GREATLAND PROPERTY CONSULTANTS LTD v. CHARIS PATRIA LTD

CACV 220/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 220 OF 2015

(ON APPEAL FROM DCCJ NO. 1444 & 1446 OF 2013 CONSOLIDATED)

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REASONS FOR JUDGMENT

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Hon Chu JA (giving the Reasons for Judgment of the Court):

Introduction

1.  This is the appeal of the two defendants in the consolidated action (collectively “the defendants”) against the judgment of Deputy District Judge Jason Wan (“the Judge”) given on 1 April 2015 ordering each of them to pay to the plaintiff $60,000 and dismissing their counterclaims with costs.  

2.  The plaintiff’s claim against each of the defendants in the consolidated action is for agreed damages pursuant to two provisional sale and purchase agreements entered into between the respective defendants as vendors and the plaintiff as the estate agent in procuring the sale of two properties. 

3.  The defendants defend the claim on the ground of fraudulent misrepresentation made by the plaintiff as to the identity of the purchaser, and breach of instruction and condition of the provisional sale and purchase agreements in respect of the identity of the purchaser.  The defendants further counterclaim for damages on account of misrepresentation, breach of agreement and breach of statutory duties under the Code of Ethics promulgated by the Estate Agents Authority. 

4.  The Judge held that the plaintiff had falsely represented to the defendants the identity of the purchaser, but the defendants had not acted in reliance of the misrepresentation in entering into the provisional sale and purchase agreements.  He therefore entered judgment for the plaintiff as claimed and dismissed the counterclaim. 

5.  Leave to appeal was given by this Court (Lam VP and Barma JA) on 15 September 2015.[1]

6.  At the hearing of the appeal, we allowed the appeal. We set aside the judgment, dismissed the plaintiff’s claim against the defendants and entered judgment for the defendants against the plaintiff on their counterclaim in the respective sum of $150,000 together with interest. We also ordered the plaintiff to pay the defendants the costs of the consolidated action below and of this appeal, to be taxed if not agreed.  Our reasons appear below.

Background facts

7.  No. 61 Wuhu Street, Kowloon (“the Building”) is a four-storey building.  It is divided into 5 shares.  The Ground Floor and Mezzanine Floor comprise 2/5th of the shares, and the 1^st to 3^rd floors each comprises 1/5th share.

8.  At the material time in 2010 and 2011, the ownership of the Building was as follows:

(1)  PCA Assets Management Limited (信誠資產管理有限公司, “PCA”) was the registered owner of the Ground Floor and Mezzanine Floor of the Building (collectively “G/F”);

(2)  Mr So Chi Hiu (“Mr So”) was the registered owner of the 1^st Floor (“1/F”).  He sold 1/F to PCA in June 2011;

(3)  The defendant in DCCJ 1444/2013 was the registered owner of the 2^nd Floor (“2/F”); and

(4)  The defendant in DCCJ 1446/2013 was the registered owner of the 3^rd Floor and Roof (collectively “3/F”).

9.  Accordingly, PCA held 2/5th (40%), and the defendants also held 2/5th (40%) of the shares in the Building.  If PCA could purchase 2/F and 3/F from the defendants, it would hold 80% of the shares in the Building, and in a position to apply for compulsory sale of the Building for redevelopment purposes under the Land (Compulsory Sale for Redevelopment) Ordinance, Cap. 545.

10.  The plaintiff is an estate agent.  At the material time, it was the tenant of PCA and carried on business at G/F.  Ms Lee Chui Wan (“Ms Lee”) was an employee of the plaintiff.

11.  The defendants were beneficially owned by the Chan family.  Madam Lau Choi Koc (“Madam Lau”), who is about 80 years old is the shareholder and director of both defendants.  Ms Chan Wan Ha Isabella (“Ms Chan”) is Madam Lau’s daughter, and the person responsible for giving instructions to Ms Lee in respect of the sale of 2/F and 3/F. 

12.  On 4 July 2011, Madam Lau on behalf of the defendants signed two provisional sale and purchase agreements (collectively “the Provisional Agreements”) to sell 2/F and 3/F at the price of $3 million each.  The purchaser was PCA.  The plaintiff was the estate agent for the transactions. 

