LONG YEAR DEVELOPMENT LTD. AND OTHERS v. TSE FUK MAN, NORMAN AND OTHERS

HEADNOTE

Misrepresentation - whether fraudulent - whether belief and reasonable grounds of belief - Measure of damages under section 3(1) of the Misrepresentation Ordinance Cap.284, whether same measure as deceit - Damages recoverable under section 3(1) - Whether loss of profits recoverable.

1989, No.A3959

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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J U D G M E N T

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1. These proceedings concern the sale and purchase of the flat at 11th Floor Shiu Fai Terrace ("the flat") together with a car parking space.

2. By an agreement dated 5th May 1989, the Third Parties (whom I shall refer to individually as Mr. Tony Ho and Madam Chan) agreed to sell the flat with the car parking space to the Defendants (whom I shall refer to individually as "Mr. Tse" and "Madam Yu") for the price of $1.809 million. By a sub-sale agreement dated 25th May 1989, Mr. Tse and Madam Yu sub-sold to the Plaintiff (whom I shall refer to as "Long Year"). The block of flats is known as Kensington Court.

3. In both agreements, the flat and the car parking space agreed to be sold was described as follows:

"FIRST ALL THAT the ELEVENTH FLOOR of No.4C SHIU FAI TERRACE which said Flat for the purpose of identification only is more particularly shown and coloured Pink on the 11th Floor Plan annexed to an Assignment registered in the Land Office by Memorial No.3529755 ("the said Assignment") and thereon marked "4C" AND SECONDLY ALL THAT CAR PARKING SPACE NO.10 on the GROUND FLOOR of NOS.4B and 4C SHIU FAI TERRACE as shown and coloured Purple (Violet) on the Ground Floor Plan annexed to the said Assignment and thereon marked "10"."

The uncovered car park

4. The Assignment Memorial No.3529755 was an assignment dated 10th September 1987 by Lo Wai Ping in favour of Everheight Limited. That company is the Third Parties' predecessor in title. The position of car parking space No.10 was shown on the Ground Floor Plan annexed to that assignment. The evidence before me establish the following facts. Car parking space No.10 as shown on the Ground Floor Plan is an uncovered space. It is marked No.11 on the ground. It is next to the boundary wall of Kensington Court. On the other side of the wall is the neighbouring block of residential flats. By May 1989, there were two parallel uncovered car parking spaces at right angles to and in front of it. It was virtually impossible to park in it. In front of it were the two parallel spaces on which cars could be and were parked. Having regard to the position of pillars and other car parking spaces, it was virtually impossible to get into it from the back. In fact, what I have described is the current position except that the back of the space is now totally blocked by a concrete watchman hut which was constructed after May 1989. I shall refer to this space as "the uncovered car park".

The covered car park

5. The Ground Floor Plan annexed to Assignment Memorial No.3529755 shows that the space adjacent to car parking space No.10 is car parking space No.11. The evidence before me establish the following facts as regards car parking space No.11. It is a covered space. It is marked "No.10" on the ground. It is easy to get into and has a convenient location from the run-in from the entrance gate from Shiu Fai Terrace. This was the position in May 1989. It is the current position save that the front of the space is partially blocked by the concrete watchman hut which I have mentioned. I shall refer to it as "the covered car park".

6. It is clear from the evidence that the covered car park is a very good car park and that the uncovered car park is very poor and virtually useless.

7. In a nutshell, the nature of these proceedings is this. Mr. Tse and Madam Yu (the Defendants) allege that to induce them to purchase, Madam Chan on behalf of herself and Mr. Tony Ho (the Third Parties) misrepresented that the car park being sold was the covered one whereas in truth it was the uncovered one. The Defendants acting by Madam Yu made a similar representation to the Plaintiff to induce it to purchase. The truth was discovered prior to completion. The Defendants rescinded the purchase from the Third Parties and the Plaintiff rescinded its purchase from the Defendants. In this action, the Plaintiff claims against the Defendant who in turn claim against the Third Parties.

Compromise of main action

8. On the first day of the hearing, the Plaintiff and the Defendants compromised the main action. The terms are set out in a consent order I made on 3rd June 1991. It was ordered by consent that: (1) The sub-sale agreement be rescinded; (2) The Defendants repay the deposit of $286,200 in 4 instalments, the last of which would be on 31st July 1991; (3) the Defendants would pay to the Plaintiff agreed costs in the sum of $100,000; (4) The sum of $100,000 the Plaintiff had paid into Court as security of costs be released to the Plaintiff.

