TAI SANG KUNG LTD. v. PARAKING LTD. AND ANOTHER

HCA 2503/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2503 OF 1998

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J U D G M E N T

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Introduction

1. This action arose out of the sale and purchase of a shop known as Shop A, Ground Floor, No. 118 Sha Tsui Road, Tsuen Wan, New Territories ("the suit property"). The plaintiff was the purchaser and the 1st defendant ("D1") was the owner. The 2nd defendant ("D2") was the estate agent which introduced the suit property to the plaintiff.

2. The plaintiff complains that:-

(a) the defendants misrepresented that a portion of the common area was part of the suit property owned by D1 when in fact that portion was an encroachment on the common area of the building in which the suit property was located;

(b) as a result, there was a further misrepresentation of the floor area of the suit property;

(c) D1 does not have title to sell the common area portion to the plaintiff;

(d) D1 has not been able to show good title by failing to answer a number of the plaintiff's requisitions on title;

(e) D2 breached its fiduciary duty by failing to disclose its association with D1 or of the potential conflict of interest thereby created.

The defendants contend that there is no substance in these complaints.

Misrepresentation

3. The provisional sale and purchase agreement was entered into by the parties on 29 October 1997. The plaintiff learnt of the suit property in about the end of October 1997. The alleged misrepresentation occurred during that period. The 2 witnesses called by the plaintiff regarding this aspect were Mr. Chan Tat Yuen Julian ("Chan") and Mr. Lee Chun Wah ("Lee") who dealt with the defendants during that period on the plaintiff's behalf.

4. It is undisputed that the plaintiff's original shop was resumed for redevelopment purpose and the plaintiff was informed that it would be paid compensation in the region of $7 million. The plaintiff has to look for another shop to carry on its business of selling spare parts and accessories of motor vehicles.

5. Although there is a hint of misrepresentation regarding D2's advertisements published in the newspaper and the placard placed at D2's premises to the effect that the suit property was a 800-square foot shop, this does not appear to form the plaintiff's primary case (if at all, albeit it was referred to in the plaintiff's final submissions). In any event, I find that these advertisements and placard were only a summary of the offer for sale and that the plaintiff has not placed any reliance on them.

6. The plaintiff's primary case is based on the events said to have occurred during the plaintiff's inspection of the suit property on 28 October 1997 and 29 October 1997.

7. Chan inspected the suit property for the plaintiff after work in the evening of 28 October. According to his witness statement, Mr. Chong (D2's staff) told Chan that "according to the estimate of the ... owner, [the suit property's] area should be about 800 square feet". Under cross-examination, Chan testified as follows. He saw a wall which partitioned the suit property into 2 parts. He asked Chong if the suit property was really 800 square feet to which Chong said the shop was 400 square feet and another 400 square feet were common area lawfully occupied ("合法佔用的公家地方"). Chong said the common area had been occupied for 20 odd years. Chan testified that he was suspicious of that and understood Chong to be saying that there would be no title documents for the occupied common area. Chan testified that Chong's said statements were repeated when Chan and Lee inspected the suit property again on 29 October.

8. Further, according to Chan's witness statement, after the inspection on 29 October, Chan and Lee went to D2's office. Ms Yau (D2's supervisor) showed a sketch plan to them. The suit property was depicted in 2 parts, one shaded and another unshaded. Ms Yau said the unshaded part was "the common area legally occupied and owned by [D1] ... Yau further explained to [Lee] and [Chan] that all other owners of the shops on the ground floor of the building had already partitioned other common areas for their own use as of right".

9. Lee's witness statement is essentially the same as Chan's regarding the above matters. Under cross-examination, Lee testified that Chong told Lee the owner of the suit property occupied it for over 20 years ("霸左超過二十年"). Lee further testified that Chong told him the owner had title documents from the Government about this.

10. The account of the events given by Chan and Lee has not been seriously challenged by the defence save Lee's assertion that D2 had stated there would be title documents regarding the occupation of the suit property for over 20 years. I do not accept this part of Lee's testimony because:-

(a) it is inconsistent with D2's statement that the suit property had been "occupied" for over 20 years. At least by implication, that statement must mean that that portion of the suit property is different from the portion described by D2 as "the shop";

(b) it is also inconsistent with the sketch shown to the plaintiff by D2 on 29 October which again distinguished between "the shop" and "the common area";

(c) that assertion has not been pleaded by the plaintiff (until the plaintiff's closing submissions when the plaintiff asked for (and was given) leave to re-amend the Amended Statement of Claim so as to rely on Lee's testimony);

(d) that assertion cannot be found in the plaintiff's witness statements.

