MIDLAND REALTY (COMM. & IND.) LTD v. NCF (HK) LTD

HCA 1830/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1830 OF 2013

(Transferred from District Court Civil Action No. 2062 of 2012)

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J U D G M E N T

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INTRODUCTION

1.  In May 1997, the Defendant became the registered owner of Workshop No. M on 2^nd Floor, Camelpaint Buildings, Block III, No. 60 Hoi Yuen Road, Kowloon (“the Workshop”).

2.  By a Preliminary Sale and Purchase Agreement, made on 4 October 2011 (“the First Agreement”), between the Defendant and a Ms. Mak, the Defendant agreed to sell the Workshop to Ms. Mak for $7,375,500.  The estate agent for that sale and purchase was Centaline Property Agency Limited (“Centaline”).

3.  The First Agreement contained an escape clause, which provided:

“9. Should the Vendor after receiving the deposit paid hereunder fail to complete the sale in the manner herein contained the Vendor shall immediately compensate the Purchaser with a sum equivalent to the amount of the deposit as liquidated damages together with the refund of the deposit and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

4.  However, the escape clause was deleted, as indicated by lines running across and through it, and the deletion was acknowledged by Ng Ngai Ngai (“Mr. Ng”), the Defendant’s director and shareholder, by his initials in the margin of the document and next to the escape clause.  (Witnesses described the deletion as making the agreement a “must buy/must sell” agreement).

5.  By a Provisional Agreement for Sale and Purchase, made on 18 October 2011 (“the Second Agreement”), between the Defendant and Goldtop (H.K.) Ltd, the Defendant agreed to sell the Workshop to Goldtop for $7,822,500.  The estate agent for that sale and purchase was the Plaintiff, represented by Billy Chua Shui Yeung (“Mr. Chua”).

6.  The Second Agreement contained an escape clause, which provided:

“8. Should the Vendor after receiving the initial deposit paid hereunder fail to complete the sale in the manner herein contained, the Vendor shall immediately compensate the Purchaser with a refund of the initial deposit together with a sum equivalent to the amount of the initial deposit as liquidated damages and the reimbursement/payment (as the case may be) of stamp duty of the said premises and the Purchaser shall not take any further action to claim for damages or to enforce specific performance.”

7.  As with the First Agreement, the escape clause was deleted, as indicated by lines running across and through it, and Mr. Ng acknowledged the deletion by his initials in the margin of the document and next to the escape clause.  (Hence, this was also a “must buy/must sell” agreement.)

8.  Another relevant clause in the Second Agreement was Clause 10a, which provided:

“If in any case either the Vendor or the Purchaser fails to complete the sale and purchase in the manner herein contained, the defaulting party shall compensate at once the Agent HK$156,450 as agreed damages.”

9.  Almost immediately after signing the Second Agreement on 18 October 2011, Mr. Ng was told by the Defendant’s solicitor that the Defendant could not rescind the First Agreement because the escape clause had been deleted.  Instead, the Defendant later rescinded the Second Agreement and did not compensate the Plaintiff as provided for in Clause 10a.

10.  On 21 October 2011, a Ms. Chan, an agent at Centaline, signed a written statement asserting that Ms. Mak told her that, on the morning of 18 October 2011, a Ms. Sally Lam (another agent at Centaline and Mr. Chua’s wife) called her and asked her whether she had signed the sale and purchase agreement for the Workshop, to which she answered that it had been signed.  The fax machine imprint on the statement indicates it was faxed from Centaline – San Po Kong to the Defendant on 24 October 2011.  Ms. Chan was not called as a witness and no explanation was given. This statement is hearsay and involves multiple hearsay.  A hearsay notice was served but no counter notice.  I am not prepared to give weight to the narration of events.  Nevertheless, its place in the order of events is something with which I shall deal later.

11.  By a letter, dated 25 October 2011, the Defendant’s solicitors advised Goldtop’s solicitors that the Defendant was unable to perform the Second Agreement because the First Agreement was binding (this was because the escape clauses had been deleted).  The solicitors advised that the Defendant “has been misled by the estate agents to believe that the 1^st Agreement could be cancelled if our client refunded the initial deposit and compensated a sum equivalent to the amount of the initial deposit to the purchaser under the 1^st Agreement, … .”

12.  By a writ, dated 9 November 2011, Goldtop sued the Defendant for breach of the Second Agreement, claiming as damages the difference between the purchase price of the Workshop and the purchase price it paid for replacement premises (“the Goldtop Action”).  That action was settled by a payment by the Defendant to Goldtop.

13.  On 16 November 2011, the Plaintiff sent a debit note to the Defendant, demanding payment of $156,450, which was followed later by a payment reminder, dated 18 November 2011.

