66. There is dispute on the evidence whether a copy of the plan was in the possession of Mr Leung and Mr Cheng prior to 6 October 1997. According to Madam Au, she had faxed the plan twice to the 2nd Defendant. She faxed it for the first time probably in August 1997. She faxed it again on 6 October 1997 because at the meeting she had with Mr Hsu and Mr Leung that day, Mr Hsu had said that the 2nd Defendant did not provide him with a floor plan. On hearing that, Madam Au said she had faxed the 2nd Defendant a copy a long time ago and when Mr Leung said he had not received it, Madam Au caused the plan to be faxed to him again that day. Mr Hsu's evidence in this respect is similar to Madam Au except that he stated that when Madam Au said she had provided a copy of the plan to the 2nd Defendant earlier on, Mr Leung did not deny having received it. Mr Leung's evidence on this is very different. He said that during the meeting Mr Hsu had asked Madam Au if a floor plan was available and Madam Au's reply was that there was no floor plan. He denied that Madam Au had said she had already given a plan to the 2nd Defendant. I reject Mr Leung's evidence on this as inherently improbable , as Madam Au clearly had possession of the plan and a copy of it was promptly faxed to the 2nd Defendant the same afternoon. Did Madam Au provide a copy of it to the 2nd Defendant earlier on as she claimed she had done at the meeting on 6 October? Even if I were to find that she had done so, there is no or no sufficient evidence before me to justify an inference that Mr Leung or Mr Cheng had knowledge of this plan at the time of the representations on 4 and 12 September 1997. I do not think the evidence is sufficiently cogent to support a case of fraudulent misrepresentation against the 1st or 2nd Defendants in that the false representation was made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false.

67. I do however find that the Plaintiff has established a case of negligent misrepresentation against the 1st and 2nd Defendants under Section 3(1) of the Misrepresentation Ordinance Cap. 284, under which the person making the representation would be liable unless he proves "he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true." I find that this burden has not been discharged by the 1st Defendant in that Mr Lee and Madam Au had in their possession a copy of the plan from which they could have ascertained that the floor area could not have been 1,200 square feet. I find that the 2nd Defendant has not discharged this burden because there is no evidence from Mr Leung or Mr Cheng that they had reasonable grounds to believe that the enclosed space of the Property was 1,200 square feet. Both stated that the information they provided to Mr Hsu on the area had come from the owner (which was denied by Mr Lee and Madam Au). Even assuming that to be the case (and I have reservations about this), both Mr Leung and Mr Cheng said that they had not done anything to verify that information.

Whether Mr Hsu had relied on the representations

68. Various points have been taken by Mr Kong and Mr Liang on reliance. Firstly, it was submitted by Mr Liang that it would be unreasonable for Mr Hsu to rely on the representations because Mr Hsu had made enquiries of his own and had obtained a verbal valuation from the HSBC that the Property was worth only HK$5.5 million. Mr Kong made a similar submission that as Mr Hsu had sought and obtained a verbal valuation from the HSBC, this showed that he did not in fact rely on the representations, otherwise he would not have obtained a second opinion. I reject these submissions. I find on the evidence that the verbal valuation sought and obtained from the HSBC prior to the provisional agreement was simply an indication from the bank as to how much the Property was assessed to be worth so as to give Mr Hsu some idea as to how much he could borrow from the bank to finance the purchase. The HSBC was not asked to carry out a detailed valuation of the Property and it is clear from the evidence that arrangements were not made by Mr Cheng for the HSBC to view the Property to do a detailed valuation until after the provisional agreement was entered into. In the circumstances, I cannot see how it could be said that it was unreasonable for Mr Hsu to rely on the representations made to him as to the area or that he had not in fact relied on such representations.

69. Mr Kong has also submitted there was in fact no reliance on the first representation because Mr Hsu had told Mr Leung and Mr Cheng between the time of the first and second representations that he had decided not to pursue the purchase of the Property. Hence, the first representation had not operated on Mr Hsu's mind thereafter. I reject this entirely. What happened between the first and second representations was that Mr Hsu had decided not to pursue the purchase because he learned that the valuation of the HSBC was well below the asking price. He was persuaded by the 2nd Defendant in the second representation to change his mind and he renewed his interest in the Property. It would be wholly artificial to find that the first representation had ceased to influence him thereafter. What was said about the area of the Property in the first and second representations had always been a material consideration for Mr Hsu. I find that when he renewed his interest in the Property, the first representation had once again operated on his mind.