11. The defence case regarding this aspect can be found in the following passages of the witnesses who testified at trial, namely, Mr. Wong Nga Ming ("Wong") and Ms Yau Kam Ha ("Yau"). Wong was D2's staff and his statement states that:-

"[on 28 October] ... I heard that Chong said he was informed by the owner that [the suit property] was 800 sq. ft. but also said to Chan that the exact size ... would only be known after checking its title deeds";

"[on 29 October] ... Chan and Lee asked Yau if the space behind the wall was an encroachment ... and Yau confirmed their understanding. Yau stood near the Wall and said that the boundary of the Shop was up to the Wall. Yau further told them that the Yard was part of a common area, but all the ground floor owners/users had already divided the common area for their own use".

Yau's statement is essentially the same regarding the aforesaid matters.

12. Defence counsel informed me at the beginning of his final submissions that it is accepted that D2 was acting as D1's agent for the purpose of the sale and purchase. D1 should therefore be vicariously liable for D2's representations. According to the testimony of the plaintiff's witnesses (save Lee's testimony regarding the alleged reference to title documents, which I reject), the representation made by D2 was in essence that part of the suit property was common area and the common area portion had been occupied by its owner(s) for over 20 years.

13. The plaintiff's testimony regarding the defendants' representation is thus quite different from what has been pleaded in the Statement of Claim:-

"... the 1st Defendant and the 2nd Defendant (acting as an agent of the 1st Defendant and/or in its own capacity) represented to the Plaintiff and thereby warranted:-

(a) that the area of [the suit property] was 800 sq. ft.; and

(b) that the 1st Defendant was the owner of [the suit property] as depicted in two parts in the said sketch plan"

(para. 4H thereof).

14. More importantly, this means that the plaintiff's said pleaded case is not supported by evidence. Plaintiff's counsel fairly accepts that the burden of proving the falsity of the defendants' representation falls on the plaintiff.

15. I find that the only representations were that:-

(a) the suit property consists of two portions;

(b) one portion is the shop itself;

(c) the other portion was originally the common area;

(d) the portion referred to in (c) above has been occupied and used by the owner(s) of the suit property for a continuous period of more than 20 years.

I do not find that there is evidence to establish the alleged representation that D1 had title over the common area portion of the suit property. There is no evidence to show that any representations set out in (a) to (d) above were false.

16. Accordingly, this part of the plaintiff's case fails.

Requisitions on Title and Related Matters

17. The plaintiff contends that a number of requisitions on (or matters relating to) title have not been, or have not satisfactorily been, answered (or resolved) and remain outstanding. By the time of closing submissions, the plaintiff relies on 4 such matters:-

(a) D1's failure to furnish certified copies of title documents, namely, Survey Plan No. GP148-S and the letter referred to therein;

(b) D1's failure to advise the plaintiff as to the allocation of undivided shares and the ownership of the "1 share" hand-written on the Control Card;

(c) the discrepancy in the floor area (394/5 square feet as opposed to 800 square feet) of the suit property resulting from the misrepresentation relating to the common area portion;

(d) unauthorized structures which contravened the Buildings Ordinance and/or the Deed of Mutual Covenants ("the DMC").

These will be discussed further in different sub-headings below.

(1): Certified Copy of Survey Plan and Letter

18. This was raised in the plaintiff's letter of 22 November 1997:-

"... Please let us have the copy Survey Plan No. GP148-S for our perusal since the same may affect boundaries and area of Lot No. 2207 in D.D. 449 ... ".

D1 considered the requisition to be too vague and abstract. The plaintiff repeated this requisition in its letter of 27 November 1997 as follows:-

"... Please let us have the copy Survey Plan No. GP148-S for our perusal since the same is stated in the Remark of the Land search record to have effect on the boundaries and area of Lot No. 2207 in D.D. 449 ... ".

D1 responded by its letter dated 28 November 1997:-

"... The Remarks in the land search record, which read that 'Survey Plan No. GP148-5 [sic] may affect boundaries and area of this lot and is available in district survey office', are neither positive nor conclusive. It is therefore presumed in favour of our client the Vendor that the said Survey Plan does not materially or adversely affect the lot unless and until you have come up with evidence to the contrary ... ".