9. That left the Defendants' claim against the Third Parties. The Third Parties had retained solicitors and counsel who had settled the Defence to the Third Party Statement of Claim. But they had filed notices in May 1991 that they would act in person. The 1st Third Party (Mr. Tony Ho) was absent. The 2nd Third Party (Madam Chan) informed me that both of them were aware of the trial dates and that Mr. Tony Ho had gone on a business trip and told her to represent him at the hearing. In these circumstances, I proceeded with the trial. Madam Chan conducted the case in person. I gave her such assistance in as I properly could. I was conscious that I must not descend into the arena and that justice must be done and seen to be done to both parties.

Findings of fact

10. The evidence before me consisted of oral evidence and a bundle of documents the authenticity of which has not been disputed by the service of the appropriate notice under the Rules. I shall now proceed to find the facts which are material to these proceedings. I have already set out above my findings of fact on the covered and uncovered car parks.

The Defendants

11. Mr. Tse is in the trading business. He is a good friend of Madam Yu. They are business partners in property dealing and investment. Madam Yu is a divorcee. She works part-time in assisting clients in purchasing (and presumably selling) properties.

The Third Parties

12. Madam Chan had limited education. She only completed her primary education. After working for over 10 years in factories, she married her husband and became a housewife. Her husband has a younger sister. Mr. Tony Ho is her son. Madam Chan's husband works as a clerk in the office of Mr. Tony Ho, their nephew.

Original Purchase by the Third Parties

13. Madam Chan and her husband built up some savings. They considered that buying property is a good way of keeping the value of money. She purchased the premises at Kensington Court, together with Mr. Tony Ho. It is quite an old building. The occupation permit was issued in 1965. The purchase was made in June 1988. The assignment from Everheight Limited to them was dated 7th June 1988. The price was $1.27 million of which $400,000 was paid in cash. The balance was financed by bank mortgage. The purchase was subject to tenancy. The rent would pay for the mortgage instalments.

14. After purchasing, the rent was duly paid and discharged the mortgage instalments. Everything went smoothly.

15. A solicitor Leung Wai Kuen acted for both parties. He interpreted the assignment to Madam Chan and Mr. Tony Ho although Madam Chan did not pay too much attention as Mr. Tony Ho understands English.

16. Before purchasing, the Third Parties did not inspect the flat although Madam Chan and her daughter went up to look at the vicinity. After the assignment, Madam Chan, her husband and Mr. Tony Ho went to inspect the flat. They had arranged to wait for the tenant, a Japanese gentleman employed by Toyota, at the entrance. It was raining. They saw the tenant parking his car at the covered car park. From this, Madam Chan presumed that that is the car park which was assigned to them with the flat.

Instructions to Estate Agent

17. In about April 1989, the Japanese tenant was going back to Japan and gave notice under the break clause in the lease. The tenancy would terminate in July 1989. His Japanese successor did not want to live there. Madam Chan and Mr. Tony Ho agreed to sell the premises. Madam Chan would handle the sale for herself and Mr. Tony Ho. She would be fully responsible for dealing with the sale and had full authority to act on behalf of Mr. Tony Ho.

18. Madam Chan contacted a number of estate agents. One of them was Ong's Properties ("Ong's). Mr. Kenneth Leung Wai Man ("Mr. Leung"), Mr. Sin Chun Yeung ("Mr. Sin") who gave evidence for the Defendants and Mr. Suen were then all employees of Ong's. Madam Chan initially contacted Mr. Leung. Madam Chan instructed Ong's to act as estate agents to sell. This was a few weeks before 3rd May 1989.

19. When Madam Chan instructed Ong's, she informed them that the car park being sold with the flat is a covered one. As a matter of course, Ong's ascertained this from her, if she did not volunteer the information. This is because Shiu Fai Terrace is a good residential area. Most of the residents there would have cars. Only public light buses go up to Shiu Fai Terrace. For buses, one has to walk down to Stubbs Road to catch them. So, having a covered car park is of some importance to potential purchasers.

20. When Madam Chan informed Ong's that the car park is a covered one, she had in mind the covered car park. She did not know its number as shown in the title deeds or on the ground. She believed that this was her car park at that time and continued so to believe up to the time of the agreement and beyond until the problem arose.