70. It was submitted by Mr Kong and Mr Liang that there was in fact no reliance on the representations because Mr Hsu had said in his evidence that he would not just rely on information of an estate agent as to the area of the Property but would also rely on his visual inspection of the premises to verify what the agent had said. I do not understand Mr Hsu to be saying that he would not or did not rely on the estate agent at all. A representation need not be the only inducement for a person to enter into a contract. The fact that Mr Hsu had relied on his "visual inspection" of the Property apart from what the estate agent had told him as to the area does not affect the Plaintiff's case on misrepresentation. Furthermore, the misrepresentation complained of is that the floor area of the Property is less than 1,200 square feet as was represented to Mr Hsu and that this had a bearing on the facility that the Plaintiff could obtain from the bank to finance the purchase. A mere visual inspection of the Property by Mr Hsu, no matter how experienced he was in looking at properties, would not have demonstrated to him if the area was of the square footage as represented.

71. I also reject the suggestion that prior to the second representation, Mr Hsu must have known that the area of the Property was about 800 square feet plus a garden of 400 square feet based on Mr Leung's evidence that he was informed by Mr Hsu's secretary that the HSBC had provided the alleged information. Mr Leung also stated that before the second viewing of the Property, no quotation or price was mentioned by the HSBC and only the area of the Property was mentioned. He subsequently contradicted himself and admitted that he was given to understand that the HSBC had provided a valuation of HK$5.5 million. I am unable to accept Mr Leung's evidence. I cannot possibly draw the inference that Mr Hsu knew or must have known before the second representation that the area was about 800 square feet plus a garden of 400 square feet. As for the suggestion that since Mr Hsu had brought along a decorator on his second viewing of the Property and that the decorator had taken measurements of the Property, hence there was no reliance on the representations as to area, I cannot accept this submission. I accept Mr Hsu's evidence that the decorator did not in fact tell him what were the measurements taken and that he did not meet the decorator again to discuss decoration. The reason why he took the decorator along was so that the latter could form some idea as to the sort of work to be carried out so that a quotation could be given for the expenses of decoration in due course.

72. I find that the Plaintiff has established reliance on the first and second representations in entering into the transaction.

Whether it was reasonably foreseeable that the sale fell through as a result of the representations

73. The submission made on behalf of the 2nd Defendant is that there were other causes which led to the termination of the provisional agreement. These other causes were the failure of the Plaintiff and the 1st Defendant to agree on the terms of the formal agreement for sale and purchase, as one can see from the correspondence between Deacons and the 1st Defendant's solicitors, and the countermanding of the cheque for the further deposit by the Plaintiff. It was submitted that in view of these other causes, it is doubtful whether the causal link between loss and misrepresentation can be established.

74. What is the relevance of these "other causes" in establishing causation between misrepresentation and damage? In my view, other causes would be relevant if they are found to be a break in the chain of causation. In other words, the intervening acts or events would be treated as novus actus interveniens in that the impact of the intervening cause or event is of such a powerful nature that it rightly obliterates the wrong doing of the defendants. I do not think that is the evidence here and one certainly cannot say that the termination of the agreement was not a reasonably foreseeable consequence of the misrepresentations.

75. Mr Hsu gave evidence that after the signing of the provisional agreement and on his return to Hong Kong from abroad, he received information that the HSBC had carried out a valuation which revealed that the gross area was about 700 square feet and there were quite a lot of illegal structures which had increased the covered area of the Property. In view of that, he sought advice from Deacons and his solicitors amended the draft formal agreement to delete the provision giving no warranty of unauthorised structure in the Property and adding a number of terms to provide for a warranty of no unauthorised structure in the Property. Mr Hsu also sought a meeting with the owner to solve the problem and a meeting duly took place with Madam Au in the presence of Mr Leung on 6 October 1997. At that meeting, he told Madam Au that the gross area was less than the area represented to him and there were illegal extensions. He said to her that the only way the sale could go through was to re-negotiate the price so that the price would reflect properly the value of the Property. Madam Au's reaction was that there was no room for re-negotiation and that she had never quoted an area of 1,200 square feet. Moreover, she had provided a floor plan of the Property to the 2nd Defendant.