14.  By a letter, dated 25 November 2011, the Defendant complained to the Plaintiff.  The gist of the complaint was that Mr. Chua deliberately deceived Mr. Ng and thereby induced him to enter into the Second Agreement.  The relevant points made in the letter were:

(1)    The Defendant entered into the First Agreement on 4 October 2011 but did not know it was irrevocable;

(2)    Sally Lam and Mr. Chua called the Defendant and told them that they had mainland clients who were willing to offer a higher price for the Workshop.  The Defendant agreed to let them show the Workshop to their respective clients;

(3)    At about 3:00 p.m. on 18 October 2011, Mr. Chua brought the Second Agreement to the Defendant’s offices and asked Mr. Ng to sign it.  Ms. Sun Yat Hung (“Ms. Sun”), the Defendant’s employee, told Mr. Chua that the Defendant had signed the First Agreement and let him look at it.  Mr. Chua told Ms. Sun that the First Agreement could be cancelled by compensating the buyer with the deposit.  At about 3:30 p.m., Mr. Ng arrived at the office.  Whilst Mr. Ng was signing the Second Agreement, Ms. Sun called the Defendant’s solicitors to inform them that the Defendant planned to cancel the First Agreement.  The solicitor told Ms. Sun that the First Agreement was irrevocable and could not be cancelled.  Ms. Sun immediately went to inform Mr. Ng but, as Mr. Chua had urged Mr. Ng to sign the Second Agreement, it had already been signed.  Ms. Sun asked Mr. Chua why the solicitor had said the First Agreement was irrevocable and she asked to have the Second Agreement back.  She also asked Mr. Chua to return the deposit cheque to the purchaser.  Mr. Chua refused and said that the Defendant could cancel the First Agreement.  As Mr. Chua left, Ms. Sun chased after him but he insisted on leaving and refused to return the Second Agreement;

(4)    If the Defendant had known that the First Agreement was irrevocable, it would not have entered into the Second Agreement;

(5)    The Defendant had checked and learned that, on the morning of 18 October 2011, Sally Lam had called Ms. Mak and, so, knew that Ms. Mak had signed a formal sale and purchase agreement.  The letter went on to state that the Defendant had not yet signed the formal agreement.

15.  By letter, dated 28 November 2011, solicitors for the Plaintiff demanded payment.

16.  On 17 January 2012, Ms. Sun gave a statement to the Estate Agents Authority in the following terms:

(1)    Between 6 and 14 October 2011, two agents, Sally Lam and Mr. Chua, kept calling her saying that they had customers who would pay a higher price for the Workshop.  She told them that the Workshop had already been sold but they said that the deposit could be surrendered (“the First Representation”).  Mr. Ng agreed to allow them to bring clients to view the property;

(2)    On the morning of 18 October 2011, Mr. Chua called and asked Mr. Ng to sign the Second Agreement, saying that there was a buyer who would pay $3,500 per square foot.  Mr. Ng made an appointment with Mr. Chua for 3 p.m.;

(3)    Around 3 p.m., Mr. Chua brought to the Defendant’s office a provisional sale and purchase agreement.  Ms. Sun gave Mr. Chua the First Agreement for him to look at.  Mr. Chua said the deposit could be surrendered (“the Second Representation”). Mr. Chua then met with Mr. Ng in the conference room;

(4)    Ms. Sun immediately called the Defendant’s solicitors to enquire as to whether the deposit could be surrendered.  The solicitor told her that the First Agreement could not be cancelled. She went into the conference room immediately to tell Mr. Ng that the First Agreement could not be cancelled but he had already signed the Second Agreement.  Mr. Chua insisted that the First Agreement could be cancelled and refused to return and cancel the Second Agreement.  She insisted that Mr. Chua return and cancel the Second Agreement but he ignored the request and left the room.  She chased him to the office door but he refused to return the Second Agreement;

(5)    Ms. Chan from Centaline told them that Miss Mak had told her that Sally Lam had telephoned and asked if she had signed a formal sale and purchase agreement.

17.  On 18 January 2012, Mr. Ng gave a statement to the Estate Agents Authority in the following terms:

(1)    Several days after selling the Workshop, Ms. Sun told him that estate agents had brought clients to view the property and had said that they could offer a higher price.  He did not object to them looking at the property;

(2)    At about 3 p.m. on 18 October 2011, he returned to the office and saw Ms. Sun and an estate agent (whom he later learned was Mr. Chua) waiting.  Ms. Sun told him that a new buyer had offered $3,500 per square foot and that the agent had said that, regarding the First Agreement, the deposit could be surrendered (“the Second Representation”). Because Ms. Sun had confirmed with Mr. Chua that the First Agreement deposit could be surrendered, he signed the Second Agreement.  He asked Ms. Sun to notify the Defendant’s solicitors that he was prepared to surrender the First Agreement deposit.  Ms. Sun soon informed him that the deposit could not be surrendered.  Ms. Sun immediately wanted to get the Second Agreement back but Mr. Chua said that the deposit could be surrendered, left a copy of the Second Agreement and a cheque for the deposit and rushed out of the office.  Ms. Sun ran after him but was not able to catch him.  He immediately called Mr. Chua and asked him to return the Second Agreement but Mr. Chua said that it had already been given to the buyer who had returned to Shenzhen;

(3)    On the morning of 19 October 2011, Mr. Chua called and said that the buyer refused to cancel the transaction;

(4)    About two days later, he received a call from Ms. Chan of Centaline who told him that, on the morning of 18 October 2011, Sally Lam had called Ms. Mak and asked whether the formal sale and purchase agreement had been signed;

(5)    Mr. Chua only explained the price and nothing else.