21. As a result of discussions with Ong's, her initial asking price was about $2 million. The initial response from the market was lukewarm. Prior to 3rd May 1989, there was an offer at $1.88 million. Madam Chan wanted $1.95 million. By 3rd May 1989, Ong's had gained the impression from Madam Chan that the price was negotiable and that a price in the $1.88 to $1.9 million might be considered. She also led Ong's to believe that she needed money quickly and wanted to sell urgently.

3rd May 1989

22. In marketing the premises, Ong's advertised it in the Sing Tao Jih Pao, together with other premises they were selling. Madam Yu saw it on about 3rd May 1989. The asking price in the advertisement was $1.98 million. She was interested. She telephoned Ong's. She learnt either from the advertisement or from Ong's (if the advertisement did not expressly refer to it) that the flat would be sold with a covered carpark. An appointment was made by her with Ong's to view on 3rd May 1989. Mr. Sin of Ong's made this appointment with Madam Chan.

23. On 3rd May, Mr. Sin and Mr. Leung went to the flat. Madam Chan was there. At this time, although the Japanese tenant had returned to Japan, his Japanese successor was living there temporarily and had a part-time amah who was in the flat at the time. Madam Yu was supposed to but did not turn up. After looking at the flat, the three of them went to the car parking area. Madam Chan pointed to the covered car park and identified that as the car park being sold with the flat. She said that it is a good car park, easy to go in and come out. Mr. Sin noticed that it is marked No.10. She asked the estate agents to recommend the premises strongly. She indicated that she was prepared to accept a price in the range of $1.88 million to $1.9 million. She said that should be an attractive price to potential purchasers.

4th May 1989

24. Because Madam Yu did not keep the appointment for 3rd May, arrangements were made for another appointment to view on 4th May 1989. Madam Yu turned up. She was accompanied by a friend Mr. Warren Chan. They met Mr. Sin and Mr. Leung from Ong's at the entrance. The four of them went up to the flat. Madam Chan was already there. The amah was also in the flat. Madam Chan showed Madam Yu round the flat and was recommending it strongly. The party, the five of them, then went down to the car parking area. There, Madam Chan identified the covered car park as the one being sold with the flat and said it is a good car park. She said the price she was asking for the premises represented a good bargain. The parties then parted. Before leaving Kensington Court, Mr. Sin asked Madam Yu to make a counter-offer in response to the asking price. Madam Yu said the asking price was too high but she would consider at around $1.7 million.

25. There followed a number of telephone conversations between Mr. Sin and Madam Yu and also between Mr. Sin and Madam Chan. Mr. Sin was trying to bring the parties together. He asked Madam Chan to lower her price, emphasising the unfavourable points such as the poor internal condition and that it overlooked the cemetery at Happy Valley. On the other hand, he asked Madam Yu to increase her offer. As a result of these efforts, progress was made in the negotiations. Although no agreement was reached as to price, their respective positions were very close.

26. Late that night, Mr. Sin and his colleague Mr. Vic Suen met Madam Yu at the Asia Hotel. There they telephoned Madam Chan. She was asked to join them. She did. After further negotiations on the price, the parties agreed at $1.81 million. There and then, Mr. Sin drew up a provisional agreement and it was signed by Madam Chan and Madam Yu. This document was destroyed on 5th May 1991 in circumstances referred to later. We do not have a copy of it. It provided for the payment of an initial deposit of $20,000. By the time the provisional agreement was signed, it was past midnight. They had to go to the lobby to sign as the coffee shop was closing. The initial deposit of $20,000 was not paid that night. Madam Chan said she would report back to her co-owner. Mr. Warren Chan arrived as they were leaving. The parties arranged to meet the next day at the offices of Messrs. Au Yeung & Co., solicitors. Madam Chan suggested that firm. Mr. Po, a conveyancing clerk of that firm, had dealt with a conveyancing transaction for Madam Chan's mother.

5th May 1991

27. On 5th May, by the time Mr. Tse arrived at the offices of Messrs. Au Yeung & Co., Madam Yu was already there, as were Mr. Sin and Mr. Vic Suen of Ong's and Madam Chan. It was close to 5 p.m. At this stage, Mr. Tony Ho had not arrived. Madam Yu introduced Mr. Tse to Madam Chan as her co-purchaser. Mr. Tse had been informed by Madam Yu earlier that day about developments. Madam Chan asked them to pay a larger initial deposit, the sum payable on the signing of the provisional agreement. She claimed she was in urgent need of money as the reason for this request. This sum would be paid to her immediately whereas the balance of the deposit payable on signing would be paid to the solicitors and she would have to wait before it is paid over to her.

