GREATLAND PROPERTY CONSULTANTS LTD v. CHARIS PATRIA LTD

DCCJ1444/2013 &
DCCJ 1446/2013
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NOS 1444 & 1446 OF 2013

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JUDGMENT

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Introduction

1. No. 61, Wuhu Street, Kowloon, Hong Kong was an old 4-storey building (“the building”).  The Ground Floor of the building comprised 2/5 shares of the whole lot while the 1^st, 2^nd and 3^rd Floors each comprised 1/5 share.

2. This consolidated action concerns two related transactions of 2^nd and 3^rd floors of the building (“the two properties”).  Charis Patria Limited, the defendant in DCCJ 1444/2013, was the registered owner of 2^nd Floor.  Yancrown Limited, the defendant in DCCJ 1446/2013, was the registered owner of 3^rd Floor and Roof.  The defendants were controlled by the same family. 

3. At the material times, the defendants entered into provisional sale and purchase agreements (“the provisional agreements”) with the same purchaser, PCA Asset Management Limited (“PCA”) who happened to be the registered owner of the Ground Floor of the building (“the Ground Floor”).  The plaintiff, Greatland Property Consultants Limited, a property agency, was appointed as the agent in the two transactions. 

4. It is the case of the defendants that they were misrepresented by the plaintiff about the identity of the purchaser.  When they entered into the provisional agreements, they had no idea the purchaser was the owner of the Ground Floor.  Should they know it, they would not have agreed to sell the two properties at such low prices.  Eventually, the defendants decided not to complete the sale and the deals fell through.  Pursuant to the provisional agreements, the plaintiff claims against the defendants respectively for a sum of HK$60,000 as agreed damages for failure to complete the sales. 

5. On the other hand, when the defendants decided not to complete the sales, they refunded the initial deposits of HK$150,000 in each transaction to PCA and further paid PCA two sums equivalent to the amount of the initial deposit as liquidated damages.  The defendants therefore counterclaim against the plaintiff damages of HK$150,000 respectively. 

The plaintiff’s case

6. On paper, the case of the plaintiff is pretty straightforward.  Ms Lee Chui Wan (“Ms Lee”) is the only witness called by the plaintiff.  She was the employee of the plaintiff who was responsible for handling the sale of the two properties.  In or about May 2011, Madam Chan Wan Ha Isabella (“Madam Chan”) who claimed to be the representative of the owners of the two properties approached the plaintiff and offered to sell the two properties at the price of HK$4 million each. 

7. Ms Lee managed to find a potential purchaser, PCA, who was willing to buy the properties at HK$3 million each.  At that juncture, Ms Lee informed Madam Chan about the offers but did not disclose the identity of the purchaser because the defendants had not signed the “Estate Agency Agreement for sale of Residential Properties in Hong Kong” (“Form 3”) to confirm their instructions. 

8. Later, Madam Chan informed Ms Lee that the defendants agreed to sell the properties at the price of HK$3 million each on the condition that the properties had to be sold together.

9. In the afternoon of 4 July 2011, the representatives of PCA inspected the two properties.  After the inspection, the representatives of PCA told Ms Lee that PCA would purchase the two properties and asked her to make the arrangement to meet the vendors to sign the provisional agreements.

10. Later at around 6:30pm on the same day, Ms Lee arranged the parties to meet at a coffee shop at Tsing Yi.  The defendants were represented by Madam Lau Choi Koc (“Madam Lau”) who is understood to be the mother of Madam Chan.  Madam Chan was also present at the meeting.  On the other hand, PCA was represented by Mr Lau Shing Ngon (“Mr Lau”).  During the meeting, Madam Chan and Mr Lau exchanged their name cards and Mr Lau told Madam Chan that PCA was the owner of the Ground Floor.  After Ms Lee explained the contents of the provisional agreements to all the parties, Madam Lau signed on behalf of the defendants. She also signed the Form 3. 

11. On 5 July 2011, Madam Chan made a phone call to Ms Lee and complained about the identity of the purchaser.  Madam Chan claimed that she was not aware that the purchaser was also the owner of the Ground Floor.  Ms Lee replied that she had already informed her and Madam Lau the identity of the vendor before they signed the provisional agreements and what she complained was untrue.  Madam Chan further called and made a similar complaint on 7 July 2011.