18.  The Estate Agents Authority wrote a letter, dated 20 February 2012, to Mr. Chua seeking a response.

19.  Mr. Chua responded by letter, dated 6 March 2012, as follows:

(1)    On 10 October 2011, he called Ms. Sun to make an appointment to take a client to view the Workshop;

(2)    On 15 October 2011, Goldtop agreed to buy the Workshop for $3,500 per square foot.  He informed Ms. Sun of the offer and she later told him that he could collect the deposit and gave him Mr. Ng’s mobile telephone number;

(3)    On 17 October 2011, Ms. Sun called Mr. Chua and asked him to urge Goldtop to pay the deposit;

(4)    At about 3:20 p.m. on 18 October 2011, he explained all of the clauses of the Second Agreement to Mr. Ng who then signed and thanked him for his help;

(5)    Mr. Chua denied having any knowledge of the First Agreement prior to Mr. Ng signing the Second Agreement;

(6)    At about 3:45 p.m. on 18 October 2011, Mr. Ng called him and told him that he had signed the First Agreement and Mr. Chua told Mr. Ng that he had delivered the Second Agreement to Goldtop already;

(7)    He negotiated with Goldtop for the rescission of the Second Agreement but this failed.

20.  Ms. Lee Fung Ping, Mr. Chua’s superior, also wrote to the Estate Agents Authority by letter, dated 9 March 2012, in which she stated:

(1)    On 21 October 2011, Mr. Ng telephoned her and said that after he discovered that the First Agreement was a “must buy/must sell” agreement he had asked Mr. Chua to cancel the Second Agreement but Mr. Chua did not cooperate;

(2)    She asked Mr. Ng whether Mr. Chua knew of the existence of the First Agreement when he took the client to view the property, bargained the price, collected and delivered the deposit and up to the signing of the Second Agreement.  Mr. Ng answered “no” and said that, shortly after signing the Second Agreement, he found out about the “must buy/must sell” clauses of the First Agreement. He immediately told Mr. Chua and asked him to cancel the Second Agreement;

(3)    Mr. Ng told her that he did not know that the First Agreement was a “must buy/must sell” agreement because the Centaline agent did not explain it to him, telling him only that if he did not want to sell, he could surrender the deposit and cancel the First Agreement;

(4)    Ms. Lee told Mr. Ng that Mr. Chua did not know about the First Agreement and that the Second Agreement was binding and could not be revoked unilaterally.  Furthermore, Mr. Chua had told Mr. Ng that the purchaser did not agree to cancel the Second Agreement;

(5)    She had already confirmed with Mr. Chua that the escape clauses had been deleted and Mr. Chua was sure that he had explained this to Mr. Ng;

(6)    She suggested to Mr. Ng that he reserve his right to pursue Centaline;

(7)    Ms. Lee says that Mr. Ng seemed to understand her response and he asked her to help negotiate with the purchaser;

(8)    This conversation lasted about 40-45 minutes, she said.

21.  By a Writ, dated 18 June 2012, the Plaintiff sued the Defendant for breach of Clause 10a of the Second Agreement, claiming $156,450.

22.  The Defendant’s defence is:

22.1  Any agreement to engage the Plaintiff was made in reliance on the First and Second Representations, which were false, such that the Defendant was entitled to rescind the agreement;

22.2  Any agreement to engage the Plaintiff was on the condition precedent that the First and Second Representations were true;

22.3  The Plaintiff’s entitlement to commission was subject to the Plaintiff’s performance of its duty as agent and the Plaintiff defaulted in the performance of such duties.

23.  The Defendant counterclaimed, alleging breach of duty, negligent misstatement and misrepresentation, namely, that it relied upon and was induced by the First and Second Representations to enter into the Second Agreement.  The Defendant counterclaimed $1,732,043.68 which sum was comprised of the amount for which the Defendant settled Goldtop’s claim and costs and disbursements incurred in respect of Goldtop’s action.

24.  On 12 October 2012, a Madam Lung Lai Ching, then an employee of the Defendant, gave a statement to the Estate Agents Authority stating:

(1)    On a day in September or October 2011, she was at work when she saw a man sitting in the conference room.  Not long after, she saw Mr. Ng return to the office and enter the conference room.  At that time, Ms. Sun was on the telephone but she could not hear the conversation, which lasted about 10 minutes. After Ms. Sun hung up she held a document in her hand and said “Mr. Ng can’t sign, you can’t sign” while running into the conference room.  When Ms. Sun reached the conference room door, Mr. Ng and the man were coming out and Mr. Ng indicated to Ms. Sun that he had already signed.  Ms Sun said to the man “Give it back to me, you cannot take it away”.  However, the man answered “The deposit could be surrendered and my client is waiting for me” and left the office.

25.  On 12 March 2013, Ms. Lee signed a witness statement for these proceedings in essentially the same terms as the statement she gave to the Estate Agents Authority.  (Ms. Lee resigned from the Plaintiff on 1 April 2014.)  On the same day, Mr. Chua signed a witness statement in essentially the same terms as his statement given to the Estate Agents Authority.

26.  On 27 March 2013, Ms. Sun signed a witness statement for these proceedings in essentially the same terms as the statement given to the Estate Agents Authority, save that instead of saying that she telephoned the Defendant’s solicitors to enquire as to whether the deposit could be surrendered, she said that Mr. Ng instructed her to inform the solicitor of recission.  This difference between the two statements will be dealt with later.

27.  On 27 March 2013, Mr. Ng signed a witness statement for these proceedings in essentially the same terms as the statement given to the Estate Agents Authority but he added that he had called Ms. Lee “to complain about Mr. Chua and ask him to cancel” the Second Agreement.  Mr. Ng said that Ms. Lee told him it could not be cancelled and that was the entire conversation between them, which ended very quickly.  He also said that the statement Ms. Lee provided to the Estate Agents Authority was a “concoction”.