28. Although Madam Chan claimed that she was in urgent need of money (and as I have already found, she had led Ong's so to believe), there is no evidence whether she was in fact in urgent need of money.

29. Mr. Tse and Madam Yu agreed to increase the initial deposit to $140,000. In return, Madam Chan agreed to reduce the price by $1,000 to $1.809 million. This meant that a further sum of $40,900 would have to be paid to the solicitors by the purchasers on signing the formal agreement. The total amount of the deposit would be $180,900, 10% of the price of $1,809 million. After this agreement was reached, Mr. Sin made out another provisional agreement to set out the revised terms. It identified the flat and identified the car park as No.10. Madam Chan signed it, as did Mr. Tse and Madam Yu. Mr. Sin also signed it. Although it was envisaged that the parties would be signing the formal agreement later that day, Mr. Sin considered it necessary to have this provisional agreement signed since this provided for the obligation to pay commission to Ong's. It was signed and the discussions leading to it took place in the general office of Messrs. Au Yeung & Co. where there were sofas.

30. Earlier in the day, Madam Chan telephoned Mr. Po of Messrs. Au Yeung & Co. and informed him of the transaction and that the parties would attend at his office to sign the formal agreement later that day. In accordance with normal practice, Mr. Po caused a land office search of the premises to be made.

31. When Madam Chan, Madam Yu and Mr. Tse were at the offices of Messrs. Au Yeung & Co., Mr. Po's assistants obtained their personal particulars such as their address and their identity card numbers. They must also have given the revised terms to Mr. Po's assistants. The draft formal agreement was then finalised.

32. They (Madam Chan, Madam Yu and Mr. Tse) were then called into Mr. Po's room. Mr. Tony Ho had not arrived. In accordance with normal practice, Mr. Po checked the essential particulars with them; the address of the flat, together with car park No.10, the price, the amount of the deposit and the completion date. No queries were raised. They then waited for Mr. Tony Ho to arrive which he finally did, accompanied by Madam Chan's husband. Mr. Po then interpreted the draft formal agreement to them. He did so by summarising its various provisions. No queries were raised. The parties then signed. Mr. Po signed as witness. He also signed the interpretation clause. Everything went smoothly.

33. The formal agreement duly signed dated 5th May 1989 is before the Court. It provided for completion on 5th July 1989 with vacant possession. The price was $1,809 million of which $180,900 would be paid as deposit. Madam Chan and Mr. Tony Ho acknowledged in the agreement that this sum had been paid by two sums of $140,000 and $40,900. At the solicitors' office, Mr. Tse issued a cheque for $140,000 in favour of Madam Chan and Madam Yu issued a cheque for $40,900 in favour of Messrs. Au Yeung & Co. who paid this over to the Third Parties some days later.

34. Before the parties parted at the solicitors office, Mr. Tse and Madam Yu arranged to meet Madam Chan at the premises at noon the next day. This was to enable Mr. Tse who had not viewed the premises to have a look.

6th May 1989

35. On 6th May, Mr. Tse, Madam Yu went to Kensington Court. They met Madam Chan at the entrance. They went up to the flat. Mr. Tse looked round. They then went to view the car park. Madam Chan pointed to the covered car park. She asked Mr. Tse whether he drives. Mr. Tse replied that he does. Madam Chan then said he would know that it is a very good car park, easy to park and facing the front entrance to Kensington Court. Mr. Tse agreed. They then went to lunch at the Hoi Pah Seafood Restaurant. They were joined there by Mr. Sin. I find that he was not at the premises. I also find that Mr. Warren Chan was not present at the premises or the lunch. Mr. Tse said that he was satisfied with the flat and the car park. They talked about the property market generally.