The plaintiff did not desist in the requisition and wrote again on 5 December 1997:-

"Even assuming that copy Survey Plan No. GP148-S may not materially or adversely affect the boundaries and area of Lot No. 2207 in D.D. 449, you are still under an obligation ... [to produce] a copy of the same to us for our perusal. Our requisition certainly falls within the ambit of Section 13 of the Conveyancing and Property Ordinance ... ".

There is no need to go into the details of the ensuing correspondence save to say that the parties' view continued to differ. Rather emotional words were used in some of the correspondence but that does not affect the substance of the matter. Finally on 23 January 1998, D1 wrote:-

"Please find enclosed another clear and legible copy of the Grant Plan No. GP148-S ... ".

19. In the plaintiff's letter dated 21 January 1998 (which probably should have been dated 27 January 1998), the plaintiff said:-

"Copy Survey Plan No. GP148-S refers to a letter dated 7/1/69 which is said to accompany the said plan. Kindly please let us have a copy of the said letter for our perusal ... ".

D1's response to this on 6 February 1998 was essentially that it was under no obligation to produce the plan or the letter as they both pre-dated the intermediate root of title. D1 further stated in effect that the plaintiff had not found evidence of matters affecting title although it is (theoretically) possible for the plaintiff to do so.

20. The plaintiff's pleaded case complains that D1 failed to produce a certified copy of the Grant Plan No. GP148-S and a copy of the letter dated 7 January 1969 which was referred to in the said plan: see para. 10B(k) of the Amended Statement of Claim.

21. Clause 14(a) of the formal sale and purchase agreement dated 14 November 1997 ("the agreement") provided that:-

"All title deeds and documents in respect of the [suit property] in [D1's] possession and necessary to complete the chain of title in accordance with section 13 of the Conveyancing and Property Ordinance shall, unless the same also related to other properties owned by [D1], be handed over to [the plaintiff] on completion. Should [the plaintiff] require copies and/or certified copies of the Crown Lease and/or other title deeds and documents to complete the chain of title extending to 15 years before the date hereof or extending to the Crown Lease (if the same shall be within the said 15 years period), the costs and expenses for obtaining such copies and/or certified copies shall be borne by [the plaintiff]".

Clause 14(b) of the agreement reads:-

"Where any title deed or document has been registered with the Land Registry or the relevant New Territories Land Registry [the plaintiff] shall accept .... production of a photocopy thereof from such land registry together with ... an undertaking from [D1's] solicitors to forthwith apply for and deliver a certified copy thereof from such land registry ... ".

22. "Survey Plan No. GP148-S" giving rise to this requisition and the related line of correspondence was referred to in the land search record of the Tsuen Wan Land Registry (in the form of a computer printout). As is common with such computer printouts, the land search record is divided into the following parts:-

(1) "PROPERTY PARTICULARS";

(2) "OWNER PARTICULARS";

(3) "INCUMBRANCES" and

(4) "DEEDS PENDING REGISTRATION".

The "REMARKS" to "PROPERTY PARTICULARS" state that:-

"SURVEY PLAN NO. GP148-S MAY AFFECT BOUNDARIES & AREA OF THIS LOT & IS AVAILABLE IN DISTRICT SURVEY OFFICE".

23. The letter dated 7 January 1969 was referred to in a plastic chop appearing on Survey Plan No. GP148-S itself (which states that the plan was to accompany the said letter).

24. Relying on the definition of "government lease" in s. 3 of the Interpretation and General Clauses Ordinance, Cap. 1, the plaintiff contends that the said 2 documents were (or were parts of) Government lease. The relevant part of s. 3 of Cap. 1 reads:-

"'Government lease' means a lease of land granted by or on behalf of the Government, and includes?

(a) an instrument whereby?

(i) the term of the lease has been extended; or

(ii) the provisions of the lease have been varied ...".

The plaintiff argues that D1 has breached clause 14 of the agreement by failing to furnish the said 2 documents.