28.  In his witness statement, Mr. Ng also added something further about Sally Lam’s telephone call to Ms. Mak, namely, that Sally Lam confirmed with Ms. Mak that the Defendant had not signed the formal sale and purchase agreement.  A further point Mr. Ng made was that nobody had told him previously that the First Agreement could not be rescinded and he did not understand the meaning of Clause 9.

29.  On 10 April 2013, after she had prepared her witness statement for these proceedings, dated 27 March 2013, Ms. Sun gave a second statement to the Estate Agents Authority in which she said that she called the solicitors to instruct them to handle the procedures regarding surrendering the deposit, in effect amending the first statement she gave to the Authority in which she had said that she called the solicitors to enquire as to whether the deposit could be surrendered.

30.  The Defendant called three witnesses at trial, Mr. Ng, Ms. Sun and Mdm. Lung.  The Plaintiff called two witnesses, Mr. Chua and Ms. Lee.  Save for Mdm. Lung, who gave oral evidence‑in‑chief in answer to a subpoena, the statements prepared for these proceedings stood as evidence-in-chief.

ISSUES

31.  The law is not in dispute and neither is the quantum of either the claim or counterclaim.

32.  The Plaintiff’s claim is one in contract based entirely on its right to enforce Clause 10a of the Second Agreement, the validity of which is not disputed.  It is not disputed that the Defendant defaulted on the Second Agreement in that it failed to complete the sale of the Workshop.  Prima facie, the Plaintiff is entitled to HK$156,450.

33.  The issues arising from the Defence and the Counterclaim identified by the parties’ respective counsel are:

(1)    Did Mr. Chua know about the First Agreement before Mr. Ng signed the Second Agreement?

(2)    Did Mr. Chua make the First and Second Representations in the form and at the times as pleaded?

34.  The Defendant’s counsel submitted in closing that, if I find that Mr. Chua knew about the First Agreement before Mr. Ng signed the Second Agreement but did not verify the content of the First Agreement, then he was in breach of his duty as an estate agent and it would not be necessary for me to decide whether he made the First or Second Representations.

35.  The Plaintiff’s counsel suggested that there was another issue, namely, whether Mr. Chua should have known of the existence of the First Agreement before Mr. Ng signed the Second Agreement but I do not have to decide this because the Defendant’s counsel made it clear in closing that he was relying on actual knowledge, i.e., Mr. Chua had been told about the First Agreement.

DISCUSSION

36.  The burden is on the Defendant to prove the issues set out in paragraph 33 above.  The Defence to the claim and the Counterclaim turn on the credibility of the witnesses.

37.  It is the Defendant’s case that Ms. Sun told Mr. Chua about the First Agreement and Mr. Chua made the First and Second Representations to Ms. Sun.  Hence, Ms. Sun is the Defendant’s primary witness.  Her evidence was corroborated by Mr. Ng’s statement that Ms. Sun told him about the representations. Mdm. Lung corroborates Ms. Sun’s and Mr. Ng’s version of what happened in the office after the Second Agreement had been signed and around the time when Mr. Chua was departing.

38.  I prefer Ms. Sun’s version of events to the version given by Mr. Chua.  In my view, it is only natural and more likely than not that, when Mr. Chua called her to tell her he had a prospective buyer, she told him that an agreement had already been signed to sell the Workshop. 

39.  In cross-examination, Mr. Chau agreed that the preliminary and provisional sale and purchase agreements of many estate agencies contained similar escape clauses. He also said that, if the escape clauses for both buyer and vendor have not been deleted and a formal sale and purchase agreement has not been signed, the deposit could be surrendered and the property resold.  Hence, when he was speaking with Ms. Sun, Mr. Chua knew that other agencies’ agreements had escape clauses and he knew that, if the clauses had not been deleted, the agreement could be rescinded with forfeiture of the deposit.  At the time he was speaking with Ms. Sun, Mr. Chua had not seen the First Agreement, but given that he wanted to introduce a client to the property and given his knowledge of other preliminary agreements and given his understanding of the position regarding recission, I consider that he remarked that the First Agreement could be rescinded. 

40.  I also consider that it was only natural and more likely than not that Ms. Sun would tell her boss, Mr. Ng, that Mr. Chua had a prospective buyer and what Mr. Chua had said to her.

41.  As to the Second Representation, this was made in the Plaintiff’s office and Ms. Sun had available with her the First Agreement.  Again, it was only natural and more likely than not that she would show it to Mr. Chua.  There is no evidence that Mr. Chua appeared to read the Second Agreement.  However, the Defendant’s counsel put to Mr. Chua that he was aware that, on the morning of 18 October 2011, Sally Lam had telephoned Ms. Mak to ask her if she had signed a formal sale and purchase agreement.  Mr. Chua denied this proposition.  Counsel then put to Mr. Chua that because in the afternoon of 18 October 2011 he knew that the formal sale and purchase agreement had not been signed, he approached the Defendant on behalf of Goldtop to have the Second Agreement signed.  Mr. Chua denied this proposition.