Sub-sale to the Plaintiff

36. On 8th May 1991, Madam Yu went to Kensington Court with Mr. Wong Hon Yin of the Plaintiff who was interested in buying. Madam Yu pointed to the covered car park as the one being sold. They did not inspect the flat. Madam Yu had no access to the flat and Mr. Wong said he knew the partitioning in the flats at Kensington Court. He told Madam Yu that it is important for him to have a big car park. Mr. Wong relished telling the Court that he has a Rolls-Royce. On 9th May 1989, a provisional agreement was signed for the sub-sale of the flat and car park No.10 to Mr. Wong for $1,908 million. On 24th May 1989, the Defendants and the Plaintiff signed a formal agreement. The Plaintiff paid the sum of $187,200 to the Defendants as deposit and the sum of $99,000 as further deposit to the solicitors as stakeholders which would be released to the Defendants on completion. The amounts paid as deposit totalled $286,200. Completion would be on 5th July, the same completion date as that in the agreement between the Third Parties and the Defendants. Messrs. Au Yeung & Co. and Mr. Po of that firm also acted as solicitors for this transaction.

Subsequent events

37. The events of 4th June 1989 are well known. The property market was seriously affected by those events.

38. At the end of June, Mr. Wong telephoned Madam Yu to allege that he had been cheated as the car park that could be conveyed was not the covered car park.

39. Completion of both agreements did not take place on 5th July. By a letter of 10th July, the Defendants' solicitors (Messrs. Kevin Kwong & Co.) wrote to the Plaintiff's solicitors (Messrs. Chan & Wan) accepting the Plaintiff's repudiation and forfeiting all deposits paid by the Plaintiff. On 21st July 1989 the Plaintiff instituted this action. On 3rd August 1989, the Third Parties' solicitors (Messrs. C.C. Lee & Co.) wrote to the Defendants rescinding the agreement and forfeiting the deposit paid.

40. Both before and after this correspondence and the commencement of proceedings by the Plaintiff, there were a number of contacts and meetings between various persons. These included a meeting between Madam Yu, Madam Chan and Mr. Sin. contacts and meetings between Madam Yu and Madam Chan, an occasion when the two of them met Mr. Tse at his office, and an occasion when Mr. Wong met with Madam Yu and Madam Chan. The parties explored possible solutions to the problem such as the possibility of a reduction in the price. In my judgment, the details of what was said do not matter. No agreement was reached.

41. Mr. Ronald Tang, counsel for the Defendants, invited me to make a finding that Madam Chan made an admission against her interest on the occasion when she first met with Madam Yu and Mr. Sin after the problem arose. I find that at this meeting she did adopt a defiant "so what" attitude. But this is equivocal and could have been a defiant reaction in face of a problem from someone with rather limited education. I am not prepared to find that this amounted to an admission against her interest.

History of the covered and uncovered car parks

42. The parties were not aware of the history of the covered and the uncovered car park. Mr. Chan Siu Leun, the Chairman of the Incorporated Owners of Kensington Court, enlightened us about it. I accept his evidence. After it was built, Mrs. Law who was the developer (the proper spelling may be Mrs. Lo, as appears from the Land Office Search) owned and occupied both units on 11th Floor, Nos.4B and 4C and with these units, the covered and uncovered car parks. Criginally, no cars were parked on the space in front of the uncovered car park (the space where the two parallel uncovered car parking spaces now are). That space forms part of the common area. Because it was a difficult to park in the uncovered car park (even without any cars parked in front), she used the space in front of it to park her cars. So, she was using three car parks, the covered car park and the two parallel car parks in front of the uncovered car park. The Incorporated Owners complained to her and it was agreed that she would only use one of the two parallel car parks (the one near the pillar), leaving the other one for use as a guest car park. Subsequently, Mrs. Law who occupied both units on 11th Floor as one unit restored the partitioning between them and let out the two units. Later, she sold them. Her tenants and successors in title used the two car parks namely, the covered car park and one of the two parallel uncovered car parks. The uncovered car park was not used. The Incorporated Owners did not know which unit on 11th Floor used which one of those two. It was not aware that according to the title deeds, the covered car park should be marked No.11 and the uncovered one No.10 and that the markings on the ground were erroneous.

Credibility

43. It will be evident from the findings of fact I have made that in arriving at these findings, I have preferred the evidence of the Defendants and Mr. Sin and have rejected Madam Chan's evidence, where there is a conflict between them.

44. In assessing credibility, I have given all due allowance for the fact that she appeared in person and had limited education. I base my conclusion not only on their demeanour in the witness box but also on the inherent improbabilities of Madam Chan's story.

