CHENG KWOK FAI v. MOK YIU WAH PETER AND ANOTHER

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HEADNOTE

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                When an agent acts in connection with the sale and purchase of property, by finding a purchaser for the vendor and a vendor for the purchaser, and, in response to an inquiry by the purchaser, the agent of his own initiative makes a misrepresentation about the property of which the vendor is innocent, the vendor will be treated as responsible for the misrepresentation only if in all the circumstances the vendor has held out the agent to the purchaser as his agent in that connection. An agent, as between himself and a third party, has only such authority as is actually conferred on him by his principal, or such authority as has ostensibly been conferred on him because of the manner or circumstances in which he has been held out as an agent.

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The plaintiff in these proceedings ("the purchaser") is the purchaser of a flat under an agreement in writing dated 22nd April 1989. The defendants ("the vendors") are the vendors under that agreement. The flat the subject of the agreement is a harbour view, 7th floor flat, in Braemar Terrace, North Point ("the flat"). The purchase price was HK$1,438,000.00. The deposit amounted to HK$143,800.00. The completion date was to be 19th June 1989.

2. However, on 12th June 1989, the purchaser, by his solicitors, purported to rescind the agreement on the ground of misrepresentation. The purchaser wants his deposit back and by way of damages he claims the return of the commission of 1% which he paid to Rich Reward Limited, trading as Estate Trust Property Consultants Company ("the agent") in connection with the transaction. He also claims interest on the deposit and commission.

3. The misrepresentation of which the purchaser complains is a misrepresentation as to the area of the flat. He says that the vendors and the agent represented to him that the area of the flat was 950 sq.ft., whereas in fact its true area was (as appeared at the trial) 855.69 aq. ft. He says that before he agreed to buy the flat, which had been advertised at HK$1,470,000, he had asked his bank if it would make him an advance to enable him to buy the flat. He says that the bank was prepared to make him an advance of 80% of the price of the flat given that (as he told the bank) the area of the flat was 950 sq.ft. He says that the bank told him, but only after he had agreed to buy the flat, that its area was in fact only 846 sq.ft. By then, it was after 4th June 1989; the market had fallen, and the bank was, in any case, unwilling to advance to him more than 70% of the then market price of the flat. This had resulted in the bank's refusal to advance him as much as he needed to complete his purchase. So he was unable to do so.

4. The vendors say that neither they nor the agent made any representation to the purchaser about the area of the flat; the purchaser agreed to buy the flat simply because he saw and liked it, and not because he was induced to do so by any representation by anyone as to the area of the flat. He is trying to get out of the agreement now they say, only because the market collapsed after 4th June 1989. The vendors counterclaim for appropriate relief, the detail of which I will deal with after I have given judgment in the action, if I decide the case in the vendors' favour.

5. That explains, briefly, what the case is about. I now set out the material facts (as I find them) on the basis of which I must decide it.

6. Braemar Terrace, of which the flat forms part, was developed by Tai Tin Tak Company Limited ("the developer") and completed in or about 1974. The developer's literature showed the area of the flat to be 846 sq.ft. The vendors (who are husband and wife) took an assigment of the flat on 2nd August 1986. They understood its area to be between 800 and 900 sq. ft.

7. In March 1989, they were minded to sell the flat. They instructed the agent in that connection. On 6th April 1989, the agent advertised the flat in a Chinese newspaper, at HK$1,470,000.00, as I have said. The area of the flat was stated, in the advertisement, to be 900 sq.ft.

8. The advertisement was noticed by the purchaser. He was looking for a flat of about 1,000 sq.ft. and was interested in one in Braemar Terrace. He telephoned the agent. He spoke to an employee of the agent, a Miss Chiu. He told her he was interested in a flat in Braemar Terrace. She agreed to arrange to take the purchaser to inspect the flat. She looked at the agent's own records about Braemar terrace. She discovered a sketch which contained a block plan, a layout plan of the flats and a box in which appeared, among other things, the following legend:-

"1-13/F 950 S.F."

9. She noticed the discrepancy between this legend and the advertisement. She raised the matter with her supervisor. She was told that some owners gave the areas of their flat as 900 sq.ft., others as 950 sq.ft.