42.  In closing, the Defendant’s counsel submitted that Mr. Chua did not enquire or care about the content of the First Agreement because it was in his mind that the formal sale and purchase agreement had not been signed and so the First Agreement could be rescinded.  I am unable to make such a finding for the following reasons.  The submission relies on Ms.Chan’s statement, to which I attach no weight to her narrative.  Even if I did attach weight, there are still problems.  First, in her statement Ms. Chan states that Ms. Mak told Sally Lam that the sale and purchase agreement had been signed.  This does not provide a case for the proposition that Mr. Chua knew that the formal sale and purchase agreement had not been signed.  Second, Mr. Ng in his witness statement refers to Ms. Chan’s statement and later in his statement asserts that “Sally Lam even made a phone call to the buyer of the first provisional contract and confirmed that [the Defendant] had not signed the formal sale and purchase on the morning of the day when the [Second Agreement] was signed”.  In her statement, Ms. Chan does not say that Sally Lam confirmed that the Defendant had not signed the formal sale and purchase agreement but if Mr. Ng is relying on some other evidence he does not identify it in his witness statement.  Either Mr. Ng is wrong and his assertion must be rejected or, if he is relying on some other evidence, it is hearsay from an unidentified source and I give it no weight.

43.  Notwithstanding my rejection of the Defendant Counsel’s submission, I find that, when he was in the Plaintiff’s office on 18 October 2001, Mr. Chua had the purchaser’s signature on the Second Agreement and Goldtop’s cheque for the deposit.  I consider that Ms. Sun showed Mr. Chua the First Agreement but he did not take care to properly consider the First Agreement and, again, told Ms. Sun that it could be rescinded.  (In cross-examination, Mr. Chua agreed that a provisional sale and purchase agreement could be rescinded if the escape clause had not been deleted and prior to the execution of a formal sale and purchase agreement, indicating that he understood the effect of deletion.  Surely, if Mr. Chua had properly considered the First Agreement, he would not have said it could be rescinded.)  Again, it was only natural that Ms. Sun would pass this on to her boss, Mr. Ng.

44.  Regarding Ms. Lee’s evidence about the telephone conversation with Mr. Ng, I do not accept that Mr. Ng told her that Mr. Chua did not know about the First Agreement before the Second Agreement was signed.  First, this would be not be a logical thing for him to say in light of my findings that Ms. Sun told Mr. Chua about the First Agreement and Ms. Sun had relayed the Representations to Mr. Ng.  Second, Ms. Lee was in a management position in charge of a team of agents, including Mr. Chua; I consider that, when she provided her response to the Estate Agents Authority and her witness statement prior to her resignation from Midland, she was motivated to protect both her employer and Mr. Chua.

45.  Ms. Sun was asked in cross-examination why the First Representation, which was mentioned in the statement she gave to the Estate Agents Authority, dated 17 January 2012, and her witness statement prepared for these proceedings and dated 27 March 2013, was not mentioned in the Defendant’s complaint letter to the Plaintiff, dated 25 November 2011.  Solicitors drafted the complaint letter and Mr. Ng signed it.  She said she told the solicitor about the First Representation.  She said that the solicitor had told her that the main point was about showing the Second Agreement to Mr. Chua and she did not know why the solicitor did not include the First Representation.  When asked whether the solicitors passed the letter to her to confirm its content, she said that she could not quite remember.  In re-examination she said that she had read the letter before it was issued and requested that it be amended because the incident when Mr. Chau called her had not been mentioned.  She said that the solicitor simply replied that it was already stated in the letter.

46.  Ms. Sun’s explanation of the omission in cross-examination is plausible and I think it more likely that the solicitors included what they thought at the time was important rather than Ms. Sun forgot to tell them a fabricated story which she had told earlier to the Estate Agents Authority.  She was inconsistent in re-examination but that does not persuade me that she was lying about the fundamental case.

47.  A second inconsistency was dealt with in cross-examination of Ms. Sun.  In her statement to the Estate Agents Authority, dated 17 January 2012, she said that, when Mr. Ng met with Mr. Chua on 18 October 2011, she called the solicitors to “enquire” whether the First Agreement could be cancelled.  She signed this statement as being true, with all corrections, additions and deletions having been made.  However, as noted above, in her witness statement, dated 27 March 2013, Ms. Sun does not use the word “enquire”, she says that Mr. Ng gave her the “instruction” to inform the solicitor of the recission.  Mr. Ng, in his witness statement says that he told Ms. Sun to “instruct” the solicitors to proceed with the recission.

48.  As recorded above, on 10 April 2013, Ms. Sun gave a second statement to the Estate Agents Authority stating that she called the solicitors to “instruct” them to handle the recission.  That Ms. Sun had attended an interview to correct her original statement to the Estate Agents Authority was only revealed during cross-examination and the record of interview was only produced at the end of cross-examination.  Ms. Sun said that she had contacted the Estate Agents Authority shortly after the first interview in order to attend to correct the record and that it took the Authority almost 15 months to arrange another interview.

49.  The Plaintiff submits that, if Ms. Sun was making enquiries of the solicitors about recission, then the Defendant could not be relying upon the First or Second Representations and the second interview at the Estate Agents Authority was for the purpose of eliminating evidence which contradicted the Defendant’s case.

50.  It was put to Ms. Sun that when she used the word “enquire” in her first statement to Estate Agents Authority she was telling the truth but she had seen that Mr. Ng had used the word “instruct” in his statement to the Estate Agents Authority and, so, she needed to go back to correct her statement.  She disagreed.