45. The story she gave the Court in her evidence in chief was that when she contacted Ong's, she informed them that she was not sure whether her car park was a covered or uncovered one. On 4th May 1989, after Madam Yu and Mr. Warren Chan had left, she informed Mr. Leung of Ong's at the car parking area in response to his question that she was not sure which was her car park. The caretaker Mr. Lau and his wife happened to be around and Madam Chan asked them in Mr. Leung's presence. The Laus had an argument. One of them said it was the covered one and the other said it was the uncovered one. Mr. Leung then tapped the covered one with his foot and said let it be this one. According to Madam Chan, that evening at the Asia Hotel, she made clear to those present that there was some confusion over the car park. She said her tenant parked at the covered car park but she did not know if that was the car park in the title deeds. She emphasised that she was selling the car park in the title deeds. Again, at the offices of Messrs. Au Yeung & Co. on 5th May 1989, according to her, she repeated this in the presence of Mr. Po to Madam Yu and Mr. Tse. On 6th May 1989, she again repeated this to Mr. Tse when he asked her where the confusion was about the car parks. Madam Chan's story is that when she raised the confusion about the car parks on the various occasions, nobody showed any concern or suggested that the matter be clarified. I find this story incredible. I do not believe that if she had raised the problem, the Defendants, Ong's and Mr. Po would have showed no concern at all. I find she never raised the problem and I reject her story.

46. Her story as to what transpired in Mr. Po's presence on 5th May 1989 was not supported by Mr. Po who was called to give evidence by Madam Chan. When Madam Chan put her story to him, Mr. Po said he could not remember whether it happened. In my judgment, it was a significant matter which Mr. Po would have remembered if it in fact occurred.

The Issues

47. I turn to consider the issues in the case.

Misrepresentation?

48. On my findings of fact, Madam Chan represented to the Defendants that the car park being sold with the flat was the covered one. She had full authority to deal with everything on behalf of Mr. Tony Ho. I hold that she so represented also on behalf of Mr. Tony Ho. In truth, the car park which the Third Parties were selling according to the title deeds was the uncovered one. The representation made by Madam Chan on her own behalf and on behalf of Mr. Tony Ho was a misrepresentation. It was made to induce the purchase by the Defendants.

Fraudulent Misrepresentation

49. Mr. Ronald Tang for the Defendants submitted that a case of deceit has been made out. He referred me to the classic test in Derry v. Peek as summarised in 1 Chitty on Contracts (26th ed.) para.431. Fraud is proved when it is shown that a false representation has been made (1) knowingly, or (2) without belief in its truth or (3) recklessly whether it is true or false. He suggested that the present case is one of recklessness.

50. I do not accept this submission. On my findings of fact, I have found that Madam Chan believed throughout that the covered car park was the car park belonging to the Third Parties. Whether she had reasonable grounds for this belief is another matter which I shall come to presently. As she so believed, recklessness is not made out. In my judgment, she was not guilty of fraudulent misrepresentation.

51. I have not overlooked Mr. Tang's submission that it is not open to me to find that she so believed. As this submission also relates to the claim under section 3(1) of the Misrepresentation Ordinance, I shall deal with it later.

Section 3(1) of the Misrepresentation Ordinance

52. This provides:

"Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently, unless he proves that he had reasonable grounds to believe and did believe up to the time the contract was made that the facts represented were true."

53. Under this provision, the Third Parties have to prove they had reasonable grounds to believe and did believe up to the time the contract was made that the covered car park was their car park. Since Madam Chan acted throughout with the full authority of Mr. Tony Ho, the question turns on whether she so believed and had reasonable grounds for doing so.

54. I have found that Madam Chan believed that the covered car park was her car park. Did she have reasonable grounds for that belief? In my judgment, she did not. Her belief was based simply on the observation that her tenant parked his car at the covered space on a single occasion, the occasion when she went to view after purchase. In my judgment, such a casual observation on one occasion on a matter which could easily be ascertained and verified from the title documents does not form a reasonable ground for her belief.

55. It follows that the Third Parties have failed to prove reasonable grounds for the belief. The requirements of section 3(1) are satisfied and the Third Parties are liable under it.

56. I shall now deal with Mr. Tang's submission that it is not open to me to find that Madam Chan had the belief. I shall do so briefly as I have held that the Third Parties are liable under section 3(1).

57. First, he submitted that this point is not open on the pleadings. I reject this submission. Paragraph 7 of the Third Party Statement of Claim (as amended before Mr. Tang closed his case) was denied. In my judgment, the denial that the Defendants are not entitled to any relief under section 3 contained an allegation that the Third Parties did believe and had reasonable grounds of belief.