13.  The signing took place at a coffee shop in a shopping mall in Tsing Yi.  Ms Lee was present.  Madam Lau was accompanied by Ms Chan.  Also present were two representatives from PCA, Mr Stephen Kwok (“Mr Kwok”) and Mr Lau Shing Ngon (“Mr Lau”).  Mr Lau signed the Provisional Agreements on PCA’s behalf. 

14.  In both Provisional Agreements, the name of the purchaser was written in Chinese, namely, 信誠資產管理有限公司.  Clause 8 of the Provisional Agreements provides that the plaintiff shall be entitled to receive $30,000 from the vendor and $30,000 from the purchaser as commission.  Clause 9a of the Provisional Agreement further provides that in the event either the vendor or purchaser fails to complete the sale and purchase, the defaulting party shall pay to the plaintiff $60,000 as agreed damages.

15.  In the morning of 5 July 2011, Ms Chan had a telephone conversation with Ms Lee about the identity of the purchaser, during which Ms Lee insisted that she did not know the purchaser was PCA until the arrival of Mr Lau.  However, in another telephone conversation on 7 July 2011 with Ms Chan, Ms Lee admitted that the details in the Provisional Agreements, including the name of the purchaser which was in Chinese, were already filled in before Ms Lee took them to the coffee shop for the parties to sign, and that she knew the Chinese name of the purchaser beforehand.  Both conversations were recorded and the transcripts were produced at the trial.

16.  The defendants wrote two letters to the plaintiff on 7 and 19 July 2011 complaining about Ms Lee’s failure to disclose the true identity of the purchaser.

17.  On 21 July 2011, the defendants rescinded the Provisional Agreements.  They refunded to PCA the initial deposits and further paid PCA two sums of $150,000 each by way of liquidated damages pursuant to the terms of the Provisional Agreement.

18.  Ms Chan further filed a complaint to the Estate Agents Authority against Ms Lee.  On 2 May 2013, the Disciplinary Committee of the Authority found Ms Lee guilty, upon her own plea, of two charges of breach of the Code of Ethics and one charge of breach of the Practice Regulation, and ordered her to be reprimanded and admonished, and her licence to be suspended for seven days.  Of particular relevance to these proceedings are the two charges for breach of the Code of Ethics.  The first is for concealing from the vendor the identity of the purchaser before arranging for the signing of the provisional sale and purchase agreements.  The other is for failing to ensure that the name of the representative signing the agreements on behalf of a limited company was legibly ascribed below the signature. 

The consolidated action

19.  On 20 April 2013, the plaintiff brought two actions in the District Court against the defendants claiming for agreed damages pursuant to clause 9a of the Provisional Agreements.  On 14 March 2014, they were ordered to be consolidated.

20.  The defendants’ case is that:

(1)  In March 2011, Ms Chan on behalf of the defendants instructed Ms Lee to approach PCA to enquire whether it was interested either to sell G/F or to buy 2/F and 3/F.  When Ms Lee later reverted that PCA was not interested in selling G/F, but was interested in knowing the defendant’s asking price for selling 2/F and 3/F, Ms Chan instructed Ms Lee to offer to sell the two properties at a total price of $8 million.  PCA, however, counter-offered to buy the two properties at $6 million, which was rejected by the Chan family.

(2)  In about early July 2011, Ms Lee informed Ms Chan there was an offer from a businessman from the Mainland to buy 2/F and 3/F at $6 million.  Ms Chan informed Ms Lee that the defendants would sell to the Mainland businessman.  She specifically instructed Ms Lee that the price of $6 million was only for a purchaser other than PCA, and that if it were PCA, they would ask for a price in the range of $7 million to $8 million (“Oral Instruction”).

(3)  Although Ms Chan had repeatedly asked about the identity of the purchaser, Ms Lee refused to disclose the name of the purchaser. She however repeatedly assured Ms Chan that the purchaser was a Mainland businessman and not PCA.