51.  I consider it very unlikely that the Estate Agents Authority took 15 months to arrange an interview with Ms. Sun.  I consider it more likely that this was a clumsy attempt to conceal that arrangements to amend her statement to the Estate Agents Authority were made late.  However, that does not mean that I must reject her whole case.  A person may lie for many reasons.  A person may lie to bolster a true explanation, to protect somebody else or out of panic or confusion.  As Peter Smith J said in EPI Inc v Symphony PLC [2005] 1 WLR 3456 at 3471:

“Second, witnesses can regularly lie. However, lies themselves do not mean necessarily that the entirety of that witness’s evidence is rejected. A witness may lie in a stupid attempt to bolster a case, but the actual case nevertheless remains good irrespective of the lie.”

52.  I find Mr. Ng asked Ms. Sun to call the solicitors and to instruct them to handle the recission of the First Agreement.  Moreover, if Mr. Ng had asked Ms. Sun to inquire of the solicitors whether the First Agreement could be rescinded surely he would not have signed the Second Agreement before he had an answer.

53.  Counsel also cross-examined Mr. Ng on a number of inconsistencies.

54.  In his witness statement Mr. Ng did not say expressly that he complained to Ms. Lee about misrepresentation.  As I noted above, he said that he called to complain about Mr. Chua’s behaviour and to ask him to cancel the Second Agreement and that Ms. Lee’s response was that the Second Agreement could not be cancelled.  He asserted that that was the entire conversation and that Ms. Lee’s version was a concoction.

55.  In cross-examination Mr. Ng said that he called to complain to Ms. Lee that Mr. Chua had misled him into signing the Second Agreement.  He said also that Ms. Lee asked him whether he knew the First Agreement could not be rescinded and that he replied that he did not know.  He went on to tell Ms. Lee that, had he known the First Agreement could not be rescinded, he would not have signed the Second Agreement.  He said that Ms. Lee told him to pursue Centaline and that she could not help and hung up.  The call lasted about 10 minutes, he said.

56.  He said also that, from his recollection, he did not tell Ms. Lee that the Second Agreement could not be rescinded and yet, in his witness statement, he says that Ms. Lee told him it could not be rescinded.  This prompts the question, Plaintiff’s Counsel submits, as to how, on Mr. Ng’s version of the conversation, Ms. Lee could give such an answer if he had not told her about the contents of the Second Agreement.  However, in her witness statement Ms. Lee says that she checked with Mr. Chua who told her that, since the Second Agreement was a “must buy/must sell” agreement Mr. Ng’s request for recission could not be entertained, so she knew the nature of the Second Agreement from Mr. Chua.

57.  When asked why the version of the conversation, which he gave in cross-examination, did not appear in his witness statement, Mr. Ng replied only that someone had written it for him and he signed it and “it was not me who wrote it”.

58.  Mr. Ng’s witness statement does say that he called to complain.  In this regard, there is no fundamental inconsistency between his witness statement and his oral evidence; it is that details were given in oral evidence that did not appear in the statement.

59.  Four other matters, even when considered separately, also cause me to prefer the Defendant’s case:

(1)    Although Ms. Chan’s statement is hearsay and she did not give evidence and so I have not taken into account her narration of events, I do note from the fax machine imprint (24 October 2011) that it was a document prepared only several days after 18 October 2011 indicating that the Defendant was acting on its complaint early;

(2)    Only one week after 18 October 2011, in a letter, dated 25 October 2011, the Defendant’s solicitors advised Goldtop’s solicitors that estate agents had led the Defendant to believe that the First Agreement could be cancelled, which is consistent with the First and Second Representations;

(3)    The Defendant’s complaint letter, dated 25 November 2011, setting out the fundamental elements of the Defendant’s case, was prepared only five weeks after 18 October 2011 and sent very shortly after the Plaintiff had sent a payment reminder;

(4)    Mdm. Lung gave oral evidence along the lines of her statement given to the Estate Agents Authority.  I accept Mdm. Lung’s evidence.  She is a woman in her seventies who no longer works for the Defendant.  She was clear and direct and was firm under cross-examination.

60.  On the other hand, Mr. Chua has a position to protect and Ms. Lee gave her statements when she was still employed by the Plaintiff.  Ms. Lee had the reputation and position of the Plaintiff and her colleague to protect.

MISREPRESENTATION

61.  There was no dispute between the parties as to the law but nevertheless I shall set out the relevant principles.

Actionable misrepresentation

62.  Where one person makes a false representation to another with the object and result of inducing the representee to enter into a contract with him or her, the representee is generally entitled to rescind the contract.  (Halsbury’s Laws of Hong Kong (2^nd Ed.), Vol. 40, §275.001)

63.  Statements concerning the object or effect of a document or words in documents are statements of fact and, as such, are representations.  (Halsbury’s Laws of Hong Kong supra, §275.014)

64.  Statements concerning private rights, as distinct from the general law, are statements of fact (Cooper v Phibbs (1867) L.R. 2 H.L. 149).

Reliance

65.  The question is whether a person was induced by the representation and it is a question of fact to be asked in respect of the particular representee, as opposed to an objective reasonable bystander:  Master Yield Ltd v Ho Foon Yung Anesis & anor. [2013] 6 HKC 520 at para. 22.

66.  If a representation is such that it was likely that a person in the representee’s position would rely on it, a court may find it easier to believe the representee’s assertion that he did rely on it.  The materiality of the statement is evidence that goes towards establishing reliance:  Cartwright’s Misrepresentation, supra, §3-53.

67.  A misrepresentation is material if it is something that induces the person to whom it is made to contract on the terms on which he does contract: Museprime Properties Ltd v Adhill Properties Ltd (1990) 61 P & CR 111 at 124.  If a man has a material misstatement made to him which may, from its nature, induce him to enter into the contract, it is an inference that he was induced by it to enter into the contract: Cartwright’s Misrepresentation, supra, §3-53.