12. On about 21 July 2011, Ms Lee was informed that the defendants decided not to complete the sales of the two properties.  They refunded the initial deposits to PCA and further paid PCA two sums equivalent to the amount of the initial deposits as liquidated damages.

13. According to the provisional agreements, the defendants should pay the plaintiff HK$30,000 as agency fees for each transaction and the plaintiff was also entitled to receive HK$30,000 from PCA as agency fees for each transaction.  As the defendants failed to complete the sales of the two properties, each of them should pay the plaintiff the sum of HK$60,000 as damages to the plaintiff.

14. In court, Ms Lee told a slightly different story.  She said before the parties signed the provisional agreements on 4 July 2011, she only knew the Chinese name of the purchaser “信誠公司”, she did not know that 信誠公司was in fact PCA and the owner of the Ground Floor.  She said she had not falsely represented the identity of the purchaser and all along she told Madam Chan that the purchaser was 信誠公司.

The defendants’ case

15. Madam Chan is the only witness called by the defendants.  Her mother, Madam Lau, was the shareholder and director of the defendants.  At the material times, Madam Lau was about 80 years old and she always asked for the assistance of her children, including Madam Chan, to deal with the matters relating to the properties owned by the defendants.

16. By the end of 2010, Madam Lau and her family members planed to purchase the Ground Floor and the 1^st Floor of the building.  At the same time, they decided if they failed to purchase Ground Floor and the 1^st Floor, they would consider selling the two properties.  In early 2011, Madam Chan approached Ms Lee and told her the plan.  Ms Lee contacted the owner of the Ground Floor to see if the Ground Floor was for sale.  In about March 2011, Ms Lee informed Madam Chan that the owner of the Ground Floor had no intention to sell Ground Floor and counter-offered to purchase the two properties at a total sum of HK$6 million.  Madam Chan rejected the counter-offer on the ground that the price was too low. 

17. In about late June or early July 2011, Ms Lee informed Madam Chan that there was a purchaser who offered by buy the two properties at HK$6 million.  Ms Lee Chan said the said purchaser was a Mainland businessman.  She further assured Madam Chan that the said purchaser was not the owner of the Ground Floor or in any way related.  After consulting her family members, Madam Chan told Ms Lee that the defendants would sell the two properties to the said Mainland businessman at HK$6 million.

18. In the morning on 4 July 2011, Ms Lee arranged the representatives of the said mainland businessman to inspection the two properties.  Madam Chan asked a friend to open the doors of the two properties for their inspection.  In the afternoon of the same day, Ms Lee arranged the parties to sign the provisional agreements. As Madam Lau lived in Tsing Yi district, it was suggested that the parties to meet at a coffee shop in Tsing Yi.

19. Madam Chan and Madam Lau arrived at the coffee shop at about 6:30 pm and the purchaser had not arrived.  Madam Chan asked Ms Lee to give her the provisional agreements for her checking.  Ms Lee refused and said they should wait for the purchaser. After the Mainland businessman arrived, Ms Lee asked Madam Lau to sign the provisional agreements but without explaining the contents.  Both Madam Lau and Madam Chan were not given time to read the provisional agreements.  As Ms Lee repeatedly urged Madam Lau to sign, Madam Lau duly signed the provisional agreements.

20. After that, Madam Chan was given one set of the signed provisional agreements and it was the first time she had the opportunity to read the contents in detail.  She noted the name of the purchaser was PCA and immediately realized that the purchaser was in fact the owner of the Ground Floor.  She asked Ms Lee if she knew that the purchaser was in fact PCA.  Ms Lee said she only came to know that when the Mainland businessman arrived.  Madam Chan was confused as all along she trusted Ms Lee and believed that they were selling the two properties to a mainland businessman and not PCA.  She felt she was cheated by Ms Lee.

21. Madam Chan discussed the matter with her family members and they came to the conclusion that they were cheated by Ms Lee.  They believed Ms Lee all along knew that the purchaser was PCA and they were misled to sell the two properties at a lower price.  After consulting their lawyers, Madam Chan and her family members decided not to sign the formal agreements.  In compliance with the provisional agreements, the defendants refunded the initial deposits and in addition paid PCA a compensation of HK$300,000 to cancel the sales.

22. Madam Chan later filed a complaint against Ms Lee to the Estate Agents Authority for fraudulent misrepresentation and misconduct.  She was informed that Ms Lee pleaded guilty to the charges and was reprimanded, fined and suspended of licence.