(4)  After Madam Lau had signed the Provisional Agreements in the late afternoon of 4 July 2011, Ms Chan discovered that PCA was the purchaser. Consequently, the defendants repudiated the Provisional Agreement and did not proceed with the sale.

(5)  Before putting up 2/F and 3/F for sale, the Chan Family had wanted to buy 1/F from Mr So, but without success.  Unknown to them, Mr So sold 1/F to PCA on 3 June 2011.  It is not disputed that the transaction was concluded through the plaintiff, acting as PCA’s agent.

21.  It is also the defendants’ case that because of the matters set out in paragraph 9 above, 2/F and 3/F are worth more to PCA than other prospective purchasers.  The defendants said this was the reason behind the Oral Instruction, and that the plaintiff and Ms Lee were at all material times fully aware of it.

22.  The defendants contended that Ms Lee and the plaintiff deliberately concealed from them the true identity of the prospective buyer by declining the defendants’ request to have sight of the drafts of the Provisional Agreements before signing, and by not ascribing legibly the name of the representative of the buyer signing the Provisional Agreements.          

23.  The plaintiff did not dispute that some months before the signing of the Provisional Agreements, Ms Chan had requested the plaintiff to make an offer to PCA to sell 2/F and 3/F at the total price of $8 million.  The plaintiff’s case is that Ms Lee had told Ms Chan a prospective purchaser had offered to buy at $6 million, which was the highest bid received.  The plaintiff accepted that Ms Chan did repeatedly ask for the identity of the prospective purchaser, and explained that Ms Lee did not disclose that the purchaser was PCA because the defendants had yet to sign the Form 3 to give confirmed instruction to the plaintiff to sell the properties.     

24.  The plaintiff denied that the defendants had given the Oral Instruction, or that Ms Lee had misrepresented the identity of the purchaser.  The plaintiff contended that the defendants knew before the signing of the Provisional Agreements that the purchaser was PCA.  It was said that Ms Chan had carefully read the contents of the Provisional Agreements, and inspected the company chop of PCA that appeared on the Provisional Agreements, and that both Ms Chan and Madam Lau were well aware that the purchaser was named “PCA Asset Management Limited”.    

25.  The plaintiff did not, however, challenge the defendants’ case that the Chan family had a reason for asking for a higher price from PCA, or that 2/F and 3/F are worth more to PCA than other prospective purchasers.

The Judge’s decision

26.  At the trial, both Ms Lee and Ms Chan gave evidence. The Judge was not totally impressed by their evidence.  He found neither had told the whole truth.  He rejected Ms Lee’s evidence that before 4 July 2011, she only knew the Chinese name of the purchaser (信誠公司) and did not know this was in fact PCA, and that it was at the time the Provisional Agreements were signed that she realized信誠公司 was PCA.  The Judge also did not accept Ms Chan’s evidence she did not see the name of PCA on the Agreements when Madam Lau signed them, and that at the time she had forgotten the name of the owner of the G/F.

27.  The Judge found as a matter of fact that:

(1)  Ms Lee knew all along that PCA was the purchaser and that PCA was the registered owner of the G/F.

(2)  Ms Chan had asked Ms Lee the identity of the purchaser. Instead of telling her it was PCA, Ms Lee told Ms Chan the purchaser was a Mainland businessman.

(3)  When Madam Lau signed the Agreements, Ms Chan had found out the name of the purchaser from reading the Agreements, and she knew it was PCA, the owner of the G/F. 

28.  On the facts as found, the Judge held that the plaintiff, through Ms Lee, had knowingly misrepresented the identity of the purchaser to Ms Chan.  The Judge, however, held that the defendants did not act in reliance of the misrepresentation because when the Provisional Agreements were signed, the defendants, through Ms Chan, already knew PCA was the purchaser, but nevertheless decided to proceed with the sale of the two properties.    

29.  On the basis that the defendants did not act in reliance of the plaintiff’s misrepresentation, the Judge dismissed the counterclaim based on misrepresentation.  For the same reasoning, he also dismissed the counterclaim based on breach of agreement and breach of statutory duty.