10. She made an appointment with the vendors and took the purchaser to inspect the flat. The date of the inspection was 7th April 1989. The purchaser says that before the inspection Miss Chiu brought the sketch round to his office; but I prefer her evidence that she did not do so until after the inspection. It seems to me to be more probable than the purchaser's evidence that he asked for and she took him a plan of the flat even before he had inspected it. Further, while she accepted that her recollection of the matter generally was not very clear, she was firm about this point both in examination in chief and in cross-examination; and this gives, I think, additional weight to her evidence about it.

11. The purchaser and Miss Chiu were accompanied by a friend of the purchaser, one Thomas Cruz. (There may have been one other person, a lady, in their party. The vendors and Miss Chiu think so; but the purchaser and Mr Cruz do not. I find it unnecessary to decide who is right.) During the inspection, the husband did not make any representation to the purchaser or to Mr Cruz about the area of the flat. He denied having done so and I accept his denial. I reject the evidence of the purchaser and Mr Cruz that the husband told Mr Cruz that the area of the flat was 950 sq.ft. Neither of the vendors had seen the sketch at that stage and I am quite satisfied, that they knew no more about the area of the flat than that it was between 800 and 900 sq.ft. That the husband should, in these circumstances, have told Mr Cruz that the area was 950 sq. ft. seems to me, to say the very least, extremely improbable.

12. The purchaser decided he wanted to buy the flat. He asked Miss Chiu for a plan of the flat. She took to his office the sketch to which I have referred. He noticed the reference to the area, of 950 sq.ft. On this basis he approached the bank, whose reaction I have already described.

13. On 11th April 1989, the purchaser entered into a provisional sale and purchase. agreement with the vendors and the agent to buy the property for HK$1,438,000.00. The agreement' recited that the vendors had appointed the agent as their agent for the purpose of selling the flat and that the purchaser had appointed the agent as his agent for the purpose of procuring the purchase of the flat. The terms of the provisional sale and purchase agreement are otherwise immaterial.

14. On 22nd April 1989, the purchaser and the vendors entered into the written agreement of that date to which I have already referred ("the agreement").

15. The agreement contained the following Clause 20:-

16. The other terms of the agreement are immaterial.

17. On 6th June 1989, the purchaser got in touch with the bank again. He gave the bank the sketch. As I have already said, by now, the market had fallen, and the bank told him that it could not advance more than 70% of the purchase price. Moreover, the bank had in its possession the developer's literature which I have already mentioned and which-gave an area for the flat as 846 sq. ft. The bank informed the purchaser accordingly. It valued the flat on this basis at about HK$1,100,000.00 and it refused to advance to the purchaser more than 70% of this sum.

18. On 12th June 1989, the purchaser's solicitors wrote to Messrs Tai, Ho and Chan, the solicitors who had acted for both parties to the sale and purchase of the flat. The letter, after the caption, reads as follows:-

19. The allegation of fraud made in this letter was denied and was not repeated when the action was instituted. It had no foundation and no one has ever suggested that it had. It should never have been made. It is professional misconduct on the part of solicitors or counsel to make an allegation of fraud when there is no material before them to justify such an allegation. I hope I shall never see this done again.

20. The purchaser's case now is one of negligent misrepresentation. The vendors deny any misrepresentation, negligent or otherwise; if they are wrong, they say that the misrepresentation was not material, and also that the purchaser was not induced to enter into the transaction on the faith of any such misrepresenation. Finally, the vendors claim the benefit of Clause 20 of the agreement. (I should add that the purchaser also alleges that the flat was misdescribed in the agreement; but since in fact the agreement contains no reference whatever to the area of the flat the allegation is misconceived. The only written description of the flat as having an area of 950 sq.ft. is contained in the sketch, and the agreement contains nothing incorporating the sketch as part of the contractual description of the property. The suggestion that the sketch was somehow incorporated into the particulars of sale of the property contained in the contract is entirely without substance.)