76. After this meeting, the Plaintiff changed solicitors and on 7 October 1997, the present solicitors of the Plaintiff wrote to the 1st Defendant's solicitors stating that the amendments to the draft agreement made by Deacons had not been accepted by the 1st Defendant, that there were unauthorised structures in the Property, and that the Plaintiff was led to believe by the agents of the 1st Defendant that the square footage was 1,600 square feet whereas in reality the gross floor area was in the region of 815 square feet. A separate letter was sent by the Plaintiff's solicitors to the 2nd Defendant the same day complaining of a gross misrepresentation by the 2nd Defendant with regard to the square footage of the Property. The Plaintiff's cheque drawn in favour of the 1st Defendant's solicitors was countermanded on 8 October 1997.

77. In the light of the chain of events, I find that it was a reasonably foreseeable consequence of the misrepresentations that the sale fell through. The "other causes" relied on by the 2nd Defendant cannot be regarded in any way as novus actus interveniens.

Whether the Plaintiff is entitled to rescind on the ground that the 1st Defendant was unable to give good title

78. I would first consider whether the title is defective before I deal with the question whether there are any circumstances that would disentitle the Plaintiff to rescind the agreement. Defect in title is an additional basis relied on by the Plaintiff for the reliefs claimed in this action.

79. The defect in title is said to arise on account of unauthorised structures and alterations in the Property. According to the expert evidence of Mr Bennett, the unauthorised building works are two-fold:

(1) Sub-division of the unit

According to the approved plans of the Building Authority, there should be only one unit on the 1st Floor. Without any approval from the Building Authority, this single unit was divided into the current 2 units being Flat 1A and Flat 1B, which is the Property in suit. Mr Bennett found that a dividing wall had been erected and a door way formed. Part of the common area being the lobby was enclosed and included in Flat 1A. Mr Bennett is of the opinion that these alterations are structural and approval was required from the Building Authority for such alterations. Further, these alterations were prohibited under the Deed of Mutual Covenant.

(2) Extended structure

The balcony in the Property had been extended to the full width of the premises (an extension of 9 feet) and fully enclosed to form an integrated extension to the living room and one bedroom of the premises with an enclosed area below used as maid's quarters. The extension and enclosure of the balcony involved structural work and approval had not been obtained from the Building Authority.

80. It was submitted by Mr Kong and Mr Liang that it is not established that the above alterations and extensions are structural because Mr Bennett did not carry out a "structural" survey. Mr Bennett is not an engineer but a chartered surveyor. Further, it was submitted that the Plaintiff has failed to prove there is a real risk of enforcement action being taken by the Building Authority for the sub-division and extension works.

81. I do not agree with these submissions. Firstly, I do not think it right to interpret Mr Bennett's evidence to mean that he does not make comments about the structure of the Property or that he could not say whether the unauthorised works would have affected the structure of the building as he had not carried out a structural survey. Mr Bennett's evidence is clearly to the effect that the unauthorised works are structural. He said in his evidence that he cannot pass comment on the structural integrity of the structures because no structural survey was done. However, he was in a position to give an opinion and he has given an opinion whether the unauthorised works are legal or illegal, whilst expressing no opinion whether they are structurally sound or unsound. I accept Mr Bennett's opinion that the sub-division of the unit into two flats did involve structural work in that the common area of the building was extended into, that there are safety issues involved affecting third parties, and that it is probable that there had been interference with structural main walls and services. I also accept Mr Bennett's opinion that the extension and enclosure of the balcony involved a structural alteration in that the balcony was bonded into the main frame of the building resulting in the increase in the weighting of the balcony and the increase of the loading of walls and columns. As Mr Bennett has stated, this is positively structural.

82. On the risk of enforcement action by the government authorities, Mr Bennett's evidence is that it is a question of priorities of taking enforcement action from a practical point of view and given the limited manpower of the Building Authority. He is of the opinion that for the sub-division work, enforcement action was probably less than a 50% chance. However, this is difficult to say as the likelihood of enforcement action may be increased if someone should make a report to the Building Authority of the unauthorised sub-division. He disagreed that it could be regarded as there being no real risk of enforcement action for the sub-division alteration. On the unauthorised extension and enclosure of the balcony, Mr Bennett again disagreed that there is no real risk of enforcement action. His assessment was that enforcement action would probably be less than a 50% chance, provided that no report was made to the Building Authority.