30.  The Judge held that the defendants were bound by the terms of the Provisional Agreements, and each of them was accordingly liable to pay to the plaintiff liquidated damages of $60,000.  The Judge therefore entered judgment for the plaintiff on the claims and dismissed the defendants’ counterclaims.   

Ground of appeal

31.  The thrust of the defendants’ appeal is directed at the Judge’s holding that they had not acted in reliance of the false representation in entering into the Provisional Agreements.  It is said that the reasoning underlying the conclusion is flawed in that:

(1)  The evidence did not support the Judge’s finding that before Madam Lau signed the provisional Agreements, Ms Chan already knew that the purchaser was PCA (Grounds (b), (c) and (d)).

(2)  The Judge’s finding that the defendants elected to proceed with the sale despite discovering the identity of the purchaser at the last minute, was contradictory to the Judge’s finding that the identity of the purchaser had all along been an important concern for the Chan family and Ms Chan, and was also inherently implausible (Ground (e)).

(3)  Even accepting that Ms Chan knew the purchaser was PCA before Madam Lau signed the Provisional Agreements, her knowledge could not be imputed to Madam Lau and the defendants since Madam Lau was the defendants’ sole shareholder and director and the only person having authority to sign and act on behalf of the defendants (Ground (a)).  

Appeal against finding of fact

32.  Mr Sze, who appeared for the plaintiff, rightly observed that the defendants’ appeal involved challenging the Judge’s finding of primary fact.  It is well settled that the defendants have to meet a high threshold.  It has to be demonstrated that, even though the Court of Appeal does not enjoy the advantages of the trial judge in receiving the evidence at first-hand, it is nevertheless satisfied that his conclusion on the facts is plainly wrong: Ting Kwok Keung v. Tam Dick Yuen & Others (2002) 5 HKCFAR 336.

33.  In the same judgment, Bokhary PJ offered three illustrations of circumstances that would justify the Court of Appeal in feeling satisfied that a trial judge’s decision on the facts is plainly wrong.  Two of the illustrations are of direct relevance to this appeal.  The first is where the finding is “in truth a finding without an evidential basis” (see Whitehouse v Jordan [1981] 1 WLR 246, at 260F).  The second is where the trial judge “had misdirected himself as to the effect of certain evidence which he understood to support his conclusion” (see Universal Dockyard Ltd v. Trinity General Insurance Co Ltd [1989] 2 HKLR 160, at 167I).  

34.  For reasons explained below, we have come to the conclusion that the Judge has misunderstood an important aspect of the evidence, and has also misdirected himself on the effect of the evidence before him, as a result of which his holding that the defendants had not acted in reliance on the plaintiff’s misrepresentation cannot stand.     

Ms Chan’s knowledge of the purchaser’s identity

35.  The central plank in the Judge’s reasoning for holding that there was no reliance by the defendants of the misrepresentation is his finding that before Madam Lau signed the Provisional Agreements, Ms Chan already knew that the purchaser was PCA, the owner of G/F.  The Judge’s reasons for this finding are set out in §§36 to 41 of the judgment as follows:

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

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

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

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

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

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

36.  In essence, the Judge considered that: (1) Ms Chan saw the company chop of PCA on the Provisional Agreements before Madam Lau signed on them; (2) Ms Chan had previously seen the land search record of G/F; (3) With her education and professional background, and the importance the Chan family attached to the identity of the purchaser, Ms Chan must have remembered the name of the G/F owner, and recognised from reading the Provisional Agreements that the purchaser was PCA; and (4) Ms Chan in fact admitted in her telephone conversation with Ms Lee on 5 July 2011 that when the purchaser’s representative arrived at the coffee shop, she realised the purchaser was PCA and the owner of G/F.   