25. I disagree with the plaintiff's arguments. There is no proper basis for thinking that either document has extended the term of the Government lease, or varied its provisions. Nothing whatsoever was known about the purport or content of the letter dated 7 January 1969 (save that it was accompanied by the survey plan). The only thing known about the survey plan is that it may affect the boundaries and area of the lot. The word "may" indicates at most a possibility but even if the plan does affect the boundaries and area of the lot (which is nothing more than an assumption), it still does not "extend" the term of the Government lease or "vary" its provisions. Further, for the same reasons, I do not consider the plaintiff to have established that they were title documents either.

26. By reason of the above matters, I disagree with the plaintiff's arguments and agree with the defence that there is no substance in this complaint.

(2): Allocation of Shares in Control Card

27. The suit property was described in the 2nd Schedule of the agreement as follows:-

"ALL THOSE 2 equal undivided 37th parts and shares of and in ALL THAT piece or parcel of ground registered ... as LOT NO. 2207 IN DEMARCATION DISTRICT NO. 449 ... now known as Nos. 112A, 112, 114, 116 and 118 Sha Tsui Road and No. 3 Heung Shing Street, Tsuen Wan ... TOGETHER with the sole and exclusive right and privilege to hold use occupy and enjoy ALL THAT SHOP A on [sic] the GROUND FLOOR of the said buildings ... ".

28. The DMC does not identify the number of shares allocated to the units in the building (including the suit property), save that the First Schedule states:-

"The Whole Building (save and except No. 112 Sha Tsui Road, Ground floor) (including all roofs of the buildings). 35 equal undivided 37th parts or shares"

and

"No. 112, Sha Tsui Road Ground floor. 2 equal undivided 37th parts or shares".

29. The plaintiff wrote the following on 22 November 1997:-

"As recorded in Attested copy Deed of Mutual Covenant Memorial No. 86158, the whole of the Ground Floor was assigned ... when the number of the share of whole Ground Floor was described as '2 equal undivided 37th parts or shares'. However, by Assignment Memorial No. 90760, [the suit property], which was supposed to make up of 1/5 of the whole Ground Floor ... was described as '2 equal undivided 37th parts or shares'. Please advise us as to how the undivided shares of [the suit property] were allocated and let us have evidence to prove the correct number of shares allocated ... ".

D1 replied on 25 November 1997:-

"It is clear that there are five shops on the ground floor of the building known as Nos. 112A, 112, 114, 116 and 118 Sha Tsui Road and No. 3 Heung Shing Street. In the First Schedule to the [DMC] Memorial No. 86158, there refers to the shop on the ground floor at No. 112 Sha Tsui Road and 2 equal undivided 37th shares are allocated to it. But in Assignment Memorial No. 90760, there refers to the shop on the ground floor at No. 118 Sha Tsui Road and 2 equal undivided 37th shares are also allocated to it. In view of the above observation, there is absolutely no confusion on the allocation of shares".

The plaintiff wrote back on 27 November 1997 and requested for advice as to how the undivided shares of the suit property were divided and allocated and repeated the request for "evidence to prove the correct number of shares allocated".

30. The above line of correspondence continued until about 23 January 1998 D1 produced a plain copy of the Control Card maintained by the Tsuen Wan Land Registry in respect of the building in which the suit property is located.

31. In a letter dated 21 January 1998 (should probably have been 27 January 1998), the plaintiff said:-

"The aggregate of the total handwritten numbers [sic] of shares as stated in each box in the control card supplied by you is 36 shares instead of 37 shares as stated in the Assignment, please explain such discrepancy" (emphasis supplied).

32. There is no evidence as to the nature of the said control card or its purpose. I understand that this document is a record compiled and kept by the Land Registry for its own administrative purpose(s). The information appearing on it were not prepared by (although it was most probably based on) the parties to the conveyancing transactions. A perusal of the control card in question shows that:-

(a) a typed sentence stated: "Total no. of shares : 37";

(b) a typed number appears in each of the boxes of the tables in the control card.

It is unknown what each of these numbers means and the aggregate of the typed numbers does not tally with the "Total no. of shares : 37".

33. In these circumstances, the line of correspondence between the plaintiff and D1 about the "discrepancy" between the aggregate of the handwritten numbers and the typed "Total no. of shares" is wholly misconceived as it is unknown who wrote these numbers onto the control card or what they mean. In any event, the Control Card clearly records that the total number of undivided shares is 37.