83. For the sake of completeness, I should mention that Madam Au has produced a letter from the Buildings & Lands Department to her dated 18 January 1993 dealing with water seepage, cracks in the horizontal projection at roof level, unauthorised building works including the roller shutter on the 2nd floor, and manholes in the flat roof at the rear of the Property. Madam Au appeared to rely on this letter to say that the Building Authority had found no unauthorised works in the Property or that there should be no risk of enforcement action regarding the unauthorised works found by Mr Bennett. This letter clearly has no bearing on what I am dealing with and I do not think it would assist the 1st Defendant at all.

84. A real risk of enforcement action in this context does not mean a more than 50% chance of this happening. In assessing the risk of enforcement action, I should look at the sub-division work and the extension and enclosure of the balcony separately.

85. There is no evidence before me whether the Building Authority has become aware of the sub-division of the unit on the 1st Floor into Flats 1A and 1B which is not in accordance with the approved plans last amended and approved by the Building Authority on 30 July 1963. It would appear that from the time of the Deed of Mutual Covenant made on 15 July 1966, the 1st Floor unit had been divided into Flats 1A and Flat 1B (which is the Property), since the first owner in the Deed had taken an assignment of Flat 1A. No enforcement action has been taken by the Building Authority in respect of the sub-division alteration for over 30 years. Further, there is the difficulty, as submitted by Mr Kong on behalf of the 1st Defendant, that there may be practical difficulties in serving an order requiring demolition of the building works on the owner of the building or of the building works under Section 24(2) of the Buildings Ordinance, Cap. 123, as discussed by the Court of Appeal in Active Keen Industries Ltd v. Fok Chi-keong [1994] 1 HKLR 396 at 407-408 and 411. In this situation where the single unit had been altered and divided into two, any remedial work required to be done would involve the owner of the Property as well as the owner of Flat 1A. There is the practical difficulty that the owners of the 2 units may not be able to comply with an order served on them under Section 24(2) to demolish the unauthorised works without trespassing on the property of the other owner and violating the rights of the other owner under the Deed of Mutual Covenant. In view of the above matters, I am unable to say that there is a serious risk of enforcement action by the Building Authority in respect of the unauthorised sub-division of the unit on the 1st Floor.

86. My assessment of the risk of enforcement action in respect of the extension and enclosure of the balcony in the Property is different. In the event that an order is made by the Building Authority under Section 24(1), this would be served on the owner of the building works, in this case, the owner of the Property. There would be no complications of violating the rights of other owners in the building in this instance. There is no evidence as to when the unauthorised extension and enclosure of the balcony were carried out. However, I note from a plan dated in September 1982 of Flat 1B and the garden on the Ground Floor as attached to an assignment in April 1984 that the unauthorised alterations had not been carried out. Madam Au bought the Property in 1991 and she claimed that the state of the Property when she bought it was the same as the condition found by Mr Bennett in May 1999. As pointed out by Mr Bennett, the balcony as originally designed and constructed was a cantilever structure of 5 feet 10 inches and it had been extended by 9 feet to the full width of the premises. Extra weight was applied to the original structure of the balcony when it was extended and walls and windows were added. There is a safety issue involved in the structural alteration. I do not think the risk of enforcement action is theoretical or fanciful. In my judgment, the risk is real and this constitutes a blot on the title of the Property.

87. The Plaintiff would be entitled to rescind the provisional agreement on the ground that the 1st Defendant was and is unable to give good title (apart from the misrepresentations I have found), unless there are valid grounds for saying that the Plaintiff should be barred from exercising the right of rescission.

88. Evidence was given by Mr Leung and Mr Cheng that at the first viewing of the Property, they had mentioned to Mr Hsu that the balcony had been extended and the area of the living room enlarged. This was denied by Mr Hsu. I reject the evidence of Mr Leung and Mr Cheng on this. It seems to me unlikely that they would have provided this information to Mr Hsu as Madam Au did not mention this to them and they had stated that they would rely on the owner for information without verification. Even if Mr Leung and Mr Cheng had mentioned the extension of the balcony to Mr Hsu (which I do not accept), I do not think this casual mention of the extended balcony without stating the full extent of the alteration works to the balcony and the maid's quarters below would be sufficient to discharge the obligation of the vendor to make full and frank disclosure of the effect of the unauthorised structures on title so that the buyer could be regarded as having waived his contractual right to a good title.