37.  With respect, the Judge was mistaken about the evidence relating to when Ms Chan came to see and know the purchaser’s name from the Provisional Agreements.  Contrary to what was stated in §36 of his judgment, it is not Ms Chan’s evidence that before Madam Lau signed the Provisional Agreements, she already saw the purchaser’s company chop (which bore both the Chinese and English names of PCA) on the Provisional Agreements.  The sequence of events, according to Ms Chan’s unchallenged evidence at the trial, is this.  Ms Lee, Madam Lau and Ms Chan arrived at the coffee shop first.  The purchaser’s representative, Mr Kwok then arrived, followed later by the other representative, Mr Lau.  When Mr Lau had arrived, Ms Lee produced the Provisional Agreements for Madam Lau to sign.  After Madam Lau had finished signing, Mr Kwok stamped the Provisional Agreements with the purchaser’s company chop, and Mr Lau then signed on them (see Transcript pp.93N-O, 94A-K, 121H-I, 138M-P, 139F-G, 150U-V and 152E-F).  Accordingly, it was after, and not before, Madam Lau signed the Provisional Agreements that Ms Chan saw the purchaser’s company chop on them.

38.  The above mistake of the Judge is important as it bears directly on his finding on Ms Chan’s knowledge of the true identity of the purchaser before the defendants, acting through Madam Lau, entered into the Provisional Agreements.  It also impacts upon the issue of when Ms Chan knew the purchaser was by the name of “PCA”.  The uncontroverted evidence is that only the purchaser’s Chinese name was stated in the Provisional Agreements. Other than the company chop, the English name of the purchaser did not appear in any other part of the Provisional Agreements.  The first opportunity that Ms Chan could see from the Provisional Agreements that the purchaser’s English name was “PCA Assets Management Limited” or “PCA” is after the purchaser’s company chop was stamped on them.  By then, Madam Lau had already signed the Provisional Agreements.    

39.  The Judge’s failure to appreciate that Ms Chan only came to know that the purchaser was by the name of “PCA” after Madam Lau had signed the Provisional Agreements has led him to misunderstand what Ms Chan said in the telephone conversation on 5 July 2011 (at §41 of his judgment).  During the conversation, in the course of complaining that Ms Lee withheld from her the purchaser’s identity and refused to show her copies of the Provisional Agreements beforehand, Ms Chan said words to the effect that it was until the purchaser’s representative came that she saw the name “PCA”, and came to realise it was the G/F owner[2]. The Judge took this as Ms Chan’s admission that she already realised the purchaser was by the name of PCA and was the owner of G/F, when the purchaser’s representative arrived at the coffee shop, thereby confirming that before the Provisional Agreements were signed by Madam Lau, she already knew the purchaser was the owner of G/F.  

40.  However, what Ms Chan said to Ms Lee must be considered against the sequence of events as revealed by the evidence (see paragraph 37 above), and the undisputed evidence that Ms Chan did not have an opportunity to see the Provisional Agreements before Mr Lau arrived and Ms Lee produced the Provisional Agreements for Madam Lau to sign.  Viewed against these objective circumstances, Ms Chan could not have seen the name “PCA” on the Provisional Agreements and knew that the purchaser was by the name of “PCA”, upon the arrival of the purchaser’s representative at the coffee shop.  The Judge has therefore misdirected himself in finding Ms Chan admitted in this part of her conversation with Ms Lee that she already knew the purchaser’s name was “PCA” and the owner of G/F when the purchaser’s representative arrived at the coffee shop. 

41.  It would further appear that the error about when the purchaser’s company chop was stamped on the Provisional Agreements had also affected the Judge’s assessment of Ms Chan’s evidence.  The Judge did not believe that, despite having seen the land search record of G/F in February or March 2011, it did not come to Ms Chan’s mind that the purchaser was the G/F owner at the time Ms Lee produced the Provisional Agreements for Madam Lau to sign.  He was of the view that “PCA” was such a simple name that Ms Chan should not have difficulty remembering (see Transcript pp. 102V and 103O). With respect, whether the name “PCA” should ring a bell is an irrelevant consideration because by the time Ms Chan saw the name “PCA”, Madam Lau had already signed the Provisional Agreements.  In any event, Ms Chan’s evidence is that on seeing the name “PCA”, her suspicion was aroused.   