23. To sum up, it is the case of the defendants that as they were misrepresented by Ms Lee to sign the provisional agreements which they subsequently cancelled, the plaintiff is not entitled to any damages caused by the cancellation of the provisional agreements.  Further, as the plaintiff should be held responsible for the cancellation of the provisional agreements, the plaintiff should compensate the damages suffered by the defendants in the two transactions.

Legal principles

24. The defendants rely on the following causes of action to counterclaim against the plaintiff, namely, (1) tort of deceit; (2) breach of agreement; and (3) breach of statutory duties.

25. The definition of tort of deceit is summarized in Clerk & Lindsell on Torts, 20^th Ed at para18-01:-

“where a defendant makes a false representation, knowing it to be untrue, or being reckless as whether it is true, and intends that the claimant should act in reliance on it, then in so far as the latter does so and suffers loss the defendant is liable.”

26. In other words, in order to prove tort of deceit committed by the plaintiff, the defendants have to prove:-

(1) the plaintiff made a false representation to the defendants;

(2) the plaintiff knew that the representation was false or being reckless as to whether it was true or false;

(3) the plaintiff intended that the defendants to act in reliance on it; and

(4) the defendants did act in reliance on the representation and in consequence suffered loss.

27. For breach of agreement and breach of statutory duties, the burden is on the defendants to prove that the plaintiff was in breach of the estate agent agreement by making false representation.  Further, the defendants have to prove they suffered damage as a result of the breach.  In other words, the defendants have to prove their loss was caused by the breach committed by the plaintiff.

Issues

28. (1) whether Ms Lee did falsely represent or conceal the identity of the purchaser?

      (2) if yes, whether Ms Lee knew that the representation was false?

      (3) whether Ms Lee intended Madam Chan to act in reliance on the representation?

      (4) whether the defendants did act in reliance on the representation and as a result suffer loss?

Discussion

29. I have carefully considered the evidence of both Ms Lee and Madam Chan.  For the reasons below, I have come to the conclusion that both of them have not told the whole truth.  Both of them only told part of the truth.

30. I first deal with the evidence of Ms Lee.  In witness statement, her evidence was very simple.  Her case is simply that she had informed Madam Chan about the identity of the purchaser long before the parties signed the provisional agreements. However, when she gave evidence in court, she told a very different story.  In court, she said before the meeting of the parties in Tsing Yi on 4 July 2011, she only knew the Chinese name of the purchaser to be “信誠公司”.  She did not know this信誠公司 was in fact PCA and the owner of the Ground Floor.  She only came to realize信誠公司 might be PCA when the parties were signing the provisional agreements.

31. When being cross-examined about the inconsistency, Ms Lee explained that it might be caused by the misunderstanding between her and her lawyer when preparing the witness statement.  She maintained what she said in court was the truth.

32. I have no hesitation in rejecting the evidence of Ms Lee.  I find her explanation of the inconsistency to be incredible and not believable.  What was written in her witness statement is materially different from what she said in court.  I do not believe misunderstanding between her and her lawyer is the reason for such inconsistency. 

33. Considered all the evidence of the case, I find as a matter of fact that all along Ms Lee knew the purchaser was PCA and she knew PCA was the owner of the Ground Floor. I found as a matter of fact that Madam Chan did ask about the identity of the purchaser.  Instead of telling Madam Chan the purchaser was PCA, Ms Lee told Madam Chan it was a Mainland businessman who intended to buy the two properties. 

34. I find that when Ms Lee misrepresented the identity of the purchaser to Madam Chan, the plaintiff did make false representation to the defendants.  I also find that Ms Lee knew that such representation was false.

35. However, for the reason below, I find that the defendants had not acted in reliance of the false representation made by the plaintiff.  I find as a matter of fact that before Madam Lau signed the provisional agreements, Madam Chan already knew that the purchaser was PCA.  In other words, though the plaintiff made a false representation to the defendants, when the provisional agreements were signed, the defendants knew that the representation was false and nevertheless the defendants decided to proceed with the sales.