68.  The representation need not be the sole or predominant cause of entering into the contract.  As long as any one of the representee’s motives for entering into the contract is vitiated by the misinformation given by the other party, it is enough to undermine the whole transaction:  Cartwright’s Misrepresentation, supra, §3-54.

Conclusion on misrepresentation

69.  The First and Second Representations were clearly false statements of fact as to the effect of the First Agreement; the First Agreement did not contain an escape clause and, so, could not be rescinded.  The representations were also false statements of fact with respect to the Defendant’s private rights because the Defendant did not have a right to rescind.

70.  I accept Mr. Ng’s evidence that the Defendant relied on and was induced by Mr. Chua’s First Representation and permitted the purchaser to view the Workshop.  I accept Mr. Ng’s evidence that the Defendant relied upon and was induced by the Second Representation to enter into the Second Agreement.  Indeed, in cross-examination, Mr. Ng said that had he known the First Agreement was a “must buy/must sell agreement” he would not have sold the Workshop a second time.  I consider it likely that a person in Mr. Ng’s position would rely on such a representation made to him by a professional real estate agent.  One of the motives for entering into the Second Agreement was that the Defendant could rescind the First Agreement and this motive is vitiated by the misrepresentation.

71.  Although the Defendant had other means to investigate the truthfulness of the representations, for example, by seeking a solicitor’s advice, this does not affect its entitlement to rescind the agency agreement with Midland.

72.  Mr. Chua, a professional estate agent, was the Plaintiff’s employee and the Plaintiff is vicariously liable for his actions.

73.  For these reasons, the Defendant was entitled to rescind the agency agreement and the Plaintiff’s claim must be dismissed.

BREACH OF DUTY

Duty of care

74.  A professional agent who is engaged for reward, owes an implied duty to exercise reasonable care and skill on behalf of his client and the Defendant was the Plaintiff’s client.  (Chitty on Contracts, 4^th Edn, Hong Kong Specific Contracts, §1-100).  

The standard of care and skill

75.  In a case of negligence against a professionally qualified person, the court is usually entitled to take into account the standard to be observed by a person of ordinary competence within the same profession.  (Jopard Holdings Ltd v Ladefaith Ltd [2005] 1 HKLRD 317, at para.37).

76.  In Chiu Wai Ling v Chan Yau Chi [2002] 2 HKC 154, at para.31, in determining the scope of duty of an estate agent, District Judge Lok referred to the “Code of Ethics” issued by the Estate Agents Authority,paragraph 3.2.2 of which states that estate agents “should strive to provide services and opinions based on knowledge, training, qualifications and experience in the real estate business.” 

77.  The learned authors of Clerk & Lindsell on Torts, 21 Edn, §8-177 support Judge Lok’s approach, stating that codes of practice issued by professional or government bodies could be regarded as a good evidence in establishing what constitutes reasonable care.

78.  In Jopard Holdings Ltd, supra,a purchaser asked an estate agent whether there was anything unusual about the flat he was about to purchase and the agent replied that there was not anything unusual.  Subsequently, the purchaser discovered that the vendor’s son had committed suicide inside the flat.  Recorder B. Yu, SC held that although the estate agent had no knowledge of the suicide, he was negligent in giving a definite answer to the purchaser without having first checked the accuracy of his answer.

79.  In Shum Kong v Chui Ting Lin Teresa HCA 16227/1999, (unrep, 6 June 2001), per Deputy Judge Muttrie, an estate agent introduced to a purchaser a property which appeared to include a garden.  Upon the introduction by the estate agent, the purchaser executed the provisional sale and purchase agreement.  Subsequently, the purchaser discovered that the garden was not part of the property and sought rescission of the provisional agreement.  Deputy Judge Muttrie found that the vendor and estate agent were liable for misrepresentation by conduct.  Had the estate agent made reasonable inquiries, he would have noted, by conducting a simple land search, that the garden was not part of the property.

Conclusion on breach of duty

80.  The Defendant’s case is that Mr. Chua was in breach of duty as a professional estate agent; in particular: (1) he failed to make sufficient or proper enquiry to ascertain whether the First Agreement could be rescinded and the Property could be resold; and (2) he induced the Defendant to enter into the Second Agreement which could not be completed.

81.  I consider that a competent professional estate agent would understand that the effect of deleting the escape clause in a provisional sale and purchase agreement was that the agreement could not be rescinded; it became a “must buy/must sell” agreement.  In particular, in cross‑examination, both Ms. Lee and Mr. Chua agreed that a provisional sale and purchase agreement could be rescinded if the escape clause had not been deleted and prior to the execution of a formal sale and purchase agreement, indicating that they understood the effect of deletion.

82.  In my view, a professional estate agent with ordinary competence would not act as Mr. Chua did.  In particular:

(1)    At all material times, Mr. Chua knew about the First Agreement;

(2)    When Ms. Sun first told Mr. Chua that the Workshop had already been sold, she did not show Mr. Chua the First Agreement.  Nevertheless, no competent estate agent would say that the First Agreement could be rescinded without reading the same;

(3)    When Ms. Sun showed Mr. Chua the First Agreement in the Defendant’s office on 18 October 2011, Mr. Chua did not properly consider it before making the Second Representation.  A competent estate agent would take care to properly consider an agreement before pronouncing on its effect.