89. It was argued by Mr Kong that the 1st Defendant's obligation to make or give a good title would only arise at the time of completion. There is no evidence before me as to what was the completion date under the provisional agreement because that document was not adduced in evidence as it has not been stamped. I do accept on the evidence that the date of completion had not arrived on 7 October 1997 (when the Plaintiff's solicitors wrote to the 1st Defendant's solicitors and to the 2nd Defendant) or on 8 October 1997 (when the Plaintiff countermanded his cheque for the further deposit). Mr Kong has argued that the provisional agreement had been repudiated by the Plaintiff on 7 or 8 October 1997 by insisting on adding terms in the formal agreement for sale and purchase and by countermanding the cheque. As the 1st Defendant had accepted the Plaintiff's repudiation and as the provisional agreement was terminated, the 1st Defendant was thereby discharged from his obligation to give good title. I am unable to accept this submission.

90. Firstly, there is no evidence before me as to the full terms of the provisional agreement. I cannot say whether the amendments to the draft formal agreement proposed by Deacons were terms which the provisional agreement expressly or by necessary implication contained. Assuming they were not, so that the Plaintiff would not be entitled to insist on including the proposed terms in the formal agreement, I do not read the letter of the Plaintiff's solicitors dated 7 October 1997 as "continued insistence on such extraneous terms" which may constitute a repudiation of the provisional agreement, as in the case cited by Mr Kong being Chu Wing Ning v. Ngan Hing Cheung & Anr, HCA No. A9409 of 1991, 6 November 1992, Dep J. Ribeiro.

91. In the letter dated 7 October 1997, the Plaintiff's solicitors had merely pointed out that the amendments proposed by Deacons had not been accepted by the 1st Defendant and the solicitors then dealt with the alleged illegal structure and the discrepancy in the gross floor area. The letter went on to say that unless the 1st Defendant could prove good title as regard the enclosed areas, there would seem "little choice but to withdraw from this transaction and return the deposit to [the Plaintiff]." I cannot read this letter as continued insistence on the inclusion of the proposed terms in the formal agreement even assuming that the Plaintiff was not entitled to insist on inclusion of these terms. There was no or no substantive reply to the letter of the Plaintiff's solicitors until the 1st Defendant's solicitors wrote on 15 October 1997 purporting to accept repudiation of the provisional agreement on the ground that the Plaintiff had countermanded the cheque for the further deposit.

92. I am also unable to regard the countermanding of the cheque as repudiation by the Plaintiff. I do not think this is a clear and unequivocal act showing the Plaintiff's intention not to be bound by the provisional agreement in the light of the correspondence between the solicitors. By a letter dated 29 September 1997 from Deacons to the 1st Defendant's solicitors, it was stated that the solicitors for the respective parties had agreed to postpone the payment of the further deposit and the signing of the formal agreement to 6 October 1997. Deacons proposed amendments to the formal agreement on 3 October 1997. The formal agreement was not signed on 6 October and on that day, following a telephone discussion between the solicitors, Deacons sent a cheque of the Plaintiff in favour of the 1st Defendant's solicitors on the latter's undertaking to hold as stakeholder and not to release the cheque for the further deposit to the 1st Defendant unless and until the formal agreement had been signed and exchanged. I have already set out the gist of the letter sent by the Plaintiff's solicitors to the 1st Defendant's solicitors on 7 October 1997. It is not in dispute that under the provisional agreement, the further deposit was to be paid upon signing of the formal agreement and that had not taken place by 8 October 1997. The countermanding of the cheque to the 1st Defendant's solicitors for them to hold as stakeholder pending the signing of the formal agreement cannot be regarded as repudiation by the Plaintiff of the provisional agreement.

Whether the 2nd Defendant is entitled to recover commission from the Plaintiff or the 1st Defendant or both

93. This is concerned with the counterclaim of the 2nd Defendant against the Plaintiff and the Notice of contribution, indemnity and other relief by the 2nd Defendant against the 1st Defendant. The 2nd Defendant counterclaims for a commission of HK$145,000.00 under the provisional agreement against the defaulting party of the agreement, alternatively a sum of HK$72,500.00 from each of the Plaintiff and the 1st Defendant if it should be found that neither the Plaintiff nor the 1st Defendant is the defaulting party. It is not in dispute that the provisional agreement contained a term to the effect that if in any case that the vendor or the purchaser had failed to complete the sale and purchase in the manner therein contained, the defaulting party should compensate at once the 2nd Defendant HK$145,000.00 as liquidated damages. On the findings and conclusions I have reached, the 1st Defendant is the defaulting party under the agreement. Is there any basis for depriving the 2nd Defendant of the remuneration provided under the provisional agreement?