58. Secondly, Mr. Tang submitted that even if the point were open on the pleadings, the Court could not find that she had the belief as (i) that would be inconsistent with her evidence that she had alerted all concerned to the confusion throughout and (ii) she did not give evidence of such belief. The story in her evidence in chief which I have already summarised was to the effect that she was unsure from the beginning and so informed Ong's and she alerted all concerned throughout. But in cross-examination, she admitted that she throughout believed that the covered car park was their car park until the conversation with the Laus. I have rejected her story. But I accept that part of her evidence given under cross-examination that she held that belief. According to her, that belief was broken by the conversation with the Laus. As I have rejected her story (including her telling Ong's in the beginning she was unsure and her conversation with the Laus), I find that her belief was not so broken and continued up to the time of the contract. Although this may be inconsistent with her story, in my judgment, I can so find, accepting part of her answers in cross-examination; that she had the belief (which I accept) up to the conversation with the Laus (which I reject).

Measure of damage under section 3(1)

59. Mr. Tang submitted that the measure is the same as deceit. He referred me to F & B Entertainment Ltd. v. Leisure Enterprises Ltd. (1976) E.G. 455 and Andre & Cie S.A. v. ETS. Michel Blanc & Fills (1977) 2 Lloyds 166.

60. In deceit, a plaintiff is entitled to recover any loss which flowed from the Defendant's fraud, even if the loss could not have been foreseen. See Doyle v. Olby (Ironmongers) Ltd. (1969) 2 Q.B. 158. It has been suggested that as section 3(1) introduces a fiction of fraud, the test for section 3(1) is the same as for deceit. But a number of textwriters have cast doubt on this.

61. I need not go in detail into the arguments and authorities for and against applying the deceit rule to section 3(1). The reason is that this point was recently decided authoritatively by the English Court of Appeal in Royscot Trust Ltd. v. Rogerson (1991) 3 W.L.R. 57. All the relevant authorities and textbooks were cited in the judgment of Balcombe L.J. After analysing the matter, Balcombe L.J. concluded at 64G:-

"With all respect to the various learned authors whose works I have cited above, it seems to me that to suggest that a different measure of damage applies to an action for innocent misrepresentation under the section than that which applies to an action for fraudulent misrepresentation (deceit) at common law is to ignore the plain words of the subsection and is inconsistent with the cases to which I have referred. In my judgment, therefore, the finance company is entitled to recover from the dealer all the losses which it suffered as a result of its entering into the agreements with the dealer and the customer, even if those losses were unforeseeable, provided that they were not otherwise too remote."

Ralph Gibson L.J. agreed with this conclusion. He said at 66F-G:-

"That [i.e. the Plaintiff being entitled to recover loss under the section as if the misrepresentation had been made fraudulently] seems to me to be the plain meaning of section 2 of the Act of 1967 [equivalent to section 3 in our Ordinance] as explained by Balcombe L.J. I find it impossible to attribute to Parliament the intention, by the use of the words in section 2(1), of causing the maker of such a representation to be liable as for a negligent statement. If that had been the intention I have no doubt whatever that apt words would have been used to express it."

62. In my judgment, that decision should be followed. First, I find the reasoning cogent and convincing. Secondly, the decision is highly persuasive as the legislative provisions are identical.

63. Accordingly, I hold that the measure of damages for section 3(1) is the same as that for deceit.

64. However, it is essential to remember that the measure of damage for deceit is the tortious measure. Damages are awarded on the basis that the plaintiff is to be put in the position he would have been in had the representation not been made. The measure of damages is not the contractual one of putting the innocent party in the same position he would have been in if the representation had been true. See 1 Chitty (26th ed.) para.436 and Clerk & Lindsell on Torts (16th ed.) para.18-40, Doyle v. Obly (Ironmongers) Ltd. and East v. Maurer (1991) 1 W.L.R. 461.

What damages are recoverable?

65. The Defendants claim against the third Parties for (1) the return of the deposit of $180,900 with interest; (2) the sum of $100,000 the Defendants had agreed to pay the Plaintiff as agreed costs and the Defendant's own costs in the main action; (3) their loss of profit on the resale amounting to $99,000. See prayer to the Amended Third Party Statement of Claim.