36. It is the evidence of Madam Chan that she had been provided the land search of the Ground Floor.  Madam Chan admitted in evidence that she had read the name of the owner, though she insisted that when the provisional agreements were signed, she already forgot the name of the owner.  Madam Chan also said in evidence that before Madam Lau signed the provisional agreements, both she and Madam Lau were not given the time to read the contents of the agreements and Ms Lee did not explain the terms of the agreements to them at all.  Madam Chan further said that before Madam Lau signed the provisional agreements, she saw the company chop of PCA on the provisional agreements bearing both the Chinese and English names of the company.  However, at that moment, she did not realize it was the PCA which was also the owner of the Ground Floor.

37. After careful consideration, I find it very difficult to believe the testimony of Madam Chan.  In court, Madam Chan told the court that she is a practising solicitor of more than 20 years of experience, though her main area of practice was criminal and she had little experience of conveyancing practice.  However, she received very high education and had three master degrees and one doctorate degree. Further, she once held an estate agent license, though she had never practiced as an estate agent.  Because of her professional and educational background, she was entrusted by her family members to deal with the matters relating to the properties held by the defendants.

38. After considered all of the above, I do not believe that when Madam Lau signed the provisional agreements, Madam Chan had already forgotten the name of the owner of the Ground Floor.  I also do not believe that Madam Chan did not see the name of PCA on the provisional agreements when they were signed by Madam Lau. 

39. As the de facto representative of her family members in dealing with these transactions, Madam Chan should be well aware of the name of the owner of the Ground Floor. The identity of the purchaser had all along been an important issue for Madam Chan and her family members.  I do not believe she would just forget such important issue at the most crucial time of the transactions.  After all it was the intention of the defendants to sell the two properties to PCA at a higher price in the first place. 

40. Furthermore, I also find it difficult to believe that before Madam Lau signed the provisional agreements, Madam Chan did not check or pay attention to the identity of the purchaser.  Though Madam Lau was the signatory, it is obvious that Madam Chan was the person designated by her family to oversee the dealings.  As Madam Lau was an elder person who might not fully understand the contents of the provisional agreements, Madam Chan was there to look after the interest of her family.  With her professional and educational background, I do not believe she would only briefly glance at the provisional agreements before they were signed by Madam Lau.  What Madam Chan said was simply unbelievable.

41. More importantly, in the recorded telephone conversation adduced by the defendants, Madam Chan clearly said she realized the purchaser was PCA and the owner of the Ground Floor when the representative of PCA arrived and sat down [Bundle C-98]. 

42. To sum up, I find though Ms Lee did falsely represent the identity of the purchaser, when the provisional agreements were signed, the defendants, through Madam Chan, already found out the purchaser was in fact PCA who was the owner of the Ground Floor.  In other words, though the defendants had been misrepresented, they found out the truth at the last moment and decided to proceed with the transactions.  The defendants had not relied on the misrepresentation as they already had the full knowledge of the identity of the purchaser.

43. As the defendants cannot prove reliance, they cannot prove that the loss they suffered was caused by the misrepresentation. 

44. Base on the above analysis, the defendants failed to prove one of the essential elements of tort of deceit, this cause of action must fail.

45. Applying the same factual analysis, though the defendants are able to prove breach of agreement and breach of statutory duty on the part of the plaintiff, as the defendants elected to proceed with the transactions with the full knowledge of the identity of the purchaser, the misrepresentation had no effect on the mind of the defendants when the provisional agreements were signed.  Therefore, the defendants cannot say any loss suffered as a result of the transactions was caused by the misrepresentation of the plaintiff. 

46. As the defendants failed to prove it was the plaintiff’s misrepresentation that caused their loss, the causation broke and the defendants failed to prove causation.

47. It follows that other causes of action relied upon by the defendants also failed.

Conclusion

48. Base on the above analysis, I find that when the defendants signed the provisional agreements, the defendants were not affected by the misrepresentation made by the plaintiff.  Therefore, the defendants are bound by the provisional agreements.  The defendants subsequently decided not to complete the sales of the two properties, pursuant to the provisional agreements, the plaintiff is entitled to be paid HK$60,000 by each defendant as liquidated damages. 

49. On the other hand, I find the defendants fail to prove the counterclaims.  The counterclaims of both defendants are hereby dismissed.

Costs

50. Costs should follow the event.  I make an order nisi that the defendants do pay the plaintiff’s costs in these proceedings to be taxed if not agreed, with certificate of counsel.  This cost order shall become absolute in the absence of any application to vary within 14 days of the date of this judgment.