34. It is unclear whether by "shifting" the "requisition" on 21 January 1998 (probably should be 27 January 1998) to the "discrepancy" between the handwritten numbers on the control card the plaintiff has abandoned his earlier requisition about the alleged inconsistent allocation of shares in the DMC. But even if he has not, I consider there is no merit in that requisition. This is because that requisition, raised in the letter of 22 November 1997 (see above), was factually inaccurate. There is nothing in the DMC to support the statement that:-

"the whole of the Ground Floor was assigned ... when the number of the share of whole Ground Floor was described as '2 equal undivided 37th parts or shares'" (emphasis supplied).

35. Requisitions relating to the allocation of undivided shares were dealt with in at least the following 7 cases (in chronological order):-

(1) Lee Tak Chun v. East Weal International Ltd & Anor [1994] 1 HKC 722, the late J Chan, J.;

(2) Woo Turhan & Anor v. Taiwan Fuji Trading (HK) Ltd [1995] 2 HKC 481, Leong, J. (as he then was);

(3) Sheenip Industries Ltd v. Champion Billion Development Ltd, HCMP No. 1390 of 1995, Dep. J. Yuen (as she then was);

(4) Marking Ltd v. Cheerifat Investment Ltd, HCMP No. 2727 of 1995, Le Pichon, J. (as she then was);

(5) Kwong Ka Hung and Another v. Lai Wah Development Co. Ltd, HCA No. 10566 of 1994, Woo, J. (as he then was);

(6) Goldjet International Investment Ltd v. Ling Ki Wai [1997] 3 HKC 503, Dep. J. Woolley;

(7) Hinex Universal Design Consultants Co. Ltd v. Chan Lai Hing [1998] 1 HKC 317, Le Pichon, J. (as she then was).

36. The following principles can be distilled from the above cases:-

(a) where the extent of the rights and liabilities which ran with the unit conveyed was uncertain, good title has not been shown (Lee Tak Chun);

(b) where a deed of mutual covenant is not binding and thus invalid, the other tenants in common would not be precluded from the use of the unit being conveyed (or any other parts of the building). The vendor would not be able to give to the purchaser exclusive possession of that unit (Woo Turhan & Anor);

(c) the proprietary right of a developer (as the owner of the undivided shares) cannot be restricted except by clear wording or by necessary implication. In the absence of such a constraint in contractual documents, such as a deed of mutual covenant, a developer would be at liberty to allocate the shares owned in whatever manner thought appropriate (Sheenip Industries Ltd);

(d) a schedule lodged with the Land Registry for the creation of sub-division registers is sufficient evidence of the allocation of undivided shares. A difference in the number of undivided shares in such a schedule and the number of shares which been allocated to the unit might have a bearing on the title of the unit being conveyed (Marking Ltd);

(e) a further partitioning of shop units by way of the sub-division of the undivided shares (together with the execution of a sub-deed of mutual covenant) after it was sold by the developer was valid even though the deed of mutual covenant provided that the exclusive right to possess should not be sold separately from the undivided shares because there was no destruction of the unity of possession which is crucial to a tenancy in common (distinguishing Lai Wing-ho v. Chan Siu-fong [1993] HKLR 319) (Kwong Ka Hung and Another);

(f) the absence of a schedule in the deed of mutual covenant regarding the allocation of shares did not cast doubt on title where the number of shares of the unit has always been recited consistently in the assignments (Goldjet International Investment Ltd);

(g) a subsequent owner had the same unfettered right as the developer to allocate undivided shares vested in him, subject to any prior prohibition which existed in the deed of mutual covenant or some other documents (Hinex Universal Design Consultants Co. Ltd).

37. There is no suggestion that the DMC is not binding. There is no constraint in either the DMC (or other documents) prohibiting D1's predecessor(s)-in-title from allocating 2 shares to the suit property. Further, there has not been any inconsistency in the description of the number of shares in the title documents relating to the suit property.

38. Clause 4 of the DMC provided that the amount of Government Rent, rate, insurance premium, management fee and rebuilding or renovation costs payable is proportionate to the number of shares owned. By reason of the conclusion above, it is unnecessary to determine (even if there be any uncertainties in the amounts payable because of the inaccurate description of the number of undivided shares in title documents) whether the uncertainties are related to matters of conveyance rather than matters of title.

39. For the above reasons, I conclude that this was not a reasonable requisition. Even if it were, it has been satisfactorily answered.