21. Was any representation made to the purchaser to the effect that the area of the flat was 950 sq.ft.? In my judgment, there was; not by anybody at the inspection on 7th April 1989 but by the agent, when, at the request of the purchaser for a plan, the agent supplied him with the sketch, showing the area as 950 sq.ft. Was this material, and did it induce the purchaser to enter into the transaction? In my judgment, it was, and it did. I appreciate that the purchaser saw and liked the flat and wanted to buy it. I appreciate also that the area of a flat like this is not the only matter which affects its value and that matters such as the flat's state of decoration, its outlook. (harbour or mountain view) and its height (upper or lower floor) are all of material importance. But that is not to say that the area is of no material importance. On the contrary. The market takes considerable note of what is the going rate per square foot in placing an approximate price on a property. I accept the purchaser's evidence that he would not have agreed to buy the flat at the price he agreed to pay for it if he had known the area was only 846 sq.ft. and not (as he had been led to believe) 950 sq. ft. The reason why he would not have bought it is not because it would have been too small; his inspection of the flat, and his satisfaction with it, would certainly have precluded him from complaining of the misrepresentation on this ground. The reason why he would not have bought it is because the bank would not advance him as much to buy the flat, with its smaller area of 846 sq.ft., as it would have done if its area had been as stated, 950 sq.ft. I accept this. I appreciate that the bank would, in the end, probably have let the purchaser down anyway because of the fall in the market after 4th June 1989. If that had been so, that would have been a misfortune for which the purchaser would have had no remedy. But that is not the point. The point is that, in deciding to enter into the transaction, the purchaser was materially influenced by the favourable attitude of the bank adopted towards his proposal for a sufficiently large advance on a basis of the security of the flat to enable him to buy it; and this attitude was itself induced by the fact that the purchaser (relying on the sketch supplied to him by the agent which gave 950 sq.ft.  as the area) had submitted his proposal to the bank on that basis.

22. But was the misrepresentation made on the vendors' behalf? In my judgment, it was not. An agent in the property market in Hong Kong is not, as it seems to me, in quite the same position as an estate agent in England and Wales (as to this, in relation to misrepresentation by an estate agent, see Mullens v. Miller (1882)22 Ch.D. 194). An agent in Hong Kong acts as a broker, usually, though not always, taking "commission from both vendor and purchaser. No doubt, in some cases even in Hong Kong, a misrepresentation made by an agent to a purchaser will, on the facts, be held to have been made on the vendor's behalf. But I am now concerned only with the facts of the present case. Here, the vendors all along thought that the area of the flat was between 800 and 900 sq.ft. They had not given the agent any actual authority to represent to the purchaser that its area was 950 sq.ft. or to produce the sketch to him. Nor in my judgment, did they confer of the agent, merely by appointing it to act as their agent for the purpose of selling the flat, any apparent (or ostensible) authority to supply the purchaser with the sketch, not from any document given to the agent by the vendors, but from the agent's own records (on the question of the apparent or ostensible authority of an agent in England or Wales comparison may usefully be made with Overbrooke Estates Limited v. Glencombe Properties Limited [1974]1 WLR 1335). In my judgment, when the purchaser asked the agent for a plan and was supplied with one from the agent's own records, the agent was acting on behalf of the purchaser, not the vendors.

23. If I am right about this, the action must fail, the vendors not being responsible for the misrepresentation. But in case I am wrong, I will go on to consider the remaining possibilities.

24. If the misrepresentation was made on the vendors' behalf, are the vendors entitled to pray in aid Clause 20 of the agreement, which I have set out above? As a matter of construction the clause clearly precludes the purchaser from relying on the misrepresentation. But the clause is of no effect except to the extent that I am prepared to allow reliance on it as being fair and reasonable in all the circumstances of the case: see section 4 of the Misrepresentation Ordinance, Cap. 284.

25. Should I allow the vendors to rely on Clause 20? In my judgment, I should. I have found they did nothing to mislead the purchaser. He relied entirely on a sketch supplied to him by the agent whom both parties had instructed in the transaction. The exact area of the flat being, on his own case, of importance to him, he could and should either have arranged for the flat to be measured (in fact he did not do so until after the trial has started and then only after I had pointed out to counsel that there appeared to be no admissible evidence as to what the area of the flat actually was) or have insisted on having a statement as to the area of the flat incorporated into the contract. I see nothing unfair or unreasonable, in all the circumstances of this case, in allowing the vendors to rely on Clause 20.

26. Had I taken a different view, I would have declared that the purchaser was entitled to rescind the agreement and to the other relief which he claims as mentioned at the outset of this judgment. But as it is, I must dismiss the action. The counterclaim, in principle, succeeds.

27. I will hear counsel as to any question of costs or otherwise that may arise in consequence of this judgment, either now, or at a convenient date and time to be fixed through the usual channels.