83.  By making false representations without verifying or making reasonable inquiries in relation to the accuracy of the representations, Mr. Chua was in breach of his duty as an estate agent to the Defendant.

Negligent misrepresentation

84.  The principles in relation to liability for negligent misrepresentation and economic loss are well established.  See:  Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 and Caparo Industries v Dickman [1990] 2 AC 605 at 638 (see the commentary notes at Chitty, supra, §6-086 – 6-087).

85.  In Hedley Byrne,the court held that if the representor knew or ought reasonably to have known that the representee would reasonably rely on the representation, a special relationship would exist between the parties which gave rise to a duty of care.

86.  Further, such a duty of care will arise if the representor knows that the representation will be communicated to a person who will rely on it specifically in connection with a particular transaction or a transaction of a particular kind (Caparo Industries).

87.  Mr. Chua knew or ought reasonably to have known that Ms. Sun, Mr. Ng’s employee, would pass the representations on to Mr. Ng and that Mr. Ng would rely on the First and Second Representations.  It was reasonable for Mr. Ng to rely on the Representations; in particular:

(1)    The Plaintiff is a leading estate agency in Hong Kong and Mr. Chua is a professional estate agent.  Thus, it was reasonable for Mr. Ng to rely on the professional services provided by the Plaintiff and Mr. Chua;

(2)    The solicitors acting for the Defendant in the sale and purchase were introduced by Ms. Chan of Centaline.  Prior to that introduction, neither Mr. Ng nor the Defendant was acquainted with the solicitors.  Save as to the preparation of the formal agreement, neither Mr. Ng nor the Defendant sought legal advice from the solicitors.  Accordingly, it was not unreasonable for Mr. Ng to rely on Mr. Chua;

(3)    Mr. Ng said that he did not understand the effect of the deletion of the escape clauses in the First Agreement; it was reasonable for Mr. Ng to rely on Mr. Chua’s representations.

88.  There existed a special relationship between the Plaintiff, through Mr. Chua, and the Defendant which gave rise to a duty of care such that Mr. Chua would verify the accuracy of his representations with reasonable care and skill, which duty he failed to discharge.

89.  I find that the Plaintiff, through Mr. Chua, was in breach of its duty owed to the Defendant and thus liable in damages for negligent misrepresentation.

Fraudulent misrepresentation

90.  The Defendant’s counsel opened on fraudulent misrepresentation but such was not pleaded.  In particular, no particulars of fraud were given, contrary to O.18, r.8 of the Rules of the High Court.  I do not allow this claim.

The Plaintiff’s claim

91.  An agent is not entitled to recover his remuneration if he was in breach of his duties as agent, such breach either going to the root of the contract or otherwise justifying the principal’s repudiation of liability to pay (Bowstead and Reynolds on Agency, 19^th Edn, §7-047, 7-049; see also Jopard Holdings Ltd, supra, at para.45).

92.  Mr. Chua’s breach justified repudiation and, as such, the Plaintiff is not entitled to the compensation or remuneration provided for under Clause 10a of the Second Agreement.

The Defendant’s counterclaim

93.  The Defendant counterclaims against the Plaintiff for loss and damage being the sum paid in settling the action brought against it by Goldtop.  If a claimant has been unsuccessful as defendant in another proceedings with a third party, the costs reasonably incurred and the damages paid to the third party are recoverable in the present action subject to the rules of remoteness (McGregor on Damages, 19^th Edn. §20-031 – 20‑033).

94.  In the present case, Mr. Ng relied upon and was induced by the First and Second Representations to sign the Second Agreement for and on behalf of the Defendant.  Therefore, the loss suffered by the Defendant in relation to the Goldtop Action was caused by Mr. Chua’s breach of his duty as estate agent.

95.  Moreover, it was reasonably foreseeable by Mr. Chua or the Plaintiff that Goldtop would sue the Defendant for non-performance of the Second Agreement.

96.  I find there is the necessary causal link between Mr. Chua’s and the Plaintiff’s breach and the loss suffered by the Defendant.  Accordingly, the Defendant is entitled to claim against the Plaintiff for damages being the sum so incurred in settling the Goldtop Action at common law.

97.  Alternatively, applying the principle set out in Hedley Byrne, supra, there was a special relationship between Mr. Chua and the Plaintiff on the one hand and the Defendant, which suffered financial loss through reliance upon the Representations, on the other, such that the Plaintiff is liable for the Defendant’s financial or economic loss.

98.  The Defendant claims the following arising out of settlement of the Goldtop Action:

Description	Amount
Settlement sum paid to Goldtop	HK$799,601.68
Goldtop’s legal fees	HK$283,000.00
Defendant’s legal fees	HK$635,033.00
Additional Expenses (DCCJ 3562/2012)	HK$14,400.00
Total:	HK$1,732,043.68

99.  I award the Defendant HK$1,732,043.68.

100.  I intend to award interest to the Defendant but I have not been addressed as to either the rate or period of interest.  I direct that the Defendant file written submissions on interest within seven days of the date of this judgment and the Plaintiff file a written reply within seven days thereafter.

101.  As the Defendant has been wholly successful in both its defence and counterclaim, I order that the Plaintiff pay the Defendant’s costs of this action, to be taxed or agreed.  This costs order is an order nisi, which shall become absolute 14 days from the date of this judgment, unless either party makes an application for variation.

102.  I thank both counsel for their assistance in this matter.