(3): Floor Area

40. When this complaint was raised in the letter dated 21 January 1998 from the plaintiff's solicitors, D1's solicitors denied that D1 had misrepresented the facts. Since I already dismissed the part of the plaintiff's case relating to the alleged misrepresentation, there is no substance in this requisition either.

(4): Unauthorized Structures

41. On 21 January 1998 the plaintiff wrote:-

"Please confirm ... whether the partition of the Ground Floor into Cockloft and the Ground Floor of [the suit property] involves any structural alteration to [the suit property]. Or if the same involve [sic] any alteration to any installation or fixture so as to affect or likely to affect the supply of water ... which are prohibited by clause 8 of [the DMC] ... ".

The request for information was repeated in the plaintiff's letter dated 6 February 1998.

42. D1 responded that it was up to the plaintiff to ascertain and establish the above matters and referred to clause 8 of the agreement. That clause provided in essence that the suit property was sold on "as is" basis and that the plaintiff was satisfied with and accepted the condition of the suit property. The plaintiff wrote on 11 February 1998 and stated that the initial burden of proving the legality of the alterations rested with D1 since it was D1's duty to prove good title to the suit property.

43. The ensuing line of correspondence on this subject continued and on 12 February 1998, the plaintiff asserted that the alterations and structures were unauthorized. On 16 February 1998, D1 enclosed an "Architect's Statement" dated 14 February 1998. That document was a document compiled by a Mr. Kwan who claimed to be an architect and he opined that all the structures appeared to be exempted works under s. 41(3) of the Building Ordinance. He further stated that 2 of the structures laid outside the boundaries of the suit property. The plaintiff replied by alleging that the said document may not be reliable and indicated it might engage another authorized person. The plaintiff then referred to the possible enforcement action of the manager or incorporated owners of the building for breach(es) of the DMC.

44. There is no need to elaborate on the "requisition" regarding the alterations or structures save to repeat what Litton, JA (as he then was) said in Active Keen Industries Ltd v. Fok Chi-keong [1994] 1 HKLR 396:-

"In conclusion, I would echo the words of the judge, who is highly experienced in these matters, when he said:

'... if those instructed to act for purchasers could be brought to realise that they would serve their clients better by exercising their common sense rather than by exhibiting their zealousness, matters would be ... improved. The time has come for Hong Kong conveyancers to put an end to the practice of magnifying difficulties which are really non-existent ... ' " (p. 414).

The so-called "requisition" is nothing more than a dressed-up fishing expedition. It was initially posed by way of a query on the basic facts which may give rise to a requisition. The subsequent assertion that the structures were unauthorized was made without disclosing the basis in support.

45. Clause 8 of the DMC is referred to in the Amended Statement of Claim:-

"Each of the parties hereto shall not make any structural alteration to the said building ... of which he is entitled to the exclusive use, occupation and enjoyment and shall not make any alteration to any installation or fixture so as to affect .. the supply of water, electricity or gas and shall not cut or damage any of the main walls or beams or floors of the said building".

There is however no evidence to show that the alterations or structures offend any of the provisions in clause 8 of the DMC, for example, they were structural in nature, or that they affect the supply of water and so on.

46. This "requisition" is therefore of no substance either.

No Title to Convey

47. Neither the provisional sale and purchase agreement nor the formal sale and purchase agreement provided that the common area portion was to be conveyed by D1 to the plaintiff. There is therefore no merit in the plaintiff's arguments that the common area portion was intended to be included in the sale. Insofar as the plaintiff relies on the defendants' representations, this has already been dealt with under the heading "Misrepresentation" above.

48. Further, if for any reason it can be argued that the sale was intended to include the common area portion, I find that the parties were fully aware of the nature of D1's "title" or interest in the common area portion when they entered into the agreement. I therefore find further that it was the parties' intention that D1 was to convey such "title" or interest (for example, title arising from adverse possession) to the plaintiff.

49. I therefore also disagree with this part of the plaintiff's arguments.

D2's Breach of Fiduciary Duty to Disclose

50. It is undisputed that the shareholders and directors of D1 and D2 were the same 2 individuals, namely, Mr. Lo Wing On and Mr. Lo Wing Hon. Para. 22 and 23 of the Amended Statement of Claim plead:-

"... the 2nd Defendant breached its fiduciary duty to the Plaintiff.