94. Mr Kong has submitted that the 2nd Defendant had acted outside the scope of its authority as the 1st Defendant's agent in sending the verbal valuation report to Mr Hsu. I have held earlier that the second representation was made by the 2nd Defendant on its own behalf and not on behalf of the 1st Defendant. However, for the first representation, I have held that it was made by the 2nd Defendant as the 1st Defendant's agent. What is important about the two representations and what is in common between the two of them is a representation on the enclosed area of the Property. The second representation had contained an additional element that the value of the Property could be determined by reference to the enclosed area as represented. This is an addition to but not a departure from the first representation.

95. The circumstances in which an agent would not be entitled to remuneration are succinctly set out in Bowstead and Reynolds on Agencies, 16th ed, para 7-047. The first situation is where there is an unauthorised transaction not ratified by the principal. The second situation is where there is a transaction in relation to which the agent is in breach of his duties as agent, such breach going to the root of the contract or otherwise justifying the principal's repudiation of liability to pay. I do not think the present case would come within one of the above situations. If the first representation had not been made with the authority of the 1st Defendant, this may well be different. As it is, I do not think the act of making the second representation which was outside the 2nd Defendant's authority should be regarded as a breach of the agent's duties justifying the principal's repudiation of his liability to pay the remuneration.

Miscellaneous points

96. I will deal with 3 other points of law briefly.

97. The first point is the point taken by Mr Kong that the provisional agreement is unenforceable as the document itself has not been produced in evidence. Hence, the Plaintiff cannot recover the initial deposit paid under that agreement. It was submitted that the court should not accept the admission on the pleadings that there was a written contract as this would allow the unstamped contract to be admitted through the back door and defeat the purpose of the Stamp Duty Ordinance. I reject this submission. There is no contravention of the Stamp Duty Ordinance in that the unstamped document was not produced as evidence. The provisional agreement is enforceable in that there was an agreement in writing and signed by the party to be charged as pleaded in the Statement of Claim and admitted by the defendants in their pleadings. It is simply not necessary for the document itself to be received into the evidence having regard to the admission. There is no contravention of the wording or spirit of the Stamp Duty Ordinance.

98. The second point is whether the Plaintiff is entitled to rescind on the ground of mutual mistake, as raised in the Statement of Claim but not relied on by Mr Thomson in his closing submissions. I accept the submissions of Mr Kong and Mr Liang that the Plaintiff is not entitled to relief on this ground. A mistake as to the qualities of the thing contracted for will not affect assent unless it is the mistake of both parties, and is to the existence of some quality which makes the same without the quality essentially different from what it was believed to be. I do not think either requirement is satisfied in this instance.

99. The third point is not a point on which any of the counsel has addressed me. It arises out of the 2nd Defendant's Notice to the 1st Defendant claiming "contribution, indemnity and other relief" under Order 16 rule 8 of the Rules of the High Court. Mr Liang did not address me on partial contribution by the 1st Defendant regarding the Plaintiff's claim as he has chosen to put his case only on the basis that the 2nd Defendant is entitled to a complete indemnity alleging that the representations were made by the 2nd Defendant as the 1st Defendant's agent. Mr Kong has likewise put the 1st Defendant's case against the 2nd Defendant on an all or nothing basis. The 1st Defendant has filed a Defence to the 2nd Defendant's Notice but has not issued a Notice of contribution against the 2nd Defendant.

100. I have found against the 2nd Defendant on the second representation. The Plaintiff is entitled to recover damages from both Defendants as they are jointly and severally liable to the Plaintiff as I have mentioned earlier. It seems to me that I should consider the issue of contribution as between the 1st and 2nd Defendants as the 2nd Defendant has raised in its Notice a claim to be indemnified against the Plaintiff's claim or contribution to the Plaintiff's claim.

101. Under the Civil Liability (Contribution) Ordinance, Cap. 377, it is provided in section 4(1) that "the amount of contribution recoverable from any person shall be such as may be found by the court to be just and equitable having regard to the extent of that person's responsibility for the damage in question". In my judgment, liability for the damage to the Plaintiff should be equally apportioned as between the 1st and 2nd Defendants as they were equally to blame in that the first misrepresentation was authorised by the 1st Defendant and the second misrepresentation was made by the 2nd Defendant on its own behalf.