The deposit of $180,900

66. This item causes no difficulty. The Third Parties are liable for this sum as damages under section 3(1). If the misrepresentation had not been made, the Defendants would not have entered into the contract and would not have paid this sum.

The costs of the main action

67. In my judgment, the Defendants are entitled to recover from the Third Parties as damages under section 3(1), the sum of $100,000 agreed costs which the Defendants agreed to pay the Plaintiff under the consent order and the Defendants' own costs in the main action. The measure of damages under section 3(1) is the same as deceit. So, the Defendants are entitled to recover any loss which flowed from the Third Parties' misrepresentation, whether or not the loss could have been foreseen. These costs represent loss which flowed from the Third Parties' misrepresentation. If the misrepresentation had not been made, the Defendants would not have purchased. They would not have sub-sold and would not have been embroiled in proceedings with the Plaintiff.

68. When Balcombe L.J. referred in the passage I have quoted to the losses being recoverable "even if those losses were unforeseeable, provided they were not otherwise too remote" (my underlining), I understand that to mean remoteness for a reason apart from unforeseeability, for example, because the chain of causation was broken by a novus actus interveniens. See Clerk & Lindsell paras. 1-130 and 1-131 (the latter dealing with the various meanings of remoteness).

69. Here, there was no novus to break the chain of causation. I find that it is reasonable for the Defendants to have entered into the consent order at the commencement of the trial. See Clerk & Lindsell para.1-118. Although the Defendants in effect conceded the Plaintiff's claims, it was reasonable for them to do so at trial rather than before as they were in a difficult position in the middle of the sandwich.

70. If it were relevant to consider whether such loss was reasonably foreseeable by the Third Parties, in relation to novus or any question affecting the recoverability of this item, I would have held it was. In my judgment, it was reasonably foreseeable that the Defendants may resale, that in that event a similar misrepresentation would be made by the Defendants to the sub-purchaser and that as a result of which litigation may ensue.

Loss of profits of $99,000

71. Mr. Tang submitted that this item is recoverable but he did not elaborate his submission beyond pointing to the measure of damage in deceit.

72. In my judgment, it is not recoverable.

73. It is plain that on the measure of damage for deceit which I have held to be applicable to section 3(1), loss of bargain as such is not recoverable. See Clerk & Lindsell para.18-40 and East v. Maurer (1991) 1 W.L.R. 465. That is appropriate for the contractual measure but not the tortious measure.

74. It is clear from the recent decision of the English Court of Appeal in East v. Maurer that the only basis for recovering loss of profits as damage flowing from the misrepresentation is this. If the misrepresentation by the Third Parties had not been made, the Defendants would not have purchased this property. If there were evidence that the Defendants would have purchased another property for a similar sum and would have resold the same at a profit, then the loss of profit could be said to be a loss directly flowing from the misrepresentation. The loss would not be the loss of profit on the resale of this property to the Plaintiff but the profit the Defendants might have been made on a purchase and resale of a property bought for a similar sum i.e. a putative purchase and resale. Assessing this would be essentially a "jury question".

75. In the present case, there must be in my judgment be evidence that the Defendants would have purchased a property with a similar sum and resold it at a profit before the property market plummeted after 4th June before a loss of profit claim could be considered. Unless the purchase and resale were before that time, it is likely that no profits would have been made. There is no such evidence here.

76. Although there is evidence that the Defendants were in property dealing and investment and Madam Yu was looking for properties below $2 million, there is no evidence which would enable me to conclude that they would have purchased such a property, or that they would have resold it at a profit at all (rather than kept as an investment) or more importantly, that they would have resold it before 4th June. Accordingly, I dismiss the claim for the sum of $99,000.

Conclusion

77. Accordingly I make an order that 1st and 2nd Third Party pay the Defendants (1) The sum of $180,900 with interest at 1% over prime rate from the date of the third party notice. (2) The sum of $100,000 and the Defendants' own costs in the main action (These would be assessed by taxation).

78. In (1), I have taken the date of the third party notice as there is no evidence of any earlier demand.

Further, I make an order nisi for costs of the Third Party proceedings in favour of the Defendants.

79. The result would be disappointing to the Third Parties. I cannot express any view as to whether they have any claim against their predecessor in title. Madam Chan who conducted the case in person cut a sorry figure. I could understand the pressure she felt and I have some sympathy for her predicament. But after 11 days in Court, she should understand that my duty is to find the facts and apply the law as I understand it to the best of my ability.