PARTICULARS

(i) The 2nd Defendant failed to disclose its association with the 1st Defendant and the conflict of interest.

(ii) The 2nd Defendant failed to disclose all the relevant information about [the suit property] obtained from the 1st Defendant.

... In the premises, the Plaintiff suffers loss and damage.

PARTICULARS

(i) The said sum of HK$1,000,000 [the amount of deposit and part payment].

(ii) Conveyancing cost HK$16,300.

(iii) Commission HK$60,000".

51. I understand the alleged failure on D2's part "to disclose all the relevant information about the suit property" (para. 22(b) of the Amended Statement of Claim) to refer to the alleged mis-statement about the floor area, the ownership of the common area portion and the alleged unauthorized structures (see "Misrepresentation", "Floor Area", "Unauthorized Structures" and "No Title to Convey" above). In view of the conclusion above regarding these, this part of the plaintiff's case is not established.

52. It has not been pleaded that the plaintiff was entitled to, and did, avoid (or rescind) the agreement with D1 by reason of D2's alleged breach of duty. Neither was that stated in the witness statements of either Chan or Lee. In fact, when Chan and Lee testified regarding this aspect:-

(a) Chan said in examination in chief that if he had known D1 and D2 had the same shareholders and directors, he would have spent more time to consider the sale and purchase and discuss the matter with his friends and relatives. This testimony was in essence repeated in cross-examination. He further said he would have offered to pay a lower price;

(b) Lee said in examination in chief that if he had known D1 and D2 had the same shareholders and directors, he would consider the non-disclosure to be a deception and would have reminded Chan to be careful about this transaction. He said in cross-examination that he would be suspicious and would consider not to buy the suit property.

53. The plaintiff relies on Bowstead and Reynolds on Agency (1996) 6th Ed., para. 6-060 and 6-062 (illustration (1)). The relevant parts state:-

"Another manifestation of the agent's fiduciary duty is that he must not serve two principals whose interests may conflict. So he may not act for both parties to a transaction unless he ensures that he fully discloses all the material facts to each party and obtains their informed consent to his so acting. ... " (para. 6-060);

"An agent for sale sells to a company of which he is a director and large shareholder. The sale is not binding on the principal [Salomons v. Pender (1865) 3 H. & C. 639] ... " (para. 6-062).

There are, however, at least two problems with the plaintiff's arguments. It is to be noted that the plaintiff's complaint is not that D2 has received commission from both sides but that D2 introduced a seller who has a common shareholding and directorship without informing the plaintiff of this.

54. First, it has been decided that an estate agent in Hong Kong is not in the same position as an estate agent in England. In Hong Kong, he acts as a broker taking commission from both vendor and purchaser: Cheng Kwok-fai v. Mok Yiu-wah, Peter and Another [1990] 2 HKLR 440, 445. I consider this to be so in the present case. On the facts of this case, D2's role is nothing more than an introducer of the suit property. As I found above, it has disclosed all the relevant facts to the plaintiff. The decision whether to purchase the suit property, and if so on what terms, was not made by D2 but by the plaintiff. The plaintiff acted through its two directors, Chan and Lee, who were experienced businessmen.

55. Secondly, even if D2 can be said to have breached its fiduciary duty, the agreement was not void but only voidable. It has not been pleaded or proven that the agreement has been avoided. Even the testimony of Chan and Lee did not state that the agreement was avoided.

56. In any event, the rule has its roots in equity and is flexible: Snell's Equity (2000) 13th Ed., para. 11-68, text to nn. 94-98. In the circumstances of this case, I do not consider the non-disclosure of D2's association with D1 to justify avoiding the transaction.

57. For the above reasons, this part of the plaintiff's case also fails.

Conclusion

58. By reason of the matters aforesaid, the plaintiff's claim is dismissed.

Counterclaim

59. D1 counterclaims the plaintiff for breach of the agreement by failing to complete the transaction.

60. By reason of the above matters, I find that D1 has established its counterclaim. There is, however, no evidence to substantiate the loss allegedly suffered by D1 and there is no order for a split trial regarding quantum of damages.

61. Accordingly, I will enter judgment for nominal damages in D1's favour in the sum of $1,000.

Costs

62. There is no apparent reason to depart from the normal rule that costs are to follow the event. The costs of this action are to be paid by the plaintiff to the defendants to be taxed if not agreed.