42.  We also find it difficult to understand the basis for the Judge’s rejection of Ms Chan’s explanation for not recalling the name of the owner of G/F.  Ms Chan’s evidence is that as a result of Ms Lee’s misrepresentation, she was led to believe the purchaser was a Mainland businessman, not the owner of G/F.  She explained because she trusted Ms Lee and had no cause to doubt her integrity, she had not made it a point to memorise the name of the owner of G/F; nor had she thought of bringing along the land search record of G/F (see Transcript pp. 104M-105J, 115G-L, 132S-U, 133N-P, 134O and 156N-U).  Objectively viewed, there is nothing inherently implausible in Ms Chan’s explanation.  But the Judge was very critical of her placing trust and confidence in Ms Lee.  From the questions he put to Ms Chan, which were neither prompted nor adopted by counsel, it would appear he considered one should not trust estate agents at all, and that because of her legal and education background, Ms Chan should not have trusted or relied on Ms Lee in the first place (see Transcript pp. 104K-P, 105G-H and 133A-P).  We do not consider this is a reasonable or fair approach to the assessment of the evidence.     

43.  In the light of the above discussions, the Judge’s finding that Ms Chan already knew that the purchaser was the owner of G/F before Madam Lau signed the Provisional Agreements on the defendants’ behalf is plainly wrong.       

The defendants’ election to proceed with the sale

44.  As to the Judge’s finding that the defendants elected to proceed with the sales despite discovering at the last minute that PCA was the purchaser, we agree that, having regard to all the circumstances of the case, this is a surprising conclusion. The unchallenged evidence is that the Chan family was throughout very concerned about the purchaser’s identity because they would ask for a higher price if the purchaser was the owner of G/F.  In the circumstances, how plausible would Ms Chan, without consulting her family members, decide to proceed with the sale if indeed she discovered at the last minute that, contrary to what Ms Lee had assured her, the purchaser was PCA, the owner of G/F?  In our view, this is a pertinent consideration that should be taken into account when assessing the evidence.  It does not, however, appear from the Judge’s reasoning that he had considered this issue of inherent probability when he concluded that the defendants had elected to go ahead with the sales, after knowing the true identity of the purchaser.        

45.  Mr Sze supported the Judge’s conclusion by arguing that the two properties were sold at market price, which was sufficient incentive to motivate the defendants to go ahead to sell despite knowing that the purchaser was PCA.  We reject this argument which is incompatible with the unchallenged evidence that the defendants would have asked for a higher price if the sale was to PCA, and that they had a reason for doing so.  In other words, the defendants would not regard $6 million as the fair market price if the sale was to PCA.  This is further supported by the undisputed evidence that the defendants later rescinded the Provisional Agreements and paid compensation to PCA.

Could Ms Chan’s knowledge be imputed to the defendants?

46.  The defendant also argued that, even if Ms Chan did know the purchaser was PCA before Madam Lau signed the Provisional Agreements, her knowledge cannot be imputed to the defendants because Madam Lau is the sole director and shareholder of both the defendants.  Mr Koo relied on Wells v. Smith [1914] 3 KB 722, at 725 and submitted that any imputed knowledge of Ms Chan or Madam Lau is not sufficient to nullify the effect of fraudulent misrepresentation.  Mr Sze, on the other hand, sought to distinguish the case on the facts, and further argued, on the basis of Strover v. Harrington [1988] Ch 390, at 407-409, that since the defendants authorised Ms Chan to receive all relevant information from Ms Lee relating to the sale of 2/F and 3/F, Ms Chan’s knowledge of the identity of the purchaser should be imputed to the defendants. 

47.  Given that we have held the Judge’s finding that Ms Chan knew the purchaser was PCA before Madam Lau signed the Provisional Agreements to be unsustainable, this argument does not arise for determination.

Conclusion

48.  For the reasons set out above, the Judge’s reasoning for finding the defendants had not acted in reliance of the plaintiff’s misrepresentation is flawed, and the finding cannot be supported. 

49.  It follows that the plaintiff is not entitled to its claim against the defendants, and the defendants’ counterclaims are made out.  We have accordingly allowed the appeal and made the orders set out in paragraph 6 above.