Conclusion and orders

102. The Plaintiff has established a case that it is entitled to rescind the provisional agreement on these grounds: (1) misrepresentation in the first representation made by the 2nd Defendant as the 1st Defendant's agent; (2) misrepresentation in the second representation made by the 2nd Defendant on its own behalf; and (3) failure of the 1st Defendant to give good title to the Property. The 1st and 2nd Defendants are jointly and severally liable to the Plaintiff as joint tortfeasors.

103. The 2nd Defendant is entitled to recover its commission of HK$145,000.00 from the 1st Defendant who is the defaulting party under the provisional agreement.

104. A claim for damages is made in the Statement of Claim. I was informed by Mr Thomson that the only damages the Plaintiff seeks is HK$200,000.00, which was the amount of the initial deposit paid to the 1st Defendant.

105. The Plaintiff also seeks an order that the 1st and 2nd Defendants should indemnify the Plaintiff from any liability for stamp duty on the transaction. The provisions in the Stamp Duty Ordinance have been amended with effect from 1 April 1999. I am concerned with the position under that Ordinance before the amendment. No stamp duty was paid in this instance within 30 days of the making of the provisional agreement. There is a risk that penalties might be imposed under Section 9. The penalty for stamping more than 2 months late is 10 times the duty, subject to the Collector's discretion to remit the penalty under Section 9(2). Under certain circumstances, the parties to a rescinded agreement may claim a refund of the stamp duty paid or a remission of the stamp duty payable. Section 29C(6) (which has been repealed with effect from 1 April 1999) provided that the Collector shall make allowance for the stamp duty paid in respect of a chargeable agreement for sale rescinded by the purchaser on the ground that the vendor was unable to prove his title in accordance with the agreement. It would appear from the Interpretation and Practice Notes of the Stamp Office that if the nature and extent of the defect in title should be contested by either party in litigation, the Collector would rely on the decision of the court.

106. It is not in dispute that under the provisional agreement, it is provided that the obligation is on the Plaintiff as purchaser to pay the stamp duty on the transaction. A penalty could be imposed as duty was not paid although it is possible that the penalty might be remitted in the Collector's discretion. As I have found that the 1st Defendant is unable to prove his title, a refund would have been given had the duty been paid. It seems to me that in this situation, it would be appropriate to order that the 1st Defendant should give an indemnity to the Plaintiff in respect of any liability for stamp duty on the transaction.

107. I give judgment for the Plaintiff against both Defendants and that the Plaintiff is entitled to the following reliefs against both Defendants:

(1) rescission of the provisional agreement; and

(2) payment of HK$200,000.00 being the initial deposit paid under the provisional agreement with interest thereon at the prevailing judgment rate from the date of the writ which was 28 November 1997.

108. In addition, the Plaintiff is entitled to an order against the 1st Defendant that the 1st Defendant is to indemnify and hold the Plaintiff harmless from any liability for stamp duty on the provisional agreement.

109. I dismiss the 2nd Defendant's counterclaim against the Plaintiff.

110. On the 2nd Defendant's claim for commission against the 1st Defendant in the Notice of contribution, I order that the 1st Defendant is to pay the 2nd Defendant HK$145,000.00 with interest thereon from the date of the 2nd Defendant's Notice which was 14 March 2000.

111. On the 2nd Defendant's claim against the 1st Defendant for contribution against the Plaintiff's claim, I order that the 2nd Defendant is entitled to contribution against the 1st Defendant to the extent of 50% of the amount of damages awarded to the Plaintiff being HK$200,000.00 with interest thereon and 50% of the costs of this action to be awarded in favour of the Plaintiff.

112. I make an order nisi that the Plaintiff is to have its costs of this action against the 1st and 2nd Defendants. As for the 2nd Defendant's claim against the 1st Defendant for costs on the Contribution Notice in respect of its claim for HK$145,000.00, I make an order nisi that the 2nd Defendant is to have its costs against the 1st Defendant, which I assess on a gross sum basis in lieu of taxed costs, in the amount of HK$10,000.00. Save as aforesaid, I do not propose to make any order as to costs in the contribution proceedings between